UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11166
AXA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3623351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, 10104
New York, New York (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code (212) 554-1234
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------------------------- ----------------------------------------
Common Stock, Par Value $.01 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 23, 2000, was approximately $6.11
billion.
As of March 23, 2000, 432,065,671 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Apart from information regarding executive officers set forth in Item 1A, the
information required to be furnished pursuant to Part III of this Form 10-K is
set forth in, and incorporated by reference from, the registrant's definitive
proxy statement for the annual meeting of stockholders to be held on May 17,
2000 to be filed by the registrant with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the year ended December
31, 1999.
<PAGE>
TABLE OF CONTENTS
Part I
Item 1. Business.............................................. 1-1
General............................................... 1-1
Financial Advisory/Insurance.......................... 1-2
Investment Banking and Brokerage...................... 1-6
Investment Management................................. 1-7
Discontinued Operations............................... 1-9
General Account Investment Portfolio.................. 1-10
Competition........................................... 1-13
Regulation............................................ 1-15
Principal Shareholder................................. 1-20
Item 1A. Executive Officers.................................... 1A-1
Item 2. Properties............................................ 2-1
Item 3. Legal Proceedings..................................... 3-1
Item 4. Submission of Matters to a Vote of Security Holders... 4-1
Part II
Item 5 Market for Registrant's Common Equity and Related 5-1
Stockholder Matters.................................
Item 6. Selected Consolidated Financial Information........... 6-1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 7-1
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk................................................ 7A-1
Item 8. Financial Statements and Supplementary Data........... FS-1
Item 9. Changes In and Disagreements With Accountants On
Accounting and Financial Disclosure................. 9-1
Part III
Item 10. Directors and Executive Officers of the Registrant.... 10-1
Item 11. Executive Compensation................................ 11-1
Item 12. Security Ownership of Certain Beneficial Owners and 12-1
Management............................................
Item 13. Certain Relationships and Related Transactions........ 13-1
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports 14-1
on Form 8-K...........................................
Signatures ...................................................... S-1
Index to
Exhibits ...................................................... E-1
<PAGE>
Part I, Item 1.
BUSINESS (1)
General. AXA Financial is a diversified financial services organization offering
a broad spectrum of financial advisory, insurance, investment banking and
brokerage and investment management services. It is one of the world's largest
asset managers, with total assets under management of approximately $462.7
billion at December 31, 1999. AXA Financial's financial advisory and insurance
business, conducted by AXA Advisors, AXA Network and Equitable Life and its
subsidiaries, including EOC, is reported in the Financial Advisory/Insurance
segment. AXA Financial's investment banking and brokerage business, conducted by
DLJ, is reported in the Investment Banking and Brokerage segment. The investment
management business conducted by Alliance is reported in the Investment
Management segment. For additional information on AXA Financial's business
segments, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") - Combined Operating Results by Segment" and
Notes 1 and 22 of Notes to Consolidated Financial Statements. Operating results
and segment information are presented on a basis which adjusts amounts as
reported in the GAAP financial statements to exclude non-DLJ investment
gains/losses, net of related DAC and other charges, and the effect of unusual or
non-recurring events and transactions. For additional information relating to
these adjustments, see "MD&A - Combined Operating Results". AXA, a French
holding company for an international group of insurance and related financial
services companies, is the Holding Company's majority shareholder. See
"Principal Shareholder".
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(1) As used in this Form 10-K, the term "AXA Financial" refers to AXA Financial,
Inc., a Delaware corporation (the "Holding Company") formerly known as The
Equitable Companies Incorporated, and its consolidated subsidiaries. The term
"Holding Company Group" refers collectively to the Holding Company, to its
non-operating subsidiaries, EQ Asset Trust 1993 (the "Trust") and The Equitable
Companies Incorporated Stock Trust (the "SECT") and to AXA Client Solutions,
LLC, a Delaware limited liability company ("AXA Client Solutions"). The term
"Financial Advisory/Insurance Group" refers collectively to The Equitable Life
Assurance Society of the United States ("Equitable Life"), a New York stock life
insurance corporation, to Equitable Life's wholly owned subsidiaries, The
Equitable of Colorado, Inc. ("EOC") and Equitable Distributors, Inc. ("EDI"), to
AXA Advisors, LLC, a Delaware limited liability company ("AXA Advisors"), and to
AXA Network, LLC, a Delaware limited liability company and its subsidiaries
(collectively "AXA Network"). The term "Insurance Group" refers collectively to
Equitable Life and certain of its subsidiaries engaged in insurance-related
businesses. The term "Investment Subsidiaries" refers collectively to AXA
Financial's majority owned subsidiaries, Alliance Capital Management L.P.
("Alliance"), a Delaware limited partnership, and Donaldson, Lufkin & Jenrette,
Inc. ("DLJ"), a Delaware corporation, and, prior to June 10, 1997, to Equitable
Life's wholly-owned subsidiary Equitable Real Estate Investment Management, Inc.
("EREIM") together with its affiliates Equitable Agri-Business, Inc. and EQ
Services, Inc. (collectively referred to herein as "Equitable Real Estate"), and
in each case their respective subsidiaries. The term "General Account" refers to
the assets held in the respective general accounts of Equitable Life and EOC and
all of the investment assets held in certain of Equitable Life's separate
accounts on which the Insurance Group bears the investment risk. The term
"Separate Accounts" refers to the Separate Account investment assets of
Equitable Life excluding the assets held in those separate accounts on which the
Insurance Group bears the investment risk. The term "General Account Investment
Assets" refers to assets held in the General Account associated with the
Insurance Group's continuing operations (which includes the Closed Block) and
does not include assets held in the General Account associated primarily with
the Insurance Group's discontinued Wind-Up Annuity and guaranteed interest
contract ("GIC") lines of business which are referred to herein as "Discontinued
Operations Investment Assets".
1-1
<PAGE>
Segment Information
Financial Advisory/Insurance
General. The Financial Advisory/Insurance Group offers a variety of traditional,
variable and interest-sensitive life insurance products, variable and
fixed-interest annuity products, mutual fund and other investment products and
asset management services to individuals, small groups, small and medium-size
businesses, state and local governments and not-for-profit organizations, as
well as financial planning services to individuals. It also administers
traditional participating group annuity contracts with conversion features,
generally for corporate qualified pension plans, and association plans which
provide full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate Accounts for
individual and group insurance and annuity products. The Financial
Advisory/Insurance segment accounted for approximately $4.14 billion or 31.0% of
consolidated revenue for the year ended December 31, 1999. Financial
Advisory/Insurance segment products are marketed on a retail basis in all 50
states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands by AXA
Advisors, a broker-dealer, and AXA Network, an insurance general agency through
more than 7,500 financial professionals. In addition, EDI, a broker-dealer
subsidiary of Equitable Life, distributes Equitable Life products on a wholesale
basis through major securities firms, other broker-dealers and banks.
Association plans are marketed directly to clients by the Insurance Group. As of
December 31, 1999, the Insurance Group had more than three million policy and
contractholders. Equitable Life, which was established in the State of New York
in 1859, is among the largest life insurance companies in the United States. For
additional information on this segment, see "MD&A - Combined Operating Results
by Segment - Financial Advisory/Insurance", Note 22 of Notes to Consolidated
Financial Statements, as well as "Employees and Agents", "Competition" and
"Regulation".
In late 1997, AXA Financial conducted a comprehensive review of its organization
and strategy and identified strategic initiatives with the goal of furthering
AXA Financial's evolution as a premier provider of financial advice and
planning, insurance, investment banking and brokerage and asset management
products and services. Through 1998 and 1999, AXA Financial continued its
efforts to refine and implement the strategic initiatives. In 1999, the Holding
Company changed its name to "AXA Financial, Inc." to better communicate the
broad range of products and services offered by its subsidiaries and to embody
the positive attributes of a global company with significant resources. AXA
Client Solutions was formed as a wholly owned direct subsidiary of the Holding
Company and the Holding Company contributed to it all of Equitable Life's stock,
making AXA Client Solutions the direct parent of Equitable Life. AXA Advisors,
the successor by merger to EQ Financial Consultants, Inc., was transferred by
Equitable Life to AXA Distribution Holding Corporation, a Delaware corporation
("AXA Distribution") and a wholly-owned direct subsidiary of AXA Client
Solutions. AXA Advisors, a significant new brand for AXA Financial, will focus
on the development and management of retail customer relationships with a
greater emphasis on advice and financial planning. AXA Network, successor to
EquiSource of New York, Inc. and its subsidiaries, was established as an
insurance general agency for the sale, on a retail basis, of insurance products
of Equitable Life and unaffiliated insurance companies. In first quarter 2000,
AXA Network was transferred to AXA Distribution. These steps are designed to
separate the manufacture of insurance and annuity products, which will continue
under the "Equitable" name, from the provision of financial advice and the
distribution of relationship-management products and services, which will be
undertaken by "AXA" named companies. For information about the Holding Company's
ability to use and sublicense the use of the name "AXA", see "Business -
Principal Shareholder - AXA Sublicense".
In 1999, the AXA Asset Account, an asset management account product, was
launched nationally. Also in 1999, AXA Advisors launched fee-based financial
planning services in a pilot program in Texas; these services will be introduced
throughout the United States in 2000 on a regional basis. AXA Financial is
making significant investments in technology to support these initiatives and to
better leverage and integrate the technology capabilities and business practices
of its separate subsidiaries. Also in 1999, we identified "advanced practice
models" in the areas of tax-qualified retirement planning, executive benefits,
and estate planning and began efforts to increase the number and productivity of
financial professionals specializing in these areas through dedicated resources
and support.
1-2
<PAGE>
In 1998, the agency management structure was reorganized from four divisions
grouped by agency size and market to 18 geographic regions with common staff and
systems infrastructures, improving sales and service support at the local level.
EDI expanded its wholesale distribution activities to include life insurance
products, in addition to the annuity products it continues to offer. A service
called "EQ Access" now permits customers to receive policy and account
information on-line.
Products and Services. The Insurance Group offers a portfolio of insurance,
annuity and investment products and services, including financial planning
services, designed to meet a broad range of its customers' needs throughout
their financial life-cycles. These products include individual variable and
interest-sensitive life insurance policies and variable annuity contracts, which
in 1999 accounted for 17.8% and 70.0%, respectively of total life insurance and
annuity sales. Both products provide a return that is linked to the performance
of underlying investment portfolios, as well various guaranteed interest
options. A wide range of portfolios is provided, so that customers can determine
their desired asset mix for funds underlying their policy or contract. As the
return on the underlying fund portfolios increases or decreases, the product's
cash surrender value may increase or decrease, and for variable life insurance
either the death benefit or the duration or the policy may vary. The Insurance
Group is among the country's leading issuers of variable life insurance and
variable annuity products.
Variable life insurance products include Incentive Life sm, Equitable Life's
flagship life insurance product, as well as a second to die policy, and a
product for the corporate owned life insurance ("COLI") market. Equitable Life
is currently developing a new generation of its modified single premium variable
life insurance policy for distribution primarily through wholesale channels.
Equitable Life also offers traditional whole life insurance, universal life
insurance and term life insurance policies. Variable life insurance and
universal life insurance provide policy owners with flexibility in the timing
and amount of premiums, provided there are sufficient policy funds to cover all
policy charges. Second to die policies provide a benefit upon the death of the
second of two covered lives and are frequently used for estate and tax planning
purposes. Traditional whole life insurance requires a fixed periodic premium and
has no variable investment options. Term insurance provides a pure death
benefit, and may be purchased on either a traditional increasing premium plan or
a level premium plan for a specified number of years. Life insurance policies
can be purchased for a range of customer uses, including protection of heirs,
cash value accumulation, funding of business buy-sell agreements, corporate
nonqualified deferred compensation arrangements, and estate and tax planning.
Variable annuity products include Equi-Vest(R) and Accumulatorsm, which are
individual variable deferred annuities, and the Momentumsm series of group
annuities for the employer retirement plan market. Individual deferred annuities
may be purchased on either asingle or flexible premium basis; group annuities
generally have recurring premium from the retirement plans they fund. Individual
variable annuities are designed for the non-qualified market, and are also
offered in forms that qualify for tax advantages under various sections of the
Code, such as individual retirement annuities (IRA) and tax sheltered annuities
(TSA). Most individual variable annuity products include some or all of
Equitable Life's special features, such as an extra-credit enhancement to the
account value created by the initial contract consideration, a dollar cost
averaging account that pays an increased rate of interest while new money is
being transferred into investment portfolios, an enhanced death benefit,
Equitable Life's baseBuilder(R) minimum guaranteed income benefit, and market
value adjusted (MVA) fixed interest investment options. Equitable Life also
offers individual single premium deferred annuities, which credit an initial and
subsequent annually declared interest rates, and offers payout annuities. The
family of payout annuity products includes traditional life annuities, variable
life annuities, which provide lifetime periodic payments that fluctuate with the
performance of underlying investment portfolios, and the Income Managersm, which
provides guaranteed lifetime payments with cash values during an initial period.
Prior to 1997, the Separate Account options under all of the variable life
insurance products and most of the variable annuity products issued by the
Insurance Group invested in portfolios of the Hudson River Trust ("HRT"), a
mutual fund which was managed by Alliance. To provide customers with additional
investment flexibility and choice, in 1997 the Insurance Group introduced EQ
Advisors Trust ("EQAT"), a mutual fund which offered variable life and annuity
contractholders investment portfolios advised by unaffiliated investment
advisors. In 1999, the Insurance Group combined HRT and EQAT through a
transaction known as substitution. At December 31, 1999, EQAT had 40 investment
portfolios, 25 of which were managed by Alliance, representing 85.1% of the
assets in EQAT, and 15 of which were managed by unaffiliated investment
advisors.
1-3
<PAGE>
The continued growth of Separate Account assets remains a strategic objective of
AXA Financial. Generally, with investment funds placed in the Separate Accounts
associated with variable products, the investment risk (and reward) is
transferred to policyholders while the Insurance Group earns fee income on
Separate Account assets. In addition, products funded by Separate Account
generally require less capital because they involve less risk to the Insurance
Group than traditional products. Over the past five years, Separate Account
assets for individual variable life and variable annuities have increased by
$34.74 billion to $44.36 billion at December 31, 1999, including approximately
$42.14 billion invested through EQAT.
The Financial Advisory/Insurance Group also offers an asset management account
and money management products. The AXA Asset Account is an asset management
account with a variety of related services including brokerage capabilities, a
debit card, check writing and a consolidated statement showing a client's
investments. The money management products include a mutual fund asset
allocation program that offers personal investment advice and related services
for an annual fee, and a wrap-fee program for high net worth clients that offers
individualized professional investment management services together with
transaction execution and clearance for a single annual fee.
The Personal Financial Plan(R), the new successor to the Financial Fitness
Profile(R), is an updated and expanded sales approach and software package that
forms the basis of financial planning services and is designed to make the
client's long-term financial needs the key ingredients of the advisory and
planning process. The Personal Financial Plan will be customized for use in
employer-sponsored planning, as well as for estate planning. Management believes
The Personal Financial Plan adds significant value to client service and
provides an excellent foundation for building long-term relationships with
customers by identifying the customer's financial goals in light of his or her
unique situation. This process follows the limited introduction in 1996 of a
program for qualified associates to offer fee-based financial plans, products
and seminars.
In addition to products issued by the Insurance Group, AXA Advisors and/or AXA
Network provide their financial professionals with access to products and
services from unaffiliated insurers and from other financial services firms,
including life, health and long-term care insurance products, annuity products
and investment products and services. In 1999, AXA Advisors and its predecessor
sold approximately $2.72 billion in mutual funds and other investment products.
From July 1, 1993 through January 1998, new disability income ("DI") policies
issued by Equitable Life were 80% reinsured through an arrangement with Paul
Revere Life Insurance Company ("Paul Revere"). Paul Revere manages claims
incurred under Equitable Life's DI policies. Equitable Life no longer
underwrites new DI policies.
For information relating to the unfavorable results of the DI business, and a
related DAC write-off and reserve strengthening in 1996, see Note 6 of Selected
Consolidated Financial Information. Based on experience that emerged on this
book of business since taking those actions, management continues to believe the
DI reserves have been calculated on a reasonable basis and are adequate.
Equitable Life is exploring its ability to dispose of the DI business through
reinsurance.
Markets. The Financial Advisory/Insurance Group's targeted customers include
affluent and emerging affluent individuals who are seeking financial planning
advice, such as professionals and owners of small businesses, as well as
employees of tax-exempt organizations and existing customers. For variable life,
the Insurance Group has targeted certain markets, particularly executive benefit
plans, the estate planning market and the market for business continuation needs
(e.g., the use of variable life insurance to fund buy/sell agreements and
similar arrangements), as well as the middle-to-upper income life protection
markets. The Insurance Group's target markets for variable annuities include, in
addition to the personal retirement savings market, the tax-exempt markets
(particularly retirement plans for educational and non-profit organizations),
corporate pension plans (particularly 401(k) defined contribution plans covering
25 to 3,000 employees) and the IRA retirement planning market. Equitable Life's
Income Manager series of annuity products includes products designed to address
the growing market of those at or near retirement who need to convert retirement
savings into retirement income.
Demographic studies suggest that, as the post-World War II "baby boom"
generation ages over the next decade, there will be a corresponding growth in
the number of individuals in the target market for the Insurance Group's
savings-oriented products. Studies also indicate that intergenerational wealth
transfers will be enormous, and that there will be a significant increase in the
number of households seeking advice related to financial, tax and estate
planning. In addition, the trend continues among U.S. employers away from
defined benefit plans (under which the employer makes the investment decisions)
toward employee-directed, defined contribution retirement and savings plans
(which allow employees to choose from a variety of investment options).
Management continuously reviews its range of financial products and planning
services to satisfy the needs of customers in these target markets.
1-4
<PAGE>
In 1999, the Insurance Group collected premiums and deposits from policy or
contractholders in all 50 states, the District of Columbia and Puerto Rico. For
the Insurance Group, the states of New York (13.09%), New Jersey (7.52%),
California (7.19%), Illinois (5.97%), Florida (5.64%), Michigan (5.48%) and
Pennsylvania (5.44%) contributed the greatest amounts of premiums (accounted for
on a statutory basis), and no other state represented more than 5% of the
Insurance Group's statutory premiums. Premiums from all non-U.S. citizens
represented less than 1% of the Insurance Group's 1999 aggregate statutory
premiums.
Distribution. Retail distribution of products and services is accomplished by
more than 7,500 financial professionals of AXA Advisors and/or AXA Network
(including approximately 375 individuals who are engaged in related professions,
in addition to offering Financial Advisory/Insurance Group products) organized
into 18 geographic regions across the United States. Wholesale distribution of
products is undertaken through EDI, which at year end 1999 had 404 selling
agreements, including arrangements with four major securities firms, 50 banks or
similar financial institutions, and 350 broker-dealers.
The following table summarizes product sales by distribution channel for the
years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Sales by Distribution Channel
(In Millions)
1999 1998 1997
------------------- ------------------- ---------------------
<S> <C> <C> <C>
Retail:
Total Insurance/Annuity................ $ 8,307.2 $ 7,717.7 $ 7,180.6
Total Mutual Funds/Investment
Products............................... 2,717.5 2,373.2 1,706.7
Wholesale - Total Channel................ 2,273.1 1,697.3 648.4
------------------- ------------------- ----------------------
Total Sales.............................. $ 13,297.8 $ 11,788.2 $ 9,535.7
=================== =================== ======================
</TABLE>
The Financial Advisory/Insurance Group provides its financial professionals with
training, marketing and sales support. In 1999, in connection with the launch of
the AXA Asset Account, new and enhanced investment products and financial
planning services, approximately 2,500 financial professionals received
significant additional training. Financial professionals were selected to
receive the additional training based on their attainment of (or commitment to
attain) required licenses (including NASD Series 7 and Series 65/66 securities
licenses) and their stated interest to offer the new products and services.
Nearly all of the Financial Advisory/Insurance Group's financial professionals
are licensed to sell variable insurance and annuity products as well as certain
investment products, including mutual funds. As of December 31, 1999,
approximately 2,500 of these financial professionals were licensed to sell
general securities. The Financial Advisory/Insurance Group leads the insurance
industry in the number of financial professionals and employees who hold both
the Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC)
designations, which are awarded by The American College, a professional
organization for insurance and financial planning professionals.
After an initial training period, sales associates are compensated by
commissions based on product sales levels and key profitability factors,
including persistency, and by fees for the sale of financial planning services.
In addition, the Financial Advisory/Insurance Group sponsors pension and other
benefit plans and sales incentive programs for its financial professionals to
focus their sales efforts on the Insurance Group's products. Beginning in 2000,
the Financial Advisory/Insurance Group will make available a new contract for
new financial professionals which will more directly align their compensation
with the goals of financial planning, asset gathering, and product sales.
To support the training of financial professionals and their sales of financial
planning services, the Advisor Support Group ("ASG") was developed. Based in
Alpharetta, Georgia, ASG consists of the Practice Development Center, the
national training center for financial professionals, the Financial Planning
Center, which assists financial professionals with the development and delivery
of financial plans and the Case Design Group, which provides technical resources
and sales support to financial professionals in connection with advanced
practice models and complex sales. In addition, Equitable Life has centralized
its life insurance processing and servicing functions in a new National
Operations Center in Charlotte, North Carolina.
1-5
<PAGE>
In its ongoing effort to enhance the quality of the Financial Advisory/Insurance
Group's sales force, during 1999 management continued to recruit professionals
from fields such as accounting, banking and law. Management believes the
knowledge and experience of these individuals will add significant value to
client service; that recruiting more experienced individuals has had a positive
impact on the retention and productivity rates of first year agents; and that
their professionalism constitutes a competitive advantage in the marketing of
the Insurance Group's sophisticated insurance products.
Equitable Life's Law Department maintains a Compliance Group staffed with
compliance professionals who, working together with attorneys and other
professionals in the Law Department, review and approve advertising and sales
literature prior to use by the Financial Advisory/Insurance Group and monitor
customer complaints. In 1998, Equitable Life became a member of a voluntary
market conduct compliance association. See "Regulation - Market Conduct".
Insurance Underwriting and Reinsurance. Underwriting rules and procedures
established by the Insurance Group's underwriting area are designed to produce
mortality results consistent with assumptions used in product pricing while
providing for competitive risk selection. The risk selection process is carried
out by underwriters who evaluate policy applications based on information
provided by the applicant and other sources. Specific tests, such as blood
analysis, are used to evaluate policy applications based on the size of the
policy, the age of the applicant and other factors.
In 1997, the Insurance Group put in place a program under which it cedes 90% of
mortality risk on substantially all new variable life, universal life and term
life policies. In addition, the Insurance Group generally limits risk retention
on new policies to a maximum of $5.0 million on single-life policies, and $15.0
million on second-to-die policies. Automatic reinsurance arrangements permit
policies to be written in a range from $25.0 to $50.0 million, depending upon
the product. A contingent liability exists with respect to reinsurance ceded
should the reinsurers be unable to meet their obligations. Therefore, the
Insurance Group carefully evaluates the financial condition of its reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies. The
Insurance Group is not party to any risk reinsurance arrangement with any
reinsurer pursuant to which the amount of reserves on reinsurance ceded to such
reinsurer equals more than 2% of the total policy life reserves of the Insurance
Group (including Separate Accounts).
The Insurance Group acts as a retrocessionaire by assuming life reinsurance from
reinsurers. Mortality risk through reinsurance assumed is limited to $5.0
million on single-life policies and on second-to-die policies. For additional
information on the Insurance Group's reinsurance agreements, see Note 13 of
Notes to Consolidated Financial Statements. The Insurance Group also assumes
annuity reinsurance and, by participating in various reinsurance pools,
accident, health, group long-term disability, aviation and space risks by
participating in various reinsurance pools, but has determined to stop assuming
new risks in these categories as existing agreements terminate.
Investment Banking and Brokerage
The Investment Banking and Brokerage segment, which includes DLJ, a leading
integrated investment and merchant bank, serves institutional, corporate,
governmental and individual clients both domestically and internationally. DLJ's
businesses include securities underwriting, sales and trading; merchant banking;
financial advisory services; investment research; venture capital; correspondent
brokerage services; securities lending; online interactive brokerage services;
and asset management and other advisory services. Investment Banking and
Brokerage revenues, which amounted to approximately $7.39 billion for the year
ended December 31, 1999, or 55.2% of AXA Financial's consolidated revenues,
consist primarily of commissions, underwriting spreads, fees on merger and
acquisition, private placement, asset management and other advisory services,
principal transactions (both trading and investment revenues) and other
(primarily dividends and miscellaneous transaction revenues). At December 31,
1999, AXA Financial owned approximately 70.3% of DLJ's common stock. Assuming
full vesting of restricted stock units and full exercise of all outstanding
options, AXA Financial would own approximately 56.1% of DLJ's common stock. See
"MD&A - Combined Operating Results by Segment - Investment Banking and
Brokerage". In 1999, DLJ issued a new class of DLJ common stock to track the
performance of DLJdirect, its online brokerage business selling shares
representing an approximately 18% interest in DLJdirect's financial performance.
DLJ conducts its business through four principal operating groups: the Banking
Group, the Equities Group, the Fixed Income Group, and the Financial Services
Group. DLJ's Banking Group (which includes Investment Banking, Merchant Banking
and the Sprout Group) is a major participant in the raising of capital for and
the providing of financial advice to companies throughout the United States and
in Europe, Asia and Latin America. Through Investment Banking, DLJ manages and
underwrites public offerings of securities, arranges private placements,
originates both investment and non-investment-grade debt, underwrites and
syndicates senior bank debt and provides advisory and other services in
connection with mergers, acquisitions, restructurings and other financial
transactions. Merchant Banking pursues direct investments in a variety of areas
through a number of investment vehicles funded with capital provided primarily
by institutional investors, DLJ and its employees. The Sprout Group is Wall
Street's oldest venture capital organization. In 1999, the Banking Group
expanded its capabilities in the utilities and technology industries.
1-6
<PAGE>
The Equities Group provides domestic and foreign institutional clients with
global research, trading and sales services in United States listed and
over-the-counter equities, and foreign equities trading in the United States,
Europe and Asia. A joint venture has also been established in Johannesburg,
South Africa. Autranet is one of the largest distributors of third-party
research and investment material. DLJ's Equity Derivatives Division provides a
broad range of equity and index option products.
The Fixed Income Group provides institutional clients with research, trading and
sales services for a broad range of fixed-income products, and distributes
fixed-income securities in connection with offerings underwritten by DLJ.
The Financial Services Group provides a broad array of services to individual
investors and the financial intermediaries that represent them. Pershing is a
leading provider of correspondent brokerage services, clearing transactions for
financial institutions which collectively maintain over 3.2 million active
customer accounts. Through its Asset Management Group, DLJ provides cash
management, investment advisory and trust services primarily to high-net-worth
individuals and families. DLJ's Investment Services Group provides access to
DLJ's equity and fixed-income research, trading services and underwriting to a
broad mix of private clients. DLJdirect is a leading provider of online discount
brokerage and related investment services, offering customers automated
securities order placement through the Internet and online service providers.
DLJdirect's broad range of investment services is targeted at self-directed,
sophisticated online investors.
DLJ's principal business activities, investment and merchant banking, securities
and trading and correspondent and online discount brokerage services, are, by
their nature, highly competitive and subject to general market conditions,
volatile trading markets and fluctuations in the volume of market activity.
Consequently, DLJ's net income and revenues have been, and are likely to
continue to be, subject to wide fluctuations reflecting the impact of many
factors beyond DLJ's control, including securities market conditions, the level
and volatility of interest rates, competitive conditions and the size and timing
of transactions.
In 1999, DLJ continued to make strides toward establishing a strong
international presence. DLJ opened investment banking offices in Frankfurt and
Taipei and an equity sales office was established in Singapore. Merchant Banking
expanded its international efforts, with investments in the United Kingdom,
Italy, France, Argentina and Brazil. For the years ended December 31, 1999 and
1998, total net revenues related to DLJ's foreign operations were approximately
$782.2 million and $389.7 million, respectively. At December 31, 1999 and 1998,
total foreign assets were approximately $10.9 billion and $8.6 billion,
respectively.
For additional information about DLJ, see "MD&A - Combined Operating Results by
Segment - Investment Banking and Brokerage" and DLJ's Annual Report on Form 10-K
for the year ended December 31, 1999.
Investment Management
General. The Investment Management segment, which includes Alliance, one of the
nation's largest investment advisors, provides diversified investment management
services to the Insurance Group and to a variety of institutional clients,
including corporate and public employee pension funds, endowments, foundations
and other domestic and foreign institutions, as well as to high net worth
individuals and, through various investment vehicles, to individual investors.
This segment includes institutional Separate Accounts ($10.09 billion at
December 31, 1999) which provide various investment options for large group
pension clients, primarily defined benefit contribution plans, through pooled or
single group accounts. Through June 10, 1997, the segment also includes the
results of ERE which provided real estate investment management services,
property management services, mortgage servicing and loan asset management and
agricultural investment management services. The Investment Management segment
in 1999 accounted for approximately $1.88 billion or 14.0% of consolidated
revenues. In recent years, rapid growth in sales of mutual funds by Alliance to
individuals and retail clients has augmented the traditional focus on
institutional markets. For additional information on Alliance, including its
results of operations, see "Regulation" and "MD&A - Combined Operating Results
by Segment - Investment Management".
As of December 31, 1999, Alliance had approximately $368.32 billion in assets
under management (including $301.37 billion for third party clients). Alliance's
assets under management at December 31, 1999 included approximately $198.88
billion from separately managed accounts for institutional investors and high
net worth individuals and approximately $169.44 billion from mutual fund
accounts. Alliance's greatest growth in recent years has been in products for
individual investors, primarily mutual funds, which generate relatively high
management and servicing fees as compared to fees charged to separately managed
accounts.
1-7
<PAGE>
Alliance's asset management business can be divided into separately managed
accounts and mutual funds management. Alliance's separately managed accounts
consist primarily of the active management of equity accounts, balanced (equity
and fixed income) accounts and fixed income accounts for institutional investors
and high net worth individuals. Alliance's mutual funds management services,
which developed as a diversification of its institutional investment management
business, consist of the management, distribution and servicing of mutual funds
and cash management products, including money market funds and deposit accounts.
Separately Managed Accounts - At December 31, 1999, separately managed accounts
represented approximately 54.0% of Alliance's total assets under management
while the fees earned from the management of those accounts represented
approximately 23.8% of Alliance's revenues for the year ended December 31, 1999.
In addition to the separately managed account business Alliance also provides
active management for international (non-United States) and global (including
United States) equity, balanced and fixed income portfolios, asset allocation
portfolios, venture capital portfolios, investment partnership portfolios known
as hedge funds and portfolios that invest in real estate investment trusts. In
addition, Alliance provides "passive" management services for equity, fixed
income and international accounts.
As of December 31, 1999, Alliance acted as investment manager for approximately
2,373 separately managed accounts (other than investment companies) which
include corporate employee benefit plans, public employee retirement systems,
endowments, foundations, foreign governments, multi-employer pension plans and
financial and other institutions and the General and certain of the Separate
Accounts of Equitable Life and its insurance company subsidiary. The General and
Separate Accounts of the Insurance Group are Alliance's largest institutional
clients. Alliance's separately managed accounts are managed pursuant to written
investment management agreements between the clients and Alliance, which are
usually terminable at any time or upon relatively short notice by either party.
Mutual Funds Management - Alliance also (i) manages assets in EQAT aggregating
approximately $36.3 billion at December 31, 1999, which includes assets formerly
held in HRT, a former funding vehicle for the individual variable life insurance
and annuity products offered by the Insurance Group and manages other funds
which serve as funding vehicles for variable annuity and variable life insurance
products offered by unaffiliated insurance companies; (ii) manages and sponsors
a broad range of open-end and closed-end mutual funds other than those available
through EQAT; (iii) provides cash management services (money market funds and
Federally insured deposit accounts) that are marketed to individual investors
through broker-dealers, banks, insurance companies, and other financial
intermediaries; (iv) manages and sponsors certain structured products and (v)
manages and sponsors certain hedge funds. The Alliance-managed assets described
in this paragraph amounted at December 31, 1999 to approximately $169.4 billion.
Revenues - Investment management revenues consist primarily of investment
advisory and service fees generally based on the value of assets under
management. Certain investment advisory agreements also provide for the payment
of performance fees when investment performance exceeds a contractual benchmark.
Fees charged vary with the type of account managed (mutual fund, institutional
separate account, individual managed account) and the nature of the assets being
managed (money market funds, equities, fixed income investments). The Investment
Management segment also generates distribution plan fees consisting of
reimbursement of mutual fund distribution expenses, and administrative and
transfer agency service fees provided to Alliance mutual funds and money market
funds. Other Investment Management revenues consist primarily of, commissions on
shares of mutual funds sold with conventional front-end sales charges, and
interest and dividends. In connection with the Reorganization described below,
Equitable Life agreed, subject to certain adjustments, to pay to Alliance asset
management fees of not less than $38 million annually through 2003 with respect
to specified General Account asset classes.
Reorganization - At a special meeting of unitholders held in September 1999, the
unitholders of Alliance Capital Management Holding L.P., formerly Alliance
Capital Management L.P. ("Alliance Holding"), approved both the transfer of
Alliance Holding's business to Alliance, a newly-formed private limited
partnership, in exchange for all units of Alliance (the "Reorganization") and
the amendment and restatement of Alliance Holding's partnership agreement. In
connection with the Reorganization, Alliance Holding offered to its unitholders
the opportunity to exchange Alliance Holding units for Alliance Capital units on
a one-for-one basis. In October 1999, Alliance Holding transferred its business,
assets and liabilities to Alliance pursuant to the Reorganization. At December
31, 1999, an Equitable Life subsidiary held 100,000 general partnership units of
Alliance Holding and a 1% general partnership interest in Alliance. Equitable
Life and its subsidiaries also held approximately 2% of the Alliance Holding
units, and 55% of the Alliance units. These combined holdings equal an
approximate 57% economic interest in Alliance's operations.
1-8
<PAGE>
As a result of the Reorganization, Alliance Holding's principal asset is its
economic interest in Alliance. Alliance Holding records its investment in
Alliance under the equity method of accounting based on its proportionate share
of net income of Alliance. At December 31, 1999, Alliance Holding owned
approximately 72.1 million units, or approximately 42% of the economic interests
in Alliance. As part of the Reorganization, Alliance Holding elected to retain
its partnership tax status and, therefore, is subject to an annual 3.5% Federal
tax on its proportionate share of the gross business income of Alliance.
Alliance, as a private partnership, is not subject to this 3.5% tax, which, in
1999 and 1998 reduced the Investment Management segment after-tax operating
earnings by approximately $19 million and $18 million, respectively. Alliance
Holding and Alliance are generally not subject to state and local income taxes,
with the exception of the New York City unincorporated business tax of 4%. On
December 30, 1997, Alliance Holding elected under Section 754 of the Code to
adjust the tax basis of its assets in connection with sales and exchanges of
Alliance Holding units in the secondary market after January 1, 1998. Purchasers
of Alliance Holding units on or after that date will be entitled to claim
deductions for their proportionate share of Alliance Holding's amortizable and
depreciable assets. The election had no direct effect on AXA Financial's
holdings of economic interests in Alliance nor on AXA Financial's ownership of
Alliance Holding units.
For additional information about Alliance, see "MD&A - Combined Results of
Operations by Segment - Investment Management" and Alliance's Annual Report on
Form 10-K for the year ended December 31, 1999.
Equitable Real Estate
On June 10, 1997, Equitable Life sold EREIM to Lend Lease Corporation Limited
("Lend Lease") and entered into long-term advisory agreements whereby
subsidiaries of Lend Lease continue to provide to Equitable Life's General
Account and Separate Accounts substantially the same services, for substantially
the same fees, as provided prior to the sale.
Assets Under Management and Fees
AXA Financial continues to pursue its strategy of increasing third party assets
under management. The Investment Banking and Brokerage and Investment Management
segments continue to add third party assets under management, and the Investment
Management segment provides asset management services to the Insurance Group. Of
the $462.67 billion of assets under management at December 31, 1999, $395.0
billion (or 78.9%) were managed for third parties, including $340.55 billion for
domestic and overseas investors, mutual funds, pension funds and endowment funds
and $54.4 billion for the Insurance Group's Separate Accounts, and $67.66
billion principally for the Insurance Group General Account and invested assets
of subsidiaries. Of the $1.56 billion of fees for assets under management
received for the year ended December 31, 1999, $1.51 billion were received from
third parties, including $1.41 billion from unaffiliated third parties and
$107.6 million in respect of Separate Accounts, and $43.7 million from the
Insurance Group. For additional information on fees and assets under management,
see "MD&A - Combined Operating Results by Segment - Fees and Assets Under
Management."
Discontinued Operations
In September 1991, Equitable Life discontinued the operations of the Wind-Up
Annuity and GIC lines of business, reflecting management's strategic decision to
focus its attention and capital on its core businesses. Discontinued operations
includes Wind-Up Annuity products, the terms of which were fixed at issue, which
were sold to corporate sponsors of terminating qualified defined benefit plans,
and GIC products pursuant to which Equitable Life is contractually obligated to
credit an interest rate which was set at the date of issue. These contracts have
fixed maturity dates on which funds are to be returned to the contractholder. At
December 31, 1999, $993.3 million of contractholder liabilities were
outstanding, substantially all of which were related to Wind-Up Annuities. For
additional information, see Note 8 of Notes to Consolidated Financial Statements
and "MD&A - Discontinued Operations".
1-9
<PAGE>
General Account Investment Portfolio
General. The Insurance Group's General Accounts consist of diversified portfolio
of investments. The General Account liabilities can be divided into two primary
types, participating and non-participating. For participating products, the
investment results of the underlying assets determine, to a large extent, the
return to the policyholder, and the Insurance Group's profits are earned from
investment management, mortality and other charges. For non-participating or
interest-sensitive products, the Insurance Group's profits are earned from a
positive spread between the investment return and the crediting or reserve
interest rate.
Although all the assets of the General Account of each insurer in the Insurance
Group support all of that insurer's liabilities, the Insurance Group has
developed an asset/liability management approach with separate investment
objectives for specific classes of product liabilities, such as insurance,
annuity and group pension. As part of this approach, the Insurance Group
develops investment guidelines for each product line which form the basis for
investment strategies to manage such product line's investment return and
liquidity requirements, consistent with management's overall investment
objectives for the General Account Investment Portfolio. Investments frequently
meet the investment objectives of more than one class of product liabilities;
each such class may be allocated a pro rata interest in such investments and the
returns therefrom.
The Closed Block assets and results are a part of continuing operations and have
been combined in the MD&A on a line-by-line basis with assets and results
outside of the Closed Block. Therefore, the Closed Block assets are included in
General Account Investment Assets discussed below. For further information on
these portfolios and on Discontinued Operations Investment Assets, see "MD&A -
Continuing Operations Investment Portfolio" and "Discontinued Operations". Most
individual investments in the portfolios of discontinued operations are also
included in General Account Investment Assets. For more information on the
Closed Block, see Notes 2 and 7 of Notes to Consolidated Financial Statements.
1-10
<PAGE>
The following table summarizes General Account Investment Assets by asset
category at December 31, 1999.
<TABLE>
<CAPTION>
General Account Investment Assets
Net Amortized Cost
(Dollars in Millions)
Amount % of Total
------------------ ------------------
<S> <C> <C>
Fixed maturities(1).................... $ 23,719.1 66.2%
Mortgages.............................. 4,974.2 13.9
Equity real estate..................... 1,251.2 3.5
Other equity investments............... 826.2 2.3
Policy loans........................... 3,851.2 10.7
Cash and short-term investments(2)..... 1,220.6 3.4
------------------ ------------------
Total................................ $ 35,842.5 100.0%
<FN>
(1) Excludes unrealized losses of $896.4 million on fixed maturities classified
as available for sale.
(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>
Investment Surveillance. As part of the Insurance Group's investment management
process, management, with the assistance of its investment advisors, constantly
monitors General Account investment performance. This internal review process
culminates with a quarterly review of certain assets by the Insurance Group's
Surveillance Committee which evaluates whether any investments are other than
temporarily impaired, whether specific investments should be classified as
problems, potential problems or restructures, and whether specific investments
should be put on an interest non-accrual basis.
Description of General Account Investment Assets. For portfolio management
purposes, General Account Investment Assets are divided into four major asset
categories: fixed maturities, mortgages, equity real estate and other equity
investments.
Fixed Maturities. As of December 31, 1999, the fixed maturities category was the
largest asset class of General Account Investment Assets with $23.72 billion in
net amortized cost or 66.2% of total General Account Investment Assets. The
fixed maturities category consists of both investment grade and below investment
grade public and private debt securities, as well as small amounts of redeemable
preferred stock. At December 31, 1999, 76.9% ($18.25 billion) of the amortized
cost of the asset category were publicly traded debt securities and 86.7%
($20.56 billion) were rated investment grade (National Association of Insurance
Commissioners ("NAIC") bond rating 1 or 2).
The following table summarizes fixed maturities by remaining average life as of
December 31, 1999.
<TABLE>
<CAPTION>
Fixed Maturity Investments By
Remaining Average Life
(In Millions)
Amortized Cost
----------------------------
<S> <C>
Due in one year or less........... $ 783.3
Due in years two through five..... 4,831.1
Due in years six through ten...... 8,948.6
Due after ten years(1)............ 4,009.7
Mortgage-backed securities........ 5,146.4
----------------------------
Total.......................... $ 23,719.1
============================
<FN>
(1) Includes redeemable preferred stock.
</FN>
</TABLE>
Investment grade fixed maturities (which include redeemable preferred stocks)
include the securities of 1,012 different issuers, with no individual issuer
representing more than 0.7% of investment grade fixed maturities as a whole. The
investment grade fixed maturities are also diversified by industry, with
investments in manufacturing (23.6%), banking (14.5%), finance (13.9%),
utilities (13.7%), and communications (8.6%) representing the five largest
allocations of investment grade fixed maturities at December 31, 1999. No other
industry represented more than 7.9% of the investment grade fixed maturities
portfolio at that date.
1-11
<PAGE>
Below investment grade fixed maturities (NAIC bond rating 3 through 6 and
redeemable preferred stocks) include the securities of over 403 different
issuers with no individual issuer representing more than 2.3% of below
investment grade fixed maturities as a whole. At December 31, 1999, the five
largest industries represented in these below investment grade fixed maturities
were manufacturing (46.1%), communications (8.7%), finance (7.8%),
agriculture/mining/construction (6.7%) and banking (6.6%). No other industry
represented more than 5.5% of this portfolio. The General Account portfolio also
has interests in below investment grade fixed maturities through equity
interests in a number of high yield funds. See "Other Equity Investments".
Investment losses on fixed maturities in 1999 were due to $226.5 million in
writedowns primarily on domestic and emerging market high-yield securities and
net losses of $68.4 million on sales.
For further information regarding fixed maturities, see "MD&A - Continuing
Operations Investment Portfolio Investment Results of General Account Investment
Assets - Fixed Maturities".
Mortgages. At December 31, 1999, measured by amortized cost, commercial
mortgages totaled $3.05 billion (60.9% of the amortized cost of the category),
agricultural loans were $1.96 billion (39.1%) and residential loans were $0.7
million (less than 0.1%).
Commercial mortgages, substantially all of which are made on a non-recourse
basis, consist of fixed interest rate first mortgages on completed properties.
There were no construction or land loans in the category. Valuation allowances
of $32.1 million were held against the portfolio. As of December 31, 1999, there
were 219 individual commercial mortgage loans collateralized by office buildings
(amortized cost of $1,534.2 million), retail properties ($784.1 million),
apartment buildings ($317.9 million), hotels ($278.4 million) and industrial
properties ($116.8 million).
The agricultural mortgage loans add diversity to the mortgage loan portfolio. As
of December 31, 1999, there were approximately 4,072 outstanding agricultural
mortgages with an aggregate amortized cost of $1.96 billion. As of December 31,
1999, 30.0%, 22.7%, 20.0% and 13.1% of these assets were collateralized by land
used for grain crops, fruit/vine/timber, general farm purposes and ranch and
livestock, respectively, and no other land use category collateralized more than
14.2% of these loans. Of the properties collateralizing these loans, 27.4% were
located in California and no more than 8.5% are located in any other single
state.
For information regarding the mortgage portfolio, see "MD&A - Continuing
Operations Investment Portfolio - General Account Investment Portfolio -
Investment Results of General Account Investment Assets - Mortgages".
Equity Real Estate. The $1.40 billion amortized cost of equity real estate
consists of office ($806.6 million), retail ($202.4 million), land and other
($193.9 million) and no other category comprised more than 5.5% of the
portfolio. Valuation allowances of $145.8 million were held against the
portfolio at December 31, 1999. Office properties are primarily significant
downtown buildings in major cities. Measured by amortized cost, 47.5%, 19.8%,
and 8.2% of these properties are located in New York, Ohio and Illinois,
respectively, and no more than 7.1% were located in any other state.
In January 1998, management announced a program to sell a significant portion of
its equity real estate portfolio. For 1999 and 1998, proceeds from the sale of
equity real estate for continuing operations totaled $576.6 million and $1.05
billion, respectively. At December 31, 1999, the remaining held for sale equity
real estate portfolio's depreciated cost for continuing and discontinued
operations totaled $769.7 million, excluding related valuation allowances of
$200.6 million. For additional information regarding the equity real estate
portfolio and the impact of the equity real estate sales program on Equitable
Life's results of operations, see "MD&A-Combined Operating Results" and
"Continuing Operations Investment Portfolio - Investment Results of General
Account Investment Assets - Equity Real Estate" and "- Discontinued Operations".
Other Equity Investments. Other equity investments consist of LBO, mezzanine,
venture capital and other limited partnership interests, alternative limited
partnerships and common stock and other equity securities. Alternative funds
utilize trading strategies that may be leveraged, and attempt to protect against
market risk through a variety of methods, including short sales, financial
futures, options and other derivative instruments. Returns on equity investments
are very volatile and investment results for any period are not representative
of any other period. The excess of Separate Accounts assets over Separate
Accounts liabilities at December 31, 1999 of $118.7 million represented an
investment by the General Account principally in equity securities. See "MD&A
- -Continuing Operations Investment Portfolio - Investment Results of General
Account Investment Assets - Other Equity Investments".
1-12
<PAGE>
Commencing in third quarter 1998, in response to a perceived increase in the
price volatility of publicly-traded equity markets, AXA Financial began to
reduce its holdings of common stock investments. Effective January 1, 1999, AXA
Financial designated all investments in publicly-traded common equity securities
in the General Account and Holding Company Group portfolios as "trading
securities" for the purpose of classification under SFAS No. 115 and all
subsequent changes in the investments' fair value have been reported through
earnings. These investments are actively managed to control risk and generate
investment returns.
Holding Company Group
At December 31, 1999, the Holding Company Group held investments with a carrying
value of $542.0 million, made up of fixed maturities ($369.7 million or 68.2%),
cash and short-term securities ($170.0 million or 31.4%) and other equity
investments ($2.3 million or 0.4`%). For additional information, see "MD&A -
Liquidity and Capital Resources - The Holding Company" and "- Quantitative and
Qualitative Disclosures about Market Risk".
Employees and Agents
As of December 31, 1999, AXA Financial had approximately 17,600 employees. Of
these, approximately 5,000 were employed by the Financial Advisory/Insurance
Group and approximately 12,600 were employed by the Investment Subsidiaries. In
addition, the Financial Advisory/Insurance Group had more than 7,500 financial
professionals. Management believes relations with employees and financial
professionals are good.
Competition
Financial Advisory/Insurance. There is strong competition among companies
seeking clients for the types of insurance, annuity and group pension products
sold by, and financial services provided by, the Financial Advisory/Insurance
Group. Many other insurance companies offer one or more products similar to
those offered by the Insurance Group and in some cases through similar marketing
techniques. Several of the Financial Advisory/Insurance Group's principal
competitors have announced their intention to demutualize by year-end 2000,
giving them increased access to capital and other advantages of being publicly
traded companies. In addition, the Insurance Group competes with banks and other
financial institutions for sales of annuity products and, to a lesser extent,
life insurance products and with mutual funds, investment advisers and other
financial entities for the investment of savings dollars. The recent enactment
of the Gramm-Leach-Bliley Act may increase competition by permitting new
entrants into the insurance business.
The principal competitive factors affecting the Insurance Group's business are
price, financial and claims-paying ratings, size, strength and professionalism
of the sales force, range of product lines, product quality, reputation and
visibility in the marketplace, quality of service and, with respect to variable
insurance and annuity products, investment management performance. Management
believes the registration of nearly all of its retail financial professionals
with the National Association of Securities Dealers, Inc. ("NASD") and the
training provided to these sales associates by the Insurance Group provide a
competitive advantage in effectively penetrating and communicating with its
target markets. In the wholesale distribution channels, the Insurance Group's
competitive advantage comes from strong brands, innovative products and services
and sales support to retail customers.
Ratings are an important factor in establishing the competitive position of
insurance companies. As of December 31, 1999, the financial strength or
claims-paying rating of Equitable Life was AA from Standard & Poor's Corporation
(3rd highest of 22 ratings), Aa3 from Moody's Investors Service (4th highest of
21 ratings), A+ from A.M. Best Company, Inc. (2nd highest of 16 ratings), AA
from Fitch Investors Service, L.P. (3rd highest of 18 ratings) and AA- from Duff
& Phelps Credit Rating Co. (4th highest of 18 ratings).
During 2000, management may from time to time explore selective acquisition
opportunities in AXA Financial's core insurance and investment management
businesses.
Investment Banking and Brokerage. DLJ encounters significant competition in all
aspects of the securities business and competes directly worldwide with other
domestic and foreign securities firms, a number of which have greater capital,
financial and other resources than DLJ. In addition to competition from firms
currently in the securities business, there has been increasing competition from
other sources, such as commercial banks and investment boutiques. As a result of
pending legislative and regulatory initiatives in the United States removing
certain restrictions on commercial banks, it is anticipated that competition in
some markets currently dominated by investment banks may increase in the future.
Such competition could also affect DLJ's ability to attract and retain highly
skilled individuals to conduct its various businesses. The principal competitive
factors influencing DLJ's business are its professional staff, the firm's
reputation in the marketplace, its existing client relationships, the ability to
commit capital to client transactions and its mix of market capabilities. DLJ's
ability to compete effectively in securities brokerage and investment banking
activities will also be influenced by the adequacy of its capital levels.
1-13
<PAGE>
DLJdirect is part of the online discount brokerage industry, a new, rapidly
evolving and intensely competitive market, which is experiencing substantial
competition from established financial services firms as well as new entrants
who are trying to quickly establish their presence in the market. DLJdirect
expects competition to continue and intensify in the future. DLJdirect faces
direct competition from discount brokerage firms providing either touch-tone
telephone or online investing services, or both. DLJdirect also encounters
competition from the broker-dealer affiliates of established full commission
brokerage firms. In addition, it competes with financial institutions, mutual
fund sponsors and other organizations, some of which provide electronic
brokerage services. DLJdirect's future success depends in part on its ability to
develop and enhance its services and products.
As a result of intense competitive pressures, the industry has experienced a
significant increase in brand development costs, a lowering of commission
pricing and an increase in content development costs. DLJdirect expects to spend
significant amounts in the future to develop much greater brand recognition
within its targeted market, to stay competitively priced and to develop new
state-of-the-art products and services. In particular, DLJdirect expects to
spend significant amounts for advertising. Additionally, DLJdirect expects to
spend significant amounts in the future in order to expand its international
presence.
Investment Management. The financial services industry is highly competitive and
new entrants continually are attracted to it. No single competitor, or any small
group of competitors, is dominant in the industry. Alliance is subject to
substantial competition in all aspects of its business. Pension fund,
institutional and corporate assets are managed by investment management firms,
broker-dealers, banks and insurance companies. Many of these financial
institutions have substantially greater resources than Alliance. Alliance
competes with other providers of institutional investment products primarily on
the basis of the range of investment products offered, the investment
performance of such products and the services provided to clients. Consultants
also play a major role in the selection of managers for pension funds.
Many of the firms competing with Alliance for institutional clients also offer
mutual fund shares and cash management services to individual investors.
Competitiveness in this area is chiefly a function of the range of mutual funds
and cash management services offered, investment performance, quality in
servicing customer accounts and the capacity to provide financial incentives to
financial intermediaries through distribution assistance and administrative
services payments funded by "Rule 12b-1" distribution plans and the investment
adviser's own resources.
The Insurance Group and the Investment Subsidiaries compete with and are
expected to continue to compete with each other by providing investment
management services, including sponsoring mutual funds and other investment
funds and accounts. For example, Alliance's partnership agreement specifically
allows Equitable Life and its subsidiaries (other than Alliance Capital
Management Corporation, a wholly owned Equitable Life subsidiary) to compete
with Alliance and to seek to develop opportunities that also may be available to
Alliance.
1-14
<PAGE>
Regulation
State Supervision. The Insurance Group is licensed to transact its insurance
business in, and is subject to extensive regulation and supervision by,
insurance regulators in all 50 of the United States, the District of Columbia,
Puerto Rico, the U.S. Virgin Islands and Canada and nine of Canada's twelve
provinces and territories. Equitable Life is domiciled in New York and is
primarily regulated by the Superintendent of the New York Insurance Department
(the "Superintendent"). The extent of state regulation varies, but most
jurisdictions have laws and regulations governing standards of solvency, levels
of reserves, permitted types and concentrations of investments, and business
conduct to be maintained by insurance companies as well as agent licensing,
approval of policy forms and, for certain lines of insurance, approval or filing
of rates. The New York Insurance Law limits sales commissions and certain other
marketing expenses that may be incurred by Equitable Life. The Insurance Group
is required to file detailed annual financial statements, prepared on a
statutory accounting basis, with supervisory agencies in each of the
jurisdictions in which it does business. Such agencies may conduct regular
examinations of the Insurance Group's operations and accounts, and make
occasional requests for particular information from the Insurance Group. In
January 1998 the Florida Attorney General and the Florida Department of
Insurance issued subpoenas, and in December 1999 the Florida Attorney General
issued an additional subpoena, in each case requesting, among other things,
documents relating to various sales practices. Equitable Life has completed its
response to the 1998 subpoenas and is in the process of responding to the 1999
subpoena. A number of states have enacted legislation requiring insurers who
sold policies in Europe prior to and during the Second World War to file
information concerning those policies with state authorities. Although Equitable
Life intends to comply with these laws with respect to its own activities, the
ability of AXA and its European affiliates to comply may be impacted by privacy
laws in effect in various European countries, which could result in state
regulatory authorities seeking to take enforcement actions against AXA and its
U.S. affiliates, including Equitable Life, even though Equitable Life does not
control AXA.
Holding Company Regulation. Several states, including New York, regulate
transactions between an insurer and its affiliates under insurance holding
company acts. These acts contain certain reporting requirements and restrictions
on provision of services and on transactions such as the transfer of assets,
loans or the payment of dividends between an insurer and its affiliates. Under
such laws, services performed, transfers of assets, loans or dividends by
Equitable Life to its parent and the Holding Company (and certain affiliates,
including AXA) may be subject to prior notice or approval depending on the size
of such transactions or payments. Equitable Life has agreed with the NYID that
similar approval requirements also apply to transactions between (i) material
subsidiaries of Equitable Life and (ii) its parent and the Holding Company (and
certain affiliates, including AXA). Changes in control of an insurance company
(generally presumed at a threshold of 10% or more of outstanding voting
securities) are also regulated by these laws.
Guaranty Funds. Under insurance guaranty fund laws existing in all states,
insurers doing business in those states can be assessed up to prescribed limits
to protect policyholders of companies which become impaired or insolvent.
Assessments levied against the Insurance Group during each of the past five
years have not been material. While the amount of any future assessments cannot
be predicted with certainty, management believes that assessments with respect
to pending insurance company impairments and insolvencies will not be material
to the financial position of AXA Financial.
Statutory Investment Valuation Reserves. Statutory accounting practices require
a life insurer to maintain an asset valuation reserve ("AVR") and an interest
maintenance reserve ("IMR") to absorb both realized and unrealized gains and
losses on most of an insurer's invested assets.
AVR requires life insurers to establish statutory reserves for substantially all
invested assets other than policy loans and life insurance subsidiaries. AVR
generally captures all realized and unrealized gains or losses on invested
assets, other than those resulting from changes in interest rates. Each year the
amount of an insurer's AVR will fluctuate as additional gains or losses are
absorbed by the reserve. To adjust for such changes over time, an annual
contribution must be made to AVR equal to a basic contribution plus 20% of the
difference between the reserve objective and the actual AVR. In addition,
voluntary contributions to the AVR are permitted, to the extent that AVR does
not exceed its maximum level. The basic contribution, reserve objective and
maximum reserve are each determined annually according to the type and quality
of an insurer's invested assets. As of December 31, 1999, the AVR objective for
the Insurance Group was $1.5 billion and the actual AVR was $1.6 billion.
IMR captures the net gains or losses which are realized upon the sale of fixed
income investments and which result from changes in the overall level of
interest rates. These net realized gains or losses are then amortized into
income over the remaining life of each investment sold. IMR applies to all types
of fixed income securities (bonds, preferred stocks, mortgage-backed securities
and mortgage loans).
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In 1999, the AVR increased statutory surplus by $6.2 million and the IMR
increased statutory surplus by $100.4 million, as compared to decreases of
$111.8 million and $10.8 million, respectively, in 1998. The increase in
statutory surplus caused by the AVR in 1999 primarily was a result of unrealized
losses on bonds. The increase caused by the IMR resulted from realized losses
due to changes in interest rates.
Changes in statutory surplus resulting from increases or decreases in AVR and
IMR impact the funds available for shareholder dividends. See "Shareholder
Dividend Restrictions". AVR and IMR are not included in financial statements
prepared in conformity with GAAP. Asset valuation allowances reflected in
consolidated financial statements included herein are established under GAAP.
While the future effect of both AVR and IMR on the Insurance Group's statutory
surplus will depend on the actual composition (both as to type and quality) of
the Insurance Group's assets and gains/losses, management does not expect these
reserves will reduce its statutory surplus to levels that would constrain the
growth of the Insurance Group's operations. See "Regulation-Statutory Surplus
and Capital".
Surplus Relief Reinsurance. The Insurance Group uses surplus relief reinsurance,
which has no GAAP financial reporting effect other than from the associated
expense and risk charge and administrative costs. However, surplus relief
reinsurance does have the effect of increasing current statutory surplus while
reducing future statutory earnings. As of December 31, 1999, $29.1 million
(0.5%) of the Insurance Group's total statutory capital (capital, surplus and
AVR) resulted from surplus relief reinsurance. Management reduced surplus relief
reinsurance by approximately $81.9 million in 1999 and by $634.9 million since
December 31, 1992. Management currently intends to eliminate all surplus relief
reinsurance by December 31, 2000.
Management believes the Insurance Group's surplus relief reinsurance agreements
are in substantial compliance with all applicable regulations.
NAIC Ratios. On the basis of statutory financial statements filed with state
insurance regulators, the NAIC annually calculates a number of financial ratios
to assist state regulators in monitoring the financial condition of insurance
companies. Twelve ratios were calculated based on the 1999 statutory financial
statements. A "usual range" of results for each ratio is used as a benchmark.
Departure from the "usual range" on four or more of the ratios can lead to
inquiries from individual state insurance departments. Based on Equitable Life's
1999 statutory financial statements, no ratios fell outside of the "usual
range".
Statutory Surplus and Capital. As licensed insurers in each of the 50 states of
the United States, members of the Insurance Group are subject to the supervision
of the regulators of each such state. Such regulators have the discretionary
authority, in connection with the continual licensing of any member of the
Insurance Group, to limit or prohibit new issuances of business to policyholders
within their jurisdiction when, in their judgment, such regulators determine
that such member is not maintaining adequate statutory surplus or capital.
Management does not believe the current or anticipated levels of statutory
surplus of the Insurance Group present a material risk that any such regulator
would limit the amount of new insurance business the Insurance Group may issue.
On March 16, 1998, members of the NAIC approved its Codification of Statutory
Accounting Principles ("Codification") project. Codification provides regulators
and insurers with uniform statutory guidance, addressing areas where statutory
accounting previously was silent and changing certain existing statutory
positions. Equitable Life will be subject to Codification to the extent and in
the form adopted in New York State, which would require action by both the New
York legislature and the New York Insurance Department. In February 2000, the
Superintendent announced the New York Insurance Department's intention to
proceed with implementation of Codification rules, subject to any provisions in
New York statutes which conflict with particular points in the Codification
rules. It is not possible to predict in what form or when Codification will be
adopted in New York, and accordingly it is not possible to predict the effect of
Codification on Equitable Life.
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Risk-Based Capital. Life insurers are subject to risk-based capital ("RBC")
guidelines which provide a method to measure the adjusted capital (statutory
capital and surplus plus AVR and other adjustments) that a life insurance
company should have for regulatory purposes taking into account the risk
characteristics of the company's investments and products. The RBC requirements
establish capital requirements for four categories of risk: asset risk,
insurance risk, interest rate risk and business risk. For each category, the
capital requirement is determined by applying factors to various asset, premium
and reserve items, with the factor being higher for those items with greater
underlying risk and lower for less risky items. The New York Insurance Law gives
the Superintendent explicit regulatory authority to require various actions by,
or take various actions against, insurance companies whose adjusted capital does
not meet the minimum acceptable level. Management believes that Equitable Life's
statutory capital, as measured by its year end 1999 RBC, is adequate to support
its current business needs and financial ratings.
Shareholder Dividend Restrictions. In 1999, the Holding Company received a
shareholder dividend of $150 million from Equitable Life, the first since
demutualization. Under the New York Insurance Law, Equitable Life is permitted
to pay shareholder dividends only if it files notice of its intention to declare
such a dividend and the amount thereof with the Superintendent and the
Superintendent, who by statute has broad discretion in such matters, does not
disapprove the distribution. See Note 21 of Notes to Consolidated Financial
Statements. Equitable Life has begun to review with the New York Insurance
Department the potential for paying additional shareholder dividends in 2000.
Regulation of Investments. The Insurance Group is subject to state laws and
regulations that require diversification of its investment portfolio and limit
the amount of investments in certain investment categories such as below
investment grade fixed maturities, equity real estate and other equity
investments. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as non-admitted
assets for purposes of measuring statutory surplus, and, in some instances,
require divestiture. As of December 31, 1999, the Insurance Group's investments
were in substantial compliance with all such regulations.
Federal Initiatives. Although the Federal government generally does not directly
regulate the insurance business, many Federal laws affect the business in a
variety of ways. There are a number of existing, newly enacted or recently
proposed Federal laws which may significantly affect the Insurance Group,
including employee benefits regulation, removal of barriers preventing banks
from engaging in the insurance and mutual fund businesses, the taxation of
insurance companies and the taxation of insurance products. These initiatives
are generally in a preliminary stage and consequently management cannot assess
their potential impact on the Insurance Group at this time. The Administration's
fiscal year 2001 revenue proposals announced in February 2000 contain provisions
which, if enacted, could have an adverse impact on sales of business-owned life
insurance and sales of cash value life insurance in connection with certain
employer welfare benefit plans. In addition, certain provisions would affect the
taxation of insurance companies, including a requirement to capitalize increased
percentages of their net premiums to approximate acquisition costs for certain
categories of insurance contracts. Management cannot predict what other
proposals may be made, what legislation, if any, may be introduced or enacted
nor what the effect of any such legislation might be.
ERISA Considerations. The Insurance Group and the Investment Subsidiaries act as
fiduciaries in certain cases, and accordingly are subject to regulation by the
Department of Labor ("DOL") when providing products and services to employee
benefit plans governed by the Employee Retirement Income Security Act of 1974
("ERISA"). Severe penalties are imposed by ERISA on fiduciaries which violate
ERISA's prohibited transaction provisions or breach their duties to
ERISA-covered plans. In a case decided by the United States Supreme Court in
December, 1993 (John Hancock Mutual Life Insurance Company v. Harris Trust and
Savings Bank), the Court concluded that an insurance company general account
contract that had been issued to a pension plan should be divided into its
guaranteed and nonguaranteed components and that certain ERISA fiduciary
obligations should be applied with respect to the assets underlying the
nonguaranteed components. On January 5, 2000, the DOL issued final regulations
defining the circumstances under which an insurer will be deemed to have a safe
harbor from ERISA liability for its contracts that are not guaranteed benefit
contracts. Based upon these final regulations and a legal opinion obtained by
Equitable Life, management believes that its group annuity contracts, as
amended, are guaranteed benefit contracts and the General Account assets
underlying the contracts are not plan assets for ERISA purposes.
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Environmental Considerations. As owners and operators of real property,
Equitable Life and certain of its subsidiaries are subject to extensive Federal,
state and local environmental laws and regulations. Inherent in such ownership
and operation is the risk there may be potential environmental liabilities and
costs in connection with any required remediation of such properties. Equitable
Life routinely conducts or causes to be conducted on its behalf environmental
assessments for real estate being acquired for investment and before taking
title through foreclosure to real property collateralizing mortgages held by
Equitable Life. Based on these environmental assessments and compliance with
internal environmental procedures approved by Equitable Life, management
believes that any costs associated with compliance with environmental laws and
regulations regarding such properties would not be material to the consolidated
financial position of AXA Financial. Furthermore, although Equitable Life and
certain of its subsidiaries hold equity positions in companies that could
potentially be subject to environmental liabilities, management believes, based
on its assessment of the businesses and properties of these companies and the
level of involvement of AXA Financial and Equitable Life and its subsidiaries in
the operation and management of such companies, any environmental liabilities
with respect to these investments would not be material to the consolidated
financial position of AXA Financial.
Market Conduct. The Insurance Marketplace Standards Association ("IMSA") is a
voluntary market conduct compliance association whose mission is to improve
standards of ethical market conduct. In 1998, Equitable Life became a member of
IMSA, which required Equitable Life to adopt IMSA's "Principles and Code of
Ethical Market Conduct", and in conformity with IMSA's Assessment Handbook, to
conduct a self-assessment regarding Equitable Life's practices in the marketing
and sales of individually-sold life and annuity products, and to have an
independent IMSA-approved assessor determine that Equitable Life had a
reasonable basis for its findings.
Securities Laws. The Holding Company, certain of its subsidiaries,, and certain
policies and contracts offered by the Insurance Group, are subject to regulation
under the Federal securities laws administered by the Securities and Exchange
Commission (the "SEC") and under certain state securities laws. The SEC conducts
regular examinations of the Insurance Group's operations, and makes occasional
requests for particular information from the Insurance Group. Equitable Life has
complied with the SEC's limited inspection and inquiry in 1997 and 1998
concerning the marketing and sales practices associated with variable insurance
products. Certain Separate Accounts of Equitable Life are registered as
investment companies under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Separate Account interests under certain annuity
contracts and insurance policies issued by Equitable Life are also registered
under the Securities Act of 1933, as amended (the "Securities Act"). AXA
Advisors, EDI, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"),
DLJdirect, Inc. and certain other subsidiaries of AXA Financial are registered
as broker-dealers (collectively the "Broker-Dealers") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Broker-Dealers are
subject to extensive regulation (as discussed below in "Investment Banking" with
reference to DLJSC), and are members of, and subject to regulation by, the NASD
and various other self regulatory organizations ("SROs"). As a result of
registration under the Exchange Act and SRO memberships, the Broker-Dealers are
subject to overlapping schemes of regulation which cover all aspects of their
securities business. Such regulations cover matters including capital
requirements, the use and safekeeping of customers' funds and securities,
recordkeeping and reporting requirements, supervisory and organizational
procedures intended to assure compliance with securities laws and rules of the
SROs and to prevent improper trading on "material nonpublic" information,
employee-related matters, limitations on extensions of credit in securities
transactions, required procedures for trading on securities exchanges and in
over-the-counter markets, and procedures for the clearance and settlement of
trades. A particular focus of the applicable regulations concerns the
relationship between broker-dealers and their customers. As a result, the
Broker-Dealers in some instances may be required to make "suitability"
determinations as to certain customer transactions, are limited in the amounts
that they may charge customers, cannot trade ahead of their customers and must
make certain required disclosures to their customers.
Equitable Life, AXA Advisors and certain of the Investment Subsidiaries also are
registered as investment advisors under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"). Many of the investment companies
managed by the Investment Subsidiaries, including a variety of mutual funds and
other pooled investment vehicles, are registered with the SEC under the
Investment Company Act. All aspects of Equitable Life's, AXA Advisors' and the
Investment Subsidiaries' investment advisory activities are subject to various
Federal and state laws and regulations and to the laws in those foreign
countries in which they conduct business. Such laws and regulations relate to,
among other things, limitations on the ability of investment advisors to charge
performance-based or non-refundable fees to clients, recordkeeping and reporting
requirements, disclosure requirements, limitations on principal transactions
between an advisor or its affiliates and advisory clients, as well as general
anti-fraud prohibitions. The state securities law requirements applicable to
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registered investment advisors are in certain cases more comprehensive than
those imposed under the Federal securities laws. The failure to comply with such
laws may result in possible sanctions including the suspension of individual
employees, limitations on the activities in which the investment advisor may
engage, suspension or revocation of the investment advisor's registration as an
advisor, censure and/or fines.
Investment Banking and Brokerage. DLJ's business and the securities industry in
general are subject to extensive regulation in the United States at both the
Federal and state level, as well as by industry SROs. A number of Federal
regulatory agencies are charged with safeguarding the integrity of the
securities and other financial markets and with protecting the interests of
customers participating in those markets. DLJSC is registered as a broker-dealer
with the SEC and in all 50 states and the District of Columbia, as a futures
commission merchant with the Commodities Futures Trading Commission (the
"CFTC"), as an investment advisor with the SEC and in certain states, and is
also designated a primary dealer in United States government securities by the
Federal Reserve Bank of New York. It is also a member of, and subject to
regulation by, the NASD, the NYSE, the Chicago Board of Trade ("CBOT"), the
National Futures Association and various other self-regulatory organizations.
Broker-dealers are subject to regulation by state securities administrators in
those states in which they conduct business. Broker-dealers are also subject to
regulations that cover all aspects of the securities business. As a futures
commission merchant, DLJSC is subject to the requirements of the CFTC and the
CBOT, including the provision of certain disclosure documents, prohibitions
against trading ahead of customers and other fraudulent trading practices,
provisions as to the handling of customer funds and reporting and recordkeeping
requirements. See "Regulation - Securities Laws". The SEC, other governmental
regulatory authorities, including state securities commissions, and SROs may
institute administrative or judicial proceedings, which may result in censure,
fine, the issuance of cease-and-desist orders, the suspension or expulsion of a
broker-dealer or member, its officers or employees or other similar
consequences.
DLJ's businesses may be materially affected not only by regulations applicable
to them as a financial market intermediary, but also by regulations of general
application. For example, the volume of DLJ's underwriting, merger and
acquisition and merchant banking businesses in any year could be affected by,
among other things, existing and proposed tax legislation, antitrust policy and
other governmental regulations and policies (including the interest rate
policies of the Federal Reserve Board) and changes in interpretation or
enforcement of existing laws and rules that affect the business and financial
communities. From time to time, various forms of anti-takeover legislation and
legislation that could affect the benefits associated with financing leveraged
transactions with high yield securities have been proposed that, if enacted,
could adversely affect the volume of merger and acquisition and merchant banking
business, which in turn could adversely affect DLJ's underwriting, advisory and
trading revenues related thereto.
As broker-dealers registered with the SEC and member firms of the NYSE, DLJSC
and certain of its subsidiaries are subject to the capital requirements of the
SEC and of the NYSE and/or NASD. These capital requirements specify minimum
levels of capital, computed in accordance with regulatory requirements ("net
capital"), that the Broker-Dealers are required to maintain and also limit the
amount of leverage that the Broker-Dealers are able to obtain in their
businesses. Compliance with regulatory capital requirements could limit those
operations of the Broker-Dealers that require the intensive use of capital, such
as DLJSC's underwriting and trading activities, and the financing of customer
account balances, and also restrict DLJ's ability to pay dividends, pay
interest, repay debt, and redeem or purchase shares of its outstanding capital
stock. A change in such rules, or the imposition of new rules, affecting the
scope, coverage, calculation or amount of capital requirements, or a significant
operating loss or any unusually large charge against capital, would adversely
affect the ability of DLJ to pay dividends or to expand or even maintain present
levels of business. Rule 15c3-1 under the Exchange Act limits the ability of
stockholders of a registered broker-dealer to withdraw excess capital from that
broker-dealer, if such withdrawal would impair the broker-dealer's net capital.
This rule could limit the payment of dividends and the making of loans and
advances by the Broker-Dealers to Equitable Life and the Holding Company.
In addition to being regulated in the U.S., DLJ's business is subject to
regulation by various foreign governments and regulatory bodies. DLJ has
broker-dealer subsidiaries that are subject to regulation by the Securities and
Futures Authority of the United Kingdom, the Securities and Futures Commission
of Hong Kong and the Ontario Securities Commission.
Additional legislation and regulations, including those relating to the
activities of affiliates of broker-dealers, changes in rules promulgated by the
SEC, the CFTC or other United States or foreign governmental regulatory
authorities and SROs or changes in the interpretations or enforcement of
existing laws and rules may adversely affect the manner of operation and
profitability of DLJ.
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Year 2000
AXA Financial's information systems are central to, among other things,
designing and pricing products, marketing and selling products and services,
processing policyholder and investor transactions, client recordkeeping,
communicating with agents, employees, affiliates, vendors and clients, and
recording information for accounting, investment and management information
purposes. Following the implementation of Equitable Life's, Alliance's and DLJ's
Year 2000 compliance initiatives, no Year 2000 problems were encountered that
could have a material adverse effect on the business, financial condition or
results of operations of AXA Financial.
Principal Shareholder
AXA is the majority shareholder of the Holding Company, beneficially owning
(together with certain of its affiliates) at March 1, 2000, 60.0% of the
outstanding shares of Common Stock of the Holding Company. All shares of the
Holding Company's Common Stock beneficially owned by AXA have been deposited in
the voting trust referred to below. AXA is the holding company for an
international group of insurance and related financial services companies. AXA's
insurance operations include activities in life insurance, property and casualty
insurance and reinsurance. The insurance operations are diverse geographically,
with activities principally in Western Europe, North America, and the
Asia/Pacific area and, to a lesser extent, in Africa and South America. AXA is
also engaged in asset management, investment banking, securities trading,
brokerage, real estate and other financial services activities principally in
the United States, as well as in Western Europe and the Asia/Pacific area.
Preemptive Rights. Under a Standstill Agreement entered into by AXA, the Holding
Company and Equitable Life dated as of July 18, 1991 (as amended, the
"Standstill Agreement"), AXA (or any other AXA affiliate designated by it) has
the right to acquire a percentage of each new issuance by the Holding Company of
voting securities or convertible securities equal to the percentage of the total
voting power held by AXA and its affiliates (the "AXA Parties") immediately
prior to the issuance of such voting securities or convertible securities
(assuming, in the case of convertible securities, the conversion, exchange or
exercise at such time of all convertible securities to be issued in such
issuance), except that AXA's preemptive rights do not apply to issuances
pursuant to certain employee benefit plans. AXA's preemptive rights will be in
effect until the AXA Parties own less than 10% of the total voting power
(determined as though all convertible securities owned by any AXA Party had been
converted into voting securities immediately prior to the time of
determination).
Registration Rights. Under the Standstill Agreement, AXA has the right to
require that the Holding Company register under the Securities Act any voting
securities of the Holding Company owned from time to time by any of the AXA
Parties, provided that the Holding Company will not be obligated to file a
registration statement within nine months after the initial effective date of
any registration statement requested to be filed by AXA. AXA also has the right,
subject to certain restrictions, to include such voting and other securities in
most other registrations of securities of the Holding Company under the
Securities Act. The Holding Company has agreed to pay all registration expenses
and all out-of-pocket expenses of the AXA Parties incurred in connection with
the first five registrations requested by AXA and in connection with any other
registrations in which any AXA Party participates. The Holding Company has
agreed to indemnify the AXA Parties and certain related persons against any
losses or liabilities any of them may suffer as a result of any material
misstatements or omissions of fact contained in any registration statement,
except misstatements or omissions contained in written materials provided to the
Holding Company by AXA expressly for use in the registration statement, as to
which AXA has agreed to indemnify the Holding Company against losses or
liabilities.
The registration rights provisions of the Standstill Agreement will be a
continuing obligation of the Holding Company until the AXA Parties are able to
transfer, with respect to each class or series of voting securities of the
Holding Company, all securities of such class or series then owned directly or
indirectly by them in a single transaction pursuant to Rule 144 under the
Securities Act.
Neither AXA nor any affiliate of AXA has any obligation to provide additional
capital or credit support the Holding Company or any of its subsidiaries.
Limitations on AXA Acquisitions of Voting Securities. Under Article XI of the
Holding Company's By-Laws ("Article XI"), the AXA Parties are prohibited from
acquiring any voting securities of the Holding Company (including Common Stock)
if, immediately after such acquisition, the percentage of the total voting power
represented by all such voting securities then owned by the AXA Parties would
exceed 90% (the "Threshold Percentage") unless the relevant AXA Party offers to
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purchase all shares of Common Stock then outstanding (other than shares owned by
the other AXA Parties) and a special committee of the Holding Company Board
(consisting of directors of the Holding Company other than nominees of AXA or
officers of the Holding Company or any of its subsidiaries) is appointed to
evaluate such offer. Article XI does not require that an offer be made to all
stockholders or that a special committee be appointed if the AXA Parties acquire
or propose to acquire less than the Threshold Percentage.
Voting Trust. In connection with AXA's application to the Superintendent for
approval of its acquisition of capital stock of the Holding Company, AXA and the
initial Trustees of the Voting Trust (Claude Bebear, Patrice Garnier and Henri
de Clermont-Tonnerre) entered into a Voting Trust Agreement dated as of May 12,
1992 (as amended by the First Amendment dated January 22, 1997, the "Voting
Trust Agreement"). The Voting Trust Agreement requires AXA and certain
affiliates ("AXA Parties") to deposit any shares of the Holding Company's Common
Stock and preferred stock held by them in the Voting Trust. The Voting Trust
Agreement also provides (subject to limited exceptions) that in the event that
any AXA Party acquires additional shares of such stock, or any other stock of
the Holding Company having the power to vote in the election of directors of the
Holding Company, it shall promptly deposit such shares in the Voting Trust. Only
AXA Parties and certain other affiliates of AXA may deposit shares of Holding
Company capital stock into the Voting Trust or be holders of voting trust
certificates representing deposited shares. The purpose of the Voting Trust is
to ensure for insurance regulatory purposes that certain indirect minority
shareholders of AXA will not be able to exercise control over the Holding
Company or Equitable Life.
AXA and any other holder of voting trust certificates will remain the beneficial
owner of the shares deposited by it, except that the Trustees will be entitled
to exercise all voting rights attaching to the deposited shares so long as such
shares remain subject to the Voting Trust. In voting the deposited shares, the
Trustees must act to protect the legitimate economic interests of AXA and any
other holders of voting trust certificates (but with a view to ensuring that
certain indirect minority shareholders of AXA do not exercise control over the
Holding Company or Equitable Life). All dividends and distributions (other than
those which are paid in the form of shares required to be deposited in the
Voting Trust) in respect of deposited shares will be paid directly to the
holders of voting trust certificates. If a holder of voting trust certificates
sells or transfers deposited shares to a person which is not an AXA Party and is
not (and does not, in connection with such sale or transfer, become) a holder of
voting trust certificates, the shares sold or transferred will be released from
the Voting Trust. The Voting Trust has an initial term of ten years and is
subject to extension with the prior approval of the New York Superintendent.
AXA Sublicense. The name "AXA" and the AXA trademark are owned by Finaxa, an
affiliate of AXA. In 1996, AXA and Finaxa entered into a Licensing Agreement
pursuant to which Finaxa granted AXA a non-exclusive license (the "AXA License")
to use the AXA trademark in certain jurisdictions. The AXA License grants AXA
the right, subject to the prior written approval of Finaxa, to grant sublicenses
to companies controlled, directly or indirectly, by AXA. The AXA License may be
terminated upon three months prior written notice by either party; however,
Finaxa may not exercise its termination right for so long as it is AXA's largest
shareholder. The right to use the name "AXA" will be sublicensed from AXA at no
charge to the Holding Company nor to any subsidiary of the Holding Company. If
the AXA License is terminated, any sublicenses granted would also terminate.
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Part I, Item 1A.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officers' Biographical Information. Set forth below is a description of the
business positions held during at least the past five years by the executive
officers of the Holding Company (other than Messrs. Miller and Hegarty whose
biographical data is incorporated by reference under Item 10 of this report).
Robert E. Garber. Executive Vice President and General Counsel of the Holding
Company and Equitable Life (since September 1994). Executive Vice President
(since September 1994) and Chief Legal Officer (since November 1999; General
Counsel from September 1994 to November 1999) of Equitable Life. Mr. Garber also
served the Holding Company and Equitable Life as Senior Vice President and
General Counsel from September 1993 to September 1994 and Equitable Life as
Senior Vice President and Deputy General Counsel from September 1989 to
September 1993. Prior to joining Equitable Life, Mr. Garber was Senior Vice
President and General Counsel (from June 1987 to August 1989) of Irving Trust
Company.
Peter D. Noris. Executive Vice President (since May 1995) and Chief Investment
Officer (since July 1995) of the Holding Company and Equitable Life. Vice
President of Salomon Brothers, Inc., from November 1992 to May 1995. Prior
thereto, Mr. Noris was a Principal of Morgan Stanley & Co., Inc., from October
1984 to November 1992. Director of Alliance; Director of AXA Global Structured
Products; Chairman of the Board and President, EQ Advisors Trust.
Jose S. Suquet. Senior Executive Vice President of the Holding Company (since
November 1999) and Senior Executive Vice President (since February 1998) and
Chief Distribution Officer (since December 1997) of Equitable Life. Mr. Suquet
also served the Holding Company as Executive Vice President from May 1996 to
November 1999 and Equitable Life as Executive Vice President (from August 1994
to February 1998) and Chief Agency Officer (from August 1994 to December 1997).
Mr. Suquet joined Equitable Life as an Agent in 1979, becoming Agency District
Manager in 1981 and becoming Agency Manager of Equitable Life's Miami Agency in
1985, which position he held until August 1994. Chairman of the Board of
Equitable Distributors, Inc.
Stanley B. Tulin. Vice Chairman (since November 1999) and Chief Financial
Officer (since May 1997) of the Holding Company, and Vice Chairman and Director
(since February 1998) and Chief Financial Officer (since May 1996) of Equitable
Life. Mr. Tulin also served the Holding Company as Executive Vice President
(from May 1996 to November 1999) and Equitable Life as Senior Executive Vice
President (from May 1996 to February 1998). Mr. Tulin was a Principal of Coopers
& Lybrand LLP from 1988 to 1996, where he was Co-Chairman of the Insurance
Industry Practice.
1A-1
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Part I, Item 2.
PROPERTIES
Financial Advisory/Insurance
Equitable Life leases on a long-term basis approximately 799,000 square feet of
office space located at 1290 Avenue of the Americas, New York, New York, which
serves as the Holding Company and Equitable Life's headquarters Additionally,
Equitable Life leases an aggregate of approximately 100,000 square feet of
office space at 30 Rockefeller Center, 1301 Avenue of the Americas, 21 Penn
Plaza and at the AMA Building on various short term leases. Equitable Life also
has the following major leases: 244,000 square feet in Secaucus, NJ under a
lease that expires in 2011 for its Annuity Operations use; 152,000 square feet
in Charlotte, North Carolina, under a lease that expires in 2013, for use by its
National Operations Center; 76,200 square feet in Alpharetta, GA under a lease
that expires in 2006 for its Distribution Organizations' training and support
use; and 67,800 square feet in Leonia, NJ under a lease that expires in 2009 for
its Information Technology processing use. In addition, Equitable Life leases
property both domestically and abroad, the majority of which houses sales and
distribution operations. Management believes its facilities are adequate for its
present needs in all material respects. For additional information, see Notes 19
and 20 of Notes to Consolidated Financial Statements.
Equitable Life subleases its office space at 1290 Avenue of the Americas to the
New York City Industrial Development Agency (the "IDA"), and sub-subleases that
space back from the IDA, in connection with the IDA's granting of sales tax
benefits to Equitable Life.
Investment Banking and Brokerage
DLJ's principal executive offices are presently located at 277 Park Avenue, New
York, New York and occupy approximately 1.2 million square feet under a lease
expiring in 2021. DLJ has leased space at 280 Park Avenue, New York, New York,
aggregating approximately 192,000 square feet under leases expiring at various
dates through 2014. DLJ also leases space at 120 Broadway, New York, New York,
aggregating approximately 94,000 square feet. This lease expires in 2006.
DLJ's principal London-based broker-dealer subsidiary is located at 99
Bishopsgate and 111 Old Broad Street and occupies approximately 225,000 square
feet under leases expiring at various dates through 2018.
Pershing also leases approximately 471,000 square feet in Jersey City, New
Jersey, under leases that expire at various dates through 2009. In 1999, DLJ's
online brokerage subsidiary entered into a lease at Harborside Financial Center
in Jersey City, New Jersey aggregating approximately 160,000 square feet. DLJ
also owns land and a building with approximately 142,000 square feet in Florham
Park, New Jersey.
In addition, DLJ leases an aggregate of approximately one million square feet
for its domestic and international regional offices, the leases for which expire
at various dates through 2014. Other domestic offices are located in Atlanta,
Austin, Boston, Charlotte, Chicago, Dallas, Deerfield, Denver, Houston, Jersey
City, Los Angeles, Menlo Park, Miami, Oak Brook, Parsippany, Philadelphia and
San Francisco. Its foreign office locations are Bangalore, Buenos Aires,
Frankfurt, Geneva, Hong Kong, London, Lugano, Melbourne, Mexico City, Monterrey,
Moscow, Paris, Sao Paulo, Seoul, Singapore, Taipei and Tokyo.
DLJ believes that its present facilities are adequate for its current needs.
Investment Management
Alliance's principal executive offices at 1345 Avenue of the Americas, New York,
New York are occupied pursuant to a lease that extends until 2016. Alliance
currently occupies approximately 407,000 square feet at this location. Alliance
also occupies approximately 114,097 square feet at 135 West 50th Street, New
York, New York under
2-1
<PAGE>
leases expiring in 2016. Alliance also occupies approximately 4,594 square feet
at 709 Westchester Avenue and 21,057 square feet at 925 Washington Avenue, White
Plains, New York, under leases expiring in 2004. Alliance and two of its
subsidiaries occupy approximately 134,000 square feet of space in Secaucus, New
Jersey pursuant to a lease which extends until 2016, approximately 92,100 square
feet of space in San Antonio, Texas pursuant to a lease which extends until 2009
and approximately 59,033 square feet at the Glenmaura Corporate Centre,
Scranton, Pennsylvania, under a lease expiring in 2004.
Alliance also leases space in San Francisco, California, Chicago, Illinois,
Greenwich, Connecticut, Minneapolis, Minnesota, and Beechwood, Ohio. Its
subsidiaries lease space in Windhoek, Namibia, London, England, Paris, France,
Tokyo, Japan, Sydney, Australia, Toronto, Canada, Luxembourg, Singapore, Manama,
Bahrain, Mumbai, New Delhi, Bangalore, Pune, Calcutta and Chennai, India,
Johannesburg, South Africa and Istanbul, Turkey. Joint venture subsidiaries and
affiliates of Alliance have offices in Vienna, Austria, Sao Paulo, Brazil, Hong
Kong, Seoul, South Korea, Warsaw, Poland, Moscow, Russia, Cairo, Egypt, Talinn,
Estonia, Harare, Zimbabwe, Prague, Czech Republic and Bucharest, Romania.
2-2
<PAGE>
Part I, Item 3.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in the
jurisdictions in which Equitable Life and its subsidiaries do business involving
insurers' sales practices, alleged agent misconduct, alleged failure to properly
supervise agents, and other matters. Some of the lawsuits have resulted in the
award of substantial judgments against other insurers, including material
amounts of punitive damages, or in substantial settlements. In some states,
juries have substantial discretion in awarding punitive damages. Equitable Life,
Equitable Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues for
certain limited purposes, including the defense of litigation) and The Equitable
of Colorado, Inc. ("EOC"), like other life and health insurers, from time to
time are involved in such litigation. Among litigations against Equitable Life,
EVLICO and EOC of the type referred to in this paragraph are the litigations
described in the following seven paragraphs.
An action was instituted in April 1995, against Equitable Life and its wholly
owned subsidiary, EOC, in New York state court, entitled Sidney C. Cole, et al.
v. The Equitable Life Assurance Society of the United States and The Equitable
of Colorado, Inc. The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of a class
consisting of all persons who from January 1, 1984 purchased life insurance
policies sold by Equitable Life and EOC based upon allegedly uniform sales
presentations and policy illustrations. The complaint puts in issue various
alleged sales practices that plaintiffs assert, among other things,
misrepresented the stated number of years that the annual premium would need to
be paid. Plaintiffs seek damages in an unspecified amount, imposition of a
constructive trust, and seek to enjoin Equitable Life and EOC from engaging in
the challenged sales practices. In June 1996, the court issued a decision and
order dismissing with prejudice plaintiffs' causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust enrichment,
and dismissing without prejudice plaintiffs' cause of action under the New York
State consumer protection statute. The only remaining causes of action were for
breach of contract and negligent misrepresentation. In April 1997, plaintiffs
noticed an appeal from the court's June 1996 order. In June 1997, plaintiffs
filed their memorandum of law and affidavits in support of their motion for
class certification. In August 1997, Equitable Life and EOC moved for summary
judgment dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation and in February 1998, the court granted Equitable
Life and EOC's motion for summary judgment. The court therefore denied as moot
plaintiffs' motion to certify the class. In April 1998, plaintiffs noticed their
appeal from that decision and from the June 1996 decision, the appeal from which
had been dismissed. The appeal has been briefed and argued.
In May 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 originally was brought by an individual who purchased a whole life policy
from Equitable Life in 1989. In September 1997, with leave of the court,
plaintiff filed a second amended petition naming six additional policyholder
plaintiffs and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the second
amended petition. Plaintiffs purport to represent a class consisting of all
persons who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1981 through July 22, 1992. Plaintiffs allege
improper sales practices based on allegations of misrepresentations concerning
one or more of the following: the number of years that premiums would need to be
paid; a policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages, including
punitive damages, in an unspecified amount. In October 1997, Equitable Life
filed (i) exceptions to the second amended petition, asserting deficiencies in
pleading of venue and vagueness; and (ii) a motion to strike certain
allegations. In January 1998, the court heard argument on Equitable Life's
exceptions and motion to strike. Those motions are under consideration by the
court. Plaintiffs moved for class certification in August 1998. Equitable Life
opposed that motion and moved for summary judgment dismissing the amended
petition in its entirety; consideration of the summary judgment motion has been
deferred. In December 1999, the court issued a judgment denying plaintiffs'
motion for class certification and assessing costs of the proceeding against the
plaintiffs. Plaintiffs have appealed that decision.
In July 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company was commenced in New York state court, Kings County. 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. EVLICO
answered the complaint, denying the material allegations. In September 1996,
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<PAGE>
Equitable Life, EVLICO and EOC made a motion to have this proceeding moved from
Kings County Supreme Court to New York County for joint trial or consolidation
with the Cole action. The motion was denied by the court in Cole in January
1997. Plaintiff then moved for certification of a nationwide class consisting of
all persons or entities who, since January 1, 1980, were sold one or more life
insurance products based on misrepresentations as to the number of years that
the annual premium would need to be paid, and/or who were allegedly induced to
purchase additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. In August 1998, EVLICO
and EOC moved for summary judgment on all causes of action. Briefing on the
summary judgment motion and on plaintiff's motion for class certification is
completed, although discovery regarding class certification issues is the
subject of ongoing motion practice. A hearing on plaintiff's motions to compel
discovery and for class certification, and on EVLICO and EOC's motion for
summary judgment, was held in January 2000. Those motions have been submitted to
the court for decision.
In January 1996, an amended complaint was filed in an action entitled Frank
Franze Jr. and George Busher, individually and on behalf of all others similarly
situated v. The Equitable Life Assurance Society of the United States, and
Equitable Variable Life Insurance Company in the United States District Court
for the Southern District of Florida. The action was brought by two individuals
who purchased variable life insurance policies. The plaintiffs purport to
represent a nationwide class consisting of all persons who purchased variable
life insurance policies from Equitable Life and EVLICO since September 30, 1991.
The amended complaint alleges that Equitable Life's and EVLICO's agents were
trained not to disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek rescission
of the contracts or compensatory damages and attorneys' fees and expenses.
Equitable Life and EVLICO have answered the amended complaint, denying the
material allegations and asserting certain affirmative defenses. In May 1999,
the Magistrate Judge issued a Report and Recommendation recommending that the
District Judge deny Equitable Life's and EVLICO's motion for summary judgment
and grant plaintiffs' motion for class certification. In July 1999, Equitable
Life and EVLICO filed Objections to the Report and Recommendation and urged that
the District Judge reject the Magistrate's recommendations and grant Equitable
Life's and EVLICO's motion for summary judgment and deny plaintiffs' motion for
class certification. The parties have completed briefing on the Objections.
In December 1999, an action styled Bradley H. Kane, individually and on behalf
of himself and all others similarly situated v. The Equitable Life Assurance
Society of the United States was commenced in the Court of Common Pleas of
Philadelphia County, Pennsylvania. The action was brought by an individual who
had purchased a whole life insurance policy issued by Equitable Life. Plaintiff
purports to represent a class consisting of all persons who purchased ownership
interests in whole life insurance policies issued by Equitable Life and who have
had or may have Equitable Life demand or seek additional premium payments beyond
the alleged stated number of years that the annual premium would need to be paid
and/or whose payments for the policies have not earned returns at the stated or
illustrated rates. The complaint puts at issue various alleged sales practices
and alleges misrepresentations concerning the number of years that the annual
premium would need to be paid and the investment return that could be expected.
The complaint alleges claims for fraudulent inducement to contract, breach of
contract, fraud, negligent misrepresentation, violation of The Pennsylvania
Unfair Trade and Deceptive Practices Act, unjust enrichment and imposition of a
constructive trust. Plaintiff seeks damages in an unspecified amount, costs
including attorneys' fees and expert witness fees, equitable and injunctive
relief including the imposition of a constructive trust, rescission of the
policies for those class members who wish it, and other unspecified remedies
allowed by Pennsylvania consumer protection law. In January 2000, Equitable Life
removed the case to the United States District Court for the Eastern District of
Pennsylvania. Plaintiff filed a motion to remand the case to State Court.
Equitable Life has not yet responded to the complaint or plaintiff's remand
motion. The parties have executed an agreement settling the plaintiff's claims
on an individual basis. The dismissal of plaintiff's claims is subject to court
approval.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, AXA Financial's management
believes that the ultimate resolution of the Cole, Duncan, Bradley, Franze, and
Kane litigations should not have a material adverse effect on the financial
position of AXA Financial. AXA Financial's management cannot make an estimate of
loss, if any, or predict whether or not any such litigation will have a material
adverse effect on AXA Financial's results of operations in any particular
period.
In two previously disclosed actions, Dr. James H. Greenwald, et al. v. The
Equitable Life Assurance Society of the United States and Stanley L. Harris, and
Dennis Hill, et al. v. Equitable Variable Life Insurance Company, The Equitable
Life Assurance Society of the United States and Jerry Vucovich, the plaintiffs'
claims have been settled on an individual basis and the actions have been
dismissed.
3-2
<PAGE>
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying James Brown
as the representative of a class consisting of "[a]ll African-Americans who
applied but were not hired for, were discouraged from applying for, or would
have applied for the position of Sales Agent in the absence of the
discriminatory practices, and/or procedures in the [former] Southern Region of
AXA Financial from May 16, 1987 to the present." The second amended complaint in
James W. Brown, on behalf of others similarly situated v. The Equitable Life
Assurance Society of the United States, alleges, among other things, that
Equitable Life discriminated on the basis of race against African-American
applicants and potential applicants in hiring individuals as sales agents.
Plaintiffs seek a declaratory judgment and affirmative and negative injunctive
relief, including the payment of back-pay, pension and other compensation. The
court referred the case to mediation, which is pending. Although the outcome of
any litigation cannot be predicted with certainty, AXA Financial's management
believes that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of AXA Financial. AXA Financial's
management cannot make an estimate of loss, if any, or predict whether or not
such matter will have a material adverse effect on AXA Financial's results of
operations in any particular period.
In November 1997, an amended complaint was filed in Peter Fischel, et al. v. The
Equitable Life Assurance Society of the United States alleging, among other
things, that Equitable Life violated ERISA by eliminating certain alternatives
pursuant to which agents of Equitable Life could qualify for health care
coverage. In March 1999, the United States District Court for the Northern
District of California entered an order certifying a class consisting of "[a]ll
current, former and retired Equitable agents, who while associated with
Equitable satisfied [certain alternatives] to qualify for health coverage or
contributions thereto under applicable plans." Plaintiffs allege various causes
of action under ERISA, including claims for enforcement of alleged promises
contained in plan documents and for enforcement of agent bulletins, breach of a
unilateral contract, breach of fiduciary duty and promissory estoppel. The
parties are currently engaged in discovery. Although the outcome of any
litigation cannot be predicted with certainty, AXA Financial's management
believes that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of AXA Financial. AXA Financial's
management cannot make an estimate of loss, if any, or predict whether or not
such matter will have a material adverse effect on AXA Financial's results of
operations in any particular period.
In January 2000, the California Supreme Court denied Equitable Life's petition
for review of an October 1999 decision by the California Court of Appeal which
reversed the dismissal by the Superior Court of Orange County, California of an
action entitled BT-I v. The Equitable Life Assurance Society of the United
States. The action was commenced in 1995 by a real estate developer in
connection with a limited partnership formed in 1991 with Equitable Life on
behalf of Prime Property Fund ("PPF"). Equitable Life serves as investment
manager for PPF, an open-end, commingled real estate separate account of
Equitable Life for pension clients. Plaintiff alleges breach of fiduciary duty
and other claims principally in connection with PPF's 1995 purchase and
subsequent foreclosure of the loan which financed the partnership's property.
Plaintiff seeks compensatory and punitive damages. The case has been remanded to
the Superior Court for further proceedings. Although the outcome of litigation
cannot be predicted with certainty, AXA Financial's management believes that the
ultimate resolution of this matter should not have a material adverse effect on
the financial position of AXA Financial. AXA Financial's management cannot make
an estimate of loss, if any, or predict whether or not this matter will have a
material adverse effect on AXA Financial's results of operations in any
particular period.
In September 1999, a complaint was filed in an action entitled R.S.M. Inc., et
al. v. Alliance Capital Management L.P., et al. in the Chancery Court of the
State of Delaware. The action was brought on behalf of a purported class of
owners of limited partnership units of Alliance Capital Management Holding L.P.
("Alliance Holding") challenging the then-proposed reorganization of Alliance
Holding. Named defendants include Alliance Holding, four Alliance Holding
executives, the general partner of Alliance Holding and Alliance, which is a
wholly owned indirect subsidiary of Equitable Life, and Alliance, which is the
operating partnership whose units are not publicly traded. Equitable Life is
obligated to indemnify the defendants for losses and expenses arising out of the
litigation. Plaintiffs allege, inter alia, inadequate and misleading
disclosures, breaches of fiduciary duties, and the improper adoption of an
amended partnership agreement by Alliance Holding. The complaint seeks, inter
alia, payment of unspecified money damages and an accounting of all benefits
alleged to have been improperly obtained by the defendants. In October 1999, the
parties entered into a Memorandum of Understanding that set forth a proposed
settlement of the action and provided for confirmatory discovery prior to
seeking court approval of the settlement; the parties are continuing to discuss
the possible settlement. Although the outcome of any litigation cannot be
predicted with certainty, AXA Financial's management believes that the ultimate
resolution of this matter should not have a material adverse effect on the
financial position of AXA Financial. AXA Financial's management cannot make an
estimate of loss, if any, or predict whether or not such matter will have a
material adverse effect on AXA Financial's results of operations in any
particular period.
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<PAGE>
In July 1995, a Consolidated and Supplemental Class Action Complaint ("Original
Complaint") was filed against the Alliance North American Government Income
Trust, Inc. (the "Fund"), Alliance Holding and certain other defendants
affiliated with Alliance Holding, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary duty in
connection with the Fund's investments in Mexican and Argentine securities. In
September 1996, the United States District Court for the Southern District of
New York granted the defendants' motion to dismiss all counts of the Original
Complaint. In October 1997, the United States Court of Appeals for the Second
Circuit affirmed that decision. In October 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the proposed
amended complaint are that (i) the Fund failed to hedge against currency risk
despite representations that it would do so, (ii) the Fund did not properly
disclose that it planned to invest in mortgage-backed derivative securities and
(iii) two advertisements used by the Fund misrepresented the risks of investing
in the Fund. In October 1998, the United States Court of Appeals for the Second
Circuit issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against currency risk
and denying plaintiffs' motion to file an amended complaint alleging that the
Fund did not properly disclose that it planned to invest in mortgage-backed
derivative securities and that certain advertisements used by the Fund
misrepresented the risks of investing in the Fund. In December 1999, the United
States District Court for the Southern District of New York granted defendants'
motion for summary judgment on all claims against all defendants. Plaintiffs
filed motions for reconsideration of the court's ruling; these motions are
pending. On March 24, 2000 Alliance announced that a memorandum of understanding
had been signed with the lawyers for the plaintiffs settling this action. Under
the settlement Alliance will permit Fund shareholders to invest up to $250
million in mutual funds managed by Alliance free of initial sales charges. Like
all class action settlements, the settlement is subject to court approval. In
connection with its reorganization, Alliance assumed any liabilities which
Alliance Holding may have with respect to this action. Alliance and Alliance
Holding believe that the allegations in the amended complaint are without merit
and intend to defend vigorously against this action. While the ultimate outcome
of this matter cannot be determined at this time, management of Alliance Holding
and Alliance do not expect that it will have a material adverse effect on
Alliance Holding's or Alliance's results of operations or financial condition.
In January 1996, a purported purchaser of certain notes and warrants to purchase
shares of common stock of Rickel Home Centers, Inc. ("Rickel") filed a class
action complaint against DLJSC and certain other defendants for unspecified
compensatory and punitive damages in the U. S. District Court for the Southern
District of New York. The suit was brought on behalf of the purchasers of
126,457 units consisting of $126,457,000 aggregate principal amount of 13 1/2%
senior notes due 2001 and 126,457 warrants to purchase shares of common stock of
Rickel issued by Rickel in October 1994. The complaint alleges violations of
Federal securities laws and common law fraud against DLJSC, as the underwriter
of the units and as an owner of 7.3% of the common stock of Rickel, against Eos
Partners, L.P., and General Electric Capital Corporation, each as owners of
44.2% of the common stock of Rickel, and against members of the board of
directors of Rickel, including a DLJSC managing director. The complaint seeks to
hold DLJSC liable for alleged misstatements and omissions contained in the
prospectus and registration statement filed in connection with the offering of
the units, alleging that the defendants knew of financial losses and a decline
in value of Rickel in the months prior to the offering and did not disclose such
information. The complaint also alleges that Rickel failed to pay its
semi-annual interest payment due on the units on December 15, 1995, and that
Rickel filed a voluntary petition for reorganization pursuant to Chapter 11 of
the Bankruptcy Code on January 10, 1996. In April 1999, the complaint against
DLJSC and the other defendants was dismissed. The plaintiffs have appealed.
DLJSC intends to defend itself vigorously against all of the allegations
contained in the complaint.
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In October 1995, DLJSC was named as a defendant in a purported class action
filed in a Texas State Court on behalf of the holders of $550 million principal
amount of subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC") canceled in connection with a Chapter 11 plan of
reorganization for NGC consummated in July 1993. The named plaintiff in the
State Court action also filed an adversary proceeding in the U.S. Bankruptcy
Court for the Northern District of Texas seeking a declaratory judgment that the
confirmed NGC plan of reorganization does not bar the class action claims.
Subsequent to the consummation of NGC's plan of reorganization, NGC's shares
traded for values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's activities as
financial advisor to NGC in the course of NGC's Chapter 11 reorganization
proceedings. The class action complaint alleges that the plan of reorganization
submitted by NGC was based upon projections by NGC and DLJSC which intentionally
understated forecasts, and provided misleading and incorrect information in
order to hide NGC's true value and that defendants breached their fiduciary
duties by, among other things, providing false, misleading or incomplete
information to deliberately understate the value of NGC. The class action
complaint seeks compensatory and punitive damages purportedly sustained by the
class. On October 10, 1997, DLJSC and others were named as defendants in a new
adversary proceeding in the Bankruptcy Court brought by the NGC Settlement
Trust, an entity created by the NGC plan of reorganization to deal with
asbestos-related claims. The Trust's allegations are substantially similar to
the claims in the State Court action. On January 21, 1998, the Bankruptcy Court
ruled that the State Court plaintiff's claims were not barred by the NGC plan of
reorganization insofar as they alleged nondisclosure of certain cost reductions
announced by NGC in October 1993. DLJSC appealed the Bankruptcy Court's January
1998 ruling to the U.S. District Court for the Northern District of Texas. On
May 7, 1998, DLJSC and others were named as defendants in a second action filed
in a Texas State Court brought by the NGC Settlement Trust. The allegations of
this second Texas State Court action are substantially similar to those of the
earlier class action pending in the State Court. In an amended order dated
January 5, 1999, the State Court granted the class action plaintiff's motion for
class certification. In an order dated March 1, 1999, the State Court granted
motions for summary judgment filed by DLJSC and the other defendants in both
State Court actions. The plaintiffs have appealed. DLJSC intends to defend
itself vigorously against all of the allegations contained in the complaints.
In November 1998, three purported class actions (Gillet v. Goldman, Sachs & Co.
et al., Prager v. Goldman, Sachs & Co. et al. and Holzman v. Goldman, Sachs &
Co. et al.) were filed in the U.S. District Court for the Southern District of
New York against more than 25 underwriters of initial public offering
securities, including DLJSC. The complaints allege that defendants conspired to
fix the "fee" paid for underwriting initial public offering securities by
setting the underwriters' discount or "spread" at 7%, in violation of the
Federal antitrust laws. The complaints seek treble damages in an unspecified
amount and injunctive relief as well as attorneys' fees and costs. On March 15,
1999, the plaintiffs filed a Consolidated Amended Complaint captioned In re
Public Offering Fee Antitrust Litigation. A motion by all defendants to dismiss
the complaints on several grounds is pending. Separately, the U.S. Department of
Justice has issued a Civil Investigative Demand to several investment banking
firms, including DLJSC, seeking documents and information relating to "alleged"
price-fixing with respect to underwriting spreads in initial public offerings.
The government has not made any charges against DLJSC or the other investment
banking firms. DLJSC is cooperating with the Justice Department in providing the
requested information and believes that no violation of law by DLJSC has
occurred.
Although there can be no assurance, DLJ's management does not believe that the
ultimate outcome of the three matters described above to which DLJSC is a party
will have a material adverse effect on DLJ's consolidated financial condition.
Based upon the information currently available to it, DLJ's management cannot
predict whether or not these matters will have a material adverse effect on
DLJ's results of operations in any particular period.
In addition to 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 AXA Financial's consolidated
financial position or results of operations.
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Part I, Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of 1999.
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Part II, Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Holding Company's Common Stock is listed on the New York Stock Exchange
which is the principal market for the Holding Company's Common Stock. Its symbol
is AXF. As of March 20, 2000, there were approximately 499,000 record holders of
the Common Stock.
The dividends declared and the high and low reported closing sales prices on the
New York Stock Exchange with respect to the Holding Company's Common Stock for
each quarterly period for the two most recent fiscal years were as follows:
<TABLE>
<CAPTION>
Common Stock Data
First Quarter Second Quarter Third Quarter Fourth Quarter
Price Range and Dividends 1999 1999 1999 1999
- ----------------------------------- ----------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
High............................... $ 36.16 $ 37.28 $ 34.59 $ 36.13
Low................................ $ 28.58 $ 30.97 $ 26.94 $ 25.50
Dividends Declared................. $ .025 $ .025 $ .025 $ .025
First Quarter Second Quarter Third Quarter Fourth Quarter
Price Range and Dividends 1998 1998 1998 1998
- ----------------------------------- ----------------- ------------------- ---------------- -----------------
High............................... $ 29.91 $ 37.47 $ 41.66 $ 29.88
Low................................ $ 21.75 $ 28.22 $ 20.69 $ 15.50
Dividends Declared................. $ .025 $ .025 $ .025 $ .025
</TABLE>
All dollar amounts are adjusted to reflect the 1999 two-for-one stock split.
For information on the Holding Company's present and future ability to pay
dividends, see Note 21 of Notes to Consolidated Financial Statements (Item 8 of
this report), "Liquidity and Capital Resources" of Management's Discussion and
Analysis of Financial Condition and Results of Operations (Item 7 of this
report), and "Shareholder Dividend Restrictions" of Business (Item 1 of this
report).
5-1
<PAGE>
Part II, Item 6.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At or For the Years Ended December 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------- -------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Earnings Data
Revenues
Universal life and investment-type
product policy fee income.............. $ 1,257.5 $ 1,056.2 $ 950.6 $ 874.0 $ 788.2
Premiums................................. 558.2 588.1 601.5 597.6 606.8
Net investment income(1)................. 4,500.0 4,498.7 3,991.3 3,336.3 3,047.4
Investment banking principal
transactions, net(2)................... 826.0 67.4 552.0 557.0 496.8
Investment gains, net(3)(4).............. 32.6 122.6 (39.2) .8 55.5
Commissions, fees and other income....... 6,109.9 4,498.4 3,507.4 2,841.9 2,142.4
Contribution from the Closed Block(5).... 86.4 87.1 102.5 125.0 143.2
-------------- ------------- ------------- ------------- -------------
Total revenues............................. 13,370.6 10,918.5 9,666.1 8,332.6 7,280.3
Total benefits and other deductions
(6)(7)(8).............................. 11,294.7 9,314.5 8,563.1 7,816.8 6,635.1
-------------- ------------- ------------- ------------- -------------
Earnings from continuing operations
before Federal income taxes and
minority interest........................ 2,075.9 1,604.0 1,103.0 515.8 645.2
Federal income tax expense(9).............. 584.5 527.8 280.5 137.4 192.3
Minority interest in net income of
consolidated subsidiaries................ 393.4 245.8 174.3 172.4 87.5
-------------- ------------- ------------- ------------- -------------
Earnings from continuing operations
before cumulative effect of
accounting change........................ 1,098.0 830.4 648.2 206.0 365.4
Discontinued operations, net of Federal
income taxes(1)(10)(11).................. 28.1 2.7 (87.2) (83.8) -
Cumulative effect of accounting changes,
net of Federal income taxes.............. - - - (23.1) -
-------------- ------------- ------------- ------------- -------------
Net earnings............................... 1,126.1 833.1 561.0 99.1 365.4
Dividends on preferred stocks.............. - - 15.6 26.7 26.7
-------------- ------------- ------------- ------------- -------------
Net Earnings Applicable to
Common Shares............................ $ 1,126.1 $ 833.1 $ 545.4 $ 72.4 $ 338.7
============== ============= ============= ============= =============
Per Common Share*:
Basic:
Earnings from Continuing Operations
before Cumulative Effect of
Accounting Change.................... $ 2.51 $ 1.87 $ 1.57 $ .48 $ .92
============== ============= ============= ============= =============
Net Earnings........................... $ 2.58 $ 1.88 $ 1.35 $ .20 $ .92
============== ============= ============= ============= =============
Diluted:
Earnings from Continuing Operations
before Cumulative Effect of
Accounting Change.................... $ 2.39 $ 1.80 $ 1.43 $ .47 $ .87
============== ============= ============= ============= =============
Net Earnings........................... $ 2.45 $ 1.81 $ 1.24 .18 $ .87
============== ============= ============= ============= =============
Cash Dividends Per Common Share*........... $ .10 $ .10 $ .10 $ .10 $ .10
============== ============= ============= ============= =============
Consolidated Balance Sheets Data
Total assets(5)(12)........................ $ 207,554.3 $ 159,501.1 $ 151,173.2 $ 128,811.2 $ 113,716.2
Long-term debt............................. 6,606.5 5,474.0 3,946.0 3,920.7 3,852.0
Total liabilities(5)(12)................... 201,715.4 153,808.0 145,899.7 124,823.2 109,607.5
Shareholders' equity....................... 5,838.9 5,693.1 5,273.5 3,988.0 4,108.7
<FN>
*Per share amounts adjusted to reflect the 2-for-1 stock split in 1999.
6-1
<PAGE>
NOTES TO SELECTED CONSOLIDATED
FINANCIAL INFORMATION
(1) Net investment income and discontinued operations included $26.6 million,
$53.3 million, $114.3 million and $154.6 million for 1998, 1997, 1996 and
1995 respectively, recognized as investment income by continuing operations
and as interest expense by discontinued operations relating to intersegment
loans.
(2) The 1996 results included a $79.4 million gain on the sale of one
investment in the DLJ long-term corporate development portfolio.
(3) Investment gains, net, included additions to asset valuation allowances and
writedowns of fixed maturities and, in 1997 and 1996 equity real estate,
for continuing operations totaling $291.4 million, $187.8 million, $483.8
million, $178.6 million and $197.6 million for 1999, 1998, 1997, 1996 and
1995, respectively. In 1997, additions to valuation allowances of $227.6
million were recorded related to the accelerated equity real estate sales
program and $132.3 million of writedowns on real estate held for production
of income were recorded. As a result of the implementation of SFAS No. 121,
1996 results include the release of valuation allowances of $152.4 million
on equity real estate and the recognition of impairment losses of $144.0
million on real estate held for production of income.
(4) Investment gains, net for 1999 included a pre-tax gain of $212.3 million
from DLJ's offering of a new class of its common stock to track the
financial performance of DLJdirect. The 1997 results included a pre-tax
gain of $252.1 million from the sale of ERE. The 1995 results included a
$34.7 million gain resulting from the sale of DLJ common stock.
(5) The results of the Closed Block are reported on one line in the
consolidated statements of earnings. Total assets and total liabilities,
respectively, include the assets and liabilities of the Closed Block. See
Note 7 of Notes to Consolidated Financial Statements.
(6) In 1999, revisions to estimated future gross profits used to determine the
amortization of DAC for universal life and investment-type products
resulted in a writedown of DAC of $131.7 million. In 1996, AXA Financial
wrote off $145.0 million of unamortized DAC on disability income ("DI")
products and strengthened reserves by $248.0 million for the DI and Pension
Par lines of business. As a result, earnings from continuing operations
decreased by $255.5 million ($393.0 million pre-tax). See Note 2 of Notes
to Consolidated Financial Statements.
(7) Total benefits and other deductions included Corporate interest expense of
$131.2 million, $126.1 million, $127.2 million, $139.6 million and $100.5
million for 1999, 1998, 1997, 1996 and 1995, respectively.
(8) Total benefits and other deductions included provisions associated with
exit and termination costs of $42.4 million, $24.4 million and $39.2
million for 1997, 1996 and 1995, respectively.
(9) In 1997, AXA Financial released $97.5 million of tax reserves related to
years prior to 1989.
(10) Discontinued operations, net of Federal income taxes included additions to
asset valuation allowances and writedowns of fixed maturities and, in 1997
and 1996, equity real estate, which totaled $50.5 million, $33.2 million,
$212.5 million, $36.0 million and $38.2 million for 1999, 1998, 1997, 1996
and 1995, respectively. In 1997, additions to valuation allowances of $79.8
million were recognized related to the accelerated equity real estate sales
program and $92.5 million of writedowns on real estate held for production
of income were recognized. The implementation of SFAS No. 121 in 1996
resulted in the 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 for production of income.
6-2
<PAGE>
(11) During the 1999, 1998, 1997 and 1996 reviews of the allowance for future
losses for discontinued operations, management released the allowance in
1999 and 1998 and increased the allowance in 1997 and 1996. As a result,
net earnings increased by $28.1 million and $2.7 million and decreased by
$87.2 million and $83.8 million for 1999, 1998, 1997 and 1996,
respectively. Incurred (losses) gains of $(19.3) million, $50.3 million,
($154.4) million, ($23.7) million and ($25.1) million for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995, respectively, were credited
(charged) to discontinued operations allowance for future losses. See Note
8 of Notes to Consolidated Financial Statements.
(12) Assets and liabilities relating to discontinued operations are not
reflected on the consolidated balance sheets of AXA Financial, except that
the net amount due to continuing operations for intersegment loans made to
discontinued operations in excess of continuing operations' obligations to
fund discontinued operations' accumulated deficit is reflected as "Amounts
due from discontinued operations" in 1998, 1997, 1996 and 1995.
</FN>
</TABLE>
6-3
<PAGE>
Part II, Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis ("MD&A") for AXA Financial which follows
should be read in conjunction with the Consolidated Financial Statements and
related footnotes included elsewhere in this report. Reports and filings with
the SEC made before September 3, 1999 will be found under The Equitable
Companies Incorporated's name.
COMBINED OPERATING RESULTS
The combined and segment-level discussions for the Financial Advisory/Insurance,
Investment Banking and Brokerage and Investment Management segments in this MD&A
are presented on an operating results basis. Amounts reported in the GAAP
financial statements have been adjusted to exclude non-DLJ investment
gains/losses, net of related DAC and other charges and the effect of unusual or
non-recurring events and transactions. A reconciliation of pre-tax operating
earnings, as adjusted, to GAAP reported earnings from continuing operations
precedes each discussion. A discussion of significant adjustments begins on the
next page.
The following table presents the results of operations outside of the Closed
Block combined on a line-by-line basis with the Closed Block's operating
results. The Financial Advisory/Insurance analysis, which begins on page 7-4,
likewise combines the Closed Block amounts on a line-by-line basis. The MD&A
addresses the combined results of operations unless noted otherwise. The
Investment Banking and Brokerage and Investment Management discussions begin on
pages 7-8 and 7-10, respectively.
7-1
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Operating Results:
Policy fee income and premiums............................ $ 2,431.0 $ 2,304.6 $ 2,238.5
Net investment income..................................... 5,068.8 5,068.4 4,566.2
Investment banking principal transactions................. 826.0 33.6 552.0
Commissions, fees and other income........................ 6,098.8 4,534.0 3,510.1
----------------- ----------------- ----------------
Total revenues........................................ 14,424.6 11,940.6 10,866.8
----------------- ----------------- ----------------
Interest credited to policyholders' account balances...... 1,092.8 1,168.1 1,281.8
Policyholders' benefits................................... 2,048.7 2,092.5 2,030.5
Other operating costs and expenses........................ 9,107.2 7,166.7 6,252.8
----------------- ----------------- ----------------
Total benefits and other deductions................... 12,248.7 10,427.3 9,565.1
----------------- -----------------
----------------
Pre-tax operating earnings before minority interest....... 2,175.9 1,513.3 1,301.7
Minority interest......................................... (498.2) (317.3) (284.7)
----------------- ----------------- ----------------
Pre-tax operating earnings................................ 1,677.7 1,196.0 1,017.0
Pre-tax Adjustments:
Investment gains (losses), net of related DAC
and other charges....................................... 31.7 90.7 (285.2)
Gain on sale of ERE....................................... - - 249.8
Intangible asset writedown................................ - - (120.9)
Non-recurring DAC adjustments............................. (131.7) - -
Restructuring charges..................................... - - (42.4)
----------------- ----------------- ----------------
Total pre-tax adjustments............................. (100.0) 90.7 (198.7)
Minority interest......................................... 498.2 317.3 284.7
----------------- ----------------- ----------------
GAAP Reported:
Earnings from continuing operations before
Federal income taxes and minority interest.............. 2,075.9 1,604.0 1,103.0
Federal income taxes...................................... 584.5 527.8 280.5
Minority interest in net income of consolidated
subsidiaries............................................ 393.4 245.8 174.3
----------------- ----------------- ----------------
Earnings from continuing operations....................... 1,098.0 830.4 648.2
Discontinued operations, net of Federal income taxes...... 28.1 2.7 (87.2)
----------------- ----------------- ----------------
Net Earnings................................................ $ 1,126.1 $ 833.1 $ 561.0
================= ================= ================
</TABLE>
Pre-tax adjustments to GAAP reported earnings in calculating operating earnings
for 1999 reflect the exclusion of $31.7 million of investment gains, net of
related DAC and other charges. These net investment gains included a $212.3
million gain related to the sale of an approximately 18% interest in DLJdirect's
financial performance through the sale of a new class of DLJ common stock, the
$87.3 million of gains recognized upon reclassification of publicly-traded
common equities to a trading portfolio and $27.1 million of gains resulting from
the exercise of subsidiaries' options and conversion of DLJ RSUs. Investment
losses of $294.9 million related to writedowns and sales of General Account
fixed maturities partially offset those gains. In addition, the $131.7 million
non-recurring DAC adjustments that resulted from the revisions to estimated
future gross profits related to the investment asset reallocation in second
quarter are excluded from 1999 operating results (see Note 2 of Notes to
Consolidated Financial Statements).
The 1998 pre-tax adjustments reflect the exclusion of $90.7 million of net
investment gains (excluding related DAC and other charges and credits totaling
$24.2 million). Investment gains on General Account Investment Assets totaled
$67.6 million, principally due to gains on sales of equity real estate. An
additional $49.8 million resulted from the exercise of subsidiaries' options and
conversion of DLJ RSUs.
7-2
<PAGE>
Pre-tax adjustments for 1997 included losses of $345.1 million (net of related
DAC amortization of $59.0 million) in connection with the real estate sales
program. Also excluded were the gain on Equitable Life's sale of ERE, the
Alliance writedown of Cursitor-related intangible assets and restructuring costs
in connection with cost reduction programs.
During fourth quarter 1997, AXA Financial released approximately $97.5 million
of tax reserves related to continuing operations for years prior to 1989. The
effect is included in Federal income taxes for 1997. See "Discontinued
Operations" for a discussion of significant reserve strengthening actions which
affected discontinued operations' results in 1997.
Continuing Operations
1999 Compared to 1998 - Pre-tax operating earnings increased for all three
segments in 1999 as compared to 1998. The increase in Federal income taxes
reflected the higher earnings. Minority interest in net income of consolidated
subsidiaries increased as a result of higher earnings at both Alliance and DLJ.
AXA Financial's economic interest in Alliance's operations declined to 57.2%
from 57.7% and in DLJ declined to 69.7% from 70.9% at December 31, 1999 and
1998, respectively.
Revenues increased 20.8% to $14.42 billion in 1999. The $1.56 billion higher
commissions, fees and other income was principally due to increased business
activity within the Investment Banking and Brokerage and Investment Management
segments. The $792.4 million increase in investment banking principal
transactions was primarily due to dealer and trading gains of $718.6 million at
DLJ in 1999 compared to losses of $58.6 million in 1998.
Benefits and other deductions rose 17.5% to $12.25 billion in 1999. The $1.94
billion increase in other operating costs and expenses was primarily due to
$1.41 billion and $394.0 million higher expenses in the Investment Banking and
Brokerage and Investment Management segments principally resulting from higher
costs associated with increased revenues at DLJ and Alliance.
1998 Compared to 1997 - The higher pre-tax operating earnings for 1998 reflected
increased earnings by the Financial Advisory/Insurance and Investment Management
segments and lower earnings for Investment Banking and Brokerage principally due
to the impact of adverse capital market conditions on DLJ in third quarter 1998.
Federal income taxes increased due to the higher pre-tax results of operations,
the 1997 tax reserve release and the 3.5% Federal tax on partnership gross
income from the active conduct of a trade or business which was imposed on
certain publicly traded limited partnerships, including Alliance, effective
January 1, 1998. Minority interest in net income of consolidated subsidiaries
was higher principally due to increased earnings at Alliance and to reductions
in AXA Financial's ownership interest in DLJ and Alliance's operations to 70.9%
and 57.7% at December 31, 1998 from 72.0% and 57.9% at December 31, 1997,
respectively.
The $1.07 billion increase in revenues for 1998 compared to 1997 was attributed
primarily to the $1.03 billion increase in commissions, fees and other income
principally due to increased business activity within Investment Banking and
Brokerage and Investment Management. Net investment income increased $502.2
million for 1998 with increases of $537.0 million and $6.6 million for
Investment Banking and Brokerage and Investment Management, respectively, offset
by a $41.4 million decrease for Financial Advisory/Insurance. Investment banking
principal transactions decreased by $518.4 million for 1998 principally due to
dealer and trading losses of $58.6 million in 1998 compared to trading gains of
$357.5 million in the prior year.
For 1998, total benefits and other deductions increased $862.2 million from
1997, reflecting increases in other operating costs and expenses of $913.9
million and a $62.0 million increase in policyholders' benefits partially offset
by a $113.7 million decrease in interest credited to policyholders. The increase
in other operating costs and expenses principally resulted from increased
operating costs of $817.8 million in Investment Banking and Brokerage.
7-3
<PAGE>
Combined Operating Results By Segment
Financial Advisory/Insurance. The following table combines the Closed Block
amounts with the operating results of operations outside of the Closed Block on
a line-by-line basis:
Financial Advisory/Insurance - Combined Operating Results
(In Millions)
<TABLE>
<CAPTION>
1999
-------------------------------------------
Insurance Closed 1998 1997
Operations Block Combined Combined Combined
------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Results:
Universal life and investment-type
product policy fee income............ $ 1,253.9 $ - $ 1,253.9 $ 1,056.2 $ 950.5
Premiums............................... 558.2 618.9 1,177.1 1,248.4 1,287.9
Net investment income.................. 2,200.5 574.2 2,774.7 2,765.9 2,807.3
Commissions, fees and other income..... 238.5 (11.1) 227.4 137.9 118.1
Contribution from the Closed Block..... 86.4 (86.4) - - -
------------- ------------ ------------- ------------- -------------
Total revenues..................... 4,337.5 1,095.6 5,433.1 5,208.4 5,163.8
------------- ------------ ------------- ------------- -------------
Interest credited to policyholders'
account balances..................... 1,078.2 14.6 1,092.8 1,167.7 1,281.6
Policyholders' benefits................ 1,038.6 1,010.1 2,048.7 2,092.5 2,030.5
Deferred policy acquisition costs...... (379.3) 65.5 (313.8) (273.2) (127.6)
All other operating costs
and expenses......................... 1,747.1 5.4 1,752.5 1,567.4 1,509.7
------------- ------------ ------------- ------------- -------------
Total benefits and
other deductions................. 3,484.6 1,095.6 4,580.2 4,554.4 4,694.2
------------- ------------ ------------- ------------- -------------
Pre-tax operating earnings............. 852.9 - 852.9 654.0 469.6
Pre-tax Adjustments:
Investment (losses) gains, net of
related DAC and other charges........ (207.8) - (207.8) 41.1 (291.9)
Non-recurring DAC adjustments.......... (131.7) - (131.7) - -
Restructuring charges.................. - - - - (41.7)
------------- ------------ ------------- ------------- -------------
Total pre-tax adjustments.......... (339.5) - (339.5) 41.1 (333.6)
------------- ------------ ------------- ------------- -------------
GAAP Reported:
Earnings from Continuing
Operations before Federal
Income Taxes ........................ $ 513.4 $ - $ 513.4 $ 695.1 $ 136.0
============= ============ ============= ============= =============
</TABLE>
1999 Compared to 1998 - Pre-tax operating earnings rose 30.4% to $852.9 million
compared to $654.0 million in 1998, driven by improvements in net interest
margins, fee income and insurance spreads, partially offset by higher expenses
and DAC amortization. Revenues increased $224.7 million to $5.43 billion in
1999. Higher revenues resulted from policy fee income increases of $197.7
million on variable and interest-sensitive life and annuity products due to
higher sales and appreciation and $89.5 million higher commissions, fees and
other income principally due to higher mutual fund and investment product sales
. These increases were partially offset by $71.3 million lower premiums
principally on traditional life and individual health insurance policies. Net
investment income increased slightly as higher income on other equity
investments, mortgages and cash and cash equivalents was offset by lower income
on equity real estate and fixed maturities as well as lower income from the
Holding Company Group's investment portfolio.
In 1999, total benefits and other deductions increased $25.8 million to $4.58
billion. There was a $185.1 million increase in other operating costs and
expenses. The increase was primarily due to increased commissions and other
variable expenses due to increased sales volume, higher information technology
costs and expenses related to the strategic initiatives in connection with the
introduction and repositioning of brands, new products and services, field force
restructuring and financial planning/advisory training and higher compensation
and benefits. Lower interest expense on lower short-term borrowings partially
7-4
<PAGE>
offset these increases. The $74.9 million decrease in interest credited on
policyholders' account balances was primarily due to lower crediting rates in
1999 as compared to 1998. DAC capitalization increased by $86.8 million to
$709.8 million primarily related to increased deferrable expenses related to
higher sales volume and DAC amortization was $46.2 million higher due
principally to reactivity to mortality, General Account investment spread and
fee income. The $43.8 million decrease in policyholders' benefits was primarily
attributed to lower traditional life insurance mortality and lower reserve
increases due to lower renewal premiums.
1998 Compared to 1997 - Operating earnings for 1998 reflected an increase of
$184.4 million from the prior year. Total revenues increased by $44.6 million
primarily due to a $105.7 million increase in policy fees and a $19.8 million
increase in commissions, fees and other income, offset by a $41.4 million
decrease in investment income and a $39.5 million decline in premiums. Policy
fee income for 1998 increased to $1.06 billion in 1998 due to higher insurance
and annuity account balances. The decrease in investment income primarily was
due to $25.3 million lower income on General Account Investment Assets and a
$26.7 million decrease in interest income on loans to discontinued operations in
1998. The decrease in premiums during 1998 principally was due to lower
traditional life and individual health premiums.
Total benefits and other deductions for 1998 declined $139.8 million from 1997.
A $113.9 million decrease in interest credited on policyholders' account
balances resulted from moderately lower crediting rates on slightly lower
General Account balances which more than offset the decline in net investment
income. The decline in policyholders' account balances was primarily due to the
single large company-owned life insurance ("COLI") policy surrendered in the
first quarter of 1998. DAC capitalization increased by $101.2 million primarily
related to increased sales volume and DAC amortization was $44.4 million lower
due principally to reactivity to mortality, General Account investment spread
and fee income. There were $96.4 million higher commission expenses due to
increased sales, partially offset by a $38.7 million decrease in other general
operating costs principally related to lower interest expense. The $62.0 million
increase in policyholders' benefits primarily resulted from higher death claims
experience on a higher in force book of business.
7-5
<PAGE>
Premiums, Deposits and Mutual Fund Sales - The following table lists sales for
major insurance product lines and mutual funds. Premiums are presented gross of
reinsurance ceded.
Premiums, Deposits and Mutual Fund Sales
(In Millions)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Retail:
Annuities
First year.............................................. $ 3,484.2 $ 3,014.4 $ 2,627.9
Renewal................................................. 1,812.6 1,707.1 1,600.9
----------------- ---------------- ----------------
5,296.8 4,721.5 4,228.8
Life(1)
First year.............................................. 407.7 426.1 409.3
Renewal................................................. 2,211.2 2,160.0 2,121.3
----------------- ---------------- ----------------
2,618.9 2,586.1 2,530.6
Other(2)
First year.............................................. 10.5 11.3 36.4
Renewal................................................. 381.0 398.8 384.8
Mutual fund sales....................................... 2,717.5 2,373.2 1,706.7
----------------- ---------------- ----------------
3,109.0 2,783.3 2,127.9
----------------- ---------------- ----------------
Total retail........................................ 11,024.7 10,090.9 8,887.3
Wholesale:
Annuities
First year.............................................. 2,229.6 1,686.8 648.4
Renewal................................................. 43.5 10.5 -
----------------- ---------------- ----------------
Total wholesale..................................... 2,273.1 1,697.3 648.4
----------------- ---------------- ----------------
Total Premiums, Deposits and Mutual Fund Sales............ $ 13,297.8 $ 11,788.2 $ 9,535.7
================= ================ ================
<FN>
(1) Includes variable, interest-sensitive and traditional life products.
(2) Includes reinsurance assumed and health insurance.
</FN>
</TABLE>
First year premiums and deposits for insurance and annuity products for 1999
increased from the prior year's level by $993.4 million primarily due to higher
sales of individual annuities by both the retail and wholesale distribution
channels, partially offset by an $18.4 million decline in life sales. In fourth
quarter 1999, first year life sales increased due to sales of a new series of
variable life products introduced in 1999. Renewal premiums and deposits
increased by $171.9 million during 1999 over 1998 as increases in the larger
block of annuity and variable life business were partially offset by decreases
in traditional life policies.
First year premiums and deposits for insurance and annuity products for 1998
increased from prior year's level by $1.42 billion primarily due to higher sales
of individual annuities. Renewal premiums and deposits increased by $169.4
million during 1998 over 1997 as increases in the larger block of individual
annuities and variable and interest-sensitive life policies were partially
offset by decreases in the traditional life product line. The 43.5% increase in
first year individual annuities premiums and deposits in 1998 over the prior
year included a $1.04 billion increase in sales of a line of retirement annuity
products sold through expanded wholesale distribution channels over the $648.4
million sold through that distribution channel in 1997. Compared with 1997,
sales of annuities by the retail sales associates rose 14.7% to $3.01 billion in
1998.
7-6
<PAGE>
Surrenders and Withdrawals - The following table presents surrender and
withdrawal amounts and rates for major insurance product lines.
Surrenders and Withdrawals
(In Millions)
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- ------------------------- -----------------------
Amount Rate (1) Amount Rate (1) Amount Rate (1)
--------------- ---------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Annuities...................... $ 3,756.7 9.7% $ 2,773.1 8.7% $ 2,540.8 9.6%
Variable and interest-
sensitive life............... 612.8 3.8% 1,080.2 7.5%(2) 498.9 3.8%
Traditional life............... 345.8 4.2% 353.1 4.4% 372.9 4.6%
--------------- ------------- ------------
Total.......................... $ 4,715.3 $ 4,206.4 $ 3,412.6
=============== ============= ==============
<FN>
(1) Surrender rates are based on the average surrenderable future policy
benefits and/or policyholders' account balances for the related policies
and contracts in force during 1999, 1998 and 1997, respectively.
(2) Excluding the single large COLI surrender, the surrender rate would have
been 3.6%.
</FN>
</TABLE>
Policy and contract surrenders and withdrawals increased $508.9 million during
1999 compared to 1998. The 1998 total included the first quarter 1998 surrender
of $561.8 million related to a single large COLI contract. Since policy loans
were outstanding on the surrendered contract, there were no cash outflows.
Excluding the effect of this one surrender, the $1.07 billion increase in 1999
over 1998 resulted from higher surrenders and withdrawals due to both the
growing size and maturity of the book of annuities and variable and
interest-sensitive life business partially offset by the decrease in the
traditional life surrender rate. Policy and contract surrenders and withdrawals
increased $793.8 million during 1998 compared to 1997 principally due to the
COLI surrender mentioned above. Excluding the effect of this one surrender, the
remaining $232.0 million increase resulted from higher surrenders and
withdrawals in the larger book of individual annuities and variable and
interest-sensitive life policies.
The persistency of life insurance and annuity products is a critical element of
their profitability. As of December 31, 1999, all in force individual life
insurance policies (other than individual life term policies without cash values
which comprise 8.9% of in force policies) and approximately 96% of individual
annuity contracts (as measured by reserves) were surrenderable. However, a
surrender charge often applies in the early contract years and declines to zero
over time. Contracts without surrender provisions cannot be terminated prior to
maturity.
Margins on Insurance and Annuity Products - The segment's results significantly
depend on profit margins between investment results from General Account
Investment Assets and interest credited on insurance and annuity products.
During 1999, margins widened as lower average crediting rates more than offset
lower investment yields. In 1999, the crediting rate ranges were: 4.25% to 6.40%
for variable and interest-sensitive life insurance; 4.15% to 6.00% for variable
deferred annuities; 4.05% to 7.00% for SPDA contracts; and 5.00% for retirement
investment accounts.
Margins on insurance and annuity products are affected by interest rate
fluctuations. Rising interest rates result in a decline in the market value of
assets. However, the positive cash flows from renewal premiums and payments of
principal and interest on existing assets would make an early disposition of
investment assets to meet operating cash flow requirements unlikely. Rising
interest rates also would result in available cash flows being invested at
higher interest rates, which would help support a gradual increase in new
business and renewal interest rates on interest-sensitive products. A sharp,
sudden rise in interest rates without a concurrent increase in crediting rates
could result in higher surrenders, particularly for annuities. The effect of
such surrenders would be to reduce earnings modestly over the long term while
increasing earnings in the period of the surrenders to the extent surrender
charges were applicable. To protect against sharp increases in interest rates,
Equitable Life maintains an interest rate cap program designed to hedge
crediting rate increases on interest-sensitive annuity contracts. At December
31, 1999, the notional amounts of contracts outstanding totaled $7.58 billion,
as compared to $8.45 billion at December 31, 1998.
7-7
<PAGE>
If interest rates fall, crediting interest rates and dividends would be adjusted
subject to competitive pressures. Only a minority of Equitable Life's insurance
policies and annuity contracts have fixed interest rates locked in at issue. The
majority of contracts are adjustable, having guaranteed minimum rates ranging
from approximately 2.5% to 5.5%. Approximately 90% of the life policies have a
minimum rate of 4.5% or lower. Should interest rates fall below such policy
minimums, adjustments to life policies' mortality and expense charges could
cover the shortfall in most situations. Lower crediting interest rates and
dividends could result in higher surrenders. To protect against interest rate
decreases, Equitable Life maintains interest rate floors; at both December 31,
1999 and 1998, the outstanding notional amount of contracts totaled $2.0
billion.
Investment Banking and Brokerage.
Investment Banking and Brokerage - Operating Results
(In Millions)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Operating Results:
Commissions, underwritings and fees....................... $ 4,059.1 $ 3,089.9 $ 2,368.8
Net investment income..................................... 2,175.3 2,189.1 1,652.1
Principal transactions - net:
Dealer and trading gains (losses)...................... 718.6 (58.6) 357.5
Investment gains....................................... 107.3 126.0 194.5
Other income.............................................. 93.4 72.3 76.6
----------------- ----------------- ----------------
Total revenues........................................ 7,153.7 5,418.7 4,649.5
----------------- ----------------- ----------------
Compensation and benefits................................. 3,105.4 2,231.7 1,908.2
Interest expense.......................................... 1,590.2 1,455.9 1,153.2
Occupancy, communications and technology.................. 624.2 458.5 378.9
Brokerage, clearing and exchange fees..................... 313.8 258.6 231.4
Other expenses............................................ 655.2 465.3 380.5
----------------- ----------------- ----------------
Total expenses........................................ 6,288.8 4,870.0 4,052.2
----------------- ----------------- ----------------
Pre-tax operating earnings before minority interest....... 864.9 548.7 597.3
Minority interest......................................... (281.4) (175.8) (176.2)
----------------- ----------------- ----------------
Pre-tax operating earnings................................ 583.5 372.9 421.1
Pre-tax Adjustments:
Investment gains (losses), net of DAC..................... 235.0 40.1 6.6
Minority interest........................................... 281.4 175.8 176.2
----------------- ----------------- ----------------
GAAP Reported:
Earnings from Continuing Operations before
Federal Income Taxes and Minority Interest.............. $ 1,099.9 $ 588.8 $ 603.9
================= ================= ================
</TABLE>
1999 Compared to 1998 - The Investment Banking and Brokerage segment's pre-tax
operating earnings before minority interest increased $316.2 million, up 57.6%
from 1998. Revenues increased $1.74 billion to $7.15 billion as a result of
higher commissions, underwritings and fees and dealer and trading gains
partially offset by lower net investment income and investment gains. Commission
revenues at DLJ increased $346.0 million due to increased business in virtually
all areas reflecting higher trading volumes on major exchanges, significant
increases in commissions from international sources and increases in the number
of client accounts and in client assets. Underwriting revenues increased $202.9
million primarily due to increases related to domestic equity offerings
partially offset by the decline in new issues of high-yield and mortgage-backed
securities. Fee revenues increased $420.3 million reflecting DLJ's market share
growth in global merger and acquisition advisory transactions, higher customer
demand for advisory and technology services and higher fees on higher assets
under management. In 1999, there were trading gains of $718.6 million primarily
due to gains in fixed income and equity trading compared to trading losses of
$58.6 million in 1998 related to losses in the emerging market, high-yield and
mortgage-back areas. The $13.8 million decrease in net investment income
primarily resulted from the elimination of interest related to emerging market
proprietary trading which DLJ exited in third quarter 1998. Investment gains
decreased $18.7 million as $81.2 million lower realized gains on investment
sales were offset by $68.8 million increased gains in DLJ's venture capital
area.
7-8
<PAGE>
In 1999, total expenses for Investment Banking and Brokerage rose $1.42 billion
to $6.29 billion primarily due to growth in correspondent brokerage services and
DLJ's international expansion in Europe. Compensation and benefits increased
$873.7 million as incentive and production-related compensation increased with
the higher levels of business activity while base compensation and benefits
increased with the higher headcount due to DLJ's global expansion. The $134.3
million increase in interest expense related to increased inventory positions in
1999 was partially offset by lower interest rates and reduced proprietary
trading in emerging markets. The occupancy, communication and technology expense
increase of $165.7 million was principally related to DLJ's ongoing domestic and
international expansion. The increase of $55.2 million in brokerage, clearing
and exchange fees was due to increased trading volume and transaction fee
payments. The $189.9 million increase in other expenses included higher
professional fees, travel and entertainment and other costs related to the
increased level of business activity and approximately $38.0 million of
advertising expenses related to DLJdirect.
1998 Compared to 1997 - Pre-tax operating earnings before minority interest for
Investment Banking and Brokerage in 1998 decreased $48.6 million from the prior
year primarily as a result of losses in the emerging markets which more than
offset increased profitability in DLJ's other business groups. Revenues
increased $769.2 million due to increases in commissions, underwritings and fee
income. Commissions rose 23.8% to $854.7 million due to increases in DLJ's
institutional equities business, its private client and on-line brokerage
service units and its correspondent services business. Underwriting revenues
grew 14.5% to $1.04 billion as DLJ increased its market share in equity,
convertible and high-yield underwriting. Fee income increased 55.3% to $1.19
billion due to increased merger and acquisition activity. Net investment income
rose 32.5% to $2.19 billion as funds were used to finance U.S. government,
agency and mortgage-backed securities. Additionally, there were increases in
domestic and foreign margin balances and higher levels of foreign fixed income
securities, primarily in the emerging markets prior to DLJ's withdrawal from
that activity in the second half of 1998. The dealer and trading loss and the
decline in other investment gains (losses) in 1998 were primarily attributable
to markdowns on DLJ's fixed maturities and to losses incurred in emerging market
and high-yield fixed maturities trading in the latter half of 1998 as global
economic problems, particularly in Japan and in emerging markets including
Russia and Asia, led to a widespread sell-off of these securities worldwide.
Total expenses for Investment Banking and Brokerage increased $817.8 million in
1998. The employee compensation and benefits increase of $323.5 million resulted
from higher incentive and production-related compensation due to the business
growth described above and to increased headcount as DLJ's businesses continued
to expand globally. This expansion also accounted for the $79.6 million increase
in occupancy, communications and technology. Interest expense for 1998 rose
$302.7 million principally related to the financing of DLJ's domestic and
foreign stock loaned/borrowed business. The $27.2 million increase in brokerage,
clearing and exchange fees resulted from increased share volume and transaction
fees. The $84.8 million increase in other expenses included higher professional
fees, travel and entertainment and other costs resulting from increased business
activity as well as the costs of DLJ's Year 2000 project.
7-9
<PAGE>
Investment Management. The following table presents the operating results of the
Investment Management segment, which consists principally of the operations of
Alliance. Alliance's operations were conducted by Alliance Holding prior to its
reorganization in October 1999. For information on the reorganization, see Note
1 of Notes to Consolidated Financial Statements, "Liquidity and Capital
Resources - Alliance," and the Alliance Holding Report on Form 10-K for the year
ended December 31, 1999.
Investment Management - Operating Results
(In Millions)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Operating Results:
Investment advisory and services fees(1).................. $ 1,331.8 $ 953.0 $ 699.0
Distribution revenues..................................... 441.8 301.9 216.9
Other revenues(1)......................................... 96.6 73.8 157.6
----------------- ----------------- ----------------
Total revenues........................................ 1,870.2 1,328.7 1,073.5
----------------- ----------------- ----------------
Promotion and servicing................................... 620.7 460.3 312.2
Employee compensation and benefits........................ 508.6 340.9 264.3
All other operating expenses.............................. 282.8 216.9 262.2
----------------- ----------------- ----------------
Total expenses........................................ 1,412.1 1,018.1 838.7
----------------- ----------------- ----------------
Pre-tax operating earnings before minority interest....... 458.1 310.6 234.8
Minority interest......................................... (216.8) (141.5) (108.5)
----------------- ----------------- ----------------
Pre-tax operating earnings................................ 241.3 169.1 126.3
Pre-tax Adjustments:
Investment gains (losses), net of DAC..................... 4.5 9.5 .1
Gain on sale of ERE....................................... - - 249.8
Intangible asset writedown................................ - - (120.9)
Restructuring charges..................................... - - (.7)
----------------- ----------------- ----------------
Total pre-tax adjustments............................. 4.5 9.5 128.3
Minority interest........................................... 216.8 141.5 108.5
----------------- ----------------- ----------------
GAAP Reported:
Earnings from Continuing Operations before
Federal Income Taxes and Minority Interest.............. $ 462.6 $ 320.1 $ 363.1
================= ================= ================
<FN>
(1) Includes fees earned by Alliance and, in 1997, EREIM totaling $44.3
million, $61.8 million and $87.4 million in 1999, 1998 and 1997,
respectively, for services provided to the Insurance Group and
unconsolidated real estate joint ventures.
</FN>
</TABLE>
1999 Compared to 1998 - Pre-tax operating earnings for the Investment Management
segment increased 42.7% in 1999 to $241.3 million. Total revenues were $1.87
billion, a 40.8% increase over 1998. Investment advisory and service fees at
Alliance were $1.33 billion, a $378.8 million increase over the prior year. The
39.7% fee increase was primarily due to increased sales of mutual funds, asset
appreciation and higher performance fees related to mutual funds and third party
clients, partially offset by lower performance fees from affiliates, notably the
Equitable Life General Account. Distribution revenues at Alliance were $139.9
million higher in 1999 than in 1998 principally due to higher average equity
mutual fund assets under management due to strong sales and to market
appreciation.
Expenses for Investment Management increased $394.0 million to $1.41 billion in
1999 as compared to $1.02 billion in 1998. Promotion and servicing expenses at
Alliance were $160.4 million higher primarily due to increased distribution plan
payments to financial intermediaries resulting from higher average domestic,
offshore and cash management assets under management. Other promotion and
servicing expense increases were primarily due to $55.1 million higher
amortization of deferred sales commissions, higher travel and entertainment
costs and higher promotional expenditures related to mutual fund sales
initiatives. Alliance's employee compensation and benefits totaled $508.6
million, a 49.2% increase over the prior year. Incentive compensation's increase
7-10
<PAGE>
was principally related to Alliance's higher operating earnings while increased
base compensation and commissions were due to increased headcount in the mutual
fund and technology areas and to salary increases. The $65.9 million increase in
all other operating expenses related principally to higher expenses incurred for
the Year 2000 project and other technology initiatives, higher interest on
deferred compensation and debt and increased occupancy costs.
1998 Compared to 1997 - Investment Management's pre-tax operating earnings
before minority interest for 1998 increased $75.8 million from the prior year.
Revenues totaled $1.33 billion for 1998, an increase of 23.8% from 1997.
Alliance's 1998 investment advisory and service fees increased $254.0 million as
higher overall mutual fund sales and market appreciation led to higher average
assets under management. Distribution revenues grew $85.0 million due to higher
average equity mutual fund assets under management and higher average cash
assets under management. Other revenues declined $83.8 million in 1998 as
compared to the prior year principally due to the inclusion of EREIM's $91.6
million of revenues through its sale date in June 1997.
Total expenses for Investment Management increased $179.4 million during 1998.
The $148.1 million increase in promotion and servicing expenses at Alliance
resulted from higher distribution plan payments resulting from higher average
offshore mutual fund, cash management and domestic equity mutual fund assets
under management. Employee compensation and benefits rose $76.6 million in 1998
as Alliance's increased operating earnings resulted in higher incentive
compensation and as business expansion led to a 24% increase in headcount from
December 31, 1997. The decline in all other operating expenses principally
resulted from the $76.8 million decrease attributed to the sale of EREIM in June
1997.
7-11
<PAGE>
Fees and Assets Under Management. Breakdowns of fees and assets under
management follow:
Fees and Assets Under Management
(In Millions)
<TABLE>
<CAPTION>
At or for the Years Ended December 31,
-------------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
FEES:
Third parties............................................. $ 1,405.4 $ 997.7 $ 747.2
Equitable Life Separate Accounts.......................... 107.6 99.7 88.8
Equitable Life General Account and other.................. 43.7 46.6 74.6
----------------- ---------------- ----------------
Total Fees................................................ $ 1,556.7 $ 1,144.0 $ 910.6
================= ================ ================
ASSETS UNDER MANAGEMENT:
Assets by Manager
Alliance:
Third party............................................. $ 301,366 $ 228,321 $ 165,137
Equitable Life General Account and Holding Company
Group................................................. 25,475 24,179 24,942
Equitable Life Separate Accounts........................ 41,480 34,159 28,575
----------------- ---------------- ----------------
Total Alliance............................................ 368,321 286,659 218,654
----------------- ---------------- ----------------
DLJ:
Third party............................................. 39,189 24,386 17,208
DLJ invested assets..................................... 29,415 14,292 16,851
----------------- ---------------- ----------------
Total DLJ................................................. 68,604 38,678 34,059
----------------- ---------------- ----------------
Equitable Life:
Equitable Life (non-Alliance) General Account........... 12,774 14,452 14,469
Equitable Life Separate Accounts - EQ Advisors Trust.... 6,397 3,024 877
Equitable Life real estate related Separate Accounts.... 3,851 4,151 5,546
Equitable Life Separate Accounts - other................ 2,726 1,968 1,541
----------------- ---------------- ----------------
Total Equitable Life...................................... 25,748 23,595 22,433
----------------- ---------------- ----------------
Total by Account:
Third party(1)......................................... 340,555 252,707 182,345
General Account and other(2)........................... 67,664 52,923 56,262
Separate Accounts....................................... 54,454 43,302 36,539
----------------- ---------------- ----------------
Total Assets Under Management............................. $ 462,673 $ 348,932 $ 275,146
================= ================ ================
<FN>
(1) Includes $2.47 billion, $2.44 billion and $2.13 billion of assets managed
on behalf of AXA affiliates at December 31, 1999, 1998 and 1997,
respectively. Third party assets under management include 100% of the
estimated fair value of real estate owned by joint ventures in which third
party clients own an interest.
(2) Includes invested assets of AXA Financial not managed by the Investment
Subsidiaries, principally invested assets of subsidiaries and policy
loans, totaling approximately $34.18 billion, $21.36 billion and $23.16
billion at December 31, 1999, 1998 and 1997, respectively, and mortgages
and equity real estate totaling $7.11 billion and $7.38 billion at
December 31, 1999 and 1998, respectively.
</FN>
</TABLE>
Fees for assets under management increased 36.1% during 1999 from 1998 as a
result of the continued growth in assets under management for third parties.
Total assets under management increased $113.74 billion, primarily due to $73.05
billion higher third party assets under management at Alliance. The Alliance
growth in 1999 was principally due to market appreciation and net sales of
mutual funds and other products. DLJ's third party assets under management
increased in 1999 by $14.80 billion or 60.7% principally due to new business in
their Asset Management Group and Merchant Banking Funds.
7-12
<PAGE>
Fees for assets under management increased $73.42 billion or 25.6% during 1998
from 1997 also as a result of the continued growth in assets under management
for third parties. Total third party assets under management increased $68.77
billion at Alliance. The Alliance growth in 1998 was principally due to market
appreciation, increased sales of Equitable Separate Account based individual
annuity contracts and net sales of mutual funds and other products. DLJ's third
party assets under management increased in 1998 by $7.18 billion or 41.7%
principally due to new business in their Asset Management Group.
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 distribution and non-operating subsidiaries, principally AXA Client
Solutions, AXA Advisors, the EQ Asset Trust 1993 ("the "Trust") and the SECT
(together, the "Holding Company Group").
GENERAL ACCOUNT INVESTMENT PORTFOLIO
Management discusses the Closed Block assets and the assets outside of the
Closed Block on a combined basis as General Account Investment Assets. The
combined portfolio and its investment results support the insurance and annuity
liabilities of Equitable Life's continuing operations. The following table
reconciles the consolidated balance sheet asset amounts to General Account
Investment Assets.
General Account Investment Asset Carrying Values
December 31, 1999
(In Millions)
<TABLE>
<CAPTION>
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(3)......... $ 18,849.1 $ 4,014.0 $ (75.9) $ 249.5 $ 22,689.5
Held to maturity.............. 253.4 - - 120.2 133.2
Trading account securities...... 27,982.4 - 27,982.4 - -
Securities purchased under
resale agreements............. 29,538.1 - 29,538.1 - -
Mortgage loans on real estate... 3,270.0 1,704.2 - - 4,974.2
Equity real estate.............. 1,160.2 89.3 (1.7) - 1,251.2
Policy loans.................... 2,257.3 1,593.9 - - 3,851.2
Other equity investments........ 2,106.2 36.3 1,432.8 2.3 707.4
Other invested assets........... 914.7 .9 265.3 2.0 648.3
--------------- --------------- --------------- ------------- -----------------
Total investments............. 86,331.4 7,438.6 59,141.0 374.0 34,255.0
Cash and cash equivalents....... 2,816.5 67.7 2,143.9 168.0 572.3
Equitable Life debt & other (4). - - 767.0 - (767.0)
--------------- --------------- --------------- ------------- -----------------
Total........................... $ 89,147.9 $ 7,506.3 $ 62,051.9 $ 542.0 $ 34,060.3
=============== =============== =============== ============= =================
<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 General Account Investment Assets.
(2) The "Holding Company Group" category includes that group's assets, which
are not managed as part of General Account Investment Assets. The "Holding
Company Group" category is deducted in arriving at General Account
Investment Assets.
(3) Fixed maturities available for sale are reported at estimated fair value.
At December 31, 1999, the amortized costs of the General Account's
available for sale and held to maturity fixed maturity portfolios were
$23.59 billion and $133.2 million, respectively, compared with estimated
market values of $22.69 billion and $133.2 million, respectively.
(4) Includes Equitable Life debt and other miscellaneous assets and
liabilities related to General Account Investment Assets and reclassified
from various balance sheet lines.
</FN>
</TABLE>
7-13
<PAGE>
Asset Valuation Allowances and Writedowns
The following table shows asset valuation allowances and additions to and
deductions from such allowances for the periods indicated.
General Account Investment Assets
Valuation Allowances
(In Millions)
<TABLE>
<CAPTION>
Equity Real
Mortgages Estate Total
----------------- ---------------- ---------------
<S> <C> <C> <C>
Balances at January 1, 1998............................... $ 74.3 $ 345.5 $ 419.8
Additions............................................... 22.5 77.3 99.8
Deductions(1)........................................... (51.4) (211.0) (262.4)
----------------- ---------------- ---------------
Balances at December 31, 1998............................. 45.4 211.8 257.2
Additions............................................... 7.5 75.6 83.1
Deductions(1)........................................... (20.8) (141.6) (162.4)
----------------- ---------------- ---------------
Balances at December 31, 1999............................. $ 32.1 $ 145.8 $ 177.9
================= ================ ===============
<FN>
(1) Primarily reflects releases of allowances due to asset dispositions.
</FN>
</TABLE>
Writedowns on fixed maturities, principally below investment grade securities,
aggregated $226.5 million, $101.6 million and $15.2 million in 1999, 1998 and
1997, respectively. The increases in writedowns on fixed maturities in 1999 and
1998 were primarily attributable to an increased level of defaults in high yield
and emerging market securities. Writedowns on equity real estate totaled $165.2
million in 1997; there were no real estate writedowns in 1999 and 1998. The 1997
equity real estate writedowns principally resulted from changes in assumptions
related to real estate holding periods and property cash flows.
General Account Investment Assets
The following table shows the amortized cost, valuation allowances and net
amortized cost of major categories of General Account Investment Assets as of
December 31, 1999 and net amortized cost as of December 31, 1998.
General Account Investment Assets
(In Millions)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------------------------ ----------------------
Net Net
Amortized Valuation Amortized Amortized
Cost Allowances Cost Cost
--------------- ------------- --------------- ----------------------
<S> <C> <C> <C> <C>
Fixed maturities(1)...................... $ 23,719.1 $ - $ 23,719.1 $ 22,804.8
Mortgages................................ 5,006.3 (32.1) 4,974.2 4,443.3
Equity real estate....................... 1,397.0 (145.8) 1,251.2 1,774.1
Other equity investments................. 826.2 - 826.2 769.4
Policy loans............................. 3,851.2 - 3,851.2 3,727.9
Cash and short-term investments(2)....... 1,220.6 - 1,220.6 1,597.8
--------------- --------------- --------------- ----------------------
Total.................................... $ 36,020.4 $ (177.9) $ 35,842.5 $ 35,117.3
=============== =============== =============== ======================
<FN>
(1) Excludes unrealized losses of $896.4 million and unrealized gains of
$814.3 million on fixed maturities classified as available for sale at
December 31, 1999 and 1998, respectively.
(2) Comprises "Cash and cash equivalents" and short-term investments included
within the "Other invested assets" caption on the consolidated balance
sheet.
</FN>
</TABLE>
7-14
<PAGE>
Investment Results of General Account Investment Assets
The following table summarizes investment results by asset category for the
periods indicated.
Investment Results By Asset Category
(Dollars In Millions)
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
(1) (1) (1)
Yield Amount Yield Amount Yield Amount
------------ --------------- ----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
Income...................... 7.95% $ 1,834.9 8.08% $ 1,854.2 8.12% $ 1,842.6
Investment gains(losses).... (1.31)% (294.9) (0.09)% (21.6) 0.42% 94.0
------------ --------------- ----------- --------------- ------------ ---------------
Total....................... 6.64% $ 1,540.0 7.99% $ 1,832.6 8.54% $ 1,936.6
Ending assets(2)............ $ 24,171.2 $ 23,254.5 $ 23,944.9
Mortgages:
Income...................... 8.66% $ 403.3 9.31% $ 363.8 9.56% $ 387.1
Investment gains(losses).... (0.04)% (1.9) (0.26)% (10.0) (0.49)% (19.1)
------------ --------------- ----------- --------------- ------------ ---------------
Total....................... 8.62% $ 401.4 9.05% $ 353.8 9.07% $ 368.0
Ending assets(3)............ $ 5,019.6 $ 4,472.8 $ 4,003.1
Equity Real Estate:
Income(4)................... 7.38% $ 94.2 8.10% $ 145.2 2.90% $ 73.7
Investment gains(losses).... (1.28)% (16.0) 4.16% 71.3 (16.15)% (432.4)
------------ --------------- ----------- --------------- ------------ ---------------
Total....................... 6.10% $ 78.2 12.26% $ 216.5 (13.25)% $ (358.7)
Ending assets(4)............ $ 1,014.4 $ 1,398.2 $ 1,970.5
Other Equity Investments:
Income...................... 25.94% $ 196.3 10.98% $ 125.1 19.32% $ 198.6
Investment gains(losses).... 13.10% 87.8 2.57% 27.9 1.54% 14.8
------------ --------------- ----------- --------------- ------------ ---------------
Total....................... 39.04% $ 284.1 13.55% $ 153.0 20.86% $ 213.4
Ending assets(5)............ $ 827.8 $ 859.1 $ 1,269.5
Policy Loans:
Income...................... 6.75% $ 246.8 6.93% $ 249.8 7.25% $ 285.6
Ending assets............... $ 3,851.2 $ 3,727.9 $ 4,123.1
Cash and Short-term
Investments:
Income...................... 7.73% $ 74.7 11.03% $ 52.5 6.35% $ 23.0
Ending assets(6)............ $ 1,222.3 $ 1,625.3 $ 327.2
Equitable Life Debt and Other:
Interest expense and
other.................... 7.85% $ (50.0) 7.05% $ (48.3) 7.27% $ (43.0)
Ending liabilities......... $ (767.0) $ (598.1) $ (647.0)
Total:
Income(7)................... 8.29% $ 2,800.2 8.26% $ 2,742.3 8.13% $ 2,767.6
Investment gains(losses).... (0.69)% (225.0) 0.21% 67.6 (1.03)% (342.7)
------------ --------------- ----------- --------------- ------------ ---------------
Total(8).................... 7.60% $ 2,575.2 8.47% $ 2,809.9 7.10% $ 2,424.9
Ending net assets........... $ 35,339.5 $ 34,739.7 $ 34,991.3
<FN>
(1) Yields have been calculated on a compound annual effective rate basis
using the quarterly average asset carrying values, excluding unrealized
gains (losses) in fixed maturities and adjusted for the current year's
income, gains (losses) and fees.
(2) Fixed maturities investment assets are shown net of securities purchased
but not yet paid for of $8.4 million, $4.7 million and $73.3 million, and
include accrued income of $413.5 million, $392.4 million and $393.7
million, amounts due from securities sales of $29.4 million, $29.6 million
and $17.1 million and other assets of $17.5 million, $31.4 million and
$30.1 million at December 31, 1999, 1998 and 1997, respectively.
(3) Mortgage investment assets include accrued income of $59.2 million, $56.6
million and $74.3 million and are adjusted for related liability balances
of $(13.8) million, $(27.1) million and $(24.2) million at December 31,
1999, 1998 and 1997, respectively.
(4) Equity real estate carrying values are shown, and equity real estate
yields are calculated, net of third party debt and minority interest of
$251.4 million, $381.3 million and $568.0 million at December 31, 1999,
1998 and 1997, respectively. The carrying values include accrued income of
$27.8 million, $31.6 million and $35.7 million and are adjusted for
related liability balances of $(13.2) million, $(20.3) million and
$(101.4) million as of December 31, 1999, 1998 and 1997, 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 $19.1 million, $35.7
million and $52.9 million for 1999, 1998 and 1997, respectively.
7-15
<PAGE>
(5) Other equity investment assets include accrued income and pending trade
settlements of $1.6 million, $0.0 million and $0.6 million at December 31,
1999, 1998 and 1997, respectively.
(6) Cash and short-term investments are shown net of financing arrangements of
$(300.6) million at December 31, 1997 as well as accrued income and cash in
transit totaling $1.8 million, $5.6 million and $2.3 million at December
31, 1999, 1998 and 1997, respectively.
(7) Total investment income includes non-cash income from amortization,
payment-in-kind distributions and undistributed equity earnings of $59.6
million, $52.7 million and $52.8 million for 1999, 1998 and 1997,
respectively. Investment income is shown net of depreciation of $22.5
million, $31.5 million and $80.9 million for 1999, 1998 and 1997,
respectively.
(8) Total yields are shown before deducting investment fees paid to investment
advisors. These fees include asset management, acquisition, disposition,
accounting and legal fees. If investment fees had been deducted, total
yields would have been 7.33%, 8.19% and 6.79% for 1999, 1998 and 1997,
respectively.
</FN>
</TABLE>
Fixed Maturities. The fixed maturities portfolio consists largely of investment
grade corporate debt securities, including significant amounts of U.S.
government and agency obligations. Investment income on fixed maturities
decreased $19.3 million in 1999 from 1998 due to lower yields. The investment
losses in 1999 were due to $226.5 million in writedowns primarily on domestic
and emerging market high-yield securities and net losses of $68.4 million on
sales. At year end 1999, 76.9% of total fixed maturities were publicly traded;
87.4% of below investment grade securities were publicly traded. At December 31,
1999, AXA Financial held collateralized mortgage obligations ("CMOs") with an
amortized cost of $2.45 billion, including $2.04 billion in publicly traded
CMOs, $2.66 billion of mortgage pass-through securities, and $1.47 billion of
public and private asset-backed securities. Fixed maturities by NAIC rating are
shown in the following table.
Fixed Maturities
By Credit Quality
(In Millions)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------------------- -----------------------------------
Equivalent
NAIC Rating Agency Amortized Estimated Amortized Estimated
Rating Designation Cost Fair Value Cost Fair Value
- -------------- ---------------------- ------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1-2 Aaa/Aa/A and Baa..... $ 20,561.4 $ 19,973.0 $ 19,588.1 $ 20,712.6
3-6 Ba and lower......... 3,157.7 2,849.7 3,217.7 2,907.5
------------------ ----------------- ----------------- -----------------
Total Fixed Maturities.............. $ 23,719.1 $ 22,822.7 $ 22,805.8 $ 23,620.1
================== ================= ================= =================
</TABLE>
Management defines problem fixed maturities as securities (i) as to which
principal and/or interest payments are in default or are to be restructured
pursuant to commenced negotiations or (ii) issued by a company that went into
bankruptcy subsequent to the acquisition of such securities. The amortized cost
of problem fixed maturities was $154.0 million (0.6% of the total amortized cost
of this category) at December 31, 1999 compared to $94.9 million (0.4%) at
December 31, 1998 and $31.0 million (0.1%) at December 31, 1997. In 1999,
additions to problem fixed maturities were concentrated in domestic high-yield
and emerging market securities and were related to an increased level of
defaults in these securities during the year.
AXA Financial does not accrue interest income on problem fixed maturities unless
management believes the full collection of principal and interest is probable.
Interest not accrued on problem fixed maturities totaled $42.5 million, $13.1
million and $10.5 million for 1999, 1998 and 1997, respectively. The amortized
cost of wholly or partially non-accruing problem fixed maturities was $116.1
million, $82.1 million and $28.9 million at December 31, 1999, 1998 and 1997,
respectively.
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<PAGE>
Based on its monitoring of fixed maturities, management identifies a class of
potential problem fixed maturities. This class includes those fixed maturities
not currently classified as problems but for which management has serious doubts
as to the issuer's ability to comply with the present debt payment terms and
which may result in the security becoming a problem or being restructured. The
decision whether to classify a performing fixed maturity security as a potential
problem involves significant subjective judgments by management as to likely
future industry conditions and developments with respect to the issuer. The
amortized cost of potential problem fixed maturities was $42.7 million at
December 31, 1999, as compared to $74.9 million and $17.9 million at December
31, 1998 and 1997, respectively.
Mortgages. At December 31, 1999, the mortgage portfolio included commercial
($3.05 billion), agricultural ($1.96 billion) and residential loans ($0.7
million). In 1999, the $39.5 million investment income increase on mortgages
resulted from lower interest rates on a larger asset base.
At December 31, 1999, 1998 and 1997, respectively, management identified
impaired mortgage loans with carrying values of $148.8 million, $158.0 million
and $240.8 million. The provision for losses for these impaired loans was $27.1
million, $39.1 million and $69.2 million at those same respective dates. Income
earned on impaired loans in 1999, 1998 and 1997, respectively, was $15.3
million, $17.0 million and $24.6 million, including cash received of $14.8
million, $15.3 million and $23.0 million.
Management categorizes commercial mortgages 60 days or more past due and
agricultural mortgages 90 days or more past due, as well as all mortgages in the
process of foreclosure, as problem mortgages. Based on its monthly monitoring of
mortgages, management identifies a class of potential problem mortgages, which
consists of mortgage loans not currently classified as problems but for which
management has serious doubts as to the ability of the borrower to comply with
the present loan payment terms and which may result in the loan becoming a
problem or being restructured. The decision whether to classify a performing
mortgage loan as a potential problem involves significant subjective judgments
by management as to likely future industry conditions and developments with
respect to the borrower or the individual mortgaged property. Potential problem
commercial mortgages decreased during 1999 primarily due to foreclosures.
Problem, Potential Problem and Restructured Mortgages
Amortized Cost
(In Millions)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
COMMERCIAL MORTGAGES...................................... $ 3,048.2 $ 2,660.7 $ 2,305.8
Problem commercial mortgages(1)........................... .5 .4 19.3
Potential problem commercial mortgages.................... 120.6 170.7 180.9
Restructured commercial mortgages(2)...................... 130.7 116.4 194.9
AGRICULTURAL MORTGAGES.................................... $ 1,957.4 $ 1,826.9 $ 1,719.2
<FN>
(1) All problem commercial mortgages were delinquent mortgage loans at
December 31, 1999, 1998 and 1997; there were no mortgage loans in process
of foreclosure at December 31, 1999, 1998 and 1997.
(2) Excludes restructured commercial mortgages of $1.7 million that are shown
as problems at December 31, 1997, and excludes $0.2 million, $24.5 million
and $57.9 million of restructured commercial mortgages that are shown as
potential problems at December 31, 1999, 1998 and 1997, respectively.
</FN>
</TABLE>
7-17
<PAGE>
For 1999, scheduled amortization payments and prepayments received on commercial
mortgage loans aggregated $158.1 million. For 1999, $133.8 million of commercial
mortgage loan maturity payments were scheduled. Of that total, $50.8 million
(37.8%) were paid as due, $63.8 million (47.7%) were granted short-term
extensions of up to six months, $18.5 million (13.8%) were foreclosed upon and
$0.9 million (0.7%) were extended for a weighted average of 6.8 years at a
weighted average interest rate of 9.0%.
During 2000, approximately $394.2 million of commercial mortgage principal
payments are scheduled, including $377.3 million of payments at maturity on
commercial mortgage balloon loans. An additional $649.6 million of commercial
mortgage principal payments, including $616.6 million of payments at maturity on
commercial mortgage balloon loans, are scheduled for 2001 and 2002. Depending on
market conditions and lending practices in future years, some maturing loans may
have to be refinanced, restructured or foreclosed upon. During 1999, 1998 and
1997, the amortized cost of new foreclosed commercial mortgages totaled $45.5
million, $40.1 million and $153.5 million, respectively.
Equity Real Estate. Equity real estate consists primarily of office, retail,
industrial, mixed use and other properties. Office properties constituted the
largest component (57.7% of amortized cost) of this portfolio at December 31,
1999.
Proceeds from the sale of equity real estate totaled $576.6 million, $1.05
billion and $386.0 million in 1999, 1998 and 1997, respectively, with recognized
gains of $50.0 million, $124.1 million and $50.5 million, respectively. The
carrying value of the equity real estate at date of sale reflected total
writedowns and additions to valuation allowances on the properties taken in
periods prior to their sale of $126.8 million, $189.8 million and $61.1 million,
respectively. In connection with the accelerated real estate sales program, at
December 31, 1997, Equitable Life reclassified $1.5 billion depreciated cost of
continuing and discontinued operations' equity real estate from "held for
production of income" to "held for sale". Since held for sale properties are
carried at the lower of depreciated cost or estimated fair value, less
disposition costs, the reclassification generated additions to valuation
allowances of $243.0 million for continuing operations in fourth quarter 1997.
Also, during fourth quarter 1997, the review of the equity real estate portfolio
identified properties held for production of income which were impaired,
resulting in writedowns of $161.1 million for continuing operations. The total
pre-tax impact of these 1997 actions was $345.1 million (net of related DAC
amortization of $59.0 million) for continuing operations. In addition, these
real estate actions contributed to a $129.6 million strengthening of
discontinued operations' allowance for future losses in fourth quarter 1997. At
December 31, 1999, the depreciated cost of continuing operations' held for sale
real estate portfolio totaled $616.9 million, excluding related valuation
allowances of $145.8 million.
Management establishes valuation allowances on individual properties identified
as held for sale. The objective is to fully reserve for anticipated shortfalls
between depreciated cost and sales proceeds. On a quarterly basis, the valuation
allowances on real estate held for sale are adjusted to reflect changes in
market values in relation to depreciated cost. As the equity real estate sales
program continues into 2000, management expects further reductions to this
portfolio will depend on market conditions, the level of mortgage foreclosures
and expenditures required to fund necessary or desired improvements to
properties. It is management's policy not to invest substantial new funds in
equity real estate except to safeguard values in existing investments or to
honor outstanding commitments.
At December 31, 1999, the overall vacancy rate for the General Account's real
estate office properties was 6.8%, with a vacancy rate of 5.5% for properties
acquired as investment real estate and 17.3% for properties acquired through
foreclosure. The national commercial office vacancy rate was 9.6% (as of
September 30, 1999) as measured by CB Commercial. Lease rollover rates for
office properties for 2000, 2001 and 2002 range from 8.1% to 11.5%.
At December 31, 1999, the equity real estate portfolio included $805.5 million
depreciated cost of properties acquired as investment real estate (or 57.7% of
depreciated cost of equity real estate held) and $591.5 million (42.3%)
amortized cost of properties acquired through foreclosure, including
in-substance foreclosure. Cumulative writedowns recognized on foreclosed
properties were $144.2 million through December 31, 1999. As of December 31,
1999, the carrying value of the equity real estate properties was 62.6% of their
original cost. The depreciated cost of foreclosed equity real estate totaled
$754.4 million (38.0%) and $955.1 million (29.5%) at year end 1998 and 1997,
respectively.
7-18
<PAGE>
Other Equity Investments. Other equity investments consist of LBO, mezzanine,
venture capital and other limited partnership interests ($481.0 million or 58.1%
of the amortized cost of this portfolio at December 31, 1999), alternative
limited partnerships ($193.3 million or 23.4%) and common stock and other equity
securities ($153.5 million or 18.5%). Alternative funds utilize trading
strategies that may be leveraged. These funds attempt to protect against market
risk through a variety of methods including short sales, financial futures,
options and other derivative instruments. Other equity investments can produce
significant volatility in investment income since they predominantly are
accounted for in accordance with the equity method which treats increases and
decreases in the estimated fair value of the underlying assets (or allocable
portion thereof, in the case of partnerships), whether realized or unrealized,
as investment income or loss to the General Account. The excess of Separate
Accounts assets over Separate Accounts liabilities at December 31, 1999, 1998
and 1997 were $118.7 million, $89.4 million and $231.0 million, respectively.
This excess represented an investment by the General Account principally in
equity securities. As demonstrated by the market volatility and negative returns
experienced in the latter half of 1998, returns on equity investments are very
volatile and investment results for any period are not representative of any
other period.
Commencing in third quarter 1998, in response to a perceived increase in the
price volatility of publicly-traded equity markets, AXA Financial began to
reduce its holdings of common stock investments. With the persistence of high
price volatility, management believed that publicly-traded common stocks should
be actively managed to control risk and generate investment returns. Effective
January 1, 1999, all investments in publicly-traded common equity securities in
the General Account and Holding Company Group portfolios were designated as
"trading securities" for the purpose of classification under SFAS No. 115 and
all changes in the investments' fair value are being reported through earnings.
DISCONTINUED OPERATIONS
In 1991, management adopted a plan to discontinue the business of certain
pension operations consisting of Wind-Up Annuities and GIC lines of business and
recorded an allowance for future losses based on management's best judgment at
that time. During 1997, the allowance for future losses was strengthened by
$134.1 million. The principal factor in the 1997 reserve strengthening action
was the change in projected cash flows for equity real estate due to
management's plan to accelerate the sale of equity real estate.
Management's quarterly process for evaluating the allowance for future losses
applies the current period's results of discontinued operations against the
allowance, re-estimates future losses, and adjusts the allowance, if
appropriate. Additionally, as part of the annual planning process that takes
place in the fourth quarter of each year, investment and benefit cash flow
projections are prepared. These projections were utilized in the fourth quarter
evaluation of the adequacy of the allowance for future losses. There can be no
assurance the losses provided for will not differ from the losses ultimately
realized. To the extent actual results or future projections of discontinued
operations differ from management's current best estimates underlying the
allowance for future losses, the difference would be reflected as earnings or
loss from discontinued operations within the consolidated statements of
earnings. In particular, to the extent income, sales proceeds and holding
periods for equity real estate differ from management's previous assumptions,
periodic adjustments to the allowance are likely to result.
Results of Operations. Post-tax earnings of $28.1 million were recognized in
1999 compared to $2.7 million in 1998 and post-tax losses of $(87.2) million in
1997. The allowance for future losses totaled $242.2 million at December 31,
1999.
For 1999, Discontinued Operations Investment Assets produced investment results
totaling $82.3 million, a $79.5 million decrease as compared to 1998 results.
Investment income declined $28.8 million to $95.8 million in 1999, as lower
income on other equity investments, equity real estate and mortgages more than
offset higher income on fixed maturities. In 1999, there were investment losses
of $13.5 million as compared to $37.2 million of investment gains in the prior
year. In 1999, $18.3 million in losses on equity real estate were recorded
compared to gains of $41.2 million in 1998. The 1999 real estate losses resulted
as the gains on sales were more than offset by additions to valuation allowances
on held for sale properties. Losses on fixed maturities were $13.5 million
higher in 1999 principally due to the writedown of two issues. These losses more
than offset the $19.1 million of gains on other equity investments as compared
to a $3.3 million loss in 1998. Investment income yields were 8.95% in 1999.
7-19
<PAGE>
In 1998, investment results from Discontinued Operations Investment Assets
totaled $161.8 million, as compared to $(23.0) million in 1997 principally due
to investment gains of $37.2 million as compared to the $173.7 million of
investment losses in 1997. The 1997 investment losses resulted from the fourth
quarter 1997 increases in valuation allowances of $80.2 million and writedowns
relating to equity real estate of $92.5 million. This increase in investment
gains (losses) was partially offset by a $26.1 million decrease in investment
income in 1998, principally reflecting a decrease of $38.4 million for other
equity investments. There was a $20.4 million loss on mortgage loans in 1997
compared to the 1998 gain of $0.3 million and gains of $41.2 million compared to
$151.1 million of losses on equity real estate. Investment income yields
decreased to 11.69% from 12.37% in 1997, principally due to lower returns on
other equity investments.
Interest credited and policyholders' benefits on Wind-Up Annuities and GIC
contracts were $96.2 million in 1999, as compared to $99.1 million and $108.0
million in 1998 and 1997, respectively. The weighted average crediting rates
were 9.5%, 9.6% and 9.3% in 1999, 1998 and 1997, respectively. No interest
expense on intersegment borrowings by discontinued operations from continuing
operations was reported in 1999, compared with $26.6 million and $53.3 million
in 1998 and 1997, respectively, as such borrowings were repaid in 1998.
At year end 1999, $993.3 million of policyholders' liabilities were outstanding,
substantially all of which relate to Wind-Up Annuities. During 1998, the $660.0
million of intersegment borrowings outstanding at December 31, 1997 were repaid.
See Notes 2 and 8 of Notes to Consolidated Financial Statements.
Cash Flow Projections. At December 31, 1999, estimates of annual net cash flows
for discontinued operations in 2000 and 2001 were $218.7 million and $46.2
million, respectively. At December 31, 1998, the projections for 1999 and 2000
were $255.5 million and $16.7 million, respectively. The increase in estimated
2000 net cash flows was principally due to a higher level of assumed cash flows
resulting from equity real estate sales. Other material assumptions used in
determining these projections included the following: future estimated annual
investment income yields on the existing portfolio of 6.9% to 9.1% in the 1999
projection (compared to 7.8% to 9.7% used in the 1998 projection); use of
proceeds from equity real estate sales and other maturing investment assets to
pay benefits on Wind-Up Annuities and maturing liabilities, with reinvestment of
excess funds; and mortality experience for Wind-Up Annuities based on the 1983
Group Annuity Mortality table with projections for mortality improvements.
Investment Assets by Selected Asset Category
For information on the asset categories and valuation allowances and writedowns,
see Note 8 of Notes to Consolidated Financial Statements.
Fixed Maturities - During 1999, discontinued operations began reinvesting excess
cash flow in investment grade fixed maturities. At December 31, 1999, the
amortized cost of the fixed maturities portfolio totaled $90.2 million.
Mortgages - As of December 31, 1999, discontinued operations commercial
mortgages totaled $427.9 million (91.9% of amortized cost of the category) and
agricultural loans totaled $28.6 million (8.1%). Potential problem commercial
mortgages totaled $6.1 million, $20.1 million and $15.4 million in 1999, 1998
and 1997, respectively, while restructured commercial mortgages aggregated $3.4
million, $106.2 million and $198.9 million, respectively.
For 1999, scheduled amortization payments and prepayments on commercial mortgage
loans aggregated $58.4 million. For 1999, $29.2 million of mortgage loan
maturity payments were scheduled, of which $26.4 million (90.4%) were paid as
due. During 2000, approximately $96.7 million of commercial mortgage principal
payments are scheduled, including $91.5 million of payments at maturity on
commercial mortgage balloon loans. An additional $139.2 million of principal
payments, including $130.2 million of payments at maturity on commercial
mortgage balloon loans, are scheduled from 2001 through 2002. Depending on the
condition of the real estate market and lending practices in future years, many
maturing loans may have to be refinanced, restructured or foreclosed upon.
Equity Real Estate - During 1999, 1998 and 1997, discontinued operations
received proceeds from the sale of equity real estate of $52.3 million, $287.9
million and $183.5 million, respectively, and recognized gains of $5.3 million,
$41.3 million and $35.4 million, respectively. These gains reflected total
writedowns and additions to valuation allowances on properties sold of $14.6
million, $71.7 million and $22.9 million, respectively, at the date of sale. The
depreciated cost of discontinued operations' equity real estate properties held
for sale at December 31, 1999 was $152.8 million for which allowances of $54.8
million have been established.
7-20
<PAGE>
Other Equity Investments - At December 31, 1999, discontinued operations' other
equity investments of $55.6 million consisted primarily of limited partnership
interests managed by third parties that invest in a selection of equity and
fixed income securities ($49.9 million or 89.7% of amortized cost of this
portfolio at that date). Discontinued operations' other equity investments also
included common stocks acquired in connection with limited partnership
investments, as well as other equity investments ($5.7 million or 10.3%).
Returns on other equity investments have been very volatile and investment
results for any period are not representative of any other period. Total
investment results on other equity investments were $23.4 million, $25.5 million
and $65.2 million in 1999, 1998 and 1997, respectively. These investment results
reflected yields of 31.65%, 17.79% and 28.77% for 1999, 1998 and 1997,
respectively.
YEAR 2000
Following the implementation of Equitable Life's, DLJ's and Alliance's Year 2000
compliance initiatives, no Year 2000 problems were encountered that could have a
material adverse effect on the business, financial condition or results of
operations of AXA Financial. Through December 31, 1999, Year 2000 compliance
project costs were $32.1 million for Equitable Life, $90 million for DLJ and $43
million for Alliance.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Company
The Holding Company's Board of Directors declared a two-for-one Stock Split for
shareholders of record at the close of business on September 27, 1999. All share
and per share amounts have been restated to reflect the effect of this Stock
Split. Quarterly dividends following the split were $.025 per share. In
September 1999, the Holding Company received a cash dividend of $150.0 million
from Equitable Life, the first since Equitable Life's demutualization in 1992.
Also in September 1999, the SECT converted 4,020 shares of Series D Convertible
Preferred Stock equivalent to 1.6 million shares of Common Stock. The Holding
Company, as part of its stock repurchase program, purchased 1,356,500 shares for
$37.6 million. Of the remaining shares, AXA, AXA Financial's principal
stockholder, purchased 146,100 shares. The remaining shares were sold to the
public. As a result of these transactions, the Holding Company's equity
increased by $7.4 million, the net proceeds of the sales and repurchases. In
February 2000, the Holding Company's Board of Directors approved an increase in
the number of authorized shares of Common Stock from 500,000,000 to
2,000,000,000. The increase is subject to shareholder approval, which is
expected at the May 2000 annual meeting of shareholders.
Under the Board authorized stock repurchase program, the Holding Company
repurchased approximately 8.0 million shares of Common Stock at a cost of
approximately $243.7 million during 1999, including the aforementioned shares
from the SECT. Of the 2.0 million shares of Common Stock originally subject to
put options sold in 1998 in connection with the repurchase program, the Holding
Company purchased 800,000 shares in 1998 and none during 1999; 1,200,000 of such
options expired unexercised during 1999. In fourth quarter 1999, the Holding
Company privately placed put options entitling the holder to sell up to 200,000
shares of Common Stock at a specified price on a specified date in third quarter
2000.
In April 1998, the Holding Company completed an offering under its existing
shelf registration of $250.0 million 6 1/2% Senior Notes due 2008 and $350.0
million 7% Senior Debentures due 2028 (together the "1998 Senior Debt"),
resulting in net proceeds of $591.1 million to be used for general corporate
purposes. Pre-tax debt service on the 1998 Senior Debt is approximately $40.8
million per annum.
For further information, see Notes 9 and 11 of Notes to Consolidated Financial
Statements.
Liquidity Requirements. The Holding Company's cash requirements include debt
service, operating expenses, taxes, dividends on its Common Stock and, effective
December 31, 1999, certain employee benefits described below. Pre-tax debt
service totaled $86.5 million in 1999, while general and administrative expenses
were $20.6 million. Since 1992, the Holding Company's Board of Directors has
declared quarterly cash dividends of $.025 per share on the outstanding shares
of its Common Stock (adjusted for the Stock Split). During 1999, aggregate cash
dividends paid on the Holding Company's Common Stock were $43.7 million.
Effective December 31, 1999, the Holding Company assumed primary liability from
7-21
<PAGE>
Equitable Life for all current and future obligations of its Excess Retirement
Plan, Supplemental Executive Retirement Plan and certain other non-qualified
benefit plans that provide participants with medical, life insurance, and
deferred compensation benefits. Equitable Life remains secondarily liable. In
1999, Equitable Life paid $52.8 million in benefits on those plans. The
estimated benefit payments for 2000 approximate $52.1 million, a portion of
which will be reimbursed by certain subsidiaries of the Holding Company other
than Equitable Life.
Liquidity Sources. At December 31, 1999, the Holding Company held cash and
short-term investments and U.S. Treasury securities of approximately $149.4
million and investment grade publicly traded bonds totaling $207.7 million.
Other primary sources of liquidity for the Holding Company include (i) amounts
the Holding Company may receive from its subsidiaries in connection with SECT
distributions, (ii) dividends from DLJ, (iii) dividends from Equitable Life and
(iv) dividends, distributions or sales proceeds from less liquid investment
assets. The Holding Company held common stock and less liquid investment assets
having an aggregate carrying value of approximately $77.3 million at December
31, 1999. Other potential sources of liquidity for AXA Financial include sales
of DLJ common stock held by the Holding Company and the issuance of additional
securities by the Holding Company.
The assets of the SECT (the 47,940 remaining shares of the Series D Preferred
Stock) will be distributed over time (subject to periodic minimum and maximum
requirements) to fund various employee compensation and benefit programs of
certain of AXA Financial's subsidiaries. These subsidiaries will pay the Holding
Company an amount equal to any such distributions. Management expects amounts
received by the Holding Company from its subsidiaries in connection with
distributions by the SECT will be an additional source of funds. The aggregate
amount available to the Holding Company from this source will fluctuate over
time with changes in the market value of the Holding Company's Common Stock.
Prior to September 30, 2000, the SECT is required to convert at a minimum an
amount of Series D Convertible Preferred Stock equivalent to approximately 1.57
million shares of Common Stock for distribution. However, the amount of Common
Stock so distributed may not exceed a maximum value of approximately $253.5
million.
Dividends on DLJ's outstanding common stock paid to the Holding Company were
approximately $12.2 million and $11.7 million in 1999 and 1998, respectively.
Certain of DLJ's existing credit agreements include dividend covenants but
management does not expect these covenants to materially affect the payment of
dividends by DLJ. In July 1998, DLJ sold an aggregate of 5 million shares of
newly issued common stock to the Holding Company (1.8 million shares for $110.0
million), Equitable Life (1.5 million shares for $90.0 million) and AXA (1.7
million shares for $100.0 million).
For the first time since the 1992 demutualization, the Holding Company received
$150.0 million in dividends from Equitable Life. In 2000, Equitable Life expects
to review with the New York Insurance Department the potential for paying
additional shareholder dividends. Under the New York Insurance Law, Equitable
Life is permitted to pay shareholder dividends only if it files notice of its
intention to declare such a dividend and the amount thereof with the
Superintendent and the Superintendent, who by statute has broad discretion in
such matters, does not disapprove the distribution. See Note 21 to Notes to
Consolidated Financial Statements.
Management believes the primary sources of liquidity described above are
sufficient to meet the Holding Company's cash requirements for several years.
Equitable Life
The principal sources of Equitable Life cash flows are premiums, deposits and
charges on policies and contracts, investment income, repayments of principal
and proceeds from maturities and sales of General Account Investment Assets and
dividends and distributions from subsidiaries.
The Equitable Life liquidity requirements principally relate to the liabilities
associated with its various life insurance, annuity and group pension products
in its continuing operations; the liabilities of discontinued operations;
shareholders dividends; and operating expenses, including debt service.
Equitable Life liabilities include the payment of benefits under life insurance,
annuity and group pension products, as well as cash payments in connection with
policy surrenders, withdrawals and loans. Management may from time to time
explore selective acquisition opportunities in core insurance and investment
management businesses.
7-22
<PAGE>
Equitable Life's liquidity requirements are regularly monitored to match cash
inflows with cash requirements. Daily cash needs are forecasted and projected
sources and uses of funds, as well as the asset, liability, investment and cash
flow assumptions underlying these projections, are reviewed periodically.
Adjustments are periodically made to the Equitable Life's investment policies
with respect to, among other things, the maturity and risk characteristics of
General Account Investment Assets to reflect changes in the business' cash needs
and also to reflect the changing competitive and economic environment.
Sources of Liquidity. The primary source of short-term liquidity to support
continuing and discontinued insurance operations is a pool of highly liquid,
high quality short-term instruments structured to provide liquidity in excess of
the expected cash requirements. At December 31, 1999, this asset pool included
an aggregate of $1.39 billion in highly liquid short-term investments, as
compared to $1.59 billion and $816.4 million at December 31, 1998 and 1997,
respectively. In addition, a substantial portfolio of public bonds including
U.S. Treasury and agency securities and other investment grade fixed maturities
is available to meet Equitable Life's liquidity needs.
Other liquidity sources include dividends and distributions from Alliance in
particular as well as DLJ. In 1999, Equitable Life received cash distributions
from Alliance of $203.5 million as compared to $157.0 million in 1998 and $125.7
million in 1997. Also in 1999, DLJ paid $10.0 million in dividends to Equitable
Life.
Management believes there is sufficient liquidity in the form of short-term
assets and its bond portfolio together with cash flows from operations and
scheduled maturities of fixed maturities to satisfy Equitable Life's liquidity
needs. In addition, in July 1999, the Board of Directors authorized an increase
in the limit on Equitable Life's commercial paper program to $1.00 billion from
$500.0 million. This program is available for general corporate purposes to
support Equitable Life's liquidity needs. The Board also authorized increasing
Equitable Life's existing $350.0 million bank credit facility to $700.0 million.
Equitable Life uses this program from time to time in its liquidity management.
At December 31, 1999, $166.9 million was outstanding under the commercial paper
program; there were no amounts outstanding under the back-up credit facility.
For more information on guarantees, commitments and contingencies, see Notes 13,
16, 17, 18 and 19 of Notes to Consolidated Financial Statements.
Factors Affecting Liquidity. Equitable Life's liquidity needs are affected by
fluctuations in the level of surrenders and withdrawals previously discussed in
"Combined Operating Results by Segment - Financial Advisory/Insurance -
Surrenders and Withdrawals". Management believes the Insurance Group has
adequate internal sources of funds for its presently anticipated needs.
Statutory Capital. Life insurers are subject to certain risk-based capital
("RBC") guidelines which provide a method to measure the adjusted capital
(statutory capital and surplus plus the Asset Valuation Reserve ("AVR") and
other adjustments) that a life insurance company should have for regulatory
purposes, taking into account the risk characteristics of the company's
investments and products. A life insurance company's RBC ratio depends upon many
factors, including its earnings, the mix of assets in its investment portfolio,
the nature of the products it sells and its rate of sales growth, as well as
changes in the RBC formulas required by regulators.
The RBC guidelines are intended to be a regulatory tool only. Equitable Life's
RBC ratio has improved in each of the last six years, and management believes
that Equitable Life's statutory capital, as measured by its year end 1999 RBC,
is adequate to support its current business needs and financial ratings.
On March 16, 1998, members of the NAIC approved its Codification of Statutory
Accounting Principles ("Codification") project. Codification provides regulators
and insurers with uniform statutory guidance, addressing areas where statutory
accounting previously was silent and changing certain existing statutory
positions. Equitable Life will be subject to Codification to the extent and in
the form adopted in New York State, which would require action by both the New
York legislature and the New York Insurance Department. In February 2000, the
Superintendent indicated the New York Insurance Department intends to proceed
with implementation of Codification rules, subject to any provisions in New York
statutes which conflict with particular points in the Codification rules. It is
not possible to predict in what form, or when Codification will be adopted in
New York, and accordingly it is not possible to predict the effect of
Codification on Equitable Life.
At December 31, 1999, $29.1 million (or 0.7%) of the Insurance Group's aggregate
statutory capital and surplus (representing 0.5% of statutory capital and
surplus and AVR) resulted from surplus relief reinsurance. The level of surplus
relief reinsurance was reduced by approximately $81.9 million in 1999.
7-23
<PAGE>
Alliance
Alliance's principal sources of liquidity have been cash flows from operations
and the issuance, both publicly and privately, of debt and Units. Alliance
requires financial resources to fund commissions paid on certain back-end load
mutual fund sales, to fund distributions to Unitholders, to fund capital
expenditures and for general working capital purposes.
On October 29, 1999, Alliance Holding transferred its business to a newly-formed
private limited partnership following the reorganization approved by Unitholders
at their special meeting on September 22, 1999 and the expiration of the related
exchange offer. Separately, Equitable Life and its subsidiaries exchanged
substantially all of their public Alliance Holding's Units for limited
partnership interests and a general partnership interest in the new private
limited partnership. The new partnership is conducting Alliance's business
without change in management or employee responsibilities. Alliance Holding's
principal asset is its interest in the new partnership, and it is functioning as
a holding company through which its Unitholders own an indirect interest in
Alliance, the new partnership. As a result of the reorganization and exchange,
Equitable Life and its subsidiaries' share of the private partnership's income
will not be subject to the 3.5% Federal tax on publicly traded partnerships. In
1999 and 1998, the impact of this Federal tax on Equitable Life and its
subsidiaries was approximately $19 million and $18 million, respectively.
In July 1999, Alliance entered into a new $200.0 million three-year revolving
credit facility, increasing its borrowing capacity under all credit facilities
to $725.0 million. Like the existing credit facility, the new credit facility
will be used to fund commission payments to financial intermediaries for certain
mutual fund sales and for general working capital purposes. At December 31,
1999, Alliance had $384.7 million outstanding under its $425.0 million
commercial paper program. Proceeds are being used to fund commission payments
and for capital expenditures. There were no amounts outstanding under Alliance's
revolving credit facilities. In December 1999, Alliance established a $100.0
million ECN program to supplement its commercial paper program; there were no
ECNs outstanding at year end 1999.
DLJ
DLJ reported total assets as of December 31, 1999 of $109.0 billion. DLJ's
assets are highly liquid, with the majority consisting of securities inventories
and collateralized receivables. Such receivables include resale agreements and
securities borrowed, both of which are secured by U.S. government and agency
securities, and marketable corporate debt and equity securities. In addition,
DLJ has significant receivables that turn over frequently from customers,
brokers and dealers. To meet client needs, as a securities dealer, DLJ may carry
significant levels of trading inventories. As such, because of changes relating
to customer needs, economic and market conditions and proprietary trading
strategies, DLJ's assets vary significantly from period to period. A significant
portion of DLJ's borrowings is matched to the interest rate and expected holding
period of the corresponding assets.
In May 1999, DLJ issued a new class of its common stock to track the financial
performance of DLJdirect, its online brokerage business, selling shares
representing an approximately 18% interest in DLJdirect's financial performance
to the public. The offering raised more than $343 million of equity and resulted
in AXA Financial recognizing a non-cash pre-tax gain of $212.3 million ($116.5
million by the Holding Company and $95.8 million by Equitable Life).
Certain of DLJ's businesses are capital intensive. In addition to normal
operating requirements, capital is required to cover financing and regulatory
charges on securities inventories, merchant banking investments and investments
in fixed assets. DLJ's overall capital needs are continually reviewed to ensure
that its capital base can appropriately support the anticipated needs of its
businesses and meet the regulatory capital requirements of its subsidiaries.
Over the past few years, DLJ has been active in raising additional long-term
financing. At December 31, 1999, $650 million 5 7/8% senior notes and an
aggregate of $1.29 billion medium-term notes with various interest rates and
maturities have been issued.
In January 1998, DLJ issued an initial 3.5 million shares of fixed/adjustable
rate cumulative preferred stock, Series B, with a liquidation preference of $50
per share ($175.0 million aggregate liquidation value). Also, in 1998, DLJ
established a $2.00 billion commercial paper program. At December 31, 1999,
$1.16 billion of notes were outstanding under this program.
7-24
<PAGE>
The majority of DLJ's assets are financed through daily operations by repurchase
agreements, financial instruments sold and not yet purchased, securities loaned,
bank loans and through payables to brokers and dealers. Short-term funding
generally is obtained at rates related to Federal funds, LIBOR and money market
rates. Other borrowing costs are negotiated depending upon prevailing market
conditions. DLJ monitors overall liquidity by tracking the extent to which
unencumbered marketable assets exceed short-term unsecured borrowings. DLJ has a
$2.5 billion revolving credit facility, of which $1.9 billion may be unsecured.
There were no borrowings outstanding under this agreement at December 31, 1999.
Consolidated Cash Flows
Net cash used by operating activities was $12.15 billion for 1999 as compared to
$2.33 billion in 1998 and $4.43 billion in 1997. Cash used by operations in all
three years principally reflected the net change in trading activities and
broker-dealer receivables related to DLJ's business activities.
Net cash used by investing activities totaled $2.09 billion for 1999 as compared
to net cash provided by investing activities of $998.4 million in 1998 and net
cash used by investing activities of $290.7 million in 1997. Investment
purchases in 1999 exceeded sales, maturities and repayments by $1.80 billion. In
1998, investment sales, maturities and repayments exceeded purchases by $595.9
million. Discontinued operations repaid $660.0 million of loans from continuing
operations during 1998. In 1997, sales, maturities and repayments exceeded
purchases by $121.2 million. Decreases in loans to discontinued operations
totaled $420.1 million in 1997.
Net cash provided by financing activities was $14.73 billion in 1999 as compared
to $3.07 billion for 1998 and $4.56 billion in 1997. The $12.44 billion net
increase in short-term financings is principally related to higher net
repurchase agreements and other short-term borrowings at DLJ reflecting its
business increases during 1999. Deposits to policyholders' account balances
exceeded withdrawals in 1999 by $600.4 million. During 1998, withdrawals from
policyholders' account balances exceeded deposits by $216.5 million as compared
with $605.1 million in 1997. Short-term financings, principally at DLJ, showed a
net increase of $1.50 billion in 1998 as compared to net increases of $4.87
billion in 1997 while net additions to long-term debt were higher by $1.90
billion in 1998 compared to net increases of $431.0 million in 1997.
The operating, investing and financing activities described above resulted in an
increase in cash and cash equivalents of $481.1 million in 1999 as compared to
an increase of $1.74 billion in 1998 and a decrease of $157.9 million in 1997.
FORWARD-LOOKING STATEMENTS
AXA Financial's management has made in this report, and from time to time may
make in its public filings and press releases as well as in oral presentations
and discussions, forward-looking statements concerning AXA Financial's
operations, economic performance and financial condition. Forward-looking
statements include, among other things, discussions concerning AXA Financial's
potential exposure to market risks, as well as statements expressing
management's expectations, beliefs, estimates, forecasts, projections and
assumptions, as indicated by words such as "believes," "estimates," "intends,"
"anticipates," "expects," "projects," "should," "probably," "risk," "target,"
"goals," "objectives," or similar expressions. AXA Financial claims the
protection afforded by the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and assumes no duty to
update any forward-looking statement. Forward-looking statements are based on
management's expectations and beliefs concerning future developments and their
potential effects and are subject to risks and uncertainties. Actual results
could differ materially from those anticipated by forward-looking statements due
to a number of important factors including those discussed elsewhere in this
report and in AXA Financial's other public filings, press releases, oral
presentations and discussions. The following discussion highlights some of the
more important factors that could cause such differences.
Market Risk. AXA Financial's businesses are subject to market risks arising from
its insurance asset/liability management, investment management and trading
activities. Primary market risk exposures exist in the Financial
Advisory/Insurance and Investment Banking and Brokerage segments and result from
interest rate fluctuations, equity price movements, changes in credit quality
and, at DLJ, foreign currency exchange exposure. The nature of each of these
risks is discussed under the caption "Quantitative and Qualitative Disclosures
About Market Risk" and in Note 16 of Notes to Consolidated Financial Statements.
7-25
<PAGE>
Strategic Initiatives. AXA Financial continues to implement certain strategic
initiatives identified after a comprehensive review of its organization and
strategy conducted in late 1997. These initiatives are designed to make AXA
Financial a premier provider of financial planning, insurance and investment
management products and services. The "branding" initiative, which consists in
part of a reorganization of certain wholly owned subsidiaries and changes to the
names of such subsidiaries and the Holding Company, is designed to separate
product manufacturing under the "Equitable" name from product distribution and
the provision of financial planning services under the "AXA" name.
Implementation of these strategic initiatives could affect certain historic
trends in the Financial Advisory/Insurance segment. Implementation is subject to
various uncertainties, including those relating to timing and expense, and the
results of the implementation of these initiatives could be other than what
management intends. AXA Financial may, from time to time, explore selective
acquisition opportunities in its core insurance and investment management
businesses.
Financial Advisory/Insurance. The Insurance Group's future sales of life
insurance and annuity products and financial planning services are dependent on
numerous factors including successful implementation of the strategic
initiatives referred to above, the intensity of competition from other insurance
companies, banks and other financial institutions, the strength and
professionalism of distribution channels, the continued development of
additional channels, the financial and claims paying ratings of Equitable Life,
its reputation and visibility in the market place, its ability to develop,
distribute and administer competitive products and services in a timely,
cost-effective manner and its investment management performance. In addition,
the nature and extent of competition and the markets for products sold by the
Insurance Group may be materially affected by changes in laws and regulations,
including changes relating to savings, retirement funding and taxation as well
as changes resulting from the Gramm-Leach-Bliley Act. The Administration's
fiscal year 2001 revenue proposals contain provisions which, if enacted, could
have a material adverse impact on sales of certain insurance products and would
adversely affect the taxation of insurance companies. See "Business - Segment
Information - Financial Advisory/Insurance" and "Business - Regulation - Federal
Initiatives". The profitability of the Insurance Group depends on a number of
factors, including levels of gross operating expenses and the amount which can
be deferred as DAC, secular trends and AXA Financial's mortality, morbidity,
persistency and claims experience, and profit margins between investment results
from General Account Investment Assets and interest credited on individual
insurance and annuity products. The performance of General Account Investment
Assets depends, among other things, on levels of interest rates and the markets
for equity securities and real estate, the need for asset valuation allowances
and writedowns, and the performance of equity investments which have created,
and in the future may create, significant volatility in investment income. See
"Investment Results of General Account Investment Assets". The ability of AXA
Financial to continue its accelerated real estate sales program without
incurring net losses will depend on real estate markets for the remaining
properties held for sale and the negotiation of transactions which confirm
management's expectations on property values. For further information, including
information concerning the writedown in the fourth quarter of 1997 in connection
with management's decision to accelerate the sale of certain real estate assets,
see "Investment Results of General Account Investment Assets - Equity Real
Estate". AXA Financial's DIand group pension businesses produced pre-tax losses
in 1995 and 1996. In late 1996, loss recognition studies for the DI and group
pension businesses were completed. As a result, $145.0 million of unamortized
DAC on DI policies at December 31, 1996 was written off; reserves for directly
written DI policies and DI reinsurance assumed were strengthened by $175.0
million; and a Pension Par premium deficiency reserve was established which
resulted in a $73.0 million pre-tax charge to results of continuing operations
at December 31, 1996. Based on the experience that emerged on these two books of
business since 1996, management continues to believe the DI and Pension Par
reserves have been calculated on a reasonable basis and are adequate. However,
there can be no assurance that they will be sufficient to provide for all future
liabilities. Equitable Life no longer underwrites new DI policies. Equitable
Life is reviewing the arrangements pursuant to which a third party manages
claims incurred under DI policies previously issued by Equitable Life and is
exploring its ability to dispose of the DI business through reinsurance.
Investment Banking and Brokerage. For the years ended December 31, 1999, 1998
and 1997, Investment Banking and Brokerage accounted for approximately 53.0%,
36.7% and 54.8%, respectively, of AXA Financial's consolidated earnings from
continuing operations before Federal income taxes and minority interest. DLJ's
business activities include securities underwriting, sales and trading, merchant
banking, financial advisory services, investment research, venture capital,
correspondent brokerage services, online interactive brokerage services and
asset management. These activities are subject to various risks, including
volatile trading markets and fluctuations in the volume of market activity.
Consequently, DLJ's net income and revenues have been, and may continue to be,
subject to wide fluctuations, reflecting the impact of many factors beyond DLJ's
control, including securities market conditions, the level and volatility of
interest rates, competitive conditions and the size and timing of transactions.
7-26
<PAGE>
Over the last several years, DLJ's results have been at historically high
levels. See "Combined Operating Results by Segment - Investment Banking and
Brokerage" for a discussion of the negative impact on DLJ in the second half of
1998 of global economic problems, particularly in Japan and in emerging markets
including Russia and Asia. Potential losses could result from DLJ's merchant
banking activities as a result of their capital intensive nature.
Investment Management. Alliance's revenues are largely dependent on the total
value and composition of assets under its management and are, therefore,
affected by market appreciation and depreciation, additions and withdrawals of
assets, purchases and redemptions of mutual funds and shifts of assets between
accounts or products with different fee structures. See "Combined Operating
Results by Segment - Investment Management".
Discontinued Operations. The determination of the allowance for future losses
for the discontinued Wind-Up Annuities and GIC lines of business continues to
involve numerous estimates and subjective judgments including those regarding
expected performance of investment assets, ultimate mortality experience and
other factors which affect investment and benefit projections. There can be no
assurance the losses provided for will not differ from the losses ultimately
realized. To the extent actual results or future projections of discontinued
operations differ from management's current best estimates underlying the
allowance, the difference would be reflected as earnings or loss from
discontinued operations within the consolidated statements of earnings. In
particular, to the extent income, sales proceeds and holding periods for equity
real estate differ from management's previous assumptions, periodic adjustments
to the allowance are likely to result. See "Discontinued Operations" for further
information including a discussion of significant reserve strengthening in 1997
and the assumptions used in making cash flow projections.
Technology and Information Systems. AXA Financial's information systems are
central to, among other things, designing and pricing products, marketing and
selling products and services, processing policyholder and investor
transactions, client recordkeeping, communicating with retail sales associates,
employees and clients, and recording information for accounting and management
information purposes. Any significant difficulty associated with the operation
of such systems, or any material delay or inability to develop needed system
capabilities, could have a material adverse affect on AXA Financial's results of
operations and, ultimately, its ability to achieve its strategic goals.
Legal Environment. A number of lawsuits have been filed against life and health
insurers involving insurers' sales practices, alleged agent misconduct, failure
to properly supervise agents and other matters. Some of the lawsuits have
resulted in the award of substantial judgments against other insurers, including
material amounts of punitive damages, or in substantial settlements. In some
states, juries have substantial discretion in awarding punitive damages. AXA
Financial's insurance subsidiaries, like other life and health insurers, are
involved in such litigation. While no such lawsuit has resulted in an award or
settlement of any material amount against AXA Financial to date, its results of
operations and financial condition could be affected by defense and settlement
costs and any unexpected material adverse outcomes in such litigations as well
as in other material litigations pending against the Holding Company and its
subsidiaries. In addition, examinations by Federal and state regulators could
result in adverse publicity, sanctions and fines. For further information, see
"Business - Regulation" and "Legal Proceedings".
Future Accounting Pronouncements. In the future, new accounting pronouncements
may have material effects on AXA Financial's consolidated statements of earnings
and shareholders' equity. See Note 2 of Notes to Consolidated Financial
Statements for pronouncements issued but not implemented. In addition, members
of the NAIC approved its Codification project providing regulators and insurers
with uniform statutory guidance, addressing areas where statutory accounting
previously was silent and changing certain existing statutory positions.
Equitable Life will be subject to Codification to the extent and in the form
adopted in New York State, which would require action by both the New York
legislature and the New York Insurance Department. In February 2000, the
Superintendent indicated the New York Insurance Department intends to proceed
with implementation of Codification rules, subject to any provisions in New York
statutes which conflict with particular points in the Codification rules. It is
not possible to predict in what form, or when Codification will be adopted in
New York, and accordingly it is not possible to predict the effect of
Codification on Equitable Life.
Regulation. The businesses conducted by AXA Financial's subsidiaries are subject
to extensive regulation and supervision by state insurance departments and
Federal and state agencies regulating, among other things, insurance and
annuities, securities transactions, investment banking, investment companies and
investment advisors. Changes in the regulatory environment could have a material
impact on operations and results. The activities of the Insurance Group are
subject to the supervision of the insurance regulators of each of the 50 states.
7-27
<PAGE>
Part II, Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AXA Financial's businesses are subject to market risks arising from its
insurance asset/liability management, asset management and trading activities.
Such risks are evaluated and managed by each business on a decentralized basis.
Primary market risk exposures result from interest rate fluctuations, equity
price movements and changes in credit quality.
Other-Than-Trading Activities
Investment Management. Alliance's investments are divided into two portfolios:
available for sale investments and other investments. Alliance's available for
sale portfolio primarily includes equity and fixed income mutual funds and money
market investments. The carrying value of money market investments approximates
fair value. Although these assets are purchased for long-term investment, the
portfolio strategy considers them available for sale in response to changes in
market interest rates, equity prices and other relevant factors. Other
investments include Alliance's hedge fund investments. At December 31, 1999,
Alliance's interest rate, equity price and credit quality risks were not
material to AXA Financial. For further information, see Alliance Holding's and
Alliance's Annual Reports on Form 10-K for the year ended December 31, 1999.
Insurance Group. Insurance Group results significantly depend on profit margins
between investment results from General Account Investment Assets and interest
credited on individual insurance and annuity products. Management believes its
fixed rate liabilities should be supported by a portfolio principally composed
of fixed rate investments that can generate predictable, steady rates of return.
Although these assets are purchased for long-term investment, the portfolio
management strategy considers them available for sale in response to changes in
market interest rates, changes in prepayment risk, changes in relative values of
asset sectors and individual securities and loans, changes in credit quality
outlook and other relevant factors. The objective of portfolio management is to
maximize returns, taking into account interest rate and credit risks. Insurance
asset/liability management includes strategies to minimize exposure to loss as
interest rates and economic and market conditions change. As a result, the fixed
maturity portfolio has modest exposure to call and prepayment risk and the vast
majority of mortgage holdings are fixed rate mortgages that carry yield
maintenance and prepayment provisions.
Insurance Group assets with interest rate risk include fixed maturities and
mortgage loans which make up 81.6% of the carrying value of General Account
Investment Assets. As part of its asset/liability management, quantitative
analyses are used to model the impact various changes in interest rates have on
assets with interest rate risk. The table that follows shows the impact an
immediate 100 basis point increase in interest rates at December 31, 1999 would
have on the fair value of fixed maturities and mortgages:
7A-1
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Risk Exposure
(In Millions)
December 31, 1999 December 31, 1998
---------------------------------------- ------------------------------------
Fair +100 Basis Fair +100 Basis
Value Point Change Value Point Change
-------------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Continuing Operations:
Fixed maturities:
Fixed rate.................... $ 21,498.2 $ 20,341.1 $ 22,332.6 $ 21,167.6
Floating rate................. 1,241.2 1,206.1 1,208.5 1,208.5
Mortgage loans.................. 4,889.6 4,700.7 4,665.3 4,482.8
Discontinued Operations:
Fixed maturities:
Fixed rate.................... $ 85.4 $ 81.4 $ 20.2 $ 19.5
Floating rate................. .1 .1 4.7 4.7
Mortgage loans.................. 467.0 454.2 599.9 580.8
Holding Company Group:
Fixed maturities:
Fixed rate.................... $ 367.8 $ 355.4 $ 517.2 $ 501.5
Floating rate................. 7.8 7.7 83.9 83.9
</TABLE>
A 100 basis point fluctuation in interest rates is a hypothetical rate scenario
used to demonstrate potential risk; it does not represent management's view of
future market changes. While these fair value measurements provide a
representation of interest rate sensitivity of fixed maturities and mortgage
loans, they are based on various portfolio exposures at a particular point in
time and may not be representative of future market results. These exposures
will change as a result of ongoing portfolio activities in response to
management's assessment of changing market conditions and available investment
opportunities.
The investment portfolios also have direct holdings of public and private equity
securities. In addition, the General Account is exposed to equity price risk
from the excess of Separate Accounts assets over Separate Accounts liabilities.
The following table shows the potential exposure from those equity security
investments, measured in terms of fair value, to an immediate 10% drop in equity
prices from those prevailing at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Equity Price Risk Exposure
(In Millions)
December 31, 1999 December 31, 1998
----------------------------------------- -----------------------------------
Fair -10% Equity Fair -10% Equity
Value Price Change Value Price Change
------------------ --------------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Insurance Group:
Continuing operations............... $ 33.2 $ 29.9 $ 164.4 $ 148.0
Discontinued operations............. 5.7 5.1 19.3 17.4
Excess of Separate Accounts assets
over Separate Accounts liabilities 121.4 109.3 91.0 81.9
Holding Company Group................. $ 2.3 $ 2.1 $ 47.7 $ 42.9
</TABLE>
7A-2
<PAGE>
A 10% decrease in equity prices is a hypothetical scenario used to calibrate
potential risk and does not represent management's view of future market
changes. The fair value measurements shown are based on the equity securities
portfolio exposures at a particular point in time and these exposures will
change as a result of ongoing portfolio activities in response to management's
assessment of changing market conditions and available investment opportunities.
At years end 1999 and 1998, the aggregate carrying value of policyholders'
liabilities were $36,134.0 million and $35,618.7 million, respectively,
including $12,796.4 million and $12,954.0 million, respectively, of the General
Account's investment contracts. The aggregate fair value of those investment
contracts at years end 1999 and 1998 were $12,850.5 million and $13,455.0
million, respectively. The impact of a relative 1% decrease in interest rates
would be an increase in the fair value of those investment contracts to
$12,977.7 million and $13,644.0 million, respectively. Those investment
contracts represent only a portion of total policyholders' liabilities. As such,
meaningful assessment of net market risk exposure cannot be made by comparing
the results of the invested assets sensitivity analyses presented herein to the
potential exposure from the policyholders' liabilities quantified in this
paragraph.
Asset/liability management is integrated into many aspects of the Insurance
Group's operations, including investment decisions, product development and
determination of crediting rates. As part of its risk management process,
numerous economic scenarios are modeled, including cash flow testing required
for insurance regulatory purposes, to determine if existing assets would be
sufficient to meet projected liability cash flows. Key variables include
policyholder behavior, such as persistency, under differing crediting rate
strategies. On the basis of these more comprehensive analyses, management
believes there is no material solvency risk to Equitable Life with respect to
interest rate movements up or down of 100 basis points from year end 1999 levels
or with respect to a 10% drop in equity prices from year end 1999 levels.
As more fully described in Note 16 of Notes to Consolidated Financial
Statements, various derivative financial instruments are used to manage exposure
to fluctuations in interest rates, including interest rate swaps to convert
floating rate assets to fixed rate assets, interest rate caps and floors to
hedge crediting rates on interest-sensitive products, and interest rate futures
to hedge a decline in interest rates between receipt of funds and purchase of
appropriate assets. To minimize credit risk exposure associated with its
derivative transactions, each counterparty's credit is appraised and approved
and risk control limits and monitoring procedures are applied. Credit limits are
established and monitored on the basis of potential exposures which take into
consideration current market values and estimates of potential future movements
in market values given potential fluctuations in market interest rates.
While notional amount is the most commonly used measure of volume in the
derivatives market, it is not used by the Insurance Group as a measure of risk
as the notional amount greatly exceeds the possible credit and market loss that
could arise from such transactions. Mark to market exposure is a point-in-time
measure of the value of a derivative contract in the open market. A positive
value indicates existence of credit risk for the Insurance Group as the
counterparty would owe money to the Insurance Group if the contract were closed.
Alternatively, a negative value indicates the Insurance Group would owe money to
the counterparty if the contract were closed. If there is more than one
derivatives transaction outstanding with a counterparty, a master netting
arrangement exists with the counterparty. In that case, the market risk
represents the net of the positive and negative exposures with the single
counterparty. In management's view, the net potential exposure is the better
measure of credit risk.
At years end 1999 and 1998, the net market value exposure of the Insurance
Group's derivatives was $53.7 million and $71.7 million, respectively. The table
that follows shows the interest rate sensitivity of those derivatives, measured
in terms of fair value. These exposures will change as a result of ongoing
portfolio and risk management activities.
7A-3
<PAGE>
Insurance Group - Derivative Financial Instruments
(In Millions, Except for Weighted Average Term)
<TABLE>
<CAPTION>
Weighted
Average
Notional Term -100 Basis Fair +100 Basis
Amount (Years) Point Change Value Point Change
--------------- -------------- ----------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999
Swaps:
Floating to fixed
rate................. $ 92.3 0.35 $ 41.4 $ 9.8 $ (19.5)
Fixed to floating
rate................. 705.0 5.58 (2.1) (1.8) (1.9)
Options:
Caps................... 7,775.0 3.25 16.0 45.5 103.1
Floors................. 2,000.0 2.28 .8 .2 -
--------------- ----------------- ---------------- -------------------
Total.................... $ 10,572.3 3.20 $ 56.1 $ 53.7 $ 81.7
=============== ============== ================= ================ ===================
December 31, 1998 Swaps:
Floating to fixed
rate................. $ 623.2 5.67 $ 88.0 $ 57.5 $ 28.8
Fixed to floating
rate................. 257.7 0.93 (9.8) (8.0) (6.2)
Options:
Caps................... 8,650.0 3.89 3.4 14.2 41.4
Floors................. 2,000.0 3.28 22.8 8.0 3.0
--------------- ------------------------------------ -------------------
Total.................... $ 11,530.9 3.81 $ 104.4 $ 71.7 $ 67.0
=============== ============== ==================================== ===================
</TABLE>
At year end 1999 and 1998, the aggregate fair values of long-term debt issued by
Equitable Life and the Holding Company Group were $1.98 billion and $2.40
billion, respectively. The table below shows the potential fair value exposure
to an immediate 100 basis point decrease in interest rates from those prevailing
at years end 1999 and 1998.
<TABLE>
<CAPTION>
Interest Rate Risk Exposure
(In Millions)
December 31, 1999 December 31, 1998
--------------------------------------- -------------------------------------
Fair -100 Basis Fair -100 Basis
Value Point Change Value Point Change
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Continuing Operations:
Fixed rate...................... $ 583.5 $ 621.4 $ 779.7 $ 828.4
Floating rate................... 251.4 251.3 251.3 251.3
Discontinued Operations:
Fixed rate...................... $ - $ - $ 45.1 $ 45.1
Floating rate................... 101.9 101.9 102.1 102.1
Holding Company Group............. $ 1,043.7 $ 1,116.7 $ 1,218.1 $ 1,311.3
</TABLE>
Trading Activities
Exposure to risk and the ways in which DLJ manages the various types of risks on
a day-to-day basis is critical to its survival and financial success. DLJ
monitors its market and counterparty risk on a daily basis through a number of
control procedures designed to identify and evaluate the various risks to which
DLJ is exposed. DLJ has an independent risk oversight department to oversee risk
policies and risk monitoring and management capabilities throughout DLJ and to
coordinate the risk management practices of the various business groups. This
department is assisted by a credit risk management department responsible for
analyzing the credit worthiness of counterparties.
7A-4
<PAGE>
DLJ has established various committees to help senior management manage risk
associated with investment banking and merchant banking transactions. These
committees review potential clients and engagements, use experience with similar
clients and situations, analyze credit for certain commitments and analyze DLJ's
potential role as a principal investor. To control the risks associated with its
banking activities, various committees review the details of all transactions
before accepting an engagement.
From time to time, DLJ invests in certain merchant banking transactions or other
long-term corporate development investments. DLJ's Merchant Banking Group has
established several investment entities, each of which has formed its own
investment committee. These committees decide on all investments and
dispositions with respect to potential and existing portfolio companies. In
addition, each quarter, senior officers of DLJ meet to review merchant banking
and corporate development investments. After discussing the financial and
operational aspects of the companies involved, the senior officers recommend
carrying values for each investment to the Finance Committee. The Finance
Committee then reviews such recommendations and determines fair value.
DLJ often acts as principal in customer-related transactions in financial
instruments which expose DLJ to market risks. DLJ also engages in proprietary
trading and arbitrage activities and makes dealer markets in equity securities,
investment-grade corporate debt, high-yield securities, U.S. government and
agency securities, mortgages and mortgage-backed securities and selected
derivatives. As such, to facilitate customer order flow, DLJ maintains certain
amounts of inventories. DLJ covers its exposure to market risk by limiting its
net long or short position by selling or buying similar instruments and by
utilizing various derivative financial instruments in the exchange-traded and
OTC markets.
Position limits in trading and inventory accounts are established and monitored
continuously. Current and proposed underwriting, corporate development, merchant
banking and other commitments are subject to due diligence reviews by senior
management and by professionals in the appropriate business and support units
involved.
Trading activities generally result in inventory positions. Each day, position
and exposure reports are prepared by operations staff in each of the business
groups engaged in trading activities for traders, trading managers, department
managers, divisional management and group management. These reports are
independently reviewed by DLJ's corporate accounting group. The corporate
accounting group prepares a consolidated summarized position report listing both
long and short exposure and approved limits. The position report is distributed
to various levels of management throughout DLJ, including the Chief Executive
Officer, and it enables senior management to control inventory levels and
monitor the results of the trading groups. DLJ also reviews and monitors
inventory aging, pricing, concentration and securities' ratings.
In addition to position and exposure reports, DLJ produces a daily revenue
report that summarizes the trading, interest, commissions, fees, underwriting
and other revenue items for each of the business groups. Daily revenue is
reviewed for various risk factors and is independently verified by the corporate
accounting group. The daily revenue report is distributed to various levels of
management throughout DLJ, including the Chief Executive Officer, and together
with the position and exposure report enables senior management to monitor and
control overall activity of the trading groups.
7A-5
<PAGE>
Market Risk
Market risk represents the potential loss as a result of absolute and relative
price movements in financial instruments due to changes in interest rates,
foreign exchange rates, equity prices, and other factors. DLJ's exposure to
market risk is directly related to its role as financial intermediary in
customer-related transactions and to its proprietary trading activities. As of
December 31, 1999, DLJ's primary market risk exposures include interest rate
risk, credit spread risk and equity price risk. Interest rate risk results from
maintaining inventory positions and trading in interest rate sensitive financial
instruments and arises from various sources including changes in the absolute
and relative level of interest rates, interest rate volatility, mortgage
prepayment rates and the shape of the yield curves in various markets. To cover
its exposure to interest rate risk, DLJ enters into transactions in U.S.
government securities, options, swaps and futures and forward contracts designed
to reduce DLJ's risk profile. DLJ's investment grade and high-yield corporate
bonds, mortgages, equities, derivatives and convertible debt activities also
expose it to the risk of loss related to changes in credit spreads. Credit
spread risk arises from potential changes in an issuer's credit rating that
affect the value of financial instruments. Equity price risk results from
maintaining inventory positions and making markets in equity securities and
arises from changes in the level or volatility of equity prices, equity index
exposure and equity index spreads which affect the value of equity securities.
To cover its exposure to equity price risk, DLJ enters into transactions in
options and futures designed to reduce DLJ's risk profile.
Value At Risk
In 1997, DLJ developed a company-wide Value-at-Risk ("VAR") model. This model
used a variance-covariance approach with a confidence interval of 95% and a
one-day holding period, based on historical data for one year. DLJ has made
changes to the model since that date. In response to the volatile and illiquid
markets of the third quarter of 1998, which departed markedly from the normal
statistical distributions that underlie the variance-covariance approach, DLJ
has estimated VAR by using an historical simulation model based on two years of
weekly historical data, a 95% confidence interval, and a one-day holding period.
The effect of this change in approach was not material.
The VAR number is the statistically expected maximum loss on the fair value of
DLJ's market sensitive instruments for 19 of 20 trading days. In other words, on
1 out of every 20 trading days, the loss is expected to be statistically greater
than the VAR number. However, the model does not indicate how much greater.
VAR models are designed to assist in risk management and to provide senior
management with one probabilistic indicator of risk at the firm level. VAR
numbers should not be interpreted as a predictor of actual results. The VAR
model has been specifically tailored for DLJ's risk management needs and risk
profile.
DLJ's VAR model includes the following limitations: (i) a daily VAR does not
capture the risk inherent in trading positions that cannot be liquidated or
hedged in one day, (ii) VAR is based on historical market data and assumes that
past trading patterns will predict the future, (iii) all inherent market risks
cannot be perfectly modeled and (iv) correlations between market movements can
vary, particularly in times of market stress.
Because a VAR model alone is not a sufficient tool to measure and monitor market
risk, DLJ will continue to use other risk management measures such as stress
testing, independent review of position and trading limits and daily revenue
reports.
7A-6
<PAGE>
At December 31, 1999 and 1998, DLJ's company-wide VAR for trading was
approximately $17.0 million and $22.0 million, respectively. DLJ's company-wide
VAR for non-trading market risk sensitive instruments is not separately
disclosed because the amount is not significant. Due to the benefit of
diversification, DLJ's company-wide VAR is less than the sum of the individual
components. At December 31, 1999, 1998 and 1997, the three main components of
market risk, expressed in terms of theoretical fair values, had the following
VAR:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998 1997
-------------- ------------ ---------
(In Millions)
<S> <C> <C> <C>
Trading:
Interest rate risk........................ $ 10 $ 16 $ 8
Equity risk............................... 14 11 8
Foreign currency exchange rate risk....... - - 1
</TABLE>
Credit Risk
Credit risk is the potential for loss resulting from a counterparty defaulting
on its obligations. Exposure to credit risk is generated by securities and
currency settlements, contracting derivative and forward transactions with
customers and dealers, and the holding in inventory of bonds and/or loans.
DLJ uses various means to manage its credit risk. The credit-worthiness of all
counterparties is analyzed at the outset of a credit relationship with DLJ.
These counterparties are subsequently reviewed on a periodic basis. DLJ sets a
maximum exposure limit for each counterparty, as well as for groups or classes
of counterparties. Furthermore, DLJ enters into master netting agreements when
feasible and demands collateral from certain counterparties or for certain types
of credit transactions.
The distribution of daily net trading revenues (losses) for 1999 ranged as
follows ($s in millions):
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
No. of Days 2 3 7 12 24 41 50
Net Revenues (Losses) $ (3) $ (2) $ (1) $ 0 $ 1 $ 2 $ 3
No. of Days 43 29 19 9 3 1 9
Net Revenues (Losses) $ 4 $ 5 $ 6 $ 7 $ 8 $ 9 $ 10+
</TABLE>
7A-7
<PAGE>
Part II, Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
AXA FINANCIAL, INC.
Report of Independent Accountants....................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1999 and 1998............... F-2
Consolidated Statements of Earnings, Years Ended December 31, 1999,
1998 and 1997......................................................... F-3
Consolidated Statements of Shareholders' Equity and Comprehensive
Income,...............................................................
Years Ended December 31, 1999,1998 and 1997.......................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1999, F-5
1998 and 1997.........................................................
Notes to Consolidated Financial Statements............................ F-6
Report of Independent Accountants on Consolidated Financial Statement
Schedules............................................................. F-47
Consolidated Financial Statement Schedules:
Schedule I - Summary of Investments - Other than Investments in
Related Parties, December 31, 1999..................................... F-48
Schedule II - Balance Sheets (Parent Company), December 31, 1999
and 1998.............................................................. F-49
Schedule II - Statements of Earnings (Parent Company), Years Ended
December 31, 1999, 1998 and 1997...................................... F-50
Schedule II - Statements of Cash Flows (Parent Company), Years Ended
December 31, 1999, 1998 and 1997...................................... F-51
Schedule III - Supplementary Insurance Information, Years Ended
December 31, 1999, 1998 and 1997...................................... F-52
Schedule IV - Reinsurance, Years Ended December 31, 1999,
1998 and 1997......................................................... F-55
FS-1
<PAGE>
February 1, 2000
Report of Independent Accountants
To the Board of Directors and Shareholders of
AXA Financial, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' equity and comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of AXA Financial, Inc. and its subsidiaries ("AXA Financial") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of AXA Financial's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
F-1
<PAGE>
AXA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,849.1 $ 19,449.3
Held to maturity, at amortized cost..................................... 253.4 250.9
Investment banking trading account securities, at market value............ 27,982.4 13,195.1
Securities purchased under resale agreements.............................. 29,538.1 20,063.3
Mortgage loans on real estate............................................. 3,270.0 2,809.9
Equity real estate........................................................ 1,160.2 1,676.9
Policy loans.............................................................. 2,257.3 2,086.7
Other equity investments.................................................. 2,106.2 1,234.7
Other invested assets..................................................... 914.7 809.6
----------------- -----------------
Total investments..................................................... 86,331.4 61,576.4
Cash and cash equivalents................................................... 2,816.5 2,335.4
Broker-dealer related receivables........................................... 45,519.4 34,589.9
Deferred policy acquisition costs........................................... 4,033.0 3,563.8
Other assets................................................................ 5,792.8 5,500.9
Closed Block assets......................................................... 8,607.3 8,632.4
Separate Accounts assets.................................................... 54,453.9 43,302.3
----------------- -----------------
Total Assets................................................................ $ 207,554.3 $ 159,501.1
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,351.4 $ 20,857.5
Future policy benefits and other policyholders liabilities.................. 4,777.6 4,726.4
Securities sold under repurchase agreements................................. 56,474.4 35,775.6
Broker-dealer related payables.............................................. 37,526.7 26,418.3
Short-term and long-term debt............................................... 9,017.3 6,300.1
Other liabilities........................................................... 9,210.5 7,441.8
Closed Block liabilities.................................................... 9,025.0 9,077.0
Separate Accounts liabilities............................................... 54,332.5 43,211.3
----------------- -----------------
Total liabilities..................................................... 201,715.4 153,808.0
----------------- -----------------
Commitments and contingencies (Notes 13, 16, 17, 18 and 19)
SHAREHOLDERS' EQUITY
Series D convertible preferred stock........................................ 648.7 598.4
Stock employee compensation trust........................................... (648.7) 598.4)
Common stock, at par value.................................................. 4.5 2.2
Capital in excess of par value.............................................. 3,739.1 3,662.1
Treasury stock.............................................................. (490.8) (247.1)
Retained earnings........................................................... 3,008.6 1,926.1
Accumulated other comprehensive (loss) income............................... (422.5) 349.8
----------------- -----------------
Total shareholders' equity............................................ 5,838.9 5,693.1
----------------- -----------------
Total Liabilities and Shareholders' Equity.................................. $ 207,554.3 $ 159,501.1
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,257.5 $ 1,056.2 $ 950.6
Premiums...................................................... 558.2 588.1 601.5
Net investment income......................................... 4,500.0 4,498.7 3,991.3
Investment banking principal transactions, net................ 826.0 67.4 552.0
Investment gain (losses), net................................. 32.6 122.6 (39.2)
Commissions, fees and other income............................ 6,109.9 4,498.4 3,507.4
Contribution from the Closed Block............................ 86.4 87.1 102.5
----------------- ----------------- -----------------
Total revenues.......................................... 13,370.6 10,918.5 9,666.1
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,078.2 1,153.9 1,267.0
Policyholders' benefits....................................... 1,038.6 1,024.7 978.6
Other operating costs and expenses............................ 9,177.9 7,135.9 6,317.5
----------------- ----------------- -----------------
Total benefits and other deductions..................... 11,294.7 9,314.5 8,563.1
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes and minority interest.......................... 2,075.9 1,604.0 1,103.0
Federal income taxes.......................................... 584.5 527.8 280.5
Minority interest in net income of consolidated subsidiaries.. 393.4 245.8 174.3
----------------- ----------------- -----------------
Earnings from continuing operations........................... 1,098.0 830.4 648.2
Discontinued operations, net of Federal income taxes.......... 28.1 2.7 (87.2)
----------------- ----------------- -----------------
Net Earnings.................................................. $ 1,126.1 $ 833.1 $ 561.0
================= ================= =================
Per Common Share:
Basic:
Earnings from continuing operations....................... $ 2.51 $ 1.87 $ 1.57
Discontinued operations, net of Federal income taxes...... .07 .01 (.22)
----------------- ----------------- -----------------
Net Earnings.............................................. $ 2.58 $ 1.88 $ 1.35
================= ================= =================
Diluted:
Earnings from continuing operations....................... $ 2.39 $ 1.80 $ 1.43
Discontinued operations, net of Federal income taxes...... .06 .01 (.19)
----------------- ----------------- -----------------
Net Earnings.............................................. $ 2.45 $ 1.81 $ 1.24
================= ================= =================
Cash Dividend Per Common Share.............................. $ .10 $ .10 $ .10
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Series C convertible preferred stock, beginning of year...... $ - $ - $ 24.4
Exchange of Series C convertible preferred stock............. - - (24.4)
----------------- ----------------- -----------------
Series C convertible preferred stock, end of year............ - - -
----------------- ----------------- -----------------
Series D convertible preferred stock, beginning of year...... 598.4 514.4 294.0
Exchange of Series D convertible preferred stock............. (45.0) - (54.8)
Change in market value of shares............................. 95.3 84.0 275.2
----------------- ----------------- -----------------
Series D convertible preferred stock, end of year............ 648.7 598.4 514.4
----------------- ----------------- -----------------
Stock employee compensation trust, beginning of year......... (598.4) (514.4) (294.0)
Exchange of Series D convertible preferred stock in the
stock employee compensation trust.......................... 45.0 - 54.8
Change in market value of shares............................. (95.3) (84.0) (275.2)
----------------- ----------------- -----------------
Stock employee compensation trust, end of year............... (648.7) (598.4) (514.4)
----------------- ----------------- -----------------
Series E convertible preferred stock, beginning of year...... - - 380.2
Exchange of Series E convertible preferred stock............. - - (380.2)
----------------- ----------------- -----------------
Series E convertible preferred stock, end of year............ - - -
----------------- ----------------- -----------------
Common stock, at par value, beginning of year................ 2.2 2.2 1.9
Issuance of common stock..................................... 2.3 - .3
----------------- ----------------- -----------------
Common stock, at par value, end of year...................... 4.5 2.2 2.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............ 3,662.1 3,627.5 2,782.2
Additional capital in excess of par value.................... 77.0 34.6 845.3
----------------- ----------------- -----------------
Capital in excess of par value, end of year.................. 3,739.1 3,662.1 3,627.5
----------------- ----------------- -----------------
Treasury stock, beginning of year............................ (247.1) - -
Purchase of shares for treasury.............................. (243.7) (247.1) -
----------------- ----------------- -----------------
Treasury stock, end of year.................................. (490.8) (247.1) -
----------------- ----------------- -----------------
Retained earnings, beginning of year......................... 1,926.1 1,137.4 632.9
Net earnings................................................. 1,126.1 833.1 561.0
Dividends on preferred stocks................................ - - (15.6)
Dividends on common stock.................................... (43.6) (44.4) (40.9)
----------------- ----------------- -----------------
Retained earnings, end of year............................... 3,008.6 1,926.1 1,137.4
----------------- ----------------- -----------------
Accumulated other comprehensive income, beginning of year.... 349.8 506.4 166.4
Other comprehensive (loss) income............................ (772.3) (156.6) 340.0
----------------- ----------------- -----------------
Accumulated other comprehensive (loss) income, end of year... (422.5) 349.8 506.4
----------------- ----------------- -----------------
Total Shareholders' Equity, End of Year...................... $ 5,838.9 $ 5,693.1 $ 5,273.5
================= ================= =================
COMPREHENSIVE INCOME
Net earnings................................................. $ 1,126.1 $ 833.1 $ 561.0
----------------- ----------------- -----------------
Change in unrealized (losses) gains, net of reclassification
adjustment................................................. (784.5) (145.6) 344.4
Minimum pension liability adjustment......................... 12.2 (11.0) (4.4)
----------------- ----------------- -----------------
Other comprehensive (loss) income............................ (772.3) (156.6) 340.0
----------------- ----------------- -----------------
Comprehensive Income......................................... $ 353.8 $ 676.5 $ 901.0
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 1,126.1 $ 833.1 $ 561.0
Adjustments to reconcile net earnings to net cash
used by operating activities:
Interest credited to policyholders' account balances........ 1,078.2 1,153.9 1,267.0
Universal life and investment-type product
policy fee income......................................... (1,257.5) (1,056.2) (950.6)
Net change in trading activities and broker-dealer
related receivables/payables.............................. (14,595.0) (2,922.8) (5,561.3)
Decrease (increase) in matched resale agreements............ (17,947.1) 5,463.7 (4,622.2)
(Decrease) increase in matched repurchase agreements........ 17,947.1 (5,463.7) 4,622.2
Investment gains, net of dealer and trading gains........... (140.0) (248.6) (155.3)
Change in clearing association fees and regulatory
deposits.................................................. 847.0 (211.1) 4.3
Change in accounts payable and accrued expenses............. 1,548.7 343.0 749.8
Change in property and equipment............................ (483.2) (227.6) (171.9)
Other, net.................................................. (278.0) 3.1 (169.1)
----------------- ----------------- -----------------
Net cash used by operating activities......................... (12,153.7) (2,333.2) (4,426.1)
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,088.2 2,466.5 2,865.0
Sales....................................................... 8,211.6 18,196.3 11,182.2
Purchases................................................... (12,100.1) (20,066.9) (13,926.0)
(Increase) decrease in short-term investments............... (179.6) (215.5) (550.9)
Decrease in loans to discontinued operations................ - 660.0 420.1
Sale of subsidiaries........................................ - - 261.0
Other, net.................................................. (113.6) (42.0) (542.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (2,093.5) 998.4 (290.7)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances.............................
Deposits.................................................. 2,366.2 1,508.1 1,281.7
Withdrawals............................................... (1,765.8) (1,724.6) (1,886.8)
Net increase in short-term financings....................... 12,444.5 1,495.2 4,865.6
Additions to long-term debt................................. 1,936.3 2,315.0 979.9
Repayments of long-term debt................................ (328.8) (413.8) (548.9)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... - (87.2) (83.9)
Purchase of treasury stock.................................. (243.7) (247.1) -
Other, net.................................................. 319.6 227.2 (48.7)
----------------- ----------------- -----------------
Net cash provided by financing activities..................... 14,728.3 3,072.8 4,558.9
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 481.1 1,738.0 (157.9)
Cash and cash equivalents, beginning of year.................. 2,335.4 597.4 755.3
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 2,816.5 $ 2,335.4 $ 597.4
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 4,808.3 $ 4,749.7 $ 4,211.8
================= ================= =================
Income Taxes Paid........................................... $ 343.3 $ 355.6 $ 605.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AXA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
AXA Financial, Inc. (the "Holding Company," and collectively with its
consolidated subsidiaries, "AXA Financial") is a diversified financial
services organization serving a broad spectrum of insurance, asset
management and investment banking customers. AXA Financial's financial
advisory and insurance product businesses are conducted principally by
its life insurance subsidiary, The Equitable Life Assurance Society of
the United States ("Equitable Life"), its insurance general agency AXA
Network, LLC ("AXA Network") and its broker dealer AXA Advisors, LLC
("AXA Advisors"). AXA Financial's investment management business and
investment banking and brokerage business are conducted principally by
Alliance Capital Management L.P. ("Alliance") and Donaldson, Lufkin &
Jenrette, Inc. ("DLJ"), respectively. AXA, a French holding company for
an international group of insurance and related financial services
companies, is the Holding Company's largest shareholder, owning
approximately 58.0% at December 31, 1999 (53.0% if all securities
convertible into, and options on, common stock were to be converted or
exercised).
The Financial Advisory/Insurance segment offers a variety of
traditional, variable and interest-sensitive life insurance products,
annuity products, mutual fund asset management accounts and other
investment products to individuals and small groups and provides
financial planning services for individuals. It also administers
traditional participating group annuity contracts with conversion
features, generally for corporate qualified pension plans, and
association plans which provide full service retirement programs for
individuals affiliated with professional and trade associations. This
segment includes Separate Accounts for individual insurance and annuity
products.
The Investment Banking and Brokerage segment, which includes DLJ, serves
institutional, corporate, governmental and individual clients both
domestically and internationally. DLJ's businesses include securities
underwriting, sales and trading, merchant banking, financial advisory
services, investment research, venture capital, correspondent brokerage
services, online interactive brokerage services and asset management.
The Investment Management segment principally includes Alliance. In
1999, Alliance reorganized into Alliance Capital Management Holding L.P.
("Alliance Holding") and Alliance (the "Reorganization"). Alliance
Holding's principal asset is its interest in Alliance and it functions
as a holding entity through which holders of its publicly traded units
own an indirect interest in the operating partnership. AXA Financial
exchanged substantially all of its Alliance Holding units for units in
Alliance ("Alliance Units") . As a result of the reorganization, AXA
Financial was the beneficial owner of approximately 2% of Alliance
Holding and 56% of Alliance. Alliance provides diversified investment
fund management services to a variety of institutional clients,
including pension funds, endowments and foreign financial institutions,
as well as to individual investors, principally through a broad line of
mutual funds. This segment also includes institutional Separate Accounts
that provide various investment options for large group pension clients,
primarily deferred benefit contribution plans, through pooled or single
group accounts. Through June 10, 1997, this segment also includes
Equitable Real Estate Investment Management, Inc. ("EREIM") which was
sold. EREIM provided real estate investment management services,
property management services, mortgage servicing and loan asset
management, and agricultural investment management.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of the Holding Company; Equitable Life and those of their subsidiaries
engaged in insurance related businesses (collectively, the "Insurance
Group"); other subsidiaries, principally DLJ and Alliance, AXA Advisors
and, through June 10, 1997, EREIM (see Note 5); and those trusts,
partnerships and joint ventures in which AXA Financial has control and a
majority economic interest. Closed Block assets, liabilities and results
of operations are presented in the consolidated financial statements as
single line items (see Note 7). Unless specifically stated, all other
footnote disclosures contained herein exclude the Closed Block related
amounts.
F-6
<PAGE>
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been
eliminated in consolidation. The years "1999," "1998" and "1997" refer
to the years ended December 31, 1999, 1998 and 1997, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1999 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force
on that date. The assets allocated to the Closed Block, together with
anticipated revenues from policies included in the Closed Block, were
reasonably expected to be sufficient to support such business, including
provision for payment of claims, certain expenses and taxes, and for
continuation of dividend scales payable in 1991, assuming the experience
underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or any
affiliate of Equitable Life without the approval of the New York
Superintendent of Insurance (the "Superintendent"). Closed Block assets
and liabilities are carried on the same basis as similar assets and
liabilities held in the General Account. The excess of Closed Block
liabilities over Closed Block assets represents the expected future
post-tax contribution from the Closed Block which would be recognized in
income over the period the policies and contracts in the Closed Block
remain in force.
Discontinued Operations
Discontinued operations at December 31, 1999, principally consists of
the Group Non-Participating Wind-Up Annuities ("Wind-Up Annuities"), for
which a premium deficiency reserve has been established. Management
reviews the adequacy of the allowance each quarter and believes the
allowance for future losses at December 31, 1999 is adequate to provide
for all future losses; however, the quarterly allowance review continues
to involve numerous estimates and subjective judgments regarding the
expected performance of Discontinued Operations Investment Assets. There
can be no assurance the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the allowance for
future losses, the difference would be reflected in the consolidated
statements of earnings in discontinued operations. In particular, to the
extent income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the allowance are likely to result (see Note 8).
Accounting Changes
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of external and certain internal costs
incurred to obtain or develop internal-use computer software during the
application development stage. AXA Financial applied the provisions of
SOP 98-1 prospectively effective January 1, 1998. The adoption of SOP
98-1 did not have a material impact on AXA Financial's consolidated
financial statements. Capitalized internal-use software is amortized on
a straight-line basis over the estimated useful life of the software.
F-7
<PAGE>
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative
instruments, including certain derivatives embedded in other contracts,
and for hedging activities. It requires all derivatives to be recognized
on the balance sheet at fair value. The accounting for changes in the
fair value of a derivative depends on its intended use. Derivatives not
used in hedging activities must be adjusted to fair value through
earnings. Changes in the fair value of derivatives used in hedging
activities will, depending on the nature of the hedge, either be offset
in earnings against the change in fair value of the hedged item
attributable to the risk being hedged or recognized in other
comprehensive income until the hedged item affects earnings. For all
hedging activities, the ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133," which defers the effective date of SFAS No. 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000. AXA
Financial expects to adopt SFAS No. 133 effective January 1, 2001.
Adjustments resulting from initial adoption of the new requirements will
be reported in a manner similar to the cumulative effect of a change in
accounting principle and will be reflected in net income or accumulated
other comprehensive income based upon existing hedging relationships, if
any. Management currently is assessing the impact of adoption. However,
Alliance's adoption of the new requirements is not expected to have a
significant impact on AXA Financial's consolidated balance sheet or
statement of earnings. Also, since most of DLJ's derivatives are carried
at fair values, AXA Financial's consolidated earnings and financial
position are not expected to be significantly affected by DLJ's adoption
of the new requirements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which AXA Financial has both the
ability and the intent to hold to maturity, are stated principally at
amortized cost. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Investment banking trading account securities are reported at market
value principally based on their quoted market prices or on quoted
market prices of comparable instruments.
Securities sold under agreements to repurchase and securities purchased
under agreements to resell are treated as financing arrangements and are
carried at contract amounts that reflect the amounts at which the
securities will be subsequently repurchased or resold. Interest is
accrued on such contract amounts and is included in broker-dealer
related receivables and payables in the accompanying consolidated
balance sheets. AXA Financial takes possession of the underlying assets
purchased under agreements to resell and obtains additional collateral
when the market value falls below the contract value. Repurchase and
resale agreements with the same counterparty and maturity date that
settle through the Federal reserve system and which are subject to
master netting agreements are presented net in the consolidated
financial statements.
Securities borrowed and securities loaned (which are included in
Broker-dealer related receivables and payables) are financing
arrangements that are recorded at the amount of cash collateral advanced
or received. For securities borrowed, AXA Financial deposits cash,
letters of credit or other collateral with the lender. For securities
loaned, AXA Financial receives collateral in cash or other collateral
that exceeds the market value of securities loaned. Each day, AXA
Financial monitors the market value of securities borrowed and loaned
and obtains or refunds additional collateral, as necessary.
Valuation allowances are netted against the asset categories to which
they apply.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
F-8
<PAGE>
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which AXA Financial does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Equity securities, comprised of common stock held by the Insurance Group
and the Holding Company classified as both trading and available for
sale securities, non-redeemable preferred stock and DLJ's holdings of
long-term corporate development investments, principally private equity
investments, are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities owned by the Insurance Group and the Holding Company as
well as United States government and agency securities, mortgage-backed
securities, futures and forwards transactions, and certain other debt
obligations held by DLJ are recorded in the consolidated financial
statements on a trade date basis. All other securities owned by DLJ are
recorded on a settlement date basis and adjustments are made to a trade
date basis, if significant.
Net Investment Income, Investment Gains, Net
and Unrealized Investment Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
the valuation allowances are included in investment gains or losses.
Changes in unrealized gains or losses as well as realized gains and
losses at settlement on all of DLJ's derivative instruments (options,
forward and futures contracts) are included in the consolidated
statements of earnings in investment banking principal transactions,
net. Related offsetting amounts are presented as broker-dealer related
receivables/payables in the consolidated balance sheets. Fair value of
the options includes the unamortized premiums which are deferred and are
included in broker-dealer payables in the consolidated balance sheets.
Such premiums are recognized over the life of the option contracts on a
straight-line basis or are recognized through the change in the fair
value of the option in investment banking principal transactions, net.
Cash flows from derivative instruments are presented as operating
activities in the consolidated statements of cash flows.
DLJ's unrealized investment gains (losses) are included in revenues as
investment banking principal transactions, net. Unrealized gains
(losses) on non-DLJ trading securities are reflected in net investment
income. Unrealized investment gains and losses on fixed maturities and
equity securities available for sale held by AXA Financial, other than
those held by DLJ, are accounted for as a separate component of
accumulated comprehensive income, net of related deferred Federal income
taxes, amounts attributable to discontinued operations, participating
group annuity contracts and deferred policy acquisition costs ("DAC")
related to universal life and investment-type products and participating
traditional life contracts.
F-9
<PAGE>
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and primarily are related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 25 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to accumulated comprehensive income in
consolidated shareholders' equity as of the balance sheet date.
As part of its asset/liability management process, in second quarter
1999, management initiated a review of the matching of invested assets
to Insurance product lines given their different liability
characteristics and liquidity requirements. As a result of this review,
management reallocated the current and prospective interests of the
various product lines in the invested assets. These asset reallocations
and the related changes in investment yields by product line, in turn,
triggered a review of and revisions to the estimated future gross
profits used to determine the amortization of DAC for universal life and
investment-type products. The revisions to estimated future gross
profits resulted in an after-tax writedown of DAC of $85.6 million (net
of a Federal income tax benefit of $46.1 million) or $.20 per basic and
$.19 per diluted share for 1999.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1999, the expected investment yield, excluding
policy loans, generally ranged from 7.75% grading to 7.5% over a 20 year
period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated comprehensive income in consolidated
shareholders' equity as of the balance sheet date.
For non-participating traditional life DAC is amortized in proportion to
anticipated premiums. Assumptions as to anticipated premiums are
estimated at the date of policy issue and are consistently applied
during the life of the contracts. Deviations from estimated experience
are reflected in earnings in the period such deviations occur. For these
contracts, the amortization periods generally are for the total life of
the policy.
F-10
<PAGE>
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
includes a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 8.35% for annuity liabilities.
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
While management believes its disability income ("DI") reserves have
been calculated on a reasonable basis and are adequate, there can be no
assurance reserves will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual DI and major
medical policies were $948.4 million and $951.7 million at December 31,
1999 and 1998, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 150.7 $ 140.1 $ 132.3
Incurred benefits related to prior years........... 64.7 84.2 60.0
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 215.4 $ 224.3 $ 192.3
================= ================ =================
Benefits paid related to current year.............. $ 28.9 $ 17.0 $ 28.8
Benefits paid related to prior years............... 189.8 155.4 146.2
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 218.7 $ 172.4 $ 175.0
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1999, participating policies, including those in the
Closed Block, represent approximately 23.0% ($47.0 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Holding Company and its consolidated subsidiaries (excluding DLJ)
file a consolidated Federal income tax return. AXA Financial's ownership
of DLJ for tax purposes is less than 80% and, therefore, DLJ files its
own U.S. consolidated Federal income tax return. Current Federal income
taxes are charged or credited to operations based upon amounts estimated
to be payable or recoverable as a result of taxable operations for the
current year. Deferred income tax assets and liabilities are recognized
F-11
<PAGE>
based on the difference between financial statement carrying amounts and
income tax bases of assets and liabilities using enacted income tax
rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account; therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1999, 1998 and 1997, investment results of
such Separate Accounts were $6,045.5 million, $4,591.0 million and
$3,411.1 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plans
AXA Financial accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
In accordance with the opinion, compensation expense is recorded on the
date of grant only if the current market price of the underlying stock
exceeds the option strike price at the grant date. See Note 11 for the
pro forma disclosures required by SFAS No. 123, "Accounting for
Stock-Based Compensation".
F-12
<PAGE>
3) INVESTMENTS
The following table provides additional information relating to fixed
maturities and equity securities (excluding DLJ trading account
securities):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------------- ----------------- ----------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
December 31, 1999
Fixed Maturities:
Available for Sale:
Corporate..................... $ 15,049.6 $ 139.5 $ 790.1 $ 14,399.0
Mortgage-backed............... 2,576.1 2.3 88.4 2,490.0
U.S. Treasury, government and
agency securities........... 1,218.0 18.9 23.6 1,213.3
States and political
subdivisions................ 110.0 1.4 4.9 106.5
Foreign governments........... 361.8 16.2 14.8 363.2
Redeemable preferred stock.... 311.6 1.8 36.3 277.1
----------------- ----------------- ----------------- --------------
Total Available for Sale.... $ 19,627.1 $ 180.1 $ 958.1 $ 18,849.1
================= ================= ================= ==============
Held to Maturity: Corporate.... $ 253.4 $ 6.6 $ .7 $ 259.3
================= ================= ================= ==============
Equity Securities:
DLJ's long-term corporate
development investments..... $ 1,359.7 $ 136.8 $ 63.8 $ 1,432.7
Common stock available
for sale.................... 25.5 1.5 17.8 9.2
Common stock trading............
securities.................... 14.3 9.1 7.0 16.4
----------------- ----------------- ----------------- --------------
Total Equity Securities........... $ 1,399.5 $ 147.4 $ 88.6 $ 1,458.3
================= ================= ================= ==============
December 31, 1998
Fixed Maturities:
Available for Sale:
Corporate..................... $ 14,747.0 $ 794.6 $ 380.4 $ 15,161.2
Mortgage-backed............... 1,834.5 23.3 .9 1,856.9
U.S. Treasury, government and
agency securities........... 1,640.1 109.6 1.1 1,748.6
States and political
subdivisions................ 55.0 9.9 - 64.9
Foreign governments........... 363.3 20.9 30.0 354.2
Redeemable preferred stock.... 268.0 7.0 11.5 263.5
----------------- ----------------- ----------------- --------------
Total Available for Sale.... $ 18,907.9 $ 965.3 $ 423.9 $ 19,449.3
================= ================= ================= ==============
Held to Maturity: Corporate.... $ 250.9 $ 19.6 $ .1 $ 270.4
================= ================= ================= ==============
Equity Securities:
DLJ's long-term corporate
development investments....... $ 472.3 $ 74.1 $ 72.6 $ 473.8
Common stock
available for sale............ 101.9 118.8 22.4 198.3
----------------- ----------------- ----------------- --------------
Total Equity Securities........... $ 574.2 $ 192.9 $ 95.0 $ 672.1
================= ================= ================= ==============
</TABLE>
F-13
<PAGE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, AXA Financial
determines an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by AXA
Financial. Such estimated fair values do not necessarily represent the
values for which these securities could have been sold at the dates of
the consolidated balance sheets. At December 31, 1999 and 1998,
securities without a readily ascertainable market value having an
amortized cost of $4,835.4 million and $4,171.3 million, respectively,
had estimated fair values of $4,769.6 million and $4,400.7 million,
respectively.
The contractual maturity of bonds at December 31, 1999 is shown below:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
------------------------------------ ------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------------- ----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C> <C>
Due in one year or less......... $ - $ - $ 494.2 $ 492.7
Due in years two through five... 139.8 139.7 3,097.3 3,025.3
Due in years six through ten.... 46.2 47.5 7,222.6 6,837.2
Due after ten years............. 67.4 72.1 5,925.3 5,726.8
Mortgage-backed securities...... - - 2,576.1 2,490.0
----------------- ----------------- ---------------- -----------------
Total........................... $ 253.4 $ 259.3 $ 19,315.5 $ 18,572.0
================= ================= ================ =================
</TABLE>
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
concentrations in any single issuer or in a particular industry group.
Certain of these corporate high yield securities are classified as other
than investment grade by the various rating agencies, i.e., a rating
below Baa or National Association of Insurance Commissioners ("NAIC")
designation of 3 (medium grade), 4 or 5 (below investment grade) or 6
(in or near default). At December 31, 1999, approximately 14.0% of the
$19,568.9 million aggregate amortized cost of bonds held by AXA
Financial was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to
be other than investment grade. The carrying values at December 31, 1999
and 1998 were $647.9 million and $562.6 million, respectively.
Investment valuation allowances and changes thereto follow:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 230.6 $ 384.5 $ 137.1
Additions charged to income........................ 68.2 86.2 334.6
Deductions for writedowns and
asset dispositions............................... (150.2) (240.1) (87.2)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 148.6 $ 230.6 $ 384.5
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 27.5 $ 34.3 $ 55.8
Equity real estate............................... 121.1 196.3 328.7
----------------- ---------------- -----------------
Total.............................................. $ 148.6 $ 230.6 $ 384.5
================= ================ =================
</TABLE>
F-14
<PAGE>
At December 31, 1999, the carrying value of fixed maturities which were
non-income producing for the twelve months preceding the consolidated
balance sheet date was $152.1 million.
The cost of investment banking trading account securities at December
31, 1999 and 1998 was $27,983.9 million and $13,385.6 million,
respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $106.0
million and $115.1 million at December 31, 1999 and 1998, respectively.
Gross interest income on restructured mortgage loans on real estate that
would have been recorded in accordance with the original terms of such
loans amounted to $9.5 million, $10.3 million and $17.2 million in 1999,
1998 and 1997, respectively. Gross interest income on these loans
included in net investment income aggregated $8.2 million, $8.3 million
and $12.7 million in 1999, 1998 and 1997, respectively.
Impaired mortgage loans along with the related provision for losses
follow:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 142.4 $ 125.4
Impaired mortgage loans without provision for losses............... 2.2 8.6
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 144.6 134.0
Provision for losses............................................... (23.0) (29.0)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 121.6 $ 105.0
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
During 1999, 1998 and 1997, respectively, AXA Financial's average
recorded investment in impaired mortgage loans was $141.7 million,
$161.3 million and $246.9 million. Interest income recognized on these
impaired mortgage loans totaled $12.0 million, $12.3 million and $15.2
million ($.0 million, $.9 million and $2.3 million recognized on a cash
basis) for 1999, 1998 and 1997, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1999 and 1998, the carrying value of equity real estate
held for sale amounted to $382.2 million and $836.2 million,
respectively. For 1999, 1998 and 1997, respectively, real estate of
$20.5 million, $7.1 million and $152.0 million was acquired in
satisfaction of debt. At December 31, 1999 and 1998, AXA Financial owned
$443.9 million and $552.3 million, respectively, of real estate acquired
in satisfaction of debt.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years. Accumulated
depreciation on real estate was $251.6 million and $374.8 million at
December 31, 1999 and 1998, respectively. Depreciation expense on real
estate totaled $21.8 million, $30.5 million and $74.9 million for 1999,
1998 and 1997, respectively.
F-15
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 individual ventures at both December 31, 1999 and 1998) and for
limited partnership interests accounted for under the equity method, in
which AXA Financial has an investment of $10.0 million or greater and an
equity interest of 10% or greater, follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 861.1 $ 913.7
Investments in securities, generally at estimated fair value........... 678.4 636.9
Cash and cash equivalents.............................................. 68.4 85.9
Other assets........................................................... 239.3 279.8
---------------- -----------------
Total Assets........................................................... $ 1,847.2 $ 1,916.3
================ =================
Borrowed funds - third party........................................... $ 354.2 $ 367.1
Borrowed funds - AXA Financial......................................... 28.9 30.1
Other liabilities...................................................... 313.9 197.2
---------------- -----------------
Total liabilities...................................................... 697.0 594.4
---------------- -----------------
Partners' capital...................................................... 1,150.2 1,321.9
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 1,847.2 $ 1,916.3
================ =================
Equity in partners' capital included above............................. $ 316.5 $ 365.6
Equity in limited partnership interests not included above and other... 524.1 390.1
---------------- -----------------
Carrying Value......................................................... $ 840.6 $ 755.7
================ =================
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 180.5 $ 246.1 $ 310.5
Revenues of other limited partnership interests.... 455.1 128.9 506.3
Interest expense - third party..................... (39.8) (33.3) (91.8)
Interest expense - AXA Financial................... (2.5) (2.6) (7.2)
Other expenses..................................... (139.0) (197.0) (263.6)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.3 $ 142.1 $ 454.2
================= ================ =================
Equity in net earnings included above.............. $ 10.5 $ 44.4 $ 76.7
Equity in net earnings of limited partnership
interests not included above..................... 76.0 37.9 69.5
Other.............................................. - - (.9)
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 86.5 $ 82.3 $ 145.3
================= ================ =================
</TABLE>
F-16
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income follow:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,534.8 $ 1,534.2 $ 1,501.2
Investment banking trading account securities...... 1,562.6 1,832.0 1,528.9
Securities purchased under resale agreements....... 2,116.9 2,075.7 1,861.5
Broker-dealer related receivables.................. 1,533.8 1,161.2 1,082.6
Mortgage loans on real estate...................... 253.4 235.4 260.8
Equity real estate................................. 250.2 356.1 390.4
Other equity investments........................... 220.6 123.2 181.0
Policy loans....................................... 143.8 144.9 177.0
Other investment income............................ 366.9 348.8 211.3
----------------- ---------------- -----------------
Gross investment income.......................... 7,983.0 7,811.5 7,194.7
----------------- ---------------- -----------------
Interest expense to finance short-term
trading instruments.............................. 3,249.6 3,045.4 2,859.0
Other investment expenses.......................... 233.4 267.4 344.4
----------------- ---------------- -----------------
Investment expenses.............................. 3,483.0 3,312.8 3,203.4
----------------- ---------------- -----------------
Net Investment Income.............................. $ 4,500.0 $ 4,498.7 $ 3,991.3
================= ================ =================
</TABLE>
Investment gains (losses) including changes in the valuation allowances
follow:
<TABLE>
<CAPTION> 1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Investment banking principal transactions, net:
Trading.......................................... $ 718.7 $ (58.6) $ 357.5
Investment....................................... 107.3 126.0 194.5
----------------- ---------------- -----------------
Total Investment Banking
Principal Transactions, Net................. $ 826.0 $ 67.4 $ 552.0
================= ================ =================
Investment gains (losses), net:
Fixed maturities................................. $ (294.7) $ (26.0) $ 90.2
Mortgage loans on real estate.................... (3.3) (10.9) (11.2)
Equity real estate............................... (2.4) 74.5 (391.3)
Other equity investments......................... 92.6 31.9 14.3
Issuance and sales of DLJ common stock........... 234.9 40.3 6.7
Sale of subsidiaries............................. - (2.6) 252.1
Issuance and sales of Alliance Units............. 5.5 19.8 -
Other............................................ - (4.4) -
----------------- ---------------- -----------------
Total Investment Gains (Losses), Net........... $ 32.6 $ 122.6 $ (39.2)
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $223.2 million, $101.6
million and $12.8 million for 1999, 1998 and 1997, respectively, and
writedowns of equity real estate amounted to $136.4 million for 1997. In
fourth quarter 1997, AXA Financial reclassified $1,095.4 million
depreciated cost of equity real estate from real estate held for
production of income to real estate held for sale. Additions to
valuation allowances of $227.6 million were recorded upon these
transfers. Additionally, in fourth quarter 1997, $132.3 million of
writedowns on real estate held for production of income were recorded.
F-17
<PAGE>
For 1999, 1998 and 1997, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $7,650.0
million, $16,775.7 million and $10,317.6 million. Gross gains of $75.3
million, $150.7 million and $167.6 million and gross losses of $218.7
million, $97.8 million and $109.0 million, respectively, were realized
on these sales. The change in unrealized investment (losses) gains
related to fixed maturities classified as available for sale for 1999,
1998 and 1997 amounted to $(1,319.4) million, $(330.0) million and
$511.3 million, respectively.
On January 1, 1999, investments in publicly-traded common equity
securities in the General Account and the Holding Company portfolios
within other equity investments amounting to $149.8 million were
transferred from available for sale securities to trading securities. As
a result of this transfer, unrealized investment gains of $87.3 million
($45.7 million net of related DAC and Federal income taxes) were
recognized in the consolidated statements of earnings. Net unrealized
holding gains of $2.1 million were included in net investment income in
the consolidated statements of earnings for 1999. These trading
securities had a carrying value of $16.4 million and cost of $14.3
million at December 31, 1999.
Investment banking principal transactions, net include gains generated
by DLJ's involvement in long-term corporate development investments of
$107.3 million, $126.0 million and $194.5 million for 1999, 1998 and
1997, respectively.
For 1999, 1998 and 1997, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $131.5 million, $136.9
million and $137.5 million, respectively.
During 1999, DLJ completed its offering of a new class of its common
stock to track the financial performance of DLJdirect, its online
brokerage business. As a result of this offering, AXA Financial recorded
a non-cash pre-tax realized gain of $212.3 million.
In 1997, Equitable Life sold EREIM (other than its interest in Column
Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), for $400.0 million and recognized an investment gain of $162.4
million, net of Federal income tax of $87.4 million. Equitable Life
entered into long-term advisory agreements whereby ERE continues to
provide substantially the same services to Equitable Life's General
Account and Separate Accounts, for substantially the same fees, as
provided prior to the sale. Through June 10, 1997, the businesses sold
reported combined revenues of $91.6 million and combined net earnings of
$10.7 million.
On June 30, 1997, Alliance reduced the recorded value of goodwill and
contracts associated with Alliance's 1996 acquisition of Cursitor
Holdings L.P. and Cursitor Holdings Limited (collectively, "Cursitor")
by $120.9 million since Cursitor's business fundamentals no longer
supported the carrying value of its investment. AXA Financial's earnings
from continuing operations for 1997 included a charge of $59.5 million,
net of a Federal income tax benefit of $10.0 million and minority
interest of $51.4 million. The remaining balance of intangible assets is
being amortized over its estimated useful life of 20 years.
F-18
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and
the changes for the corresponding years follow:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 378.1 $ 523.7 $ 179.3
Changes in unrealized investment (losses) gains.... (1,496.7) (236.5) 543.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 24.7 (5.7) 53.2
DAC............................................ 208.6 13.2 (89.0)
Deferred Federal income taxes.................. 478.9 83.4 (163.7)
----------------- ---------------- -----------------
Balance, End of Year............................... $ (406.4) $ 378.1 $ 523.7
================= ================ =================
Balance, end of year comprises:
Unrealized investment (losses) gains on:
Fixed maturities............................... $ (778.0) $ 541.4 $ 871.4
Other equity investments....................... (16.3) 96.4 33.1
Other, principally Closed Block................ 47.5 112.1 81.9
----------------- ---------------- -----------------
Total........................................ (746.8) 749.9 986.4
Amounts of unrealized investment losses (gains)
attributable to:
Participating group annuity contracts........ - (24.7) (19.0)
DAC.......................................... 80.8 (127.8) (141.0)
Deferred Federal income taxes................ 259.6 (219.3) (302.7)
----------------- ---------------- -----------------
Total.............................................. $ (406.4) $ 378.1 $ 523.7
================= ================ =================
</TABLE>
Changes in unrealized gains (losses) reflect changes in fair value of
only those fixed maturities and equity securities classified as
available for sale and do not reflect any changes in fair value of
policyholders' account balances and future policy benefits.
6) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) represents cumulative
gains and losses on items that are not reflected in earnings. The
balances for the past three years follow:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Unrealized (losses) gains on investments........... $ (406.4) $ 378.1 $ 523.7
Minimum pension liability.......................... (16.1) (28.3) (17.3)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive (Loss) Income...................... $ (422.5) $ 349.8 $ 506.4
================= ================ =================
</TABLE>
F-19
<PAGE>
The components of other comprehensive income (loss) for the past three
years follow:
<TABLE>
<CAPTION> 1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net unrealized (losses) gains on investment
securities:
Net unrealized (losses) gains arising during
the period.................................. $ (1,302.7) $ (178.0) $ 567.0
Adjustment to reclassify (gains) included
in net earnings during the period........... (194.0) (58.5) (23.1)
----------------- ---------------- -----------------
Net unrealized (losses) gains on investment
securities...................................... 1,496.7) (236.5) 543.9
Adjustments for policyholder liabilities, DAC
and deferred Federal income taxes............... 712.2 90.9 (199.5)
----------------- ---------------- -----------------
Change in unrealized (losses) gains, net of
adjustments..................................... (784.5) (145.6) 344.4
Change in minimum pension liability............... 12.2 (11.0) (4.4)
----------------- ----------------
-----------------
Total Other Comprehensive (Loss) Income........... $ (772.3) $ (156.6) $ 340.0
================= ================ =================
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Fixed Maturities:
Available for sale, at estimated fair value
(amortized cost, $4,144.8 and $4,149.0).......................... $ 4,014.0 $ 4,373.2
Mortgage loans on real estate........................................ 1,704.2 1,633.4
Policy loans......................................................... 1,593.9 1,641.2
Cash and other invested assets....................................... 194.4 86.5
DAC.................................................................. 895.5 676.5
Other assets......................................................... 205.3 221.6
----------------- -----------------
Total Assets......................................................... $ 8,607.3 $ 8,632.4
================= =================
Future policy benefits and policyholders' account balances........... $ 9,011.7 $ 9,013.1
Other liabilities.................................................... 13.3 63.9
----------------- -----------------
Total Liabilities.................................................... $ 9,025.0 $ 9,077.0
================= =================
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Premiums and other revenue......................... $ 619.1 $ 661.7 $ 687.1
Investment income (net of investment
expenses of $15.8, $15.5 and $27.0).............. 574.2 569.7 574.9
Investment (losses) gains, net..................... (11.3) .5 (42.4)
----------------- ---------------- -----------------
Total revenues............................... 1,182.0 1,231.9 1,219.6
----------------- ---------------- -----------------
Policyholders' benefits and dividends.............. 1,024.7 1,082.0 1,066.7
Other operating costs and expenses................. 70.9 62.8 50.4
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,095.6 1,144.8 1,117.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 86.4 $ 87.1 $ 102.5
================= ================ =================
</TABLE>
Impaired mortgage loans along with the related provision for losses
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 26.8 $ 55.5
Impaired mortgage loans without provision for losses................... 4.5 7.6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 31.3 63.1
Provision for losses................................................... (4.1) (10.1)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 27.2 $ 53.0
================ =================
</TABLE>
During 1999, 1998 and 1997, the Closed Block's average recorded
investment in impaired mortgage loans was $37.0 million, $85.5 million
and $110.2 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $3.3 million, $4.7 million and $9.4
million ($.3 million, $1.5 million and $4.1 million recognized on a cash
basis) for 1999, 1998 and 1997, respectively.
Valuation allowances amounted to $4.6 million and $11.1 million on
mortgage loans on real estate and $24.7 million and $15.4 million on
equity real estate at December 31, 1999 and 1998, respectively.
Writedowns of fixed maturities amounted to $3.5 million for 1997.
Writedowns of equity real estate amounted to $28.8 million for 1997.
In fourth quarter 1997, $72.9 million depreciated cost of equity real
estate held for production of income was reclassified to equity real
estate held for sale. Additions to valuation allowances of $15.4 million
were recorded upon these transfers. Also in fourth quarter 1997, $28.8
million of writedowns on real estate held for production of income were
recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-21
<PAGE>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Mortgage loans on real estate........................................ $ 454.6 $ 553.9
Equity real estate................................................... 426.6 611.0
Other equity investments............................................. 55.8 115.1
Other invested assets................................................ 87.1 24.9
----------------- -----------------
Total investments.................................................. 1,024.1 1,304.9
Cash and cash equivalents............................................ 164.5 34.7
Other assets......................................................... 213.0 219.0
----------------- -----------------
Total Assets......................................................... $ 1,401.6 $ 1,558.6
================= =================
Policyholders' liabilities........................................... $ 993.3 $ 1,021.7
Allowance for future losses.......................................... 242.2 305.1
Other liabilities.................................................... 166.1 231.8
----------------- -----------------
Total Liabilities.................................................... $ 1,401.6 $ 1,558.6
================= =================
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Investment income (net of investment
expenses of $49.3, $63.3 and $97.3).............. $ 98.7 $ 160.4 $ 188.6
Investment (losses) gains, net..................... (13.4) 35.7 (173.7)
Policy fees, premiums and other income............. .2 (4.3) .2
----------------- ---------------- -----------------
Total revenues................................... 85.5 191.8 15.1
Benefits and other deductions...................... 104.8 141.5 169.5
(Losses charged) earnings credited to allowance
for future losses................................ (19.3) 50.3 (154.4)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing (loss from
strengthening) the allowance for future
losses........................................... 43.3 4.2 (134.1)
Federal income tax (expense) benefit............... (15.2) (1.5) 46.9
----------------- ---------------- -----------------
Earnings (Loss) from Discontinued Operations....... $ 28.1 $ 2.7 $ (87.2)
================= ================ =================
</TABLE>
AXA Financial's quarterly process for evaluating the allowance for
future losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. Additionally, as part of AXA Financial's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in a release of allowance in
1999 and 1998 and strengthening of allowance in 1997.
In fourth quarter 1997, $329.9 million depreciated cost of equity real
estate was reclassified from equity real estate held for production of
income to real estate held for sale. Additions to valuation allowances
of $79.8 million were recognized upon these transfers. Also in fourth
quarter 1997, $92.5 million of writedowns on real estate held for
production of income were recognized.
F-22
<PAGE>
Benefits and other deductions includes $26.6 million and $53.3 million
of interest expense related to amounts borrowed from continuing
operations in 1998 and 1997, respectively.
Valuation allowances of $1.9 million and $3.0 million on mortgage loans
on real estate and $54.8 million and $34.8 million on equity real estate
were held at December 31, 1999 and 1998, respectively. Writedowns of
equity real estate were $95.7 million in 1997.
During 1999, 1998 and 1997, discontinued operations' average recorded
investment in impaired mortgage loans was $13.8 million, $73.3 million
and $89.2 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $1.7 million, $4.7 million and $6.6
million ($.0 million, $3.4 million and $5.3 million recognized on a cash
basis) for 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, discontinued operations had real estate
acquired in satisfaction of debt with carrying values of $24.1 million
and $50.0 million, respectively.
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 2,410.8 $ 826.1
----------------- -----------------
Long-term debt:
Holding Company:
Senior notes, 6.5%, due 2008....................................... 249.3 249.2
Senior notes, 9%, due 2004......................................... 300.0 300.0
Senior exchange notes, 6.75% - 7.30%, due through 2003............. 179.0 214.0
Senior debentures, 7.0%, due 2028.................................. 347.5 347.4
----------------- -----------------
Total Holding Company.......................................... 1,075.8 1,110.6
----------------- -----------------
Equitable Life:
Surplus notes, 6.95%, due 2005..................................... 399.5 399.4
Surplus notes, 7.70%, due 2015..................................... 199.7 199.7
Other.............................................................. .4 .3
----------------- -----------------
Total Equitable Life........................................... 599.6 599.4
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.43% - 9.5%, due through 2017..................... 251.3 392.2
----------------- -----------------
DLJ:
Senior notes, 5.875% - 6.875%, due through 2008.................... 2,040.7 1,391.0
Medium-term notes, 4.995% - 7.42%, due through 2016................ 1,769.3 946.8
Senior secured notes, Class A-2 and B-1 floating rate, due 2005.... 295.7 450.0
Global floating rate notes, 5.98%, due 2002........................ 348.8 348.4
Subordinated exchange notes, 9.58%, due 2003....................... 205.0 205.0
Junior subordinated convertible debentures, 6.6875%, due 2001...... 19.5 19.7
Other.............................................................. .8 .1
----------------- -----------------
Total DLJ...................................................... 4,679.8 3,361.0
----------------- -----------------
Alliance:.......................................................... - 10.8
----------------- -----------------
Total long-term debt................................................. 6,606.5 5,474.0
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 9,017.3 $ 6,300.1
================= =================
</TABLE>
F-23
<PAGE>
Short-term Debt
Equitable Life has a $700.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in September
2000. The interest rates are based on external indices dependent on the
type of borrowing and at December 31, 1999 range from 5.76% to 8.5%.
There were no borrowings outstanding under this bank credit facility at
December 31, 1999.
Equitable Life has a commercial paper program with an issue limit of
$1.0 billion. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $700.0 million bank credit facility. At
December 31, 1999, there were $166.9 million outstanding under this
program.
Alliance has a $425.0 million five-year revolving credit facility with a
group of commercial banks. Under the facility, the interest rate, at the
option of Alliance, is a floating rate generally based upon a defined
prime rate, a rate related to the London Interbank Offered Rate
("LIBOR") or the Federal Funds Rate. A facility fee is payable on the
total facility. During July 1999, Alliance increased the size of its
commercial paper program by $200.0 million from $425.0 million for a
total available limit of $625.0 million. Borrowings from the revolving
credit facility and the original commercial paper program may not exceed
$425.0 million in the aggregate. The revolving credit facility provides
backup liquidity for commercial paper issued under Alliance's commercial
paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants that require Alliance to,
among other things, meet certain financial ratios. At December 31, 1999,
Alliance had commercial paper outstanding totaling $384.7 million at an
effective interest rate of 5.9%; there were no borrowings outstanding
under Alliance's revolving credit facility.
In December 1999, Alliance established a $100.0 million extendible
commercial notes ("ECN") program to supplement its commercial paper
program. ECN's are short-term debt instruments that do not require any
back-up liquidity support. At December 31, 1999, there were no
outstanding borrowings under the ECN program.
In 1998 and again in 1999, DLJ amended its $2.0 billion revolving credit
facility to increase the aggregate commitment of banks thereunder to $2.
5 billion at December 31, 1999, of which $1.9 billion may be unsecured.
There were no borrowings outstanding under this agreement at December
31, 1999.
DLJ has established a $2.0 billion commercial paper program. Obligations
issued thereunder are exempt from the Securities and Exchange Commission
(the "SEC") registration requirements. The proceeds from the commercial
paper program will be used to satisfy working capital requirements and
general corporate purposes. At December 31, 1999, DLJ had $1.16 billion
in commercial paper outstanding.
DLJ's short-term borrowings are from banks and other financial
institutions and generally are demand obligations, at interest rates
approximating Federal Funds Rates. Such borrowings generally are used to
finance securities inventories, to facilitate the securities settlement
process and to finance securities purchased by customers on margin.
DLJ's repurchase agreements and short-term borrowings and the weighted
average interest rates related to those borrowings at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
Weighted Average
Interest Rates at
December 31, December 31,
------------------------------------ -----------------------------
1999 1998 1999 1998
----------------- ----------------- ------------- --------------
(In Millions)
<S> <C> <C> <C> <C>
Securities sold under agreements
to repurchase........................ $ 56,474.4 $ 35,775.6 4.38% 4.89%
Bank loans............................. 172.0 391.0 6.35% 5.79%
Borrowings from other financial
institutions......................... 1,186.0 125.0 6.21% 5.72%
</TABLE>
F-24
<PAGE>
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. At December 31, 1999, AXA Financial is in compliance with all
debt covenants.
At December 31, 1999 and 1998, respectively, AXA Financial has pledged
real estate of $323.6 million and $640.2 million as collateral for
certain long-term debt.
At December 31, 1999, aggregate maturities of the long-term debt based
on required principal payments at maturity for 2000 and the succeeding
four years are $498.6 million, $1,079.2 million, $1,272.8 million,
$159.4 million and $429.6 million, respectively, and $3,394.5 million
thereafter.
In 1999, DLJ issued $650.0 million of 5.875% senior notes, $1,285.2
million of medium-term notes and purchased $154.3 million of its senior
secured floating rate notes.
In 1998, the Holding Company completed an offering under its existing
shelf registration of $250.0 million 6.5% Senior Notes due 2008 and
$350.0 million 7% Senior Debentures due 2028 (together the "1998 Senior
Debt"), resulting in net proceeds of $591.1 million to be used for
general corporate purposes.
In 1998, DLJ issued $650.0 million of 6.5% senior notes that mature in
2008 and $350.0 million medium-term notes with interest ranging from
5.82% - 6.28% that mature at various dates through 2003. DLJ also issued
$250.0 million of 6% senior notes that mature in 2001 from the $1.0
billion shelf established in 1997. To convert these fixed rate notes
into floating rate notes based upon the LIBOR, DLJ entered into interest
rate swap transactions. Additionally, DLJ issued senior secured and
senior subordinated secured floating rate notes for $200.0 million and
$250.0 million, due March 15, 2005 and September 15, 2005, respectively.
These notes are collateralized by a portfolio of investments, primarily
senior bank debt valued at $441.0 million. Senior bank debt consists of
interests in senior corporate debt, including term loans, revolving
loans and other corporate debt. Also in 1998, DLJ repaid the $325.0
million senior subordinated revolving credit agreement and terminated
the related credit facility.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 549.3 $ 440.2 $ 488.1
Deferred......................................... 35.2 87.6 (207.6)
----------------- ---------------- -----------------
Total.............................................. $ 584.5 $ 527.8 $ 280.5
================= ================ =================
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and their tax
effects follow:
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
Expected Federal income tax expense................ $ 726.6 $ 561.4 $ 386.0
Non-taxable minority interest...................... (58.5) (33.2) (38.0)
Non-taxable subsidiary gains....................... (82.3) (14.1) -
Adjustment of tax audit reserves................... 11.7 16.0 (81.7)
Other.............................................. (13.0) (2.3) 14.2
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 584.5 $ 527.8 $ 280.5
================= ================ =================
</TABLE>
F-25
<PAGE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 655.8 $ - $ 569.4 $ -
Other.................................. 16.4 - 32.4 -
DAC, reserves and reinsurance.......... - 329.6 - 231.4
Investments............................ 134.0 - - 324.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 806.2 $ 329.6 $ 601.8 $ 556.0
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and their tax effects follow:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 83.2 $ (7.7) $ 46.2
Investments........................................ 25.9 52.3 (136.0)
Compensation and related benefits.................. (93.0) 13.9 (112.3)
Other.............................................. 19.1 29.1 (5.5)
----------------- ---------------- -----------------
Deferred Federal Income Tax
Expense (Benefit)................................ $ 35.2 $ 87.6 $ (207.6)
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
AXA Financial's consolidated Federal income tax returns for the years
1992 through 1996. Management believes these audits will have no
material adverse effect on AXA Financial's consolidated results of
operations.
11) CAPITAL STOCK
In September 1999, the Board of Directors declared a two-for-one stock
split (the "Stock Split") of the Holding Company's common stock ("Common
Stock"). The Stock Split was effected in the form of a 100% stock
dividend to shareholders of record on September 27, 1999 and was paid on
October 1, 1999. The par value of the Common Stock remains at $0.01 per
share. To reflect the par value of Common Stock after the split, an
adjustment was made from Capital in excess of par value to Common stock,
at par value. In the accompanying consolidated financial statements and
footnotes, all Common Stock, per share and option data have been
restated for the effect of the Stock Split.
The Holding Company is authorized to issue 510 million shares of capital
stock, of which 500 million shares are designated as Common Stock having
a par value of $.01 per share and 10 million shares are designated as
preferred stock having a par value of $1.00 per share.
At December 31, 1999 and 1998, respectively, 433.6 million and 437.6
million shares of Common Stock were outstanding. At December 31, 1999,
approximately 51.1 million shares of Common Stock were reserved for the
conversion of Series D Convertible Preferred Stock ("Series D Preferred
Stock") and the exercise of employee stock options.
In May 1998, the Holding Company's Board of Directors authorized a stock
repurchase program pursuant to which the Holding Company may repurchase
up to 16 million shares of its Common Stock from time to time in the
open market or through privately negotiated transactions. In September
1998, the Holding Company's Board of Directors increased the number of
shares authorized under the stock repurchase program to 30 million. At
December 31, 1999, the Holding Company had repurchased 17.1 million
shares of Common Stock at a cost of $490.8 million.
F-26
<PAGE>
In 1993, the Holding Company established a Stock Employee Compensation
Trust ("SECT") to fund a portion of its obligations arising from its
various employee compensation and benefits programs. At that time, the
Holding Company sold 60,000 shares of Series D Preferred Stock,
convertible into 23.8 million shares of the Holding Company's Common
Stock, to the SECT in exchange for cash and a promissory note of $299.9
million, for a total of $300.0 million. This had no effect on AXA
Financial's consolidated shareholders' equity as the Series D Preferred
Stock is reported as outstanding at fair value on AXA Financial's
consolidated balance sheets but is offset by a contra-equity account. An
increase in consolidated shareholders' equity results only when shares
of Series D Preferred Stock are released from the SECT. The SECT is
required to periodically distribute an amount of Series D Preferred
Stock (or Common Stock issued on conversion thereof) based on a
pre-determined formula. In April 1996, AXA Financial filed a shelf
registration statement with the SEC to register approximately 23.8
million shares of AXA Financial's Common Stock issuable upon conversion
of shares of the Series D Preferred Stock held by the SECT. In September
1999, the SECT released 4,020 Shares of Series D Preferred Stock which
were converted into 1.6 million shares of Common Stock. AXA purchased
146,100 shares directly, the Holding Company purchased 1,356,500 shares
in connection with its stock repurchase program while the remaining
shares were sold through an agent to the public. The net proceeds of the
sale after the repurchase of treasury shares of $7.4 million increased
Shareholders' equity. In July 1997, the SECT released 8,040 shares of
Series D Preferred Stock which were converted into 3.2 million shares of
Common Stock. AXA purchased 1.92 million shares directly while the
remaining shares were sold through an agent to the public. The net
proceeds of the sale totaled $54.8 million, increasing Shareholders'
equity by this amount. The SECT will terminate on the date on which all
assets of the SECT have been distributed.
In accordance with the 1997 Stock Incentive Plan, which is the successor
to the 1991 Stock Incentive Plan, the Holding Company can issue options
to purchase 32.8 million shares of its Common Stock. However, the terms
and conditions of the options granted under the 1991 Plan remain the
same. The options, which include Incentive Stock Options and
Nonstatutory Stock Options, are issued at the fair market value of the
Holding Company's Common Stock on the date of grant. Under the 1991
Stock Incentive Plan, one-fifth of stock options granted vest and become
exercisable on each of the first five anniversaries of the date such
options were granted. In accordance with the 1997 Stock Incentive Plan,
one-third of stock options granted vest and become exercisable on each
of the first three anniversaries of the date such options were granted.
Options are exercisable up to 10 years from the date of grant. At
December 31, 1999, 1998 and 1997, respectively, options to purchase
32,012,502 shares, 5,746,504 shares and 13,450,764 shares were available
for future grant under the plans.
AXA Financial's ownership interests in DLJ and Alliance will continue to
be reduced upon the exercise of options granted to certain DLJ and
Alliance employees and the vesting of forfeitable restricted stock units
("RSUs") acquired by DLJ employees. Options are exercisable over a
period of up to ten years. DLJ RSUs represent forfeitable rights to
receive approximately 5.2 million shares of DLJ common stock through
February 2000 and were recorded as additional minority interest of
$106.2 million, their fair value at the time of issuance. As of December
31, 1999, .2 million RSUs were forfeited.
AXA Financial has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion
No. 25. Had compensation expense for AXA Financial's Stock Option
Incentive Plans' options been determined based on SFAS No. 123's fair
value based method, AXA Financial's pro forma net earnings and earnings
per share for 1999, 1998 and 1997 would have been:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
(In Millions, Except Per Share Amount)
<S> <C> <C> <C>
Pro forma Net Earnings.................................... $ 1,063.3 $ 795.1 $ 542.1
Pro forma Earnings Per Share:
Basic................................................. $ 2.43 $ 1.79 $ 1.30
Diluted............................................... $ 2.33 $ 1.74 $ 1.19
</TABLE>
F-27
<PAGE>
The fair values of options granted after December 31, 1994, used as a
basis for the pro forma disclosures above, were estimated as of the
grant dates using the Black-Scholes option pricing model. The option
pricing assumptions for 1999, 1998 and 1997 follow:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
--------- ---------- --------- ---------- -------------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield...... 0.31% 0.32% 0.48% 0.56% 0.69% 0.86% 8.70% 6.50% 8.00%
Expected
volatility........ 28% 28% 20% 36% 40% 33% 29% 29% 26%
Risk-free interest
rate.............. 5.46% 5.48% 5.99% 5.06% 5.53% 5.96% 5.70 4.40% 5.70%
Expected life
in years.......... 5 5 5 5 5 5 7 7.2 7.2
Weighted average
fair value per
option at
grant-date........ $10.78 $11.32 $6.13 $17.19 $16.27 $10.81 $3.88 $3.86 $2.18
</TABLE>
A summary of the Holding Company, DLJ and Alliance's option plans
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price of Price of Price of
Shares Options Shares Options Units Options
(In Millions) Outstanding (In Millions) Outstanding (In Millions) Outstanding
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1997........ 13.4 $10.40 22.2 $14.03 10.0 $ 9.54
Granted................ 6.4 $20.93 6.4 $30.54 2.2 $18.28
Exercised.............. (3.2) $10.13 (.2) $16.01 (1.2) $ 8.06
Forfeited.............. (.8) $11.72 (.2) $13.79 (.4) $10.64
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 15.8 $14.53 28.2 $17.78 10.6 $11.41
Granted................ 8.6 $33.13 1.5 $38.59 2.8 $26.28
Exercised.............. (2.2) $10.59 (1.4) $14.91 (.9) $ 8.91
Forfeited.............. (.8) $23.51 (.1) $17.31 (.2) $13.14
--------------- ------------- ---------------
Balance as of
December 31, 1998...... 21.4 $22.00 28.2 $19.04 12.3 $14.92
Granted................ 4.3 $31.70 4.8 $45.23 2.0 $30.18
Exercised.............. (2.4) $13.26 (2.2) $34.61 (1.5) $ 9.51
Forfeited.............. (.6) $24.29 (.1) $15.85 (.3) $17.79
--------------- ------------- ---------------
Balance as of
December 31, 1999...... 22.7 $24.60 30.7 $23.30 12.5 $17.95
=============== ============= ===============
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
Information about options outstanding and exercisable at December 31,
1999 follows:
Options Outstanding Options Exercisable
--------------------------------------------------- -------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
------------------- ------------------ ---------------- --------------- ------------------ ----------------
Holding
Company
-------------------
<S> <C> <C> <C> <C> <C>
$ 9.06 -$13.88 5.6 4.2 $10.50 10.9 $18.98
$14.25 -$22.63 5.2 7.7 $20.95 - -
$25.32 -$34.59 8.2 8.7 $29.08 - -
$40.97 -$41.28 3.7 8.6 $41.28 - -
----------------- ------------------
$ 9.06 -$41.28 22.7 7.3 $24.60 10.9 $18.98
================= ================ =============== ================== ================
DLJ
-------------------
$13.50 -$25.99 20.2 8.4 $14.61 20.6 $16.62
$26.00 -$38.99 4.9 7.8 $33.99 - -
$39.00 -$52.875 4.8 9.0 $43.28 - -
$53.00 -$76.875 .8 9.7 $57.09 - -
----------------- ------------------
$13.50 -$76.875 30.7 8.4 $23.30 20.6 $16.62
================= ================ =============== ================== ================
Alliance
-------------------
$ 3.66 -$ 9.81 2.6 3.8 $ 8.31 2.2 $ 8.12
$ 9.88 -$12.56 3.3 5.6 $11.16 2.6 $10.92
$13.75 -$18.47 1.8 7.9 $18.34 .7 $18.34
$18.78 -$26.31 2.8 8.9 $26.16 .6 $26.06
$27.31 -$30.94 2.0 9.9 $30.24 - -
----------------- ------------------
$ 3.66 -$30.94 12.5 7.0 $17.95 6.1 $12.12
================= ================ =============== ================== ================
</TABLE>
F-29
<PAGE>
12) COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings....................................... $ 1,126.1 $ 833.1 $ 561.0
Less - dividends on preferred stocks............... - - (15.6)
----------------- ---------------- -----------------
Net earnings applicable to common shares -
Basic............................................ 1,126.1 833.1 545.4
Add - dividends on convertible preferred stock
and interest on convertible subordinated
debt, when dilutive.............................. - - 24.5
Less - effect of assumed exercise of options
of publicly held subsidiaries.................... (40.3) (21.7) (20.2)
----------------- ---------------- -----------------
Net Earnings Applicable to Common Shares -
Diluted.......................................... $ 1,085.8 $ 811.4 $ 549.7
================= ================ =================
Weighted average common shares outstanding -
Basic............................................ 437.1 443.3 403.3
Add - assumed exercise of stock options............ 5.2 5.5 3.5
Add - assumed conversion of convertible
preferred stock.................................. - - 20.8
Add - assumed conversion of convertible
subordinated debt................................ - - 17.2
----------------- ---------------- -----------------
Weighted Average Shares Outstanding -
Diluted.......................................... 442.3 448.8 444.8
================= ================ =================
</TABLE>
Shares of the Series D Preferred Stock (or Common Stock issuable on
conversion thereof) are not considered outstanding in the computation of
weighted average common shares outstanding until the shares are
allocated to fund the obligation for which the SECT was established.
13) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 420.6 $ 438.8 $ 448.6
Reinsurance assumed................................ 206.7 203.6 198.3
Reinsurance ceded.................................. (69.1) (54.3) (45.4)
----------------- ---------------- -----------------
Premiums........................................... $ 558.2 $ 588.1 $ 601.5
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 69.7 $ 75.7 $ 61.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 99.6 $ 85.9 $ 70.6
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 38.5 $ 39.5 $ 36.4
================= ================ =================
</TABLE>
F-30
<PAGE>
Since 1997, AXA Financial reinsures on a yearly renewal term basis 90%
of the mortality risk on new issues of certain term, universal and
variable life products. AXA Financial's retention limit on joint
survivorship policies is $15.0 million. All in force business above $5.0
million is reinsured. The Insurance Group also reinsures the entire risk
on certain substandard underwriting risks and in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurer. Premiums ceded totaled $.1 million, $1.3 million
and $1.6 million for 1999, 1998 and 1997, respectively. Ceded death and
disability benefits totaled $44.7 million, $15.6 million and $4.3
million for 1999, 1998 and 1997, respectively. Insurance liabilities
ceded totaled $510.5 million and $560.3 million at December 31, 1999 and
1998, respectively.
14) EMPLOYEE BENEFIT PLANS
AXA Financial sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents other than employees
of DLJ. The pension plans are non-contributory. Equitable Life's
benefits are based on a cash balance formula or years of service and
final average earnings, if greater, under certain grandfathering rules
in the plans. Alliance's benefits are based on years of credited
service, average final base salary and primary social security benefits.
AXA Financial's funding policy is to make the minimum contribution
required by the Employee Retirement Income Security Act of 1974
("ERISA").
Components of net periodic pension (credit) cost for the qualified and
non-qualified plans were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 36.7 $ 33.2 $ 32.5
Interest cost on projected benefit obligations..... 131.6 129.2 128.2
Expected return on assets.......................... (189.8) (175.6) (307.6)
Net amortization and deferrals..................... 7.5 6.1 166.6
----------------- ---------------- -----------------
Net Periodic Pension (Credit) Cost................. $ (14.0) $ (7.1) $ 19.7
================= ================ =================
</TABLE>
The plans' projected benefit obligations under the qualified and
non-qualified plans was comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
---------------- -----------------
(In Millions)
<S> <C> <C>
Benefit obligations, beginning of year................................. $ 1,933.4 $ 1,801.3
Service cost........................................................... 36.7 33.2
Interest cost.......................................................... 131.6 129.2
Actuarial (gains) losses............................................... (53.3) 108.4
Benefits paid.......................................................... (123.1) (138.7)
---------------- -----------------
Benefit Obligations, End of Year....................................... $ 1,925.3 $ 1,933.4
================ =================
</TABLE>
F-31
<PAGE>
The funded status of the qualified and non-qualified pension plans was
as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
---------------- -----------------
(In Millions)
<S> <C> <C>
Plan assets at fair value, beginning of year........................... $ 2,083.1 $ 1,867.4
Actual return on plan assets........................................... 369.0 338.9
Contributions.......................................................... .1 -
Benefits paid and fees................................................. (108.5) (123.2)
---------------- -----------------
Plan assets at fair value, end of year................................. 2,343.7 2,083.1
Projected benefit obligations.......................................... 1,925.3 1,933.4
---------------- -----------------
Excess of plan assets over projected benefit obligations............... 418.4 149.7
Unrecognized prior service cost........................................ (5.2) (7.5)
Unrecognized net (gain) loss from past experience different
from that assumed.................................................... (197.3) 38.7
Unrecognized net asset at transition................................... (.1) 1.5
---------------- -----------------
Prepaid Pension Cost, Net............................................. $ 215.8 $ 182.4
================ =================
</TABLE>
The prepaid pension cost for pension plans with assets in excess of
projected benefit obligations was $412.2 million and $363.9 million and
the accrued liability for pension plans with accumulated benefit
obligations in excess of plan assets was $196.4 million and $181.5
million at December 31, 1999 and 1998 respectively.
The pension plan assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance. The discount rate and rate of increase in
future compensation levels used in determining the actuarial present
value of projected benefit obligations were 8.0% and 6.38%,
respectively, at December 31, 1999 and 7.0% and 3.83%, respectively, at
December 31, 1998. As of January 1, 1999 and 1998, the expected
long-term rate of return on assets for the retirement plan was 10.0% and
10.25%, respectively.
AXA Financial recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $16.1 million, $28.3 million and
$17.3 million, net of Federal income taxes, at December 31, 1999, 1998
and 1997, respectively, primarily representing the excess of the
accumulated benefit obligation of the non-qualified pension plan over
the accrued liability. The aggregate accumulated benefit obligation and
fair value of plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were $325.7 million and $36.3
million, respectively, at December 31, 1999 and $309.7 million and $34.5
million, respectively, at December 31, 1998.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $30.2 million,
$31.8 million and $33.2 million for 1999, 1998 and 1997, respectively.
AXA Financial provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from AXA Financial (i) on or after
attaining age 55 who have at least 10 years of service or (ii) on or
after attaining age 65 or (iii) whose jobs have been abolished and who
have attained age 50 with 20 years of service. The life insurance
benefits are related to age and salary at retirement. The costs of
postretirement benefits are recognized in accordance with the provisions
of SFAS No. 106. AXA Financial continues to fund postretirement benefits
costs on a pay-as-you-go basis and, for 1999, 1998 and 1997, AXA
Financial made estimated postretirement benefits payments of $29.5
million, $28.4 million and $18.7 million, respectively.
F-32
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in AXA Financial's consolidated
financial statements:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.7 $ 4.6 $ 4.5
Interest cost on accumulated postretirement
benefits obligation.............................. 34.4 33.6 34.7
Unrecognized prior service costs................... (7.0) - -
Net amortization and deferrals..................... 8.4 .5 1.9
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 40.5 $ 38.7 $ 41.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation,
beginning of year..................................................... $ 490.4 $ 490.8
Service cost........................................................... 4.7 4.6
Interest cost.......................................................... 34.4 33.6
Contributions and benefits paid........................................ (29.5) (28.4)
Actuarial gains........................................................ (29.0) (10.2)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 471.0 490.4
Unrecognized prior service cost........................................ 26.9 31.8
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (86.0) (121.2)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 411.9 $ 401.0
================ =================
</TABLE>
Since January 1, 1994, costs to AXA Financial for providing these
medical benefits available to retirees under age 65 are the same as
those offered to active employees and medical benefits will be limited
to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 7.5% in 1999,
gradually declining to 4.75% in the year 2010, and in 1998 was 8.0%,
gradually declining to 2.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 8.0%
and 7.0% at December 31, 1999 and 1998, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1999
would be increased 3.55%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 3.91%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 1999
would be decreased by 4.38%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 4.96%.
15) BROKER-DEALER NET CAPITAL
As a registered broker-dealer, a registered futures commission merchant
and a member firm of the New York Stock Exchange ("NYSE"), DLJ's wholly
owned principal subsidiary, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJSC") is subject to the SEC's Uniform Net Capital Rule
pursuant to rule 15C3-1 of the Securities Exchange Act of 1934, as
amended. Under the alternative method permitted by this rule, the
required net capital, as defined, may not be less than 2% of aggregate
debit balances arising from customer transactions, or 4% of segregated
funds, whichever is greater. If a member firm's net capital is less than
4% of aggregate debit balances, the NYSE may require a member firm to
reduce its business. If a member firm's net capital is less than 5% of
aggregate debit balances, the NYSE may prohibit a member firm from
expanding its business and declaring cash dividends. At December 31,
1999, DLJSC's net capital of approximately $1,700.0 million was 17.6% of
F-33
<PAGE>
aggregate debit balances and in excess of the minimum requirement by
approximately $1,500.0 million.
DLJ's London-based broker-dealer subsidiaries are subject to the
requirements of the Securities and Futures Authority, a self-regulatory
organization established pursuant to the United Kingdom Financial
Services Act of 1986. Other U.S. and foreign broker-dealer subsidiaries
of DLJ are subject to the net capital requirements of their respective
regulatory agencies. At December 31, 1999, DLJ and its broker-dealer
subsidiaries were in compliance with all applicable regulatory capital
adequacy requirements.
In accordance with regulations of the SEC and the Commodities Futures
Trading Commission, securities with a market value of $122.0 million and
$883.0 million at December 31, 1999 and 1998, respectively, have been
segregated in special reserve bank accounts for the benefit of DLJ's
customers. These amounts are included in other assets in the
consolidated balance sheets.
16) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
DLJ
DLJ enters into various transactions involving derivatives. In general,
derivatives are contractual agreements that derive their values from the
performance of underlying assets, interest or currency exchange rates,
or a variety of indices. DLJ enters into derivative transactions
primarily for trading purposes, or to provide products for its clients.
These transactions involve options, forwards, futures and swaps. DLJ
also enters into interest rate swaps to modify the characteristics of
periodic interest payments associated with some of its long-term debt
obligations.
The majority of DLJ's options are written options. DLJ writes option
contracts specifically designed to meet customers' needs. Most of the
options do not expose DLJ to credit risk since DLJ, not its
counterparty, is obligated to perform. At the beginning of the contract
period, DLJ receives a cash premium. During the contract period, DLJ
bears the risk of unfavorable changes in the value of the financial
instruments underlying the options ("market risk"). To cover this market
risk, DLJ purchases or sells cash or derivative financial instruments on
a proprietary basis. Such purchases and sales may include debt and
equity securities, forward and futures contracts and options. The
counterparties to these purchases and sales are reviewed to determine
whether they are creditworthy. Future cash requirements for options
written equal the fair value of the options.
DLJ also purchases options for trading purposes. With purchased options,
DLJ gets the right, for a fee, to buy or sell the underlying instrument
at a fixed price on or before a specified date. The underlying
instruments for these options include mortgage-backed securities,
equities, interest rates and foreign currencies. All options are
reported at fair value.
DLJ enters into forward purchases and sales contracts for
mortgage-backed securities and foreign currencies. In addition, DLJ
enters into futures contracts on equity-based indices, foreign
currencies and other financial instruments as well as options on futures
contracts. Forward and futures contracts are treated as off-balance
sheet items. Market risk is the price movement on the notional value of
the contracts.
For forward contracts, cash is generally not required at inception; cash
equal to the contract value is required at settlement. For futures
contracts, the original margin is required in cash at inception; cash
equal to the change in market value is required daily.
Since forward contracts are subject to the financial reliability of the
counterparty, DLJ is exposed to credit risk. To monitor this credit
risk, DLJ limits transactions with specific counterparties, reviews
credit limits and adheres to internally established credit extension
policies. For futures contracts and options on futures contracts, the
change in the market value is settled with a clearing broker in cash
each day. As a result, the credit risk with the clearing broker is
limited to the net positive change in the market value for a single day.
DLJ's swap agreements consist primarily of interest rate and equity
swaps. Equity swaps are contractual agreements to receive the
appreciation or depreciation in value based on a specific strike price
on an equity instrument in exchange for paying another rate, which is
usually based on index or interest rate movements. Interest rate swaps
F-34
<PAGE>
are contractual agreements to exchange interest rate payments based on
agreed notional amounts and maturity. Swaps are reported at fair value.
The notional or contract amounts indicate the extent of DLJ's
involvement in the derivative instruments noted above. They do not
measure DLJ's exposure to market or credit risk and do not represent the
future cash requirements of such contracts. The majority of DLJ's
derivatives are short-term in duration. The notional (contract) amounts
for derivatives outstanding at December 31, 1999 and 1998 as well as the
expected expiration of the 1999 amounts based on contractual expiration
follows:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------
Less Greater
Than 1 to 3 3 to 5 Than
1 Year Years Years 5 Years Total 1998
---------- --------- ---------- ---------- ------------ -----------
(In Billions)
<S> <C> <C> <C> <C> <C> <C>
Options written............. $ 8.7 $ 4.8 $ 0.5 $ 1.1 $ 15.1 $ 5.8
Options purchased........... 3.4 2.8 0.3 0.9 7.4 3.1
Forward contracts
purchased................. 35.6 - - - 35.6 41.3
Forward contracts
sold...................... 40.9 - 0.2 - 41.1 39.8
Futures contracts
purchased................. 2.2 0.7 - - 2.9 1.2
Futures contracts
sold...................... 3.8 0.5 - - 4.3 1.6
Swaps....................... 9.0 4.5 3.5 7.5 24.5 8.4
---------- --------- ---------- ---------- ------------ -----------
Total..................... $103.6 $ 13.3 $ 4.5 $ 9.5 $ 130.9 $ 101.2
========== ========= ========== ========== ============ ===========
Percent of total 79.1% 10.2% 3.4% 7.3% 100.0% -
========== ========= ========== ========== ============ ===========
</TABLE>
The fair values of derivatives outstanding at December 31, 1999 and 1998
and the average fair value of derivatives for 1999 and 1998 follows:
<TABLE>
<CAPTION>
At or For The Year Ended December 31,
-------------------------------------------------------------------------
1999 1998
---------------------------------- -----------------------------------
Assets Liabilities Assets Liabilities
------------- -------------- ------------ --------------
(In Millions)
<S> <C> <C> <C> <C>
FAIR VALUES
Options.................... $ 519.9 $ 1,002.6 $ 114.5 $ 397.1
Forward contracts.......... 327.1 247.3 262.9 269.3
Futures contracts.......... 3.5 9.8 4.0 1.0
Swaps...................... 256.9 240.2 62.1 84.7
AVERAGE FAIR
VALUES
Options.................... $ 169.5 $ 444.8 $ 86.6 $ 309.9
Forward contracts.......... 329.0 312.6 135.6 139.2
Futures contracts.......... 10.3 7.4 3.7 19.4
Swaps...................... 253.3 94.3 28.1 26.7
</TABLE>
F-35
<PAGE>
DLJ also enters into interest rate swaps to modify the characteristics
of periodic interest payments associated with some of its long-term debt
obligations. At December 31, 1999 and 1998, the notional amount of these
interest rate swaps was $3.3 billion and $0.8 billion, respectively.
Insurance Group
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1999 and 1998, respectively, was $797.3 million and $880.9
million. The average unexpired terms at December 31, 1999 ranged from
two months to 5.0 years. At December 31, 1999, the cost of terminating
swaps in a loss position was $1.8 million. Equitable Life maintains an
interest rate cap program designed to hedge crediting rates on
interest-sensitive individual annuities contracts. The outstanding
notional amounts at December 31, 1999 of contracts purchased and sold
were $7,575.0 million and $875.0 million, respectively. The net premium
paid by Equitable Life on these contracts was $51.6 million and is being
amortized ratably over the contract periods ranging from 1 to 4 years.
Income and expense resulting from this program are reflected as an
adjustment to interest credited to policyholders' account balances.
Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, DLJ's customer, trading and
correspondent clearance activities include executing, settling and
financing various securities and financial instrument transactions. To
execute these transactions, DLJ purchases and sells (including "short
sales") securities, writes options, and purchases and sells forward
contracts for mortgage-backed securities and foreign currencies and
financial futures contracts. If the customer or counterparty to the
transaction is unable to fulfill its contractual obligations, and margin
requirements are not sufficient to cover losses, DLJ may be exposed to
off-balance-sheet risk. In these situations, DLJ may be required to
purchase or sell financial instruments at prevailing market prices which
may not fully cover the obligations of its customers or counterparties.
This risk is limited by requiring customers and counterparties to
maintain margin collateral that complies with regulatory and internal
guidelines. Additionally, with respect to DLJ's correspondent clearance
activities, introducing correspondent brokers are required to guarantee
the performance of their customers in meeting contractual obligations.
As part of DLJ's financing and securities settlement activities, DLJ
uses securities as collateral in support of various secured financing
sources. If the counterparty does not meet its contracted obligation to
return securities used as collateral, DLJ may be exposed to the risk of
reacquiring the securities at prevailing market prices to satisfy its
obligations. DLJ controls this risk by monitoring the market value of
securities pledged each day and by requiring collateral levels to be
adjusted in the event of excess market exposure. As of December 31,
1999, pledged securities with a market value of approximately $2.3
billion were used as collateral for securities borrowed with a market
value of approximately $6.6 billion. In accordance with industry
practice, these securities borrowed and pledged are not reflected in the
consolidated financial statements.
DLJ's enters into forward contracts which securities are delivered or
received in the future at a specified price or yield. If counterparties
are unable to perform under the terms of the contracts or if the value
of securities and interest rates changes, DLJ is exposed to risk. Such
risks are controlled by monitoring the market value of the securities
contracted for each day and by reviewing the creditworthiness of the
counterparties. The settlement of these transactions is not expected to
have a material adverse effect on AXA Financial's consolidated financial
statements.
F-36
<PAGE>
Concentrations of Credit Risk
As a securities broker and dealer, DLJ is engaged in various securities
trading and brokerage activities servicing a diverse group of domestic
and foreign corporations, governments, and institutional and individual
investors. A substantial portion of DLJ's transactions is executed with
and on behalf of institutional investors including other brokers and
dealers, mortgage brokers, commercial banks, U.S. governmental agencies,
mutual funds and other financial institutions. These transactions are
generally collateralized. Credit risk is the amount of accounting loss
DLJ would incur if a counterparty failed to perform its obligations
under contractual terms and the collateral held, if any, was deemed
insufficient. Volatile securities markets, credit markets and regulatory
changes can directly affect this credit risk. To establish exposure
limits for a variety of transactions, all counterparties are reviewed
regularly. In certain cases, specific transactions are analyzed to
determine the amount of potential exposure that could arise, and the
counterparty's credit is reviewed to determine whether it supports such
exposure. In addition to the counterparty's credit status, DLJ analyzes
market movements that could affect exposure levels. To set trading
limits, DLJ considers the following four factors: the settlement method;
the time it will take for a trade to settle (i.e., the maturity of the
trade); the volatility that could affect the value of the securities
involved in the trade; and the size of the trade. DLJ actively manages
the credit exposure relating to its trading activities by entering into
master netting agreements when feasible; monitoring the creditworthiness
of counterparties and the related trading limits on an ongoing basis;
requesting additional collateral when deemed necessary; diversifying and
limiting exposure to individual counterparties and geographic locations;
and limiting the duration of exposure. In certain cases, DLJ may also
close out transactions or assign them to other counterparties.
DLJ's customer securities activities are transacted on either in cash or
on a margin basis, in which DLJ extends credit to the customer. DLJ
seeks to control the risks associated with its customer activities by
requiring customers to maintain margin collateral in compliance with
various regulatory and internal guidelines. Each day, DLJ monitors
required margin levels and, requires the customers to deposit additional
collateral, or reduce positions, when necessary.
Fair Value of Financial Instruments
AXA Financial defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time AXA Financial's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1999 and 1998.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
F-37
<PAGE>
The estimated fair values for AXA Financial's association plan
contracts, supplementary contracts not involving life contingencies
("SCNILC") and annuities certain, which are included in policyholders'
account balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to AXA Financial. AXA Financial's carrying value of short-term
borrowings approximates their estimated fair value.
The carrying value and estimated fair value for financial instruments
not previously disclosed in Notes 3, 7 and 8 are presented below:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated AXA Financial:
Mortgage loans on real estate.......... $ 3,270.0 $ 3,239.3 $ 2,809.9 $ 2,961.8
Other limited partnership interests.... 647.9 647.9 562.6 562.6
Policy loans........................... 2,257.3 2,359.5 2,086.7 2,370.7
Policyholders' account balances -
investment contracts................. 12,740.4 12,800.5 12,892.0 13,396.0
Long-term debt......................... 6,606.5 6,475.7 5,474.0 5,608.8
Closed Block:
Mortgage loans on real estate.......... $ 1,704.2 $ 1,650.3 $ 1,633.4 $ 1,703.5
Other equity investments............... 36.3 36.3 56.4 56.4
Policy loans........................... 1,593.9 1,712.0 1,641.2 1,929.7
SCNILC liability....................... 22.8 22.5 25.0 25.0
Discontinued Operations:
Mortgage loans on real estate.......... $ 454.6 $ 467.0 $ 553.9 $ 599.9
Fixed maturities....................... 85.5 85.5 24.9 24.9
Other equity investments............... 55.8 55.8 115.1 115.1
Guaranteed interest contracts.......... 33.2 27.5 37.0 34.0
Long-term debt......................... 101.9 101.9 147.1 139.8
</TABLE>
F-38
<PAGE>
17) COMMITMENTS AND CONTINGENT LIABILITIES
From time to time, AXA Financial has provided certain guarantees or
commitments to affiliates, investors and others. At December 31, 1999,
these arrangements include commitments by AXA Financial, under certain
conditions: to make capital contributions of up to $59.4 million to
affiliated real estate joint ventures; and to provide equity financing
to certain limited partnerships of $373.8 million under existing loan or
loan commitment agreements. DLJ has outstanding commitments that expire
on March 16, 2000 to loan $150.0 million to third parties to be secured
by mortgage loans on real estate properties. At December 31, 1999,
unfunded commitments outstanding under this facility amounted to $62.5
million. In addition, DLJ enters into commitments to extend credit to
non-investment grade borrowers in connection with the origination and
syndication of senior bank debt. At December 31, 1999, unfunded senior
bank loan commitments outstanding were $475.3 million.
DLJ has commitments to invest on a side-by-side basis with merchant
banking partnerships in the amount of $699.7 million at December 31,
1999. Management believes AXA Financial will not incur any material
losses as a result of these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
In the normal course of business, DLJ enters into letters of credit for
the purpose of facilitating certain financing transactions and for
securing various margin requirements. At December 31, 1999, $367.5
million of such letters of credit were outstanding. Additionally, the
Insurance Group had $24.9 million of letters of credit outstanding at
December 31, 1999.
18) LITIGATION
Insurance Group
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported
class actions against Equitable Life, its subsidiary insurance company
and a former insurance subsidiary. These actions involve, among other
things, sales of life and annuity products for varying periods from 1980
to the present, and allege, among other things, sales practice
misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the
propriety of a product as a replacement of an existing policy; and
failure to disclose a product as life insurance. Some actions are in
state courts and others are in U.S. District Courts in different
jurisdictions, and are in varying stages of discovery and motions for
class certification.
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition
against cancellation of policies for non-payment of premium or other
remedies, as well as attorneys' fees and expenses. Similar actions have
been filed against other life and health insurers and have resulted in
the award of substantial judgments, including material amounts of
punitive damages, or in substantial settlements. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, AXA Financial's management believes that the
ultimate resolution of these cases should not have a material adverse
effect on the financial position of AXA Financial. AXA Financial's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on AXA
Financial's results of operations in any particular period.
F-39
<PAGE>
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action
in September 1997, in the United States District Court for the Northern
District of Alabama, Southern Division, involving alleged discrimination
on the basis of race against African-American applicants and potential
applicants in hiring individuals as sales agents. Plaintiffs seek a
declaratory judgment and affirmative and negative injunctive relief,
including the payment of back-pay, pension and other compensation.
Although the outcome of litigation cannot be predicted with certainty,
AXA Financial's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of AXA Financial. AXA Financial's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on AXA Financial's results of operations
in any particular period.
Agent Health Benefits Case
Equitable Life is a defendant in an action, certified as a class action
in March 1999, in the United States District Court for the Northern
District of California, alleging, among other things, that Equitable
Life violated ERISA by eliminating certain alternatives pursuant to
which agents of Equitable Life could qualify for health care coverage.
The class consists of "[a]ll current, former and retired Equitable
agents, who while associated with Equitable satisfied [certain
alternatives] to qualify for health coverage or contributions thereto
under applicable plans." Plaintiffs allege various causes of action
under ERISA, including claims for enforcement of alleged promises
contained in plan documents and for enforcement of agent bulletins,
breach of unilateral contract, breach of fiduciary duty and promissory
estoppel. The parties are currently engaged in discovery. Although the
outcome of any litigation cannot be predicted with certainty, AXA
Financial's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of AXA Financial. AXA Financial's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on AXA Financial's results of operations
in any particular period.
Prime Property Fund Case
In January 2000, the California Supreme Court denied Equitable Life's
petition for review of an October 1999 decision by the California
Superior Court of Appeal. Such decision reversed the dismissal by the
Supreme Court of Orange County, California of an action which was
commenced in 1995 by a real estate developer in connection with a
limited partnership formed in 1991 with Equitable Life on behalf of
Prime Property Fund ("PPF"). Equitable Life serves as investment manager
for PPF, an open-end, commingled real estate separate account of
Equitable Life for pension clients. Plaintiff alleges breach of
fiduciary duty and other claims principally in connection with PPF's
1995 purchase and subsequent foreclosure of the loan which financed the
partnership's property. Plaintiff seeks compensatory and punitive
damages. The case has been remanded to the Superior Court for further
proceedings. Although the outcome of litigation cannot be predicted with
certainty, AXA Financial's management believes that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position of AXA Financial. AXA Financial's management
cannot make an estimate of loss, if any, or predict whether or not this
matter will have a material adverse effect on AXA Financial's results of
operations in any particular period.
Alliance Capital
In July 1995, a class action complaint was filed against Alliance North
American Government Income Trust, Inc. (the "Fund"), Alliance Holding
and certain other defendants affiliated with Alliance, including the
Holding Company, alleging violations of Federal securities laws, fraud
and breach of fiduciary duty in connection with the Fund's investments
in Mexican and Argentine securities. The original complaint was
dismissed in 1996; on appeal, the dismissal was affirmed. In October
1996, plaintiffs filed a motion for leave to file an amended complaint,
alleging the Fund failed to hedge against currency risk despite
representations that it would do so, the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
two Fund advertisements misrepresented the risks of investing in the
Fund. In October 1998, the U.S. Court of Appeals for the Second Circuit
issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended
complaint containing the other allegations. In December 1999, the United
States District Court for the Southern District of New York granted the
defendants' motion for summary judgment on all claims against all
defendants. Later in December 1999, the plaintiffs filed motions for
reconsideration of the Court's ruling. These motions are currently
pending with the Court.
F-40
<PAGE>
In connection with the Reorganization, Alliance assumed any liabilities
which Alliance Holding may have with respect to this action. Alliance
and Alliance Holding believe that the allegations in the amended
complaint are without merit and intend to vigorously defend against
these claims. While the ultimate outcome of this matter cannot be
determined at this time, management of Alliance Holding and Alliance do
not expect that it will have a material adverse effect on Alliance
Holding's or Alliance's results of operations or financial condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and
warrants to purchase common shares, of Rickel Home Centers, Inc.
("Rickel"), which filed a voluntary petition for reorganization pursuant
to Chapter 11 of the Bankruptcy Code. The complaint seeks unspecified
compensatory and punitive damages from DLJSC, as an underwriter and as
an owner of 7.3% of the common stock, for alleged violation of Federal
securities laws and common law fraud for alleged misstatements and
omissions contained in the prospectus and registration statement used in
the offering of the units. In April 1999, the complaint against DLJSC
and the other defendants was dismissed. The plaintiffs have appealed.
DLJSC intends to defend itself vigorously against all the allegations
contained in the complaint.
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of
subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC"). The debentures were canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
litigation seeks compensatory and punitive damages for DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
proceedings. In March 1999, the Court granted motions for summary
judgment filed by DLJSC and the other defendants. The plaintiffs have
appealed. DLJSC intends to defend itself vigorously against all the
allegations contained in the complaint.
In November 1998, three purported class actions were filed in the U.S.
District Court for the Southern District of New York against more than
25 underwriters of initial public offering securities, including DLJSC.
The complaints allege that defendants conspired to fix the "fee" paid
for underwriting initial public offering securities by setting the
underwriters' discount or "spread" at 7%, in violation of the Federal
antitrust laws. The complaints seek treble damages in an unspecified
amount and injunctive relief as well as attorneys' fees and costs. In
March 1999, the plaintiffs filed a consolidated amended complaint. A
motion by all defendants to dismiss the complaints on several grounds is
pending. Separately, the U.S. Department of Justice has issued a Civil
Investigative Demand to several investment banking firms, including
DLJSC, seeking documents and information relating to "alleged"
price-fixing with respect to underwriting spreads in initial public
offerings. The Justice Department has not made any charges against DLJSC
or the other investment banking firms. DLJSC is cooperating with the
Justice Department in providing the requested information and believes
that no violation of law by DLJSC has occurred.
Although there can be no assurance, DLJ's management does not believe
that the ultimate resolution of the litigations described above to which
DLJSC is a party will have a material adverse effect on DLJ's
consolidated financial condition. Based upon the information currently
available to it, DLJ's management cannot predict whether or not such
litigations will have a material adverse effect on DLJ's results of
operations in any particular period.
Other Matters
In addition to 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 AXA Financial's consolidated financial position or
results of operations.
F-41
<PAGE>
19) LEASES
AXA Financial has entered into operating leases for office space and
certain other assets, principally information technology equipment and
office furniture and equipment. Future minimum payments under
noncancelable leases for 2000 and the four successive years are $244.8
million, $227.1 million, $206.2 million, $189.1 million, $180.2 million
and $2,032.3 million thereafter. Minimum future sublease rental income
on these noncancelable leases for 2000 and the four successive years is
$5.2 million, $4.1 million, $2.8 million, $2.8 million, $2.8 million and
$23.8 million thereafter.
At December 31, 1999, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 2000
and the four successive years is $120.7 million, $113.5 million, $96.0
million, $79.7 million, $74.1 million and $354.6 million thereafter.
20) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation and benefits.......................... $ 3,495.8 $ 2,502.0 $ 2,195.9
Commissions........................................ 1,186.1 979.7 843.9
Short-term debt interest expense................... 1,352.5 1,315.1 1,080.7
Long-term debt interest expense.................... 415.3 327.4 287.1
Amortization of policy acquisition costs........... 314.5 293.5 288.1
Capitalization of policy acquisition costs......... (709.9) (609.1) (508.0)
Writedown of policy acquisition costs.............. 131.7 - -
Rent expense, net of sublease income............... 264.5 215.6 189.8
Brokerage, clearing, exchange fees and other....... 313.8 258.6 231.4
Cursitor intangible assets writedown............... - - 120.9
Other.............................................. 2,413.6 1,853.1 1,587.7
----------------- ---------------- -----------------
Total.............................................. $ 9,177.9 $ 7,135.9 $ 6,317.5
================= ================ =================
</TABLE>
During 1997, AXA Financial restructured certain operations in connection
with cost reduction programs and recorded a pre-tax provision of $42.4
million. The amount paid during 1999, associated with cost reduction
programs, totaled $15.6 million. At December 31, 1999, the remaining
liabilities associated with cost reduction programs was $8.8 million.
The 1997 cost reduction program included costs related to employee
termination and exit costs.
F-42
<PAGE>
21) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1999, 1998 and 1997, statutory net
income (loss) totaled $547.0 million, $384.4 million and ($351.7)
million, respectively. Statutory surplus, capital stock and Asset
Valuation Reserve ("AVR") totaled $5,570.6 million and $4,728.0 million
at December 31, 1999 and 1998, respectively. In September 1999, $150.0
million in dividends were paid to the Holding Company by Equitable Life,
the first such payment since Equitable Life's demutualization in 1992.
At December 31, 1999, the Insurance Group, in accordance with various
government and state regulations, had $26.8 million of securities
deposited with such government or state agencies.
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' equity under GAAP are primarily: (a) the inclusion in SAP
of an AVR intended to stabilize surplus from fluctuations in the value
of the investment portfolio; (b) future policy benefits and
policyholders' account balances under SAP differ from GAAP due to
differences between actuarial assumptions and reserving methodologies;
(c) certain policy acquisition costs are expensed under SAP but deferred
under GAAP and amortized over future periods to achieve a matching of
revenues and expenses; (d) external and certain internal costs incurred
to obtain or develop internal use computer software during the
application development stage is capitalized under GAAP but expensed
under SAP; (e) Federal income taxes are generally accrued under SAP
based upon revenues and expenses in the Federal income tax return while
under GAAP deferred taxes provide for timing differences between
recognition of revenues and expenses for financial reporting and income
tax purposes; (f) the valuation of assets under SAP and GAAP differ due
to different investment valuation and depreciation methodologies, as
well as the deferral of interest-related realized capital gains and
losses on fixed income investments; and (g) differences in the accrual
methodologies for post-employment and retirement benefit plans.
F-43
<PAGE>
22) BUSINESS SEGMENT INFORMATION
AXA Financial's operations consist of Financial Advisory/Insurance,
Investment Banking and Brokerage and Investment Management. AXA
Financial's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment. Management evaluates the
performance of each segment based upon operating results adjusted to
exclude the effect of unusual or non-recurring events and transactions
and certain revenue and expense categories not related to the base
operations of the particular business net of minority interest.
Information for all periods is presented on a comparable basis.
Intersegment investment advisory and other fees of approximately $75.6
million, $61.8 million and $84.1 million for 1999, 1998 and 1997,
respectively, are included in total revenues of the Investment
Management segment. These fees, excluding amounts related to
discontinued operations of $.5 million, $.5 million and $4.2 million for
1999, 1998 and 1997, respectively, are eliminated in consolidation.
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations
before Federal income taxes as reported on the consolidated statements
of earnings and the segments' assets to total assets on the consolidated
balance sheets, respectively.
<TABLE>
<CAPTION>
Financial Investment
Advisory/ Banking and Investment
Insurance Brokerage Management Elimination Total
--------------- ---------------- ----------------- --------------- -----------------
(In Millions)
<S> <C> <C> <C> <C> <C>
1999
Segment revenues....... $ 4,337.5 $ 7,153.7 $ 1,870.2 $ (32.4) $ 13,329.0
Non-DLJ investment
(losses) gains and
other................ (198.9) 235.0 5.5 - 41.6
--------------- ---------------- ----------------- --------------- -----------------
Total Revenues......... $ 4,138.6 $ 7,388.7 $ 1,875.7 $ (32.4) $ 13,370.6
=============== ================ ================= =============== =================
Pre-tax operating
earnings............. $ 852.9 $ 583.5 $ 241.3 $ - $ 1,677.7
Investment (losses)
gains net of related
DAC and other
charges.............. (207.8) 235.0 4.5 - 31.7
Non-recurring DAC
adjustments.......... (131.7) - - - (131.7)
Pre-tax minority
interest............. - 281.4 216.8 - 498.2
--------------- ---------------- ----------------- --------------- -----------------
Earnings
from Continuing
Operations........... $ 513.4 $ 1,099.9 $ 462.6 $ - $ 2,075.9
=============== ================ ================= =============== =================
Total Assets........... $ 87,213.9 $ 108,510.5 $ 11,902.4 $ (72.5) $ 207,554.3
=============== ================ ================= =============== =================
</TABLE>
F-44
<PAGE>
<TABLE>
<CAPTION>
Financial Investment
Advisory/ Banking and Investment
Insurance Brokerage Management Elimination Total
--------------- ---------------- ----------------- --------------- -----------------
(In Millions)
<S> <C> <C> <C> <C> <C>
1998
Segment revenues....... $ 4,063.6 $ 5,418.7 $ 1,328.7 $ (15.2) $ 10,795.8
Non-DLJ investment
gains and other...... 65.0 40.5 17.2 - 122.7
--------------- ---------------- ----------------- --------------- -----------------
Total Revenues......... $ 4,128.6 $ 5,459.2 $ 1,345.9 $ (15.2) $ 10,918.5
=============== ================ ================= =============== =================
Pre-tax operating
earnings............. $ 654.0 $ 372.9 $ 169.1 $ - $ 1,196.0
Investment gains
(losses), net of
related DAC and
other charges........ 41.1 40.1 9.5 - 90.7
Pre-tax minority
interest............. - 175.8 141.5 - 317.3
--------------- ---------------- ----------------- --------------- -----------------
Earnings from
Continuing
Operations........... $ 695.1 $ 588.8 $ 320.1 $ - $ 1,604.0
=============== ================ ================= =============== =================
Total Assets........... $ 76,109.4 $ 71,970.9 $ 11,602.5 $ (181.7) $ 159,501.1
=============== ================ ================= =============== =================
1997
Segment revenues....... $ 4,020.9 $ 4,649.5 $ 1,073.5 $ (20.0) $ 9,723.9
Non-DLJ investment
(losses) gains
and other............ (317.2) 7.2 252.2 - (57.8)
--------------- ---------------- ----------------- --------------- -----------------
Total Revenues......... $ 3,703.7 $ 4,656.7 $ 1,325.7 $ (20.0) $ 9,666.1
=============== ================ ================= =============== =================
Pre-tax operating
earnings............. $ 469.6 $ 421.1 $ 126.3 $ - $ 1,017.0
Investment (losses)
gains, net of
related DAC and
other charges......... (291.9) 6.6 249.9 - (35.4)
Non-recurring costs
and expenses......... (41.7) - (121.6) - (163.3)
Pre-tax minority
interest............. - 176.2 108.5 - 284.7
--------------- ---------------- ----------------- --------------- -----------------
Earnings from
Continuing
Operations........... $ 136.0 $ 603.9 $ 363.1 $ - $ 1,103.0
=============== ================ ================= =============== =================
Total Assets........... $ 68,225.7 $ 70,131.7 $ 13,124.2 $ (308.4) $ 151,173.2
=============== ================ ================= =============== =================
</TABLE>
F-45
<PAGE>
23) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1999 and 1998 are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
--------------- --------------- ---------------- -----------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
1999
Total Revenues...................... $ 2,952.7 $ 3,512.1 $ 3,188.5 $ 3,717.3
=============== =============== ================ =================
Earnings from Continuing
Operations........................ $ 226.4 $ 382.3 $ 235.0 $ 254.3
=============== =============== ================ =================
Net Earnings........................ $ 221.1 $ 381.0 $ 231.6 $ 292.4
=============== =============== ================ =================
Per Common Share:
Basic:
Earnings from Continuing
Operations................... $ .52 $ .87 $ .54 $ .59
=============== =============== ================ =================
Net Earnings................... $ .50 $ .87 $ .53 $ .55
=============== =============== ================ =================
Diluted:
Earnings from Continuing
Operations................... $ .49 $ .83 $ .52 $ .67
=============== =============== ================ =================
Net Earnings.............. $ .48 $ .83 $ .51 $ .64
=============== =============== ================ =================
1998
Total Revenues...................... $ 2,943.8 $ 2,952.5 $ 2,373.6 $ 2,648.6
=============== =============== ================ =================
Earnings from Continuing
Operations........................ $ 266.1 $ 247.5 $ 139.1 $ 177.7
=============== =============== ================ =================
Net Earnings $ 266.6 $ 248.8 $ 139.8 $ 177.9
=============== =============== ================ =================
Per Common Share:
Basic:
Earnings from Continuing
Operations................... $ .60 $ .56 $ .32 $ .40
=============== =============== ================ =================
Net Earnings................... $ .60 $ .56 $ .32 $ .40
=============== =============== ================ =================
Diluted:
Earnings from Continuing
Operations................... $ .57 $ .53 $ .31 $ .39
=============== =============== ================ =================
Net Earnings.............. $ .58 $ .53 $ .31 $ .39
=============== =============== ================ =================
</TABLE>
F-46
<PAGE>
Report of Independent Accountants on
Consolidated Financial Statement Schedules
February 1, 2000
To the Board of Directors of
AXA Financial, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 1, 2000 appearing on page F-1 of this Annual Report on Form 10-K
also included an audit of the consolidated financial statement schedules listed
in Item 14 of this Form 10-K. In our opinion, these consolidated financial
statement schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
F-47
<PAGE>
<TABLE>
<CAPTION>
AXA FINANCIAL, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
Estimated Carrying
Type of Investment Cost (A) Fair Value Value
- ------------------ ---------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities:
U.S. government, agencies and authorities.............. $ 1,218.0 $ 1,213.3 $ 1,213.3
State, municipalities and political subdivisions....... 110.0 106.5 106.5
Foreign governments.................................... 361.8 363.2 363.2
Public utilities....................................... 1,267.9 1,247.5 1,247.5
All other corporate bonds.............................. 16,611.2 15,900.8 15,894.9
Redeemable preferred stocks............................ 311.6 277.1 277.1
---------------- ----------------- -----------------
Total fixed maturities................................. 19,880.5 19,108.4 19,102.5
---------------- ----------------- -----------------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other............ 1,399.5 1,458.3 1,458.3
Investment banking trading account securities.......... 27,983.9 27,982.4 27,982.4
Securities purchased under resale agreement............ 29,538.1 29,538.1 29,538.1
Mortgage loans on real estate.......................... 3,270.0 3,239.3 3,270.0
Real estate............................................ 523.6 xxx 523.6
Real estate acquired in satisfaction of debt........... 443.9 xxx 443.9
Real estate joint ventures............................. 192.7 xxx 192.7
Policy loans........................................... 2,257.3 2,359.5 2,257.3
Other limited partnership interests.................... 647.9 647.9 647.9
Other invested assets.................................. 914.7 914.7 914.7
---------------- ----------------- -----------------
Total Investments...................................... $ 87,052.1 $ 85,248.6 $ 86,331.4
================ ================= =================
<FN>
(A) Cost for fixed maturities represents original cost, reduced by repayments
and writedowns and adjusted for amortization of premiums or accretion of
discount; for equity securities, cost represents original cost; for other
limited partnership interests, cost represents original cost adjusted for
equity in earnings and distributions
</FN>
</TABLE>
F-48
<PAGE>
<TABLE>
<CAPTION>
AXA FINANCIAL, INC.
SCHEDULE II
BALANCE SHEETS (PARENT COMPANY)
DECEMBER 31, 1999 AND 1998
1999 1998
----------------- ----------------
(In Millions)
<S> <C> <C>
ASSETS
Investment in consolidated subsidiaries............................. $ 7,123.8 $ 6,425.7
Fixed maturities available for sale, at estimated fair value
(amortized costs, $245.5 and $446.0)............................ 241.4 447.6
Other invested assets............................................... 66.5 98.2
----------------- ----------------
Total investments............................................. 7,431.7 6,971.5
Cash and cash equivalents........................................... 138.7 36.2
Other assets........................................................ 14.4 15.5
----------------- ----------------
Total Assets........................................................ $ 7,584.8 $ 7,023.2
================= ================
LIABILITIES
Short-term and long-term debt....................................... $ 1,110.8 $ 1,140.6
Accrued liabilities................................................. 635.1 189.5
----------------- ----------------
Total liabilities............................................. 1,745.9 1,330.1
----------------- ----------------
SHAREHOLDERS' EQUITY
Series D convertible preferred stock................................ 648.7 598.4
Stock employee compensation trust................................... (648.7) (598.4)
Common stock, at par value.......................................... 4.5 2.2
Capital in excess of par value...................................... 3,739.1 3,662.1
Treasury stock...................................................... (490.8) (247.1)
Retained earnings................................................... 3,008.6 1,926.1
Accumulated comprehensive income.................................... (422.5) 349.8
----------------- ----------------
Total shareholders' equity.................................... 5,838.9 5,693.1
----------------- ----------------
Total Liabilities and Shareholders' Equity.......................... $ 7,584.8 $ 7,023.2
================= ================
</TABLE>
The financial information of AXA Financial, Inc. (Parent Company) should be read
in conjunction with the Consolidated Financial Statements and Notes thereto. For
information regarding Capital Stock see Note 11 of Notes to Consolidated
Financial Statements.
Effective December 31, 1999, the Holding Company assumed primary liability from
Equitable Life for all current and future obligations of its Excess Retirement
Plan, Supplemental Executive Retirement Plan and certain other employee benefit
plans that provide participants with medical, life insurance and deferred
compensation benefits. The amount of liability associated with employee benefits
assumed was $676.5 million. In addition, Equitable Life transferred the deferred
tax assets totaling $236.8 million related to the assumed employee benefit plans
to the Holding Company.
F-49
<PAGE>
<TABLE>
<CAPTION>
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF EARNINGS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
----------------- ----------------- ---------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES
Equity in earnings from continuing operations.......... $ 1,005.2 $ 842.0 $ 681.3
Net investment income.................................. 32.4 43.0 32.4
Investment gains, net.................................. 126.3 22.8 5.1
----------------- ----------------- ---------------
Total revenues................................... 1,163.9 907.8 718.8
----------------- ----------------- ---------------
EXPENSES
Interest expense....................................... 86.5 77.2 61.9
General and administrative expenses.................... 20.5 19.2 24.6
----------------- ----------------- ---------------
Total expenses................................... 107.0 96.4 86.5
----------------- ----------------- ---------------
Earnings from continuing operations before
Federal income taxes ................................ 1,056.9 811.4 632.3
Federal income tax benefit............................. 41.1 19.0 15.9
----------------- ----------------- ---------------
Earnings from continuing operations.................... 1,098.0 830.4 648.2
Discontinued operations, net of Federal income taxes... 28.1 2.7 (87.2)
----------------- ----------------- ---------------
Net earnings........................................... 1,126.1 833.1 561.0
Dividends on preferred stocks.......................... - - 15.6
----------------- ----------------- ---------------
Net Earnings Applicable to Common Shares............... $ 1,126.1 $ 833.1 $ 545.4
================= ================= ===============
Per Common Share:
Basic:
Earnings from continuing operations................ $ 2.51 $ 1.87 $ 1.57
Discontinued operations, net of Federal
income taxes..................................... .07 .01 (.22)
----------------- ----------------- ---------------
Net Earnings....................................... $ 2.58 $ 1.88 $ 1.35
================= ================= ===============
Diluted:
Earnings from continuing operations................ $ 2.39 $ 1.80 $ 1.43
Discontinued operations, net of Federal
income taxes..................................... .06 .01 (.19)
----------------- ----------------- ---------------
Net Earnings....................................... $ 2.45 $ 1.81 $ 1.24
================= ================= ===============
Cash Dividend Per Common Share....................... $ .10 $ .10 $ .10
================= ================= ===============
</TABLE>
F-50
<PAGE>
<TABLE>
<CAPTION>
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF CASH FLOWS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
----------------- ----------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net earnings........................................... $ 1,126.1 $ 833.1 $ 561.0
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Equity in net earnings of subsidiaries............... (1,033.3) (844.7) (594.1)
Dividends from subsidiaries.......................... 162.2 11.9 11.7
Investment gains, net................................ (126.3) (22.8) (5.1)
Change in Federal income tax liability............... (3.4) (16.8) (150.0)
Other................................................ 15.7 3.7 12.6
----------------- ----------------- ---------------
Net cash provided (used) by operating activities....... 141.0 (35.6) (163.9)
----------------- ----------------- ---------------
Cash flows from investing activities:
Maturities and repayments............................ 63.5 160.7 99.1
Sales................................................ 502.6 711.7 527.9
Purchases............................................ (379.2) (1,128.5) (524.2)
Net change in short-term investments................. (1.3) - 4.1
Other................................................ 14.2 (12.8) 36.6
----------------- ----------------- ---------------
Net cash provided (used) by investing activities....... 199.8 (268.9) 143.5
----------------- ----------------- ---------------
Cash flows from financing activities:
Additions to long-term debt.......................... - 596.7 -
Repayment of short-term debt......................... (30.0) (25.0) (20.0)
Dividends paid to shareholders....................... (43.8) (44.6) (46.8)
Proceeds from issuance of common stock............... 79.2 30.2 87.2
Purchase of treasury stock........................... (243.7) (247.1) -
Other................................................ - 10.0 (4.5)
----------------- ----------------- ---------------
Net cash (used) provided by financing activities....... (238.3) 320.2 15.9
----------------- ----------------- ---------------
Change in cash and cash equivalents.................... 102.5 15.7 (4.5)
Cash and cash equivalents, beginning of year........... 36.2 20.5 25.0
----------------- ----------------- ---------------
Cash and Cash Equivalents, End of Year................. $ 138.7 $ 36.2 $ 20.5
================= ================= ===============
Supplemental cash flow information
Interest Paid........................................ $ 85.2 $ 65.9 $ 64.9
================= ================= ===============
Income Taxes Paid.................................... $ 70.2 $ 254.3 $ 330.0
================= ================= ===============
</TABLE>
F-51
<PAGE>
<TABLE>
<CAPTION>
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 1999
Future Policy Policy Amortization
Deferred Benefits Charges (1) Policyholders' of Deferred (2)
Policy Policyholders' and Other and Net Benefits and Policy Other
Acquisition Account Policyholders' Premium Investment Interest Acquisition Operating
Segment Costs Balance Funds Revenue Income Credited Cost Expense
- -------------------- ----------- ----------- -------------- ---------- ----------- ------------- ------------ -----------
(In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Advisory/
Insurance ....... $ 4,033.0 $21,351.4 $ 4,777.6 $ 1,815.7 $ 2,205.9 $ 2,116.8 $ 446.2 $ 1,062.2
Investment
Banking and
Brokerage ....... - - - - 2,236.7 - - 6,288.8
Investment
Management ...... - - - - 13.4 - - 1,413.1
Consolidation/
Elimination ..... - - - - 44.0 - - (32.4)
----------- ----------- -------------- ---------- ----------- ------------- ------------ -----------
Total ............. $ 4,033.0 $21,351.4 $ 4,777.6 $ 1,815.7 $ 4,500.0 $ 2,116.8 $ 446.2 $ 8,731.7
=========== =========== ============== ========== =========== ============= ============ ===========
<FN>
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
</FN>
</TABLE>
F-52
<PAGE>
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Future Policy Policy Amortization
Deferred Benefits Charges (1) Policyholders' of Deferred (2)
Policy Policyholders' and Other and Net Benefits and Policy Other
Acquisition Account Policyholders' Premium Investment Interest Acquisition Operating
Segment Costs Balance Funds Revenue Income Credited Cost Expense
- -------------------- ----------- ----------- -------------- ---------- ----------- ------------- ------------ -----------
(In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Advisory/
Insurance......... $ 3,563.8 $20,857.7 $ 4,726.4 $ 1,644.3 $ 2,196.2 $ 2,178.2 $ 293.3 $ 962.0
Investment Banking
and Brokerage..... - - - - 2,240.3 .3 .2 4,869.9
Investment
Management........ - - - - 14.9 .1 - 1,025.7
Consolidation/
Elimination....... - - - - 47.3 - - (15.2)
----------- ----------- -------------- ---------- ----------- ------------- ------------ -----------
Total............... $ 3,563.8 $20,857.7 $ 4,726.4 $ 1,644.3 $ 4,498.7 $ 2,178.6 $ 293.5 $ 6,842.4
=========== ============ ============== ========== =========== ============= ============ ===========
<FN>
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
</FN>
</TABLE>
F-53
<PAGE>
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Policy Amortization
Charges (1) Policyholders' of Deferred (2)
and Net Benefits and Policy Other
Premium Investment Interest Acquisition Operating
Segment Revenue Income Credited Cost Expense
- ------------------------------------- --------------- ------------ --------------- ------------------ --------------
(In Millions)
<S> <C> <C> <C> <C> <C>
Financial Advisory/Insurance......... $ 1,552.0 $ 2,232.4 $ 2,245.4 $ 287.9 $ 1,034.4
Investment Banking and Brokerage..... - 1,685.1 .2 .2 4,052.4
Investment Management................ .1 16.9 - - 962.6
Consolidation/Elimination............ - 56.9 - - (20.0)
--------------- ------------ --------------- ------------------ ---------------
Total................................ $ 1,552.1 $ 3,991.3 $ 2,245.6 $ 288.1 $ 6,029.4
=============== ============ =============== ================== ===============
<FN>
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
</FN>
</TABLE>
F-54
<PAGE>
AXA FINANCIAL, INC.
SCHEDULE IV
REINSURANCE (A)
AT AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to from of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
----------------- ---------------- ----------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C> <C>
1999
Life insurance in force(B)... $ 256,231.0 $ 40,892.0 $ 44,725.0 $ 260,064.0 17.20%
================= ================ ================= ===============
Premiums:
Life insurance and
annuities.................. $ 247.9 $ 42.6 $ 131.9 $ 337.2 39.12%
Accident and health.......... 172.8 26.6 74.8 221.0 33.85%
----------------- ---------------- ----------------- ---------------
Total Premiums............... $ 420.7 $ 69.2 $ 206.7 $ 558.2 37.03%
================= ================ ================= ===============
1998
Life insurance in force(B)... $ 246,910.0 $ 34,471.0 $ 47,957.0 $ 260,396.0 18.42%
================= ================ ================= ===============
Premiums:
Life insurance and
annuities.................. $ 254.6 $ 30.2 $ 122.7 $ 347.1 35.35%
Accident and health.......... 185.5 25.4 80.9 241.0 33.57%
----------------- ---------------- ----------------- ---------------
Total Premiums............... $ 440.1 $ 55.6 $ 203.6 $ 588.1 34.62%
================= ================ ================= ===============
1997
Life insurance in force(B)... $ 238,336.0 $ 17,004.1 $ 44,708.3 $ 266,040.2 16.81%
================= ================ ================= ===============
Premiums:
Life insurance and
annuities.................. $ 248.9 $ 18.3 $ 124.1 $ 354.7 34.99%
Accident and health.......... 201.3 28.7 74.2 246.8 30.06%
----------------- ---------------- ----------------- ---------------
Total Premiums............... $ 450.2 $ 47.0 $ 198.3 $ 601.5 32.97%
================= ================ ================= ===============
<FN>
(A) Includes amounts related to the discontinued group life and health business.
(B) Includes in force business related to the Closed Block.
</FN>
</TABLE>
F-55
<PAGE>
Part II, Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
9-1
<PAGE>
Part III, Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for the information concerning executive officers of the Holding Company
set forth in Item 1A of this report, the information called for by Item 10 is
incorporated herein by reference to the section entitled "Election of Directors"
in the Holding Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 17, 2000, to be filed with the Securities and
Exchange Commission by the Holding Company pursuant to Regulation 14A within 120
days after the end of its 1999 fiscal year.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Holding
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Holding Company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Directors, executive officers and
greater than 10% shareholders are required by SEC regulations to furnish the
Holding Company with copies of all Section 16(a) forms they file. Based on a
review of such forms and written representations as to the need to file Form 5,
the Holding Company believes that all Section 16(a) filing requirements
applicable to its directors, executive officers and greater than 10% beneficial
owners were complied with for the year ended December 31, 1999.
10-1
<PAGE>
Part III, Item 11.
EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference to the
section entitled "Executive Compensation" in the Holding Company's definitive
proxy statement for the Annual Meeting of Stockholders to be held on May 17,
2000, to be filed with the Securities and Exchange Commission by the Holding
Company pursuant to Regulation 14A within 120 days after the end of its 1999
fiscal year.
11-1
<PAGE>
Part III, Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information called for by Item 12 is incorporated herein by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Holding Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held on May 17, 2000, to be filed with the
Securities and Exchange Commission by the Holding Company pursuant to Regulation
14A within 120 days after the end of its 1999 fiscal year.
12-1
<PAGE>
Part III, Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated herein by reference to the
section entitled "Certain Relationships and Related Transactions" in the Holding
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on May 17, 2000, to be filed with the Securities and Exchange Commission
by the Holding Company pursuant to Regulation 14A within 120 days after the end
of its 1999 fiscal year.
13-1
<PAGE>
Part IV, Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated Financial
Statements and Schedules on page FS-1.
2. Consolidated Financial Statement Schedules
The consolidated financial statement schedules are listed in the Index to
Consolidated Financial Statements and Schedules on page FS-1.
3. Exhibits:
The exhibits are listed in the Index to Exhibits which begins on page E-1.
(B) Reports on Form 8-K
None.
14-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, AXA Financial, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 27, 2000 AXA FINANCIAL, INC.
By:/s/ Edward D. Miller
------------------------------
Name: Edward D. Miller
President and Chief Executive Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Henri de Castries Chairman of the Board, Director March 27, 2000
- -------------------------------
Henri de Castries
/s/ Edward D. Miller President and Chief Executive Officer, March 27, 2000
- ------------------------------- Director
Edward D. Miller
/s/ Michael Hegarty Senior Vice Chairman of the Board and March 27, 2000
- ------------------------------- Chief Operating Officer, Director
Michael Hegarty
/s/ Stanley B. Tulin Vice Chairman of the Board and March 27, 2000
- ------------------------------- Chief Financial Officer
Stanley B. Tulin
/s/ Alvin H. Fenichel Senior Vice President and Controller March 27, 2000
- -------------------------------
Alvin H. Fenichel
/s/ Claude Bebear Director March 27, 2000
- -------------------------------
Claude Bebear
/s/ John S. Chalsty Director March 27, 2000
- -------------------------------
John S. Chalsty
/s/ Francoise Colloc'h Director March 27, 2000
- -------------------------------
Francoise Colloc'h
/s/ Joseph L. Dionne Director March 27, 2000
- -------------------------------
Joseph L. Dionne
Director March , 2000
- -------------------------------
Jean-Rene Fourtou
Director March , 2000
- -------------------------------
Jacques Friedmann
/s/ Donald J. Greene Director March 27, 2000
- --------------------------------
Donald J. Greene
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Anthony J. Hamilton Director March 27, 2000
- -------------------------------
Anthony J. Hamilton
/s/ John T. Hartley Director March 27, 2000
- -------------------------------
John T. Hartley
/s/ John H. F. Haskell, Jr. Director March 27, 2000
- -------------------------------
John H. F. Haskell, Jr.
/s/ Nina Henderson Director March 27, 2000
- -------------------------------
Nina Henderson
/s/ W. Edwin Jarmain Director March 27, 2000
- -------------------------------
W. Edwin Jarmain
/s/ Didier Pineau-Valencienne Director March 27, 2000
- -------------------------------
Didier Pineau-Valencienne
/s/ George J. Sella, Jr. Director March 27, 2000
- -------------------------------
George J. Sella, Jr.
/s/ Peter J. Tobin Director March 27, 2000
- -------------------------------
Peter J. Tobin
/s/ Dave H. Williams Director March 27, 2000
- -------------------------------
Dave H. Williams
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
<S> <C> <C> <C>
2 Purchase Agreement dated April 10, Filed as Exhibit 2 to the registrant's
1997, between Equitable Life and Lend Form 10-Q for the quarter ended March 31,
Lease Corporation Limited 1997 and incorporated herein by reference
3.1 Restated Certificate of Incorporation Filed as Exhibit 4.01(a) to the registrant's
of the Holding Company Form S-3 Registration Statement
(No. 33-03224), and incorporated herein
by reference
3.2 Amendment to Restated Certificate of Filed as Exhibit 4.01(g) to the registrant's
Incorporation of the Holding Company Form S-3 Registration Statement
(No. 33-03224), and incorporated herein
by reference
3.3 By-laws of the Holding Company, as Filed herewith
amended effective March 23, 2000
4.1 Form of Certificate for the Holding Filed as Exhibit 4(c) to the registrant's
Company's Common Stock, par value Form S-1 Registration Statement
$.01 per share (No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
4.2 Indenture, dated as of December 1, 1993, Filed as Exhibit 4.02 to the registrant's
from the Holding Company to Chemical Form S-4 Registration Statement
Bank, as Trustee (No. 33-73102), dated December 17, 1993
and incorporated herein by reference
4.3 First Supplemental Indenture, dated Filed as Exhibit 4.03 to the registrant's
December 1, 1993, from the Holding Form S-4 Registration Statement
Company to Chemical Bank, as Trustee (No. 33-73102), dated December 17, 1993
and incorporated herein by reference
4.4 Form of Second Supplemental Indenture Filed as Exhibit 4.04 to the registrant's
Form S-4 Registration Statement
(No. 33-73102), dated December 17, 1993
and incorporated herein by reference
4.5 Form of Third Supplemental Indenture, Filed as Exhibit 4.05 to the registrant's
dated as of December 8, 1994 from the Current Report on Form 8-K dated
Holding Company to Chemical Bank, as December 1, 1994 and incorporated
Trustee herein by reference
4.6 Fourth Supplemental Indenture, Filed as Exhibit 4.18(a) to the registrant's
April 1, 1998, from The Holding Company current report on Form 8-K dated
to The Chase Manhattan Bank April 7, 1998 and incorporated herein
(formerly known as Chemical Bank), by reference
as Trustee, together with forms of
global Senior Note and global
Senior Indenture
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
<S> <C> <C> <C>
4.7 Certificate of Designations of Cumulative Filed as Exhibit 4.05 to the registrant's
Convertible Preferred Stock, Series D Form S-4 Registration Statement
(No. 33-73102), dated December 17, 1993
and incorporated herein by reference
4.8 Subordinated Indenture, dated as of Filed as Exhibit 4.10 to the registrant's
October 22, 1994, between the Holding Current Report on Form 8-K dated
Company and Shawmut Bank Connecticut, December 19, 1994 and incorporated
National Association, as Trustee herein by reference
4.9 First Supplemental Indenture, dated as of Filed as Exhibit 4.11 to the registrant's
October 22, 1994, between the Holding Current Report on Form 8-K dated
Company and Shawmut Bank Connecticut, December 19, 1994 and incorporated
National Association, as Trustee herein by reference
9(a) Voting Trust Agreement dated as of May Filed as Exhibit 9 to the registrant's
12, 1992, among AXA, Claude Bebear, Form S-1 Registration Statement
Patrice Garnier and Henri de Clermont- (No. 33-48115), dated May 26, 1992 and
Tonnerre incorporated herein by reference
9(b) First Amendment dated January 22, 1997 Filed as Exhibit 9(b) to the registrant's
to the Voting Trust Agreement dated annual report on Form 10-K for the
as of May 12, 1992 year ended December 31, 1997 and
incorporated herein by reference
10.1 Standstill and Registration Rights Filed as Exhibit 10(c) to Amendment
Agreement, dated as of July 18, 1991, No. 1 to the registrant's Form S-1
as amended, between the Holding Registration Statement (No. 33-48115),
Company, Equitable Life and AXA dated May 26, 1992 and incorporated
herein by reference
10.2 Cooperation Agreement, dated as of July Filed as Exhibit 10(d) to the registrant's
18, 1991, as amended among Equitable Form S-1 Registration Statement
Life, the Holding Company and AXA (No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.3 Letter Agreement, dated May 12, 1992, Filed as Exhibit 10(e) to the registrant's
among Equitable Life, the Holding Form S-1 Registration Statement
Company and AXA (No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.4+ The 1991 Stock Incentive Plan Filed as Exhibit 10(f) to the registrant's
Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
<S> <C> <C> <C>
10.5+ The 1997 Stock Incentive Plan Filed as Exhibit 10.6(b) to the registrant's
annual report on Form 10-K for the
year ended December 31, 1996 and
incorporated herein by reference
10.5(a)+ Description of an Amendment to The Filed as Exhibit 10.30 to the registrant's
1997 Stock Incentive Plan Form 10-Q for the quarter ended
September 30, 1998 and incorporated
herein by reference
10.6+ The Equitable Life ERISA Excess Filed as Exhibit 10(i) to the registrant's
Benefit Plan Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.7+ The Equitable Life Supplemental Filed as Exhibit 10(j) to the registrant's
Retirement Plan Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.8+ The Equitable Life Executive Survivor Filed as Exhibit 10(l) to the registrant's
Benefits Plan Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.9+ The Equitable Life Executive Deferred Filed as Exhibit 10(m) to the registrant's
Compensation Plan, Plan A Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.10+ The Equitable Life Executive Deferred Filed as Exhibit 10.10 to the registrant's
Compensation Plan, Plan B, second annual report on Form 10-K for the year
Amendment and Restatement, ended December 31, 1997 and incorporated
effective January 1, 1996 herein by reference
10.11+ The Equitable Variable Deferred Filed as Exhibit 10.17 to the registrant's
Compensation Plan for Executives annual report on Form 10-K for the year
ended December 31, 1994 and incorporated
herein by reference
10.12+ Description of three Amendments to Filed as Exhibit 10.12 to the registrant's
the Equitable Variable Deferred annual report on Form 10-K for the year
Compensation Plan for Executives ended December 31, 1997 and incorporated
herein by reference
10.13+ The Equitable Variable Deferred Filed as Exhibit 10.18 to the registrant's
Compensation Plan for Directors annual report on Form 10-K for the year
ended December 31, 1994 and incorporated
herein by reference
10.14+ The Stock Purchase Plan for Filed as Exhibit 10.14 to the registrant's
Employees and Agents, as amended annual report on Form 10-K for the year
through August, 1996 ended December 31, 1997 and incorporated
herein by reference
</TABLE>
E-3
<PAGE>
<TABLE>
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
<S> <C> <C> <C>
10.15+ Long-Term Incentive Compensation Plan Filed as Exhibit 10.18(c) to the registrant's
for Senior Officers annual report on Form 10-K for the year
ended December 31, 1995 and incorporated
herein by reference
10.16+ Short-Term Incentive Compensation Filed as Exhibit 10.18(d) to the registrant's
Plan for Senior Officers annual report on Form 10-K for the year
ended December 31, 1996 and
incorporated herein by reference
10.17+ Long-Term Incentive Compensation Filed as Exhibit 10.18(e) to the registrant's
Plan for Senior Officers annual report on Form 10-K for the year
ended December 31, 1996 and
incorporated herein by reference
10.18 Amended and Restated Reinsurance Filed as Exhibit 10(o) to the registrant's
Agreement, dated as of March 29, 1990, Form S-1 Registration Statement
between Equitable Life and First (No. 33-48115), dated May 26, 1992 and
Equicor Life Insurance Company incorporated herein by reference
10.19 The Amended and Restated Transfer Filed as Exhibit 19 to the
registrant's Agreement dated as of Statement on Schedule 13D dated July 29,
February 23, 1993, 1993 and incorporated herein by reference
as amended and restated on May 28, 1993,
among Alliance, Equitable Capital
and Equitable Investment Corporation
10.20(a) The Equitable Companies, Inc. Filed as Exhibit 10.01 to the registrant's
Stock Trust Agreement, effective as of Form S-4 Registration Statement
December 2, 1993 (No. 33-73102), dated December 17, 1993
and incorporated herein by reference
10.20(b) The First Amendment to The Equitable Filed as Exhibit 10.02 to Post-Effective
Companies Incorporated Stock Trust Amendment No. 1 to the registrant's
Agreement dated as of September 19, Form S-3 Registration Statement
1996 (No. 333-03224), dated May 29, 1997
10.21 Stock Purchase Agreement, dated Filed as Exhibit 10.02 to the registrant's
December 2, 1993, between the Holding Form S-4 Registration Statement
Company and The Chase Manhattan (No. 33-73102), dated December 17, 1993
Bank, N.A. and incorporated herein by reference
10.22+ Management Compensation Arrangements Filed as Exhibit 10.22 to the registrant's
with Messrs. Bebear and de Castries annual report on Form 10-K for the year
and Ms. Colloc'h ended December 31, 1997 and incorporated
herein by reference
10.23 Exchange Agreement dated as of Filed as Exhibit 10 to registrant's Form S-4
September 27, 1994, between AXA Registration Statement (No. 33-84462),
and the Holding Company and incorporated herein by reference
10.24(a) Lease, dated as of July 20, 1995, Filed as Exhibit 10.24(a) to the registrant's
between 1290 Associates and annual report on Form 10-K for the
Equitable Life year ended December 31, 1996 and
incorporated herein by reference
</TABLE>
E-4
<PAGE>
<TABLE>
<CAPTION>
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
<S> <C> <C> <C>
10.24(b) First Amendment of Lease Agreement, Filed as Exhibit 10.24(b) to the registrant's
dated as of December 28, 1995, annual report on Form 10-K for the
between 1290 Associates, L.L.C. year ended December 31, 1996 and
and Equitable Life incorporated herein by reference
10.24(c) Amended and Restated Company Lease Filed as Exhibit 10.24(c) to the registrant's
Agreement (Facility Realty), made annual report on Form 10-K for the
as of May 1, 1996, by and between year ended December 31, 1996 and
Equitable Life and the IDA incorporated herein by reference
10.24(d) Amended and Restated Company Lease Filed as Exhibit 10.24(d) to the registrant's
Agreement (Project Property), made and report on Form 10-K for the
entered into as of May 1, 1996, by and year ended December 31, 1996 and
between the IDA, Equitable incorporated herein by reference
Life and EVLICO
10.24(e) Second Amendment of Lease, dated as of Filed as Exhibit 10.1 to the registrant's Form
May 1, 1997, between 1290 Partners L.P. 10-Q for the quarter ended June 30, 1997
and Equitable Life and incorporated herein by reference
10.25 Agreement dated April 24, 1996, Filed as Exhibit 10.27 to the registrant's
between Equitable Life and Form 10-Q for the quarter ended March 31,
Mr. Stanley B. Tulin 1997 and incorporated herein by reference
10.26 Agreement dated July 8, 1997 from the Filed as Exhibit 10.2 to the registrant's Form
Holding Company and Equitable Life 10-Q for the quarter ended June 30, 1997
to Mr. Edward D. Miller and incorporated herein by reference
10.27 Agreement dated January 6, 1998, Filed as Exhibit 10.27 to the registrant's
between Equitable Life and annual report on Form 10-K for the year
Mr. Michael Hegarty ended December 31, 1997 and incorporated
herein by reference
10.28+ The Equitable Stock Plan for Directors Filed as Exhibit 10.28 to the registrant's
annual report on Form 10-K for the year
ended December 31, 1997 and incorporated
herein by reference
10.29+ AXA Stock Option Plan Filed as Exhibit 10.29 to the registrant's
annual report on Form 10-K for the year
ended December 31, 1998 and incorporated
herein by reference
10.30 Agreement dated June 30, 1999 between Filed herewith
Equitable Life and Mr. Jerome S. Golden
21 Subsidiaries of the registrant Filed herewith
27 Financial Data Schedule Filed herewith
<FN>
+ Denotes executive compensation plans and arrangements.
</FN>
</TABLE>
E-5
BY-LAWS
OF
AXA FINANCIAL, INC.
(As Amended March 23, 2000)
<PAGE>
AXA FINANCIAL, INC.
BY-LAWS
-------
TABLE OF CONTENTS
SECTION
PAGE
----
ARTICLE I STOCKHOLDERS
1.01 Annual Meetings ....................................... 1
1.02 Special Meetings....................................... 3
1.03 Notice of Meetings; Waiver............................. 4
1.04 Quorum................................................. 5
1.05 Voting................................................. 5
1.06 Voting by Ballot....................................... 5
1.07 Adjournment............................................ 5
1.08 Proxies................................................ 5
1.09 Organization; Procedure................................ 6
ARTICLE II BOARD OF DIRECTORS
2.01 General Powers......................................... 6
2.02 Number and Term of Office.............................. 6
2.03 Nomination and Election of Directors................... 7
2.04 Annual and Regular Meetings............................ 9
2.05 Special Meetings; Notice............................... 10
2.06 Quorum; Voting......................................... 11
2.07 Adjournment............................................ 11
2.08 Action Without a Meeting............................... 11
2.09 Regulations; Manner of Acting.......................... 11
2.10 Action by Telephonic Communications.................... 11
2.11 Resignations........................................... 12
2.12 Vacancies and Newly Created Directorships.............. 12
2.13 Compensation........................................... 12
2.14 Reliance on Accounts and Reports, etc.................. 12
ARTICLE III EXECUTIVE COMMITTEE AND OTHER
COMMITTEES
3.01 How Constituted........................................ 12
3.02 Powers ................................................ 13
3.03 Proceedings............................................ 13
3.04 Quorum and Manner of Acting............................ 13
3.05 Action by Telephonic Communications.................... 14
3.06 Resignations........................................... 14
<PAGE>
3.07 Removal................................................ 14
3.08 Vacancies.............................................. 14
ARTICLE IV OFFICERS
4.01 Number................................................. 14
4.02 Election............................................... 15
4.03 Removal and Resignation; Vacancies..................... 15
4.04 Authority and Duties of Officers....................... 15
4.05 Chairman of the Board.................................. 15
4.06 Vice-Chairmen of the Board............................. 16
4.07 President.............................................. 16
4.08 Chief Executive Officer................................ 16
4.09 The Secretary.......................................... 16
4.10 The Treasurer.......................................... 17
4.11 Additional Officers.................................... 18
4.12 Security............................................... 19
ARTICLE V CAPITAL STOCK
5.01 Certificates of Stock, Uncertificated
Shares................................................. 19
5.02 Signatures; Facsimile.................................. 19
5.03 Lost, Stolen or Destroyed Certificates................. 19
5.04 Transfer of Stock...................................... 20
5.05 Record Date............................................ 20
5.06 Registered Stockholders................................ 21
5.07 Transfer Agent and Registrar........................... 21
ARTICLE VI INDEMNIFICATION
6.01 Nature of Indemnity.................................... 21
6.02 Successful Defense..................................... 23
6.03 Determination That Indemnification
Is Proper.............................................. 23
6.04 Advance Payment of Expenses............................ 23
6.05 Procedure for Indemnification
of Directors and Officers.............................. 23
6.06 Survival; Preservation of Other Rights................. 24
6.07 Insurance.............................................. 25
6.08 Severability........................................... 25
ARTICLE VII OFFICES
7.01 Registered Office...................................... 26
7.02 Other Offices.......................................... 26
(ii)
<PAGE>
ARTICLE VIII GENERAL PROVISIONS
8.01 Dividends.............................................. 26
8.02 Reserves............................................... 27
8.03 Execution of Instruments............................... 27
8.04 Corporate Indebtedness................................. 27
8.05 Deposits............................................... 27
8.06 Checks................................................. 28
8.07 Sale, Transfer, etc. of Securities..................... 28
8.08 Voting as Stockholder.................................. 28
8.09 Fiscal Year............................................ 28
8.10 Seal................................................... 29
8.11 Books and Records ..................................... 29
ARTICLE IX AMENDMENT OF BY-LAWS
9.01 Amendment.............................................. 29
ARTICLE X CONSTRUCTION
10.01 Construction........................................... 30
ARTICLE XI INVESTOR ACQUISITIONS OF VOTING SECURITIES
11.01 Limitation on Acquisitions............................. 30
11.02 Certain Definitions.................................... 30
(iii)
<PAGE>
AXA FINANCIAL, INC.
BY-LAWS
-------
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1.01. Annual Meetings. The annual meeting of the stockholders
of the Corporation for the election of Directors and for the transaction of such
other business as properly may come, as hereinafter provided, before such
meeting shall be held at such place, either within or without the State of
Delaware, and at 11:00 a.m., local time, on the third Wednesday of May in each
year (or, if such day is a legal holiday, then on the next succeeding business
day), or at such other earlier or later date and hour, as may be fixed from time
to time by resolution of the Board of Directors and set forth in the notice or
waiver of notice of the meeting. [Sections 211(a), (b).]*
Subject to the final paragraph of this Section 1.01, to be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder of the Corporation who was a stockholder of record
at the time of giving of notice provided for in this Section 1.01, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 1.01. For business to be properly brought before an annual
meeting by a stockholder, if such business is related to the election of
Directors of the Corporation, the procedures in Section 2.03 of these By-Laws
must be complied with. If such business relates to any other matter, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice shall be delivered to and
received at the principal executive offices of the Corporation not less than 60
days nor more than 90 days.
- ---------------
* Citations are to the General Corporation Law of the State of Delaware as in
effect on March 1, 2000, and are inserted for reference only, and do not
constitute a part of the By-Laws.
<PAGE>
prior to the first anniversary of the preceding year's annual meeting; provided
that in the event that the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from such anniversary date, notice by
the stockholder to be timely must be so delivered and received not earlier than
the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting and the 10th
day following the day on which public announcement of the date of such meeting
is first made. Such stockholder's notice shall set forth in writing as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting, the
reasons for conducting such business at the annual meeting, and any material
interest in such business of such stockholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (ii) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made, (A) the name and address of such stockholder, as they appear
on the Corporation's books, and of such beneficial owner and (B) the class and
number of shares of the Corporation which are owned beneficially and of record
by such stockholder and such beneficial owner. Notwithstanding anything in these
By-Laws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this Section 1.01. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 1.01, and if he should so
determine, the Chairman shall declare to the meeting that any such business not
properly brought before the meeting shall not be transacted. For purposes of
this Section 1.01 and Section 2.03, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). In addition to the provisions of this Section
1.01, a stockholder desiring to bring business before an annual meeting shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth herein, and any
other applicable laws or rules or regulations of any governmental authority or
of any national securities exchange or similar body overseeing any trading
market on which shares of the Corporation are traded. Nothing in these By-Laws
shall be deemed to affect any rights of stockholders to request inclusion of
proposals in
-2-
<PAGE>
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
The provisions of this Section 1.01 requiring prior notice for a
stockholder to bring business before a meeting of stockholders shall not be
applicable to any stockholder that beneficially owns, under Rule 13d-3 of the
General Rules and Regulations under the Exchange Act (excluding, however,
securities acquired solely due to Rule 13d-5 of such General Rules and
Regulations), shares representing at least 25% of the voting power of the then
outstanding voting shares of the Corporation (a "Major Stockholder"). As used in
these By-Laws, "voting shares of the Corporation" are those shares of capital
stock of the Corporation entitled (at all times and without regard to the
occurrence of a contingency) to vote generally on the election of directors and
other matters required to be submitted for stockholder approval. Subject to
compliance with applicable law, a Major Stockholder may bring before any meeting
of stockholders any business, without the need to give any advance notice of
such business. [Section 109(b).]
Section 1.02. Special Meetings. Special meetings of the stockholders
may be called at any time by the Chairman of the Board, the President or the
Board of Directors pursuant to a written request signed by not less than
one-third of the total number of Directors then in office. A special meeting
shall be called by the President (or, in the event of his absence or disability,
by any Vice President), or by the Secretary, in the event a vacancy exists on
the Board of Directors due to removal of a Director by vote of the stockholders
of the Corporation or upon receipt of a written request therefor by a
stockholder or stockholders holding in the aggregate not less than 25% of the
outstanding shares of the Corporation at the time entitled to vote on the
particular matter or matters for which the meeting is called. Such written
request by a stockholder or stockholders shall set forth the purpose or purposes
for which such meeting is called. If such officers or the Board of Directors
shall fail to call such meeting within 20 days after creation of such vacancy or
receipt of such request or shall schedule such meeting to occur later than 65
days after such creation or receipt, any stockholder executing such request may
call such meeting. Such special meetings of the stockholders shall be held at
such places, within or without the State of Delaware, as shall be specified in
the respective notices or waivers of notice thereof. [Section 211(d).]
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The purpose or purposes of any special meeting of stockholders shall
be set forth in the notice of meeting (which notice for a meeting called at the
request of stockholders shall include all business specified in the request of
the stockholder or stockholders for the meeting), and, except as otherwise
required by law or by the Restated Certificate of Incorporation, no business
shall be transacted at any special meeting of stockholders other than the items
of business stated in the notice of meeting. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 1.02, and if he or she should so determine, the Chairman shall declare
to the meeting that any such business not properly brought before the meeting
shall not be transacted. [Section 109(b).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than 10 nor more than 60 days prior to the meeting, to each
stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, or delivered to a nationally recognized
overnight delivery service for overnight delivery, in each case directed to the
stockholder at his or her address as it appears on the record of stockholders of
the Corporation, or, if he or she shall have filed with the Secretary of the
Corporation a written request that notices to him or her be mailed to some other
address, then directed to him or her at such other address. Such further notice
shall be given as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of stockholders
in person or by proxy shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the ground that the meeting is not lawfully called or convened. [Sections
222, 229.]
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Section 1.04. Quorum. Except as otherwise required by law or by the
Restated Certificate of Incorporation, the presence in person or by proxy of the
holders of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation at the close of business on the day next preceding
the day on which notice of the meeting is given. Except as otherwise required by
law or by the Restated Certificate of Incorporation or these By-Laws, the vote
of a majority of the shares represented in person or by proxy at any meeting at
which a quorum is present shall be sufficient for the transaction of any
business at such meeting. [Sections 212(a), 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
taken by written ballot, unless otherwise required by law. Any vote which need
not be taken by ballot may be conducted in any manner approved by the meeting.
Section 1.07. Adjournment. Notice of any adjourned meeting of the
stockholders of the Corporation need not be given if the place, date and hour
thereof are announced at the meeting at which the adjournment is taken, provided
that if the adjournment is for more than thirty days, or if after the
adjournment a new record date for the adjourned meeting is fixed pursuant to
Section 5.05 of these By-Laws, a notice of the adjourned meeting, conforming to
the requirements of Section 1.03 hereof, shall be given to each stockholder of
record entitled to vote at such meeting. At any adjourned meeting at which a
quorum is present, any business may be transacted that might have been
transacted on the original date of the meeting. [Section 222(c).]
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting
of the stockholders may, by (a) a written instrument signed by such stockholder
or his
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attorney-in-fact, or (b) transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission (which may
include telephone, datagram, or communication through the internet) to the
person who will be the holder of the proxy or to an agent duly authorized by the
person who will be the holder of the proxy, together with authenticating
information deemed appropriate by the inspectors or other persons determining
that such transmission was authorized by the stockholder, authorize another
person or persons to vote at any such meeting for him by proxy. No such proxy
shall be voted after the expiration of three years from the date of such proxy,
unless such proxy provides for a longer period. Every proxy shall be revocable
at the pleasure of the stockholder executing it, except in those cases where
applicable law provides that a proxy shall be irrevocable. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the Secretary. [Section
212(b), (c), (e).]
Section 1.09. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the Chairman of the Board or, in the
event of his or her absence or disability, a presiding officer chosen by a
majority of the stockholders present in person or by proxy. The Secretary, or in
the event of his or her absence or disability, the Assistant Secretary, if any,
or if there be no Assistant Secretary, in the absence of the Secretary, an
appointee of the presiding officer, shall act as Secretary of the meeting. The
order of business and all other matters of procedure at every meeting of
stockholders may be determined by such presiding officer.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.01. General Powers. Except as may otherwise be provided by
law, by the Restated Certificate of Incorporation or by these By-Laws, the
property, affairs and business of the Corporation shall be managed by or under
the direction of the Board of Directors and the Board of Directors may exercise
all the powers of the Corporation. [Section 141(a).]
Section 2.02. Number and Term of Office. The Board of Directors shall
consist of not less than thirteen nor more than thirty-six Directors. The exact
number of
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Directors shall be determined from time to time by a resolution or resolutions
adopted by the affirmative vote of a majority of the total number of Directors
which the Corporation would have if there were no vacancies (the "entire Board
of Directors").
A Director shall hold office until the annual meeting next following
his or her election and until his or her successor shall be elected and shall
qualify, subject, however, to the Director's prior death, resignation,
disqualification or removal from office. [Section 141(b).]
Section 2.03. Nomination and Election of Directors. Subject to the
final paragraph of this Section 2.03, only persons who are nominated in
accordance with the procedures set forth in this Section 2.03 shall be eligible
for election as Directors of the Corporation.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at any annual meeting of stockholders by or at the
direction of the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of Directors at the meeting who was a
stockholder of record at the time of giving of notice provided for in this
Section 2.03 and who complies with the notice procedures set forth in this
Section 2.03. Any such nomination by a stockholder shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely
notice for an annual meeting, a stockholder's notice shall be delivered to and
received by the Secretary of the Corporation at the principal executive offices
of the Corporation not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided that in the
event that the date of the annual meeting is advanced by more than 30 days or
delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered and received not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting and the 10th day
following the day on which public announcement (as defined in Section 1.01) of
the date of such meeting is first made. Notwithstanding anything in the
foregoing sentence to the contrary, in the event that the number of Directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement naming all of the nominees for Director or specifying
the size of the increased Board of Directors made by the Corporation at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
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stockholder's notice required by this Section 2.03 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary of the Corporation at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a special meeting of stockholders at which Directors
are to be elected pursuant to the Corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) subject to the final paragraph
of this Section 2.03, by any stockholder of the Corporation who is a stockholder
of record at the time of giving of notice provided for in this Section 2.03, who
shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.03. In the event the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
Directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the stockholder's notice shall be
delivered to and received by the Secretary of the Corporation at the principal
executive offices of the Corporation not earlier than the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting and the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting.
Any stockholder's notice delivered pursuant to this Section 2.03 shall
set forth in writing (i) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the number of shares of stock of the Corporation
which are beneficially owned by such person, and (D) any other information
relating to such person that is required to be disclosed in connection with the
solicitation of proxies for election of Directors, or as otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including, without
limitation, such person's written consent to being named in a proxy statement as
a nominee and to serving as a Director if elected), and any other
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applicable laws or rules or regulations of any governmental authority or of any
national securities exchange or similar body overseeing any trading market on
which shares of the Corporation are traded; and (ii) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination is made (A) the name and address of such stockholder, as they appear
on the Corporation's books, and of such beneficial owner and (B) the class and
number of shares of the Corporation which are owned beneficially and of record
by such stockholder and such beneficial owner.
At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a Director shall furnish to the Secretary of
the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 2.03. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by these
By-Laws and in that event the defective nomination shall be disregarded. In
addition to the provisions of this Section 2.03, a stockholder shall also comply
with all applicable requirements of the Exchange Act and the rules and
regulations thereunder, and any other applicable laws or rules or regulations of
any governmental authority or any national securities exchange or similar body
overseeing any trading market on which shares of the Corporation are traded,
with respect to the matters set forth herein. [Section 109(b).]
At each meeting of the stockholders for the election of Directors,
provided a quorum is present, the Directors nominated in accordance with this
Section 2.03 for election at such meeting shall be elected by a plurality of the
votes validly cast in such election. [Sections 211(b), (c), 216.]
The provisions of this Section 2.03 requiring prior notice for a
stockholder to nominate Directors shall not be applicable to any Major
Stockholder, and, subject to compliance with applicable law, a Major Stockholder
may nominate persons for election as Directors at any meeting where any Director
is to be elected, without the need to give any advance notice of such
nominations.
Section 2.04. Annual and Regular Meetings. The annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other
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business as may come before the meeting shall be held as soon as possible
following adjournment of the annual meeting of the stockholders at the place of
such annual meeting of the stockholders. Notice of such annual meeting of the
Board of Directors need not be given. The Board of Directors from time to time
may by resolution provide for the holding of regular meetings and fix the place
(which may be within or without the State of Delaware) and the date and hour of
such meetings. Unless and until otherwise specified in a resolution or
resolutions adopted by a majority of the entire Board of Directors, regular
meetings of the Board of Directors shall be held at the principal office of the
Corporation on the third Thursday of each month, except January and August.
Notice of regular meetings need not be given, provided that if the Board of
Directors shall fix or change the time or place of any regular meeting, notice
of such action shall be given to each Director who shall not have been present
at the meeting at which such action was taken at least ten days in advance
thereof in writing and by telephone or telecopy. Any such notice not
specifically required to be given by telephone or telecopy shall be deemed given
to a Director when sent by mail, telegram, telex or other electronic means of
transmission addressed to him or her at his or her address furnished to the
Secretary. Notice of such action need not be given to any Director who attends
such regular meeting without protesting the lack of notice to him or her, prior
to or at the commencement of such meeting, or to any Director who submits a
signed waiver of notice, whether before or after such meeting. [Section 141(g).]
Section 2.05. Special Meetings; Notice. Special meetings of the Board
of Directors shall be held whenever called by the Chairman of the Board or, in
the event of his or her absence or disability, by the President, or by not less
than one-quarter of the Directors then in office, at such place (within or
without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Notice of each special
meeting of the Board of Directors shall be given to each Director at least
twenty-four hours in advance thereof in writing and by telephone or telecopy.
Such notice shall state in general terms the purpose or purposes of the meeting.
Any such notice for a special meeting not specifically required to be given by
telephone or telecopy shall be deemed given to a Director when sent by mail,
telegram, telex or other electronic means of transmission addressed to him or
her at his or her address furnished to the Secretary. Notice of any special
meeting need not be given to any Director who attends such meeting without
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protesting the lack of notice to him or her, prior to or at the commencement of
such meeting, or to any Director who submits a signed waiver of notice, whether
before or after such meeting. [Sections 141(g), 229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of not less than a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the Restated Certificate of Incorporation or these
By-Laws, the vote of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board of Directors. [Section
141(b).]
Section 2.07. Adjournment. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors. [Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent consistent
with applicable law, the Restated Certificate of Incorporation and these
By-Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting. [Section 141(i).]
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Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery. [Section 141(b).]
Section 2.12. Vacancies and Newly Created Directorships. Subject to
the rights of the holders of any series of Preferred Stock of the Corporation,
any newly created Directorship and any other vacancy occurring on the Board of
Directors may be filled by a majority of the Directors then in office, although
less than a quorum, or by a sole remaining Director, except that the
stockholders shall fill any vacancy resulting from the removal of a Director by
the stockholders. [Section 223.]
Section 2.13. Compensation. The amount, if any, which each Director
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors. [Section
141(h).]
Section 2.14. Reliance on Accounts and Reports, etc. A Director, or a
member of any Committee designated by the Board of Directors, shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or Committees designated by the Board of Directors, or by any other person as to
the matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation. [Section 141(e).]
ARTICLE III
-----------
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
Section 3.01. How Constituted. The Board of Directors may designate
one or more Committees, each Committee to consist of one or more of the
directors of the Corporation, including an Executive Committee, and designate
the Directors who are to serve as members of each such Committee. Any member of
a Committee may designate in writing to the Board of Directors, and upon such
designation the Board of Directors shall appoint, one or more other Directors as
an alternative member of such Committee, who may replace such appointing
Committee member at any meeting
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of such Committee where such appointing member is absent or disqualified. Each
member (and each alternate member) of any such Committee (whether designated at
an annual meeting of the Board of Directors or to fill a vacancy or otherwise)
shall hold office until his or her successor shall have been designated or until
he or she shall cease to be a Director, or until his or her earlier death,
resignation or removal. [Section 141(c).]
Section 3.02. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section and subject to the Restated Certificate of Incorporation and these
By-Laws, shall have and may exercise all the powers and authority of the Board
of Directors in the day to day management of the property, affairs and business
of the Corporation. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the Executive Committee nor any such other Committee shall have the
power or authority:
(a) to approve or adopt, or recommend to the stockholders, any action
or matter expressly required by the General Corporation Law to be submitted
to stockholders for approval, or
(b) to adopt, amend or repeal any of these By-Laws.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation
to be affixed to any or all papers which may require it. [Section 141(c).]
Section 3.03. Proceedings. Each such Committee may fix its own rules
of procedure consistent with these By-Laws and may meet at such place (within or
without the State of Delaware), at such time and upon such notice, if any, as it
shall determine from time to time. Each such Committee shall keep minutes of its
proceedings and shall report such proceedings to the Board of Directors at the
meeting of the Board of Directors next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. The
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act of the majority of the members present at any meeting at which a quorum is
present shall be the act of such Committee. Any action required or permitted to
be taken at any meeting of any such Committee may be taken without a meeting, if
all members of such Committee shall consent to such action in writing and such
writing or writings are filed with the minutes of the proceedings of the
Committee. The members of any such Committee shall act only as a Committee, and
the individual members of such Committee shall have no power as such. [Section
141(c).]
Section 3.05. Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting. [Section 141(i).]
Section 3.06. Resignations. Any member (and any alternate member) of
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman of the Board or the
President. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 3.07. Removal. Any member (and any alternate member) of any
Committee may be removed at any time, either for or without cause, by resolution
adopted by a majority of the entire Board of Directors.
Section 3.08. Vacancies. If any vacancy shall occur in any Committee,
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
----------
OFFICERS
--------
Section 4.01. Number. The officers of the Corporation shall be chosen
by the Board of Directors and may include a Chairman of the Board (who shall be
chosen from among the Directors) and one or more Vice-Chairmen and shall include
a President, a Secretary, a Treasurer and such other officers as the Board of
Directors may determine. The
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Board of Directors also may elect one or more Assistant Secretaries and
Assistant Treasurers in such numbers as the Board of Directors may determine.
Any number of offices may be held by the same person. Except as otherwise
provided in these By-Laws, no officer need be a Director of the Corporation.
[Section 142(a), (b).]
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his or her successor has been
elected and qualified, or until his or her earlier death, resignation or
removal. [Section 142(b).]
Section 4.03. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors. [Section 142(b), (e).]
Section 4.04. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law. [Section 142(a).]
Section 4.05. Chairman of the Board. The Board of Directors may at a
regular or special meeting elect from among their number a Chairman of the Board
who shall hold office, at the pleasure of the Board of Directors, until the next
annual meeting. The Chairman of the Board shall preside at all meetings of the
Board of Directors and also shall exercise such powers and perform such duties
as may be delegated or assigned to or required of him or her by these By-Laws or
by or pursuant to authorization of the Board of Directors.
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Section 4.06. Vice-Chairmen of the Board. The Board of Directors may
at a regular or special meeting elect one or more Vice-Chairmen of the Board who
shall hold office, at the pleasure of the Board of Directors, until the next
annual meeting. The Vice-Chairmen of the Board shall exercise such powers and
perform such duties as may be delegated or assigned to or required of him, her
or them by these By-Laws or by or pursuant to authorization of the Board of
Directors or by the Chairman of the Board.
Section 4.07. President. The Board of Directors shall at a regular or
special meeting elect a President who shall hold office, at the pleasure of the
Board of Directors, until the next annual meeting and until the election of his
or her successor. The President shall exercise such powers and perform such
duties as may be delegated or assigned to or required of him or her by these
By-Laws or by or pursuant to authorization of the Board of Directors or (if the
President is not the chief executive officer) by the chief executive officer.
Section 4.08. Chief Executive Officer. The Chairman of the Board or
the President shall be the chief executive officer of the Corporation as the
Board of Directors from time to time shall determine, and the Board of Directors
from time to time may determine who shall act as chief executive officer in the
absence or inability to act of the then incumbent. Subject to the control of the
Board of Directors, and to the extent not otherwise prescribed by these By-Laws,
the chief executive officer shall have plenary power over all departments,
officers, employees, and agents of the Corporation, and shall be responsible for
the general management and direction of all the business and affairs of the
Corporation.
Section 4.09. The Secretary. The Secretary shall have the following
powers and duties:
(a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
or resolutions of the Board of Directors, he or she shall furnish a copy of
such
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resolution or resolutions to the members of such Committee.
(d) He or she shall be the custodian of the records and of the seal of
the Corporation and cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf of
the Corporation under its seal shall have been duly authorized in
accordance with these By-Laws, and when so affixed he or she may attest the
same.
(e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Restated Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in such
manner as to show at any time the number of shares of the Corporation of
each class issued and outstanding, the names (alphabetically arranged) and
the addresses of the holders of record of such shares, the number of shares
held by each holder and the date as of which each became such holder of
record.
(g) He or she shall sign (unless the Treasurer, an Assistant Treasurer
or Assistant Secretary shall have signed) certificates representing shares
of the Corporation the issuance of which shall have been authorized by the
Board of Directors.
(h) He or she shall perform, in general, all duties incident to the
office of secretary and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the Board
of Directors or the chief executive officer.
Section 4.10. The Treasurer. The Treasurer shall have the following
powers and duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of the
Corporation and shall keep or cause to be kept full and accurate records of
all receipts of the Corporation.
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(b) He or she shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or other
depositaries as shall be selected in accordance with Section 8.05 of these
By-Laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of these
By-Laws) upon the authorized depositaries of the Corporation and cause to
be taken and preserved proper vouchers for all moneys disbursed.
(d) He or she shall render to the Board of Directors or the President,
whenever requested, a statement of the financial condition of the
Corporation and of all his or her transactions as Treasurer, and render a
full financial report at the annual meeting of the stockholders, if called
upon to do so.
(e) He or she shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving such
information as he or she may desire with respect to any and all financial
transactions of the Corporation.
(f) He or she may sign (unless an Assistant Treasurer or the Secretary
or an Assistant Secretary shall have signed) certificates representing
stock of the Corporation the issuance of which shall have been duly
authorized by the Board of Directors.
(g) He or she shall perform, in general, all duties incident to the
office of treasurer and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the Board
of Directors or the chief executive officer.
Section 4.11. Additional Officers. The Board of Directors may appoint
such other officers and agents as it may deem appropriate, and such other
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as may be determined from time to time by
the Board of Directors. The Board of Directors from time to time may delegate to
any officer or agent the power to appoint subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties. Any
such officer or agent may
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remove any such subordinate officer or agent appointed by him or her, for or
without cause. [Section 142(a), (b).]
Section 4.12. Security. The Board of Directors may require any
officer, agent or employee of the Corporation to provide security for the
faithful performance of his or her duties, in such amount and of such character
as may be determined from time to time by the Board of Directors. [Section
142(c).]
ARTICLE V
---------
CAPITAL STOCK
-------------
Section 5.01. Certificates of Stock, Uncertificated Shares. The shares
of the Corporation shall be represented by certificates, provided that the Board
of Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the Chairman of the
Board or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, representing the number
of shares registered in certificate form. Such certificate shall be in such form
as the Board of Directors may determine, to the extent consistent with
applicable law, the Restated Certificate of Incorporation and these By-Laws.
[Section 158.]
Section 5.02. Signatures; Facsimile. All of such signatures on the
certificate may be a facsimile, engraved or printed, to the extent permitted by
law. In case any officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue. [Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new
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certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon delivery to the
Board of Directors of an affidavit of the owner or owners of such certificate,
setting forth such allegation. The Board of Directors may require the owner of
such lost, stolen or destroyed certificate, or his or her legal representative,
to give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of any such new certificate. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares, duly endorsed
or accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law
of the State of Delaware. Subject to the provisions of the Restated Certificate
of Incorporation and these By-Laws, the Board of Directors may prescribe such
additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation. [Section 151.]
Section 5.05. Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of
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any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
Section 5.07. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
----------
INDEMNIFICATION
---------------
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or was or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer, or with respect to any present or former Director or
officer of the Corporation, as an
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employee or agent, of another corporation (including, without limitation, the
Corporation's subsidiaries), partnership, joint venture, trust or other
enterprise, including an employee benefit plan, or by reason of any action
alleged to have been taken or omitted in such capacity, and may indemnify any
person who was or is a party or was or is threatened to be made a party to such
an action, suit or proceeding by reason of the fact that he or she is or was or
has agreed to become an employee or agent of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as an employee
or agent of another corporation (including, without limitation, the
Corporation's subsidiaries), partnership, joint venture, trust or other
enterprise, including an employee benefit plan, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her or on his or her behalf in connection with
such action, suit or proceeding and any appeal therefrom, if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding had no reasonable cause to believe his or her conduct was
unlawful; except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (i) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (ii) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful. [Section 145(a), (b).]
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Section 6.02. Successful Defense. To the extent that a present or
former Director or officer of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 hereof or in defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith. [Section 145(c).]
Section 6.03. Determination That Indemnification Is Proper. Any
indemnification of a present or former Director or officer of the Corporation
under Section 6.01 hereof (unless ordered by a court) shall be made by the
Corporation only upon a determination that indemnification of such person is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Section 6.01 hereof. Any indemnification of an employee
or agent of the Corporation under Section 6.01 hereof (unless ordered by a
court) may be made by the Corporation only upon a determination that
indemnification of the employee or agent is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in Section 6.01
hereof. Any such determination shall be made, with respect to a person who is a
Director or officer at the time of such determination, (i) by a majority vote of
the Directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) by a committee of such Directors designated
by majority vote of such Directors, even though less than a quorum, or (iii) if
there are no such Directors, or if such Directors so direct, by independent
legal counsel in a written opinion, or (iv) by the stockholders. [Section
145(d), (f).]
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a present or former Director or officer in
defending any civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as
authorized in this Article VI. Such expenses (including attorneys' fees)
incurred by employees and agents may be so paid upon such terms and conditions,
if any, as the Corporation deems appropriate. [Section 145(e).]
Section 6.05. Procedure for Indemnification of Directors and Officers.
Any indemnification of a present or
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former Director or officer of the Corporation under Sections 6.01 and 6.02, or
advance of costs, charges and expenses to a present or former Director or
officer under Section 6.04 of this Article VI, shall be made promptly, and in
any event, with respect to indemnification within 60 days, and, with respect to
advance of costs, charges and expenses within 30 days, upon the written request
of such person. If the Corporation denies a written request for indemnity or
advancement of expenses, in whole or in part, or if payment in full pursuant to
a written request for indemnity is not made within 60 days, or if payment in
full pursuant to a written request for advancement of expenses is not made
within 30 days, the right to indemnification or advances as granted by this
Article VI shall be enforceable by the present or former Director or officer in
any court of competent jurisdiction. Such person's costs and expenses incurred
in connection with successfully establishing his or her right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 6.04 of this Article VI where the required undertaking,
if any, has been received by the Corporation) that the claimant has not met the
standard of conduct set forth in Section 6.01 of this Article, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its disinterested directors, its independent legal
counsel, and its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in Section 6.01 of this Article VI, nor the fact that there has been
an actual determination by the Corporation (including its disinterested
directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
provisions of this Article VI shall be deemed to be a contract between the
Corporation and each Director or officer who serves in any such capacity at any
time while these provisions are in effect, and, to the fullest extent permitted
by law, any repeal or modification thereof shall not affect any right or
obligation then existing with respect to any state of facts then or previously
existing or any action, suit or proceeding
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previously or thereafter brought or threatened based in whole or in part upon
any such state of facts.
The rights provided by this Article VI shall not be deemed exclusive
of any other rights to which any person may be entitled under any by-law,
agreement, vote of stockholders or disinterested Directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a Director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person. [Section 145(f)]
Section 6.07. Insurance. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
Director or officer of the Corporation, or is or was serving at the request of
the Corporation as a Director or officer of another corporation (including,
without limitation, the Corporation's subsidiaries), partnership, joint venture,
trust or other enterprise, including an employee benefit plan, against any
liability asserted against him or her and incurred by him or her or on his or
her behalf in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of this Article, provided that such
insurance is available on acceptable terms, which determination shall be made by
a vote of a majority of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each present or former Director or
officer and may indemnify each employee or agent of the Corporation as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Corporation, and the Corporation shall advance expenses
(including attorneys' fees) to each present or former Director or officer
incurred by such person in defending any civil, criminal, administrative or
investigative action, suit or proceeding and may advance such expenses
(including attorneys' fees) to each employee or agent, in each case to the
fullest extent permitted by any applicable portion of this Article VI that shall
not have been invalidated and to the fullest extent permitted by applicable law.
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ARTICLE VII
-----------
OFFICES
-------
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
------------
GENERAL PROVISIONS
------------------
Section 8.01. Dividends. Subject to any applicable provisions of law
and the Restated Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors shall be fully protected in relying
in good faith upon the records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or Committees of the Board of Directors, or by any other
person as to matters the Director reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid. [Section 172, 173.]
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Section 8.02. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may similarly modify or abolish any such reserve.
[Section 171.]
Section 8.03. Execution of Instruments. The Chairman of the Board, any
Vice-Chairman of the Board, the President, any Vice President, the Secretary or
the Treasurer may in the ordinary course of business enter into any contract or
execute and deliver any instrument in the name and on behalf of the Corporation.
The Board of Directors may authorize any officer or agent to enter into any
contract or execute and deliver any instrument in the name and on behalf of the
Corporation. Any such authorization may be general or limited to specific
contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors, or, to the extent
authorized by a resolution adopted by the Board of Directors, the chief
executive officer. Such authorization may be general or confined to specific
instances. Loans so authorized may be effected at any time for the Corporation
from any bank, trust company or other institution, or from any firm, corporation
or individual. All bonds, debentures, notes and other obligations or evidences
of indebtedness of the Corporation issued for such loans shall be made, executed
and delivered as the Board of Directors or (to the extent so authorized) the
chief executive officer shall authorize. When authorized by the Board of
Directors, any part of or all the properties, including contract rights, assets,
business or good will of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited
from time to time in such banks, trust companies or other depositaries as may be
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determined by the Board of Directors, the Chairman of the Board or the
President, or by such officers or agents as may be authorized by the Board of
Directors, the Chairman of the Board or the President to make such
determination.
Section 8.06. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors, the Chairman
of the Board or the President from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
authorized by the Board of Directors, by the Chairman of the Board or by the
President, any Vice President, the Secretary or the Treasurer or any other
officers designated by the Board of Directors, the Chairman of the Board or the
President may sell, transfer, endorse, and assign, in each case in the ordinary
course of business, any shares of stock (other than stock of a subsidiary if
such transaction has not been approved by the Board of Directors), bonds or
other securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal,
any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors, the Chairman of the Board, the President
or any Vice President shall have full power and authority on behalf of the
Corporation to attend any meeting of stockholders of any corporation in which
the Corporation may hold stock, and to act, vote (or execute proxies to vote)
and exercise in person or by proxy all other rights, powers and privileges
incident to the ownership of such stock. Such officers acting on behalf of the
Corporation shall have full power and authority to execute any instrument
expressing consent to or dissent from any action of any such corporation without
a meeting. The Board of Directors may by resolution from time to time confer
such power and authority upon any other person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
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Section 8.10. Seal. The seal of the Corporation shall be circular in
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records. Except to the extent otherwise
required by law, the books and records of the Corporation shall be kept at such
place or places within or without the State of Delaware as may be determined
from time to time by the Board of Directors.
ARTICLE IX
----------
AMENDMENT OF BY-LAWS
--------------------
Section 9.01. Amendment. The Board of Directors shall have the express
power, without a vote of stockholders, to adopt any By-Law, and to amend, alter
or repeal the By-Laws of the Corporation, except to the extent that the By-Laws
or the Restated Certificate of Incorporation, including but not limited to the
provisions of paragraph (e) of Article FIFTH thereof, otherwise provide. The
Board of Directors may exercise such power upon the affirmative vote of a
majority of the entire Board of Directors. Stockholders may adopt any By-Law, or
amend, alter or repeal the By-Laws of the Corporation, upon the affirmative vote
of the holders of at least a majority of the votes entitled to be cast by the
holders of all then outstanding voting shares of the Corporation, voting
together as a single class.
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ARTICLE X
---------
CONSTRUCTION
------------
Section 10.01. Construction. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and the provisions of
the Restated Certificate of Incorporation of the Corporation as in effect from
time to time, the provisions of such Restated Certificate of Incorporation shall
be controlling.
ARTICLE XI
----------
INVESTOR ACQUISITIONS OF VOTING SECURITIES
------------------------------------------
Section 11.01. Limitation on Acquisitions. The Investor shall not, and
shall cause each of the Investor Related Parties not to, acquire any Voting
Securities if, immediately after such acquisition, the percentage of the Total
Voting Power represented by the aggregate Voting Power of all Voting Securities
then owned, directly or indirectly, by the Investor and the Investor Related
Parties would exceed the percentage equal to 90% minus the percentage of the
Total Voting Power represented by the aggregate Voting Power of all Voting
Securities (x) acquired by the holders of the Other Debt Securities upon the
exchange of the Other Debt Securities and (y) not subsequently sold or otherwise
disposed of by such holders in a manner which effectuated a reasonably broad
distribution, unless (i) the Investor or such Investor Related Party, as the
case may be, substantially concurrently with such acquisition offers to purchase
all shares of the Common Stock then outstanding (other than such shares then
owned by the Investor and the Investor Related Parties) and (ii) a special
committee of the Board of Directors of the Corporation (consisting of directors
of the Corporation other than nominees of the Investor or officers of the
Corporation or any of its Subsidiaries) is appointed to evaluate such offer.
SECTION 11.02. Certain Definitions. For purposes of this Article
ELEVENTH:
"Affiliate" means such term as it is defined in Rule 12b-2 under the
Exchange Act.
"Common Stock" means the Corporation's Common Stock, par value $.01
per share.
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"Investor" means AXA, a corporation organized under the laws of
France.
"Investor Related Parties" means, collectively, (i) all Subsidiaries
of the Investor, (ii) Axa Assurances I.A.R.D. Mutuelle, Axa Assurances Vie
Mutuelle, La Mutuelle Generale Assurances Risques Divers, Uni Europe Assurance
Mutuelle, Alpha Assurances Vie Mutuelle, La Nouvelle Mutuelle Assurance, FINAXA,
Midi Participations, A.N.F., and their respective Subsidiaries (other than the
Investor), (iii) any other person of which the Investor is or becomes a
Subsidiary and (iv) each person of which voting securities or other ownership
interests representing 25% or more of the ordinary voting power are owned by the
Investor or one or more Subsidiaries of the Investor or a combination thereof,
which person is not a Subsidiary of the Investor but is actually controlled by
the Investor.
"Other Debt Securities" means the two series of Debt Securities the
Corporation may sell under Section 4.11 of that certain Investment Agreement
dated as of July 18, 1991, among The Equitable Life Assurance Society of the
United States, the Corporation and the Investor.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint stock company, trust, unincorporated organization,
governmental or regulatory authority or other entity.
"Subsidiary" means a second person of which securities or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time any determination is being made, owned or controlled by the first
person or one or more Subsidiaries of such person or a combination thereof,
except that in no event shall the Corporation or any of its Subsidiaries be
considered a Subsidiary of the Investor or any of its Affiliates.
"Total Voting Power" means, at any time, the total number of votes
that may be cast in the election of Directors of the Corporation at any meeting
of the holders of Voting Securities held at such time for such purpose, without
regard to any voting limitation on any Voting Securities imposed by Section
7312(v) of the New York Insurance Law, if all then outstanding Voting Securities
were present and voted at such meeting.
"Voting Power" means, as to any Voting Security at any time, the
number of votes such Voting Security is entitled to cast for Directors of the
Corporation at any
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meeting of the holders of Voting Securities held at such time for such purpose,
without regard to any voting limitation on any Voting Securities imposed by
Section 7312(v) of the New York Insurance Law.
"Voting Securities" means the Common Stock and any other securities
issued by the Corporation having the power to vote in the election of Directors
of the Corporation, including without limitation any securities having such
power only upon the occurrence of a default or any other extraordinary
contingency, but excluding any preferred stock issued by the Corporation having
only such rights to elect up to two Directors as are required by the rules of
the principal stock exchange on which such preferred stock is listed.
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June 30, 1999
Mr. Jerome S. Golden
25 Kensington Road
Scarsdale, New York 10583
Dear Jerry:
This is to set forth the terms of your early retirement and separation
from Equitable as Executive Vice President and an employee effective June 30,
1999. From the date of this letter through June 30, 1999, you agree to assist us
to effect an orderly transition. You also agree to resign as an officer from The
Equitable Companies Incorporated effective June 30, 1999.
You will receive the following payments in connection with your
separation from Equitable: gross amounts of $350,000 in base salary and $928,950
in short-term incentive compensation. The base salary and short-term incentive
compensation payments will be made to you in a lump sum as soon as practicable
after June 30, 1999, but no later than July 31, 1999. These payments will not be
includable in any of Equitable's benefit plans or programs.
You will also be entitled to a pro rata share of your award under the
1997-1999 long-term incentive compensation plan prorated for the portion of the
cycle through June 30, 1999. Payment will be made at the same time payments are
normally made under the long-term incentive compensation plan to all
participants.
You will continue to vest in your unvested options under the Equitable
Companies Incorporated 1997 Stock Incentive Plan through the balance of your
employment with Equitable, upon your retirement directly from Equitable service
on July 1, 1999 and following such retirement in accordance with the terms of
the plan. (The plan provides in Section 5, Paragraph 5.5, for the vesting of
unvested options following a direct retirement from Equitable service subject to
the non-solicitation and confidentiality provisions set forth in that
paragraph.) You will also continue to vest in your unvested options under the
AXA Stock Option Plan in accordance with the terms of the plan.
Your Equitable Supplemental Executive Retirement Plan ("SERP") will be
amended to reflect an increase in your base pay from $300,000 to $450,000. The
incentive compensation component of $300,000 will remain the same. In
<PAGE>
Jerome S. Golden
Page 2
addition, your early retirement factors will be advanced five years. This will
provide you a 15-year certain annual SERP benefit of $228,248 (with a total
present value of the SERP, based upon a 7% discount rate, equal to $2,156,873)
commencing at age 55 upon your retirement. This amount represents an annual
increase of $111,099 to your original annual SERP benefit of $117,150 (an
increase of $1,107,031 on a present value basis, based upon a 7% discount rate).
In all other respects, the terms of your original SERP will continue to apply.
You agree to continue to pursue the Private Letter Ruling Equitable and
you jointly filed with the IRS on July 15, 1998 relating to the VP Plus Annuity
Contract and to be represented by the counsel representing Equitable (at the
Equitable's sole cost). You agree to cooperate with Equitable, to promptly
provide any information that may be reasonably requested by Equitable, the IRS
or counsel and to execute any documents that upon the advice of counsel are
necessary or appropriate regarding this Private Letter Ruling request.
We agree that the following statement will be used to describe your
separation from Equitable:
"Jerry has announced his plan to resign from Equitable effective July
1. Jerry would like to pursue independent research into new products and
services for the retirement marketplace in the U.S. and other developed
markets."
Equitable agrees to enter into a consulting agreement with you
effective July 1, 1999 which will be effective for the twelve-month period
through June 30, 2000. During the consulting period, you agree to be available
to consult with Equitable for five full days per month. Any days during which
you participate in an Equitable conference will count as part of the five days.
You will be paid a monthly consulting fee of $53,700 regardless of whether you
have actually performed any consulting services or provided less than five full
days of consulting services for Equitable that month. The monthly consulting fee
will be paid no later than the fifteenth day of the month to which it relates.
Equitable will reimburse you for reasonable and customary business expenses
incurred during the term of your consulting agreement upon the submission of
acceptable vouchers or receipts. The terms of the consulting agreement will be
set forth more fully in a document which is mutually agreeable to Equitable and
you. The commencement of the consulting agreement will not be contingent upon
the prior execution of it by Equitable and you.
Equitable agrees not to make any statement or take any action which
disparages you.
<PAGE>
Jerome S. Golden
Page 3
In accordance with Equitable's policies and in exchange for the
valuable consideration provided by Equitable to you under this agreement you
agree to the following provisions:
You agree not to make any statement or take any action which disparages
Equitable or any of its subsidiaries or affiliates, or any individuals employed
by, or associated with, any of them or any products or services manufactured,
provided or offered by Equitable or any of its subsidiaries or affiliates.
You agree to continue to abide by Equitable's Policy Statement on
Ethics and not to disclose any confidential, proprietary or trade secret
information pertaining to the businesses of Equitable, including, but not
limited to, the reinsurance strategy on the GMIB, other internal risk management
strategies and the non-public product pricing models and formulas, or the
businesses of any Equitable subsidiary or affiliate, obtained during your
employment or subsequent consulting agreement with Equitable ("Confidential
Information").
Confidential Information will not include information (a) which is
generally known in the industry of Equitable; (b) developed by you individually
or jointly with others prior to the commencement of your employment with
Equitable; or (c) that becomes generally known to the public or the trade
without violation by you of this paragraph; provided, however, that nothing in
this paragraph shall prevent you, with or without Equitable's consent, from
participating in, or disclosing documents or information in connection with, any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participating or disclosure is required by applicable law. However,
you agree that if any such proceeding commences or such disclosure is required,
you will provide, where possible, reasonable advance notice to Equitable so that
Equitable may take appropriate actions to protect its rights and interests.
You agree that during your employment by Equitable, if you made,
created or discovered, either solely or jointly with others, any patent or
patentable material, or copyright or copyrightable material which pertains or
relates in any way to the business or products of Equitable or its subsidiaries
or affiliates, the same will be the exclusive property of Equitable or its
subsidiaries or affiliates provided that the same constitutes Confidential
Information ("Protected Information"). You agree to execute and deliver to
Equitable, without further compensation, any and all documents which Equitable
deems necessary or appropriate to prepare or prosecute applications for patents
or copyrights relating to the Protected Information.
You hereby irrevocably assign and transfer to Equitable your entire
right, title and interest in and to any such Protected Information, and agree to
take all actions as directed by Equitable to evidence more fully and perfectly
Equitable's ownership thereof. This assignment includes the right to apply for
any Letters
<PAGE>
Jerome S. Golden
Page 4
Patent of the United States of America and in any foreign countries, as
applicable, regarding any such Protected Information and any Letters Patent
which may issue thereon in the United States and foreign countries, the same to
be held and enjoyed by Equitable for its own use and benefit fully and entirely.
You also authorize Equitable to file patent applications in any and all
countries regarding any such Protected Information in your name, or in its name,
or otherwise, as Equitable may deem advisable, under the International
Convention or otherwise.
You agree to communicate to Equitable any facts known to you relating
to any such Protected Information and agree to testify in any proceeding,
execute and deliver all lawful papers and generally do any and all further acts
which may be deemed necessary by Equitable to vest in Equitable the right, title
and interest conveyed, to enable such right, title or interest to be recorded,
and to file all applications and obtain and enforce proper patent protection for
any such Protected Information in all countries. If your participation in any
such proceeding occurs during the term of your consulting agreement and exceeds
the number of days produced by the following formula, or occurs after the term
of the consulting agreement, Equitable will pay you a per diem of $4,000. The
formula is the number of months completed under the consulting agreement
(including the one in progress when the proceeding occurs) times five minus the
number of days in which you have actually performed consulting services for
Equitable to date. In any case, Equitable will reimburse you for any legal fees
and expenses you may incur in connection therewith.
If you are in possession of any property, documents, data or other
written information consisting of or containing Confidential Information or
Protected Information, you agree that the foregoing will be the exclusive
property of Equitable and may not be used by you for any other purpose than the
benefit of Equitable. You agree to deliver any and all of the foregoing to
Equitable at or before the termination of your employment with Equitable and
that no copies thereof will be retained by you without the prior written consent
of Equitable. You agree to execute a certificate evidencing compliance with this
provision, if requested by Equitable. You agree to execute and deliver all
documents required by Equitable to document or perfect Equitable's proprietary
rights in any Protected Information.
You also agree during the period from the date of this letter through
June 30, 2000, not to induce or endeavor to induce any officer, manager,
employee, associate or agent of Equitable or any of its subsidiaries or
affiliates to terminate their employment or association with Equitable or its
subsidiaries or affiliates to become employed by or associated with any other
entity or individual unless you obtain prior written consent from the applicable
Equitable company to do so. Equitable consents to your solicitation of employees
Karine Adalian, Elizabeth Hafez and Edmund Tobin.
<PAGE>
Jerome S. Golden
Page 5
You also agree not to contact any Equitable or its subsidiaries' or
affiliates' policyholders, contract holders or account holders from the date of
this letter through June 30, 2000.
You also agree not to induce or attempt to induce any of Equitable's or
its subsidiaries' or affiliates' policyholders, contract holders or account
holders to surrender or move any of their policies, contracts or accounts to
another entity.
You agree to cooperate fully with Equitable and, if requested by
Equitable, to reasonably assist Equitable in its defense or prosecution of any
claim, complaint or action involving Equitable of which you have knowledge.
You also agree to execute the attached general release which forms a
part of this letter agreement.
The use of the singular in this agreement will also include the plural,
and vice versa.
You agree to keep the terms of this letter agreement and the preceding
negotiations completely confidential, provided that disclosure to your financial
advisor, attorney or immediate family, or in response to valid legal process or
as otherwise required by law, will not violate this paragraph.
Except as provided in the following paragraph, you agree that should
you violate the restrictions contained in the letter agreement, Equitable will
have all rights in law and equity including the right to seek and obtain damages
and injunctive relief.
This agreement does not impact any rights you may have under the
following compensation and benefit plans: (i) Equitable Retirement Plan for
Employees, Managers and Agents, (ii) Equitable Excess Retirement Plan, (iii)
Equitable Supplemental Executive Retirement Plan, provided, however, to the
extent that there is a material breach of this agreement, Equitable reserves the
right to forfeit the annual SERP increase of $111,099, (iv) Equitable Investment
Plan for Employees, Managers and Agents, (v) Equitable deferred compensation
plans, (iv) Equitable Executive Survivor Income Plan, (vii) Equitable welfare
benefit plans for Employees, Managers and Agents including Equitable's health,
life insurance, health care spending account, dependent care spending account,
short-term disability and long-term disability plans, (viii) Equitable Companies
Incorporated 1991 and 1997 Stock Incentive Plans, (ix) AXA Stock Incentive Plan,
and (x) Equitable 1997-1999 Long Term Incentive Compensation Plan for Senior
Officers, subject to proration for the portion of the cycle through June 30,
1999.
<PAGE>
Jerome S. Golden
Page 6
This agreement constitutes our entire agreement and supersedes all
prior agreements, written or otherwise, between Equitable and you except that
the assignment you executed to Equitable on August 1, 1995 regarding the
Computerized Method and System for Providing Guaranteed Lifetime Income With
Liquidity and application thereon for Letters Patent of the United States which
was filed on May 1, 1995 and assigned application Serial No. 08/432,101 will
remain in full force and effect.
This agreement may not be amended except by a further written agreement
signed by Equitable and you.
This agreement will be governed by and construed in accordance with the
laws of the State of New York.
Please indicate your acceptance of the terms of this letter by
executing the copy enclosed and the original release and returning both executed
documents to me. You have the right to have this letter agreement including the
release reviewed by your counsel prior to executing them and we advise you to do
so.
Sincerely
/s/ John A. Caroselli
---------------------
John A. Caroselli
Accepted and Agreed:
/s/ Jerome S. Golden
- ---------------------------
Jerome S. Golden
<PAGE>
GENERAL RELEASE AND AGREEMENT
This GENERAL RELEASE and AGREEMENT (hereinafter "Release") is made and
entered into by JEROME S. GOLDEN.
In return for the consideration provided by The Equitable Life
Assurance Society of the United States ("Equitable") set forth in the letter
agreement between Equitable and me of which this Release forms a part which was
executed by Equitable Executive Vice President John A. Caroselli dated June 30,
1999 (the "Letter Agreement"), on behalf of my heirs, executors, administrators,
personal and legal representatives and assigns, I hereby waive, release and
discharge Equitable, its parent, subsidiaries and affiliates, and its officers,
directors, agents, employees, successors and assigns (hereinafter "Releasees"),
from all claims, actions and causes of action, whether known or unknown, which I
have or claim to have against any Releasee as a result of my employment or the
termination of my employment with Equitable (hereinafter "Claims"). I understand
further that Equitable will have no obligation to make any payments to me under
the terms of the Letter Agreement until after the time when I may no longer
revoke my execution of this Release.
This Release covers, but is not limited to, all Claims of
discrimination based upon age, race, religion, color, sex, national origin,
disability, handicap, veteran status, marital status, sexual orientation or any
other protected category arising on or before the date of execution of this
Release under any equal employment opportunity law, ordinance, regulation, or
order, including, but not limited to, Title VII of the Civil Rights Act of 1964,
as amended, the Civil Rights Act of 1991, Executive Orders 11246 and 11141, as
amended, the Age Discrimination in Employment Act of 1967, as amended, the
Americans with Disabilities Act of 1990, and any other federal, state, or local
constitutional or statutory provision, order, or regulation. Claims waived do
not include any rights I may have under the (i) Equitable Retirement Plan for
Employees, Managers and Agents, (ii) Equitable Excess Retirement Plan, (iii)
Equitable Supplemental Executive Retirement Plan, (iv) Equitable Investment Plan
for Employees, Managers and Agents, (v) Equitable deferred compensation plans,
(vi) Equitable Executive Survivor Income Plan, (vii) Equitable welfare benefit
plans for Employees, Managers and Agents including Equitable's health, life
insurance, health care spending account, dependent care spending account,
short-term disability and long-term disability plans, (viii) Equitable Companies
Incorporated 1991 and 1997 Stock Incentive Plans, (ix) the AXA Stock Option
Plan; (x) the Equitable 1997-1999 Long Term Incentive Compensation Plan for
Senior Officers, or (xi) the Letter Agreement.
This Release also covers all Claims arising in tort or in contract
relating to my employment or the termination of my employment with Equitable
including, but not limited to, those for fraud, libel, slander, promissory or
equitable estoppel, misrepresentation, wrongful discharge, contract violation,
breach of the covenant of good faith and fair dealing, and negligent or
intentional infliction of emotional distress arising under the laws of New York
or any other state or jurisdiction. I intend that this
-1-
<PAGE>
Release will discharge the Releasees to the maximum extent permitted by law.
This Release is intended to release all claims, whether known or unknown, by me.
I agree not to file a lawsuit or to commence an arbitration making any
Claims against the Releasees or any Releasee with any federal, state or local
court or a self-regulatory authority relating to my employment or the
termination of my employment with Equitable. I agree not to file a charge or a
complaint making any Claims against the Releasees or any Releasee with any
federal, state or local administrative agency except to the extent permitted by
law. Unless I am specifically requested to do so by Equitable, or compelled by
legal process issued by a competent court, agency, or arbitration tribunal, I
also agree not to participate in any administrative proceeding, litigation or
arbitration filed by any current or former employee or agent of Equitable
against the Releasees or any Releasee with any federal, state or local
administrative agency or court or a self-regulatory authority relating to their
employment or association with Equitable or the termination of their employment
or association with Equitable or to contact any current or former employee(s) or
agent(s) of Equitable for the purpose of assisting them in any such
administrative proceeding, litigation or arbitration against the Releasees or
any Releasee. To the extent permitted by law, I additionally waive any rights to
obtain damages with respect to any administrative proceeding, litigation or
arbitration contemplated by this paragraph.
I agree that if any part of this Release is found to be void or
unenforceable by a court of competent jurisdiction, the remainder of this
Release will remain valid and enforceable.
This Release will be governed by the laws of the State of New York and
will be binding upon me and my heirs, administrators, representatives,
executors, successors and assigns and will inure to the benefit of the Releasees
and their heirs, administrators, representatives, executors, successors and
assigns. I understand that Equitable's covenants contained in the Letter
Agreement do not constitute an admission by Equitable of a violation of any
federal, state or local constitution, statute, law, ordinance, regulation or
order.
I ACKNOWLEDGE THAT I RECEIVED THIS RELEASE ON July 1, 1999. I
acknowledge that I have been provided valuable consideration for this Release. I
have read this Release and understand that I am relinquishing all Claims,
including those for employment discrimination, which I might have against the
Releasees. In addition, I acknowledge that I have been advised by Equitable to
consult an attorney prior to executing this Release. In addition, I understand
that I have twenty-one (21) days to consider executing this Release and seven
(7) business days from the date I execute this Release to revoke my execution of
it provided I deliver such notice of revocation in writing to Executive Vice
President John A. Caroselli within that seven (7) day period.
I further understand that I may voluntarily elect to execute this
Release in less than twenty-one (21) days but that I may not shorten the seven
(7) business days after the date I execute this Release to revoke my execution
of this Release.
-2-
<PAGE>
Having fully understood that this is a general release, I hereby
voluntarily sign my name this 1st day of July, 1999.
I understand that an executed copy of the letter agreement and the
executed original Release must be returned to Executive Vice President John
Caroselli at Equitable Corporate Headquarters, 1290 Avenue of the Americas, 16th
Floor, New York, New York 10104.
Executed at New York City, this 1st day of July, 1999.
/s/ Jerome S. Golden
-------------------------------
JEROME S. GOLDEN
- -----------------------------
Notary Public
-3-
<TABLE>
<CAPTION>
SUBSIDIARY ORGANIZATION CHART 12/31/1999
- -----------------------------
State of State of Number of Parent's
Type of Incorp. or Principal Federal Shares Percent of
Subsidiary Domicile Operation Tax ID # Owned Ownership
---------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------
AXA Financial, Inc. (Note 1) DE NY 13-3623351
- ---------------------------------------------------------------------------------------
Donaldson, Lufkin &
Jenrette, Inc. (Note 2) DE NY 13-1898818 48,641,793 38.27%
----------------------------------------------------------------------------------
AXA Client Solutions, LLC DE NY 52-2197822 100.00%
----------------------------------------------------------------------------------
AXA Distribution
Holding Corporation DE NY 13-4078005 - 100.00%
------------------------------------------------------------------------------
AXA Advisors, LLC
(Note 6) DE NY 13-4071393 - 100.00%
---------------------------------------------------------------------------
The Equitable Life
Assurance Society
of the United States
(Note 3) Insurance NY NY 13-5570651 2,000,000 100.00%
------------------------------------------------------------------------------
The Equitable of
Colorado, Inc. Insurance CO CO 13-3198083 1,000,000 100.00%
---------------------------------------------------------------------------
Frontier Trust
Company Operating ND ND 45-0373941 1,000 100.00%
---------------------------------------------------------------------------
Equitable Deal
Flow Fund, L.P. Investment DE NY 13-3385076 - -
---------------------------------------------------------------------------
Equitable
Managed
Assets, L.P. Investment DE NY 13-3385080 - -
------------------------------------------------------------------------
Real Estate
Partnership
Equities
(various) Investment ** - - -
---------------------------------------------------------------------------
Equitable Holdings,
LLC (Notes 2, 4, 5 & 7) HCO NY NY - - 100.00%
---------------------------------------------------------------------------
See Attached
Listing A
------------------------------------------------------------------------
EREIM LP Associates
(L.P.) Operating NY NY - - -
---------------------------------------------------------------------------
EML Associates,
L.P. Investment NY NY 58-1739531 - -
------------------------------------------------------------------------
ACMC, Inc. (Note 5) HCO DE NY 13-2677213 5,000,000 100.00%
---------------------------------------------------------------------------
Wil-Gro, Inc Investment PA PA 23-2702404 1,000 100.00%
---------------------------------------------------------------------------
Equitable
Underwriting
& Sales Agency
(Bahamas) Ltd. Operating Bahamas Bahamas - 5,000 100.00%
---------------------------------------------------------------------------
STCS, Inc. Investment DE NY 13-3761592 1,000 100.00%
---------------------------------------------------------------------------
Fox Run, Inc. Investment MA NY 23-2762596 1,000 100.00%
---------------------------------------------------------------------------
FTM Corp. Investment MD MD 13-3778225 1,000 100.00%
---------------------------------------------------------------------------
EVSA, Inc. Investment DE PA 23-2671508 50 100.00%
---------------------------------------------------------------------------
Equitable BJVS, Inc. Investment CA CA 33-0540198 1,000 100.00%
---------------------------------------------------------------------------
Equitable Rowes
Wharf, Inc. Investment MA MA 04-3272826 1,000 100.00%
---------------------------------------------------------------------------
GP/EQ Southwest, Inc. Investment TX TX 75-2624983 100 100.00%
---------------------------------------------------------------------------
Franconom, Inc. Investment PA PA 23-2352488 50 100.00%
---------------------------------------------------------------------------
EVLICO East Ridge, Inc. Investment CA GA 58-2206831 100 100.00%
---------------------------------------------------------------------------
Equitable Structured
Settlement Corp. Operating DE NJ 22-3492811 100 100.00%
---------------------------------------------------------------------------
ELAS Realty, Inc. Investment DE GA 58-2271596 1,000 100.00%
---------------------------------------------------------------------------
Prime Property
Funding II, Inc. Operating DE NY 13-3961599 100.00%
---------------------------------------------------------------------------
ECLL, Inc. Investment MI GA 58-2377569 100.00%
---------------------------------------------------------------------------
<FN>
See Notes on Page 2.
<PAGE>
NOTES: 1. The name was changed from The Equitable Companies Incorporated
----- on Sept. 3, 1999.
2. In addition, Equitable Holdings, LLC owns 39,961,540 shares
(31.44%). In the aggregate, AXF owns 88,603,333 shares (69.70%)
of Donaldson, Lufkin & Jenrette, Inc. as of 12/31/99.
3. AXA Financial, Inc. transferred ownership of Equitable Life to
AXA Client Solutions, LLC effective Sept. 20, 1999.
4. Equitable Holding Corp. was merged into Equitable Holdings, LLC
on Dec. 19, 1997.
5. Following the completion of an exchange offer and a reorgani-
zation on October 29, 1999, Equitable Life and its
subsidiaries own 55.32% of the limited partnership units
of Alliance Capital Management L.P. (new), which has
ceased to be publicly traded. Equitable Life directly
owns 4,432,576 units (2.58%); ACMC, Inc. owns 66,220,822
units ( 38.53%), and Equitable Capital Management, LLC
owns 24,415,727 units (14.21%). Alliance Capital
Management Corp. owns a 1% general partnership interest in
Alliance Capital Management L.P. (new).
In addition, Equitable Capital Management, LLC and
ACMC, Inc. each own 722,178 units (1% each),
respectively, and Alliance Capital Management Corp. owns
100,000 general partnership interest units (0.14%), in the
publicly traded units of Alliance Capital Management
Holding L.P. (as of 12/31/99)
6. EQ Financial Consultants (formerly, Equico Securities, Inc.) was
merged into AXA Advisors, LLC on Sept. 20, 1999. AXA
Advisors, LLC was transferred from Equitable Holdings, LLC
to AXA Distribution Holding Corporation on Sept. 21, 1999.
7. Equitable Investment Corporation was merged into Equitable
Holding LLC in December 1999.
8. Equitable Capital Management Corp. became Equitable Capital
Management, LLC on November 30, 1999.
9. EVLICO, Inc. was merged into the Equitable Life Assurance
Society of the United States in 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LISTING A:
12/31/99
EQUITABLE HOLDINGS, LLC
----------------------- State of State of Number Parent's
Type of Incorp. or Principal Federal of Shares Percent of
Subsidiary Domicile Operation Tax ID # Owned Ownership
---------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
AXA Financial, Inc.
- ---------------------------------------------------
AXA Client Solutions, LLC
----------------------------------------------
The Equitable Life Assurance
Society of the United States
------------------------------------------
Equitable Holdings, LLC
---------------------------------------
Donaldson, Lufkin &
Jenrette, Inc. (Note 1) Operating DE NY 13-1898818 39,961,540 31.44%
-----------------------------------------------------------------------------------
ELAS Securities
Acquisition Corporation Operating DE NY 13-3049038 500 100.00%
-----------------------------------------------------------------------------------
100 Federal Street
Realty Corporation Operating MA MA 04-2847619 100 100.00%
-----------------------------------------------------------------------------------
100 Federal Street
Funding Corporation Operating MA MA 04-2934600 100 100.00%
-----------------------------------------------------------------------------------
Equitable Casualty
Insurance Company Operating VT VT 06-1166226 1,000 100.00%
-----------------------------------------------------------------------------------
EquiSource of
New York, Inc. Operating NY PA 13-3389662 1,000 100.00%
-----------------------------------------------------------------------------------
See Attached Listing B
--------------------------------------------------------------------------------
EREIM LP Corporation Operating DE NY 58-1739521 100 100.00%
-----------------------------------------------------------------------------------
EREIM LP Associates (L.P.) Operating NY NY - -
--------------------------------------------------------------------------------
EML Associates, L.P. Investment NY NY 58-1739531 - -
-----------------------------------------------------------------------------
Equitable Capital
Management, LLC (Note 5) Operating DE NY 13-3266813 1,000 100.00%
-----------------------------------------------------------------------------------
Equitable Capital Private
Income & Equity
Partnership II, L.P. Investment DE NY 13-3544879 - -
--------------------------------------------------------------------------------
Alliance Capital Management
Corporation (Note 5) Operating DE NY 13-3633538 100 100.00%
-----------------------------------------------------------------------------------
See Listing C
--------------------------------------------------------------------------------
Equitable JV Holding Corp. Operating DE NY 13-3555850 1,000 100.00%
-----------------------------------------------------------------------------------
EQ Services, Inc. Operating DE GA 58-1985395 1,000 100.00%
-----------------------------------------------------------------------------------
EREIM Managers Corporation Operating DE GA 58-1739529 1,000 100.00%
-----------------------------------------------------------------------------------
ML/EQ Real Estate
Portfolio, L.P. Investment DE NY 58-1739523 - -
--------------------------------------------------------------------------------
EML Associates, L.P. Investment NY NY 58-1739531 - -
-----------------------------------------------------------------------------
Equitable JVS, Inc. Investment DE GA 58-1812697 1,000 100.00%
-----------------------------------------------------------------------------------
Astor/Broadway
Acquisition Corp. Investment NY NY 13-3593692 100 100.00%
--------------------------------------------------------------------------------
Astor Times Square Corp. Investment NY NY 13-3593699 100 100.00%
--------------------------------------------------------------------------------
EJSVS, Inc. Investment DE NJ 58-2169594 1,000 100.00%
--------------------------------------------------------------------------------
Equitable JVS II, Inc. Investment MD MD 52-1877232 1,000 100.00%
-----------------------------------------------------------------------------------
Six-Pac G.P., Inc. Investment GA GA 58-1928595 100 100.00%
-----------------------------------------------------------------------------------
Equitable Distributors, Inc. Operating DE NY 13-3550365 1,000 100.00%
-----------------------------------------------------------------------------------
J.M.R. Realty Services, Inc. Operating DE NY 13-3813232 1,000 100.00%
-----------------------------------------------------------------------------------
AXA Network, LLC Operating DE NY 06-1555494 - 100.00%
-----------------------------------------------------------------------------------
AXA Network Insurance
Agency of Massachusetts, LLC Operating MA MA 04-3491734 - 100.00%
-----------------------------------------------------------------------------------
AXA Network of Alabama, LLC Operating AL AL 06-1562392 - 100.00%
-----------------------------------------------------------------------------------
AXA Network of Connecticut,
Maine and New York, LLC Operating DE NY 13-4085852 - 100.00%
-----------------------------------------------------------------------------------
<FN>
Note 1: For a listing of DLJ subsidiaries, see Exhibit 21 to DLJ's 1999 Annual
Report on Form 10-K which exhibit is hereby incorporated by reference.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LISTING B: 12/31/99
EQUISOURCE OF NEW YORK, INC. Number
---------------------------- State of State of of Parent's
Type of Incorp.or Principal Federal Shares Percent of
Subsidiary Domicile Operation Tax ID # Owned Ownership
---------- -------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
AXA Financial, Inc.
- ----------------------------------------------------------------------
AXA Client Solutions, LLC 100.00%
-----------------------------------------------------------------
The Equitable Life Assurance Society of the United States
-------------------------------------------------------------
Equitable Holdings, LLC
----------------------------------------------------------
EquiSource of New York, Inc.
-------------------------------------------------------
EquiSource of Alabama, Inc. Operating AL AL 13-3386851 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Arizona, Inc. Operating AZ AZ 13-3389071 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Arkansas, Inc. Operating AR AR 13-3404676 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource Insurance Agency of California Operating CA CA 13-3404686 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Colorado, Inc. Operating CO CO 13-3404680 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Delaware, Inc. Operating DE DE 13-3386036 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Hawaii, Inc. Operating HI HI 13-3425232 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Maine, Inc. Operating ME ME 13-3404681 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource Insurance Agency of Massachusetts, Inc. Operating MA MA 22-2891027 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Montana, Inc. Operating MT MT 13-3389063 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Nevada, Inc. Operating NV NV 13-3389068 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of New Mexico, Inc. Operating NM NM 13-3404674 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Pennsylvania, Inc. Operating PA PA 13-3389070 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Puerto Rico, Inc. Operating PR PR 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource Business Agency of Utah, Inc. Operating UT UT 13-3404679 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Washington, Inc. Operating WA WA 13-3437226 1,000 100.00%
----------------------------------------------------------------------------------------------
EquiSource of Wyoming, Inc. Operating WY WY 13-3389072 1,000 100.00%
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LISTING C: 12/31/99
ALLIANCE CAPITAL MANAGEMENT CORP.
--------------------------------- State of State of
Type of Incorp. or Principal Federal
Subsidiary Domicile Operation Tax ID #
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
AXA Financial, Inc.
- ------------------------------------------------------------------------------------
AXA Client Solutions, LLC
-------------------------------------------------------------------------------
The Equitable Life Assurance Society of the United States
---------------------------------------------------------------------------
Equitable Holdings, LLC
------------------------------------------------------------------------
Alliance Capital Management Corporation
------------------------------------------------------------------
Alliance Capital Management Holding L.P.(Note 1 and 2) Operating DE NY
---------------------------------------------------------------------------------------------------------------
Alliance Capital Management L.P. (Note 1 and 2) Operating DE NY 13-3434400
---------------------------------------------------------------------------------------------------------------
<FN>
Note 1 - For a listing of the Alliance Holding and Alliance subsidiaries, see
Exhibit 21 to their 1999 Annual Report on Form 10-K which exhibit is hereby
incorporated by reference.
Note 2 - See Note 5 on page 2 of this exhibit.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 18,849,100
<DEBT-CARRYING-VALUE> 253,400
<DEBT-MARKET-VALUE> 259,300
<EQUITIES> 2,106,200
<MORTGAGE> 3,270,000
<REAL-ESTATE> 1,160,200
<TOTAL-INVEST> 86,331,400
<CASH> 2,816,500
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,033,000
<TOTAL-ASSETS> 207,554,300
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 4,777,600
<POLICY-HOLDER-FUNDS> 21,351,400
<NOTES-PAYABLE> 9,017,300
0
0
<COMMON> 4,500
<OTHER-SE> 5,834,400
<TOTAL-LIABILITY-AND-EQUITY> 207,554,300
1,815,700
<INVESTMENT-INCOME> 4,500,000
<INVESTMENT-GAINS> 858,600
<OTHER-INCOME> 6,196,300
<BENEFITS> 1,038,600
<UNDERWRITING-AMORTIZATION> 446,200
<UNDERWRITING-OTHER> 8,731,700
<INCOME-PRETAX> 2,075,900
<INCOME-TAX> 584,500
<INCOME-CONTINUING> 1,098,000
<DISCONTINUED> 28,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,126,100
<EPS-BASIC> 2.58
<EPS-DILUTED> 2.45
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
