Mortgage, policy and other loans 17,009 18,265 22,907 08 Total investments from insurance activities 241,167 239,816 248,208 09 Separate account (unit-linked) assets 101,002 90,458 115,723 10 Total investments from non-insurance activities 8,100 9,024 10,355 11 Investment in affiliated companies (equity method) 1,254 2,093 1,570
Reinsurers’ share of separate accounts (unit-linked) liabilities 19 20 28 19 Reinsurers’ share of insurance liabilities 8,489 9,930 11,619 12 Receivables from insurance and reinsurance activities 11,680 14,003 15,571
Minority interests’ share in retained earnings brought forward 2,226 2,444 3,024
Payables arising from non-insurance activities 27,290 26,313 26,541 22 Non-subordinated debt instruments issued 5,156 4,682 6,140 23 Amounts owed to credit institutions 3,851 5,018 6,609
Bank operating expenses (502) (600) (838) 27 Administrative expenses (7,567) (8,098) (8,775)
Income before income tax expense 2,587 2,597 1,721 21 Income tax expense (536) (426) (45)
Impact of exceptional operations (d) 148 235 – Goodwill amortization (group share) (593) (643) (681) ADJUSTED EARNINGS, GROUP SHARE (c) 1,450 1,357 1,201 28 Adjusted earnings per ordinary share (basic) (b) 0.82 0.78 0.70 28 Adjusted earnings per ordinary share (diluted) (b) 0.81 0.78 0.70
(b) Per ordinary share data are restated for the effect of the 4-for-1 stock split approved by the shareholders at the annual general meeting held on May 9, 2001.
(c) Adjusted earnings represents AXA’s consolidated net income before goodwill amortization and exceptional operations. Adjusted earnings is a non-GAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted Earnings” as defined may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or US GAAP.
(d) The exceptional operations included: In 2003: – Capital gains on disposals of group subsidiaries in Austria and Hungary (€ 37 million), the sale of Auxifina by AXA Bank Belgium
Note to the Consolidated Financial Statements Preliminary warning: in the present notes, “the Company” denotes the holding company, the Group and its entities identified by the name AXA.
AXA Bank Belgium sold its consumer credit subsidiary Auxifina, which had a different customer base to its banking business. The group’s share of the capital gain booked in 2003 was €15 million net Group share.
July and €175 million in December). In 2003, this resulted in the issue of 15.1 million additional shares, bringing the total number of shares in issue to 1,778 million at December 31, 2003. At the same date, employees held almost 4.8% of AXA’s outstanding share capital as compared to 4% at December 31, 2002.
In the second half of 2003, AXA carried out a €500 million private placing as part of its EMTN program. These perpetual subordinated notes will be used to help refinance debts maturing in 2004 and 2005. The placing benefited from exceptional market conditions and improved AXA’s liquidity by increasing the average maturity of its debt.
Shareholders listed on the registers at the close of business on September 19, 2003 were granted one warrant for every share held, resulting in the issue of 1,763,924,947 warrants. For every 16 warrants, holders could subscribe to one ORAN at a price of €12.75. This led to the issue of 110,245,309 ORANs, raising a total of €1,405,627,690.
acquisition. If the acquisition does not take place by December 21, 2004 at the latest, the ORANs will be redeemed in cash, at par value plus interest of 2.4% calculated on a prorata basis.
(Securities and Exchange Commission, the US market regulator) would lead an enquiry into certain business practices of asset management companies, known as ‘market timing’ and ‘late trading’. As part of this enquiry, Alliance
Capital announced on September 30, 2003 that it had been contacted by the regulatory authorities, and that it was co-operating fully with them. This led to the signature of an agreement on December 18, 2003 with the two bodies, involving the payment of compensation to shareholders with respect to ‘market timing’ and the introduction of strengthened internal controls. Alliance Capital booked a provision of €292 million ($330 million) in its 2003 accounts, of which the AXA group’s net share was €104 million. In addition, under the agreement, Alliance Capital agreed to reduce its US equity fund fees by 20% for the next five years, with an estimated impact of $70 million on its 2004 revenues.
On January 23, 2004, AXA reached an agreement with BBVA, under which the AXA group will acquire BBVA’s 50%
Seguros. The purchase price will be €49 million. The acquisition remains subject to the approval of Spanish insurance industry and competition trust authorities.
In January and February 2004, AXA carried out $375 million of private placings as part of its €5 billion Euro Medium
GENERAL PRINCIPLES AXA, a French “société anonyme” (the “Company” and, together with its consolidated subsidiaries, “AXA” or (‘the
or CRC) including the new regulation 2000-05 that became effective on January 1, 2001 and introduced certain new accounting and disclosure principles for preparing and presenting the consolidated financial statements of an insurance company.
Also in 2003, the French standard setter (“Conseil National de la Comptabilité” or CNC) announced the terms for evaluating liabilities relating to pensions and similar benefits in the form of recommendation 2003-R.01 of April 1, 2003. This recommendation did not impact AXA’s consolidated financial statements (see section 3.6.1. below).
Effective from January 1, 2002, AXA has applied CRC regulation 2000-06 in respect of recognizing liabilities and regulation 2002-09 in respect of derivative instruments accounting for companies governed by the French insurance code. The introduction of these regulations did not impact AXA’s consolidated financial statements.
Companies, in which AXA exercises significant long-term influence, that is, affiliated companies, are accounted for as an investment using the equity method of accounting. Significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights or when significant influence is exercised through an agreement with other shareholders. Certain entities are also accounted for as investments under the equity method if their contribution to revenue, net income or net financial position is not significant.
Investments in mutual funds, investment and real estate companies principally held by AXA’s insurance entities are not consolidated but accounted for at cost, if the exclusion from consolidation does not impact the true and fair presentation of AXA’s consolidated financial position or operating results.
Subsidiaries and investments in affiliates are accounted for at cost rather than being consolidated if the following conditions are met: – The entity is held for sale from the date of acquisition,
In accordance with regulation 2000-05 mentioned in section 3.2 above, special purpose vehicles in which the AXA
Sécurité Financière 2003-706) issued on August 1, 2003 and subject to the modification of the aforementioned regulation, these vehicles will be consolidated effective from January 1, 2004.
Acquisitions of Minority Interests In respect of acquisitions of minority interests in an existing consolidated entity, the portion of assets acquired and liabilities assumed are maintained at their existing net carrying values at the date of acquisition and not adjusted to reflect their estimated fair values.
Determination of Purchase Price The purchase price includes the direct costs and external fees related to the transaction, including the costs of settling or exchanging the target company’s outstanding employee share options (applicable to all acquisitions including acquisitions of minority interests). If the transaction is based in a foreign currency, the impact of the foreign currency is included in the purchase price at the date of the transaction or the initial date of the transaction (if it occurs over a period of time).
Goodwill The difference between the purchase price and the net assets acquired represents goodwill. Positive goodwill, that is, the purchase price is greater than the identifiable assets acquired, is recorded as an asset.
Any excess remaining after the adjustments above is recorded as a liability and is referred to as negative goodwill.
3.4.3. INTERCOMPANY TRANSACTIONS From 1st January, 2001, the entire effect of intercompany transactions is eliminated upon consolidation unless there are other-than-temporary losses, which are usually recorded immediately.
When an asset is disposed of internally and not intended for long-term holding within AXA’s asset portfolios: – The tax corresponding to the realized capital gain or loss is eliminated upon consolidation through a deferred tax adjustment recorded in the balance sheet,
In addition, the total or partial transfer of securities between two subsidiaries fully integrated but held with different interest rates will not effect the consolidated operating results, with the exception of the recognition of any related deferred tax and allocation to policyholder’s participating benefits, which are not restated in the consolidated
accounts as the securities transferred are intended for long-term holding. The impact of these transfers on the Group shareholder’s equity (its counterpart being recorded in minority interest) is identified in the “Internal restructurations”
If the goodwill is less than €10 million (€1.5 million for brokerage operations), then the goodwill asset is fully amortized as a charge against earnings in the year of acquisition.
do not change in the course of this period, the initial amortization pattern remains the same. If there are significant adverse changes, an exceptional goodwill amortization charge is recorded (or a modification to the initial pattern).
However, when the fair value is not deemed notably, that is significantly, lower than the net book value, the goodwill is maintained at its net book value in the balance sheet. As a consequence, no exceptional amortization charge is recorded if the amount is less than the cumulative amortization charge over a period equal to 1/5th of the initial amortization period and (i) there is an intention to hold the interest in the Company, and (ii) based on available information it is more likely the deterioration is not definitive.
Value of Purchased Life Insurance Business in Force (“VBI”) The VBI, in respect of acquired life insurance companies, is determined on the basis of profits emerging over the contract period and is amortized over the life of the relevant contracts. VBI is subject to annual recoverability testing based on actual experience and expected trends with respect to the principal assumptions used to calculate the VBI.
Valuation allowances are recorded for a decline in the value of a property that is deemed to be other-than-temporary.
– Investment real estate to be held on a long-term view, including securities held in real estate companies: When the appraised value is 15% lower than the net carrying value, the present value of the asset’s future estimated cash flows is calculated. If the calculated amount is lower than the net carrying value, a valuation allowance is recorded, equal to the difference between (a) the net carrying value and (b) the higher of the appraised value or the discounted cash-flow value.
Fixed Maturity Securities Fixed maturity securities are stated at amortized cost less valuation allowances. A valuation allowance (equal to the difference between carrying value and the year-end market value) is recorded for a decline in value of a security, which is deemed to be other-than-temporary whereby the amount may not be fully recoverable due to a credit event relating to the security issuer. If this risk disappears, the valuation allowance may be reversed. The assessment of the likelihood that the amounts due can be recovered depends on the particular facts and circumstances of the issuer.
A valuation allowance may be necessary for fixed maturity securities that AXA does not intend to retain, or if any other factor leads to the conclusion that the recovery of amounts due is other-than-temporary.
Valuation allowances are determined according to a regulation issued by the French standard setter (“l’Avis du Comité
– If there is an intention to hold the security on a long-term basis, the recoverable value is the greater of (i) the market value at year-end or (ii) the value determined by taking into account the holding period, and other multicriteria factors
Valuation allowances recorded for the impairment of equity securities may be reversed in subsequent periods when facts and circumstances warrant a reversal.
– Mortgage loans on real estate are stated at outstanding principal balances, net of unamortized discounts and valuation allowances. Impairment measurement is based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, on the loan’s observable market price or the fair value of the collateral if the loan is collateral-dependent.
“With-Profit” funds; an adjustment in insurance liabilities is required if a change in fair value occurs,
3.5.6. REINSURANCE CEDED UNDER NON-PROPORTIONAL TREATIES The ceding of insurance to reinsurers and of reinsurance to reinsurers (the latter called “retrocession”) is accounted for in the balance sheet and statements of income in a manner consistent to the accounting for the underlying direct insurance contract and takes into account contractual clauses.
In the event that the provision is not fully utilized, the release of the provision does not impact the post-acquisition operating results.
In other cases, restructuring provisions are recorded in the period during which a restructuring plan is approved with any release in provision recorded in the operating results.
Pensions and Other Post-Retirement Benefits All long-term employee benefit liabilities are calculated using the preferred method under the French CRC regulation 2000-05. They include the benefits payable to AXA group employees when they retire (departure compensation, additional pension, medical cover). In addition, a provision for long-service benefits is recorded. In order to meet those obligations, some regulations have allowed or imposed the establishment of dedicated funds (plan assets).
Employee benefit liabilities are covered by defined contribution plans and / or defined benefit plans.
The contributions paid by the employer are recorded as an expense in the income statement. No promise is made by the employer regarding the ultimate benefits paid out to the employee.
– Defined benefit plans are characterized by an actuarial assessment of the commitments based on each plans’ internal rules. The present value of the future benefits paid by the employer, known as the PBO (Projected Benefit
Obligation and the market value of the corresponding invested plan assets after adjustment for any unrecognized losses or gains. If the net result is negative, a provision is recorded in the balance sheet under the provision for risks and charges. If the net result is positive, a prepaid asset is recorded in the balance sheet.
– In its recommendation 2003-R.01 of April 1, 2003, the French Standard setter (CNC) described methods of valuing liabilities in respect of pensions and similar benefits. The methods used by AXA are similar to those contained in the CNC’s recommendation, particularly the corridor method, with the following exceptions: – AXA excludes benefits covered by an insurance policy from the defined benefit obligation calculation. Similarly, the insurance contracts are not included in the plan assets. The net result is identical to that of the CNC’s recommended method with the exception of the impact of actuarial differences on earnings.
– AXA does not limit the amount of assets it recognizes to the amount recoverable through reduction in future contributions or from a plan refund.
– Finally, Curtailment and settlement gains and losses are recognized when they are probable and not when they occur.
Income Taxes Current income tax expense (benefit) is recorded in earnings on the basis of amounts estimated to be payable or recoverable as a result of taxable operations for the current year based on the relevant local tax regulation. Deferred income tax assets and liabilities are recorded on the basis of differences between financial statement carrying amounts and income tax balances of assets and liabilities and for net operating loss carry forwards, if any. Valuation allowances are recorded for deferred tax assets that are not expected to be recovered, and are reversible in future periods if facts and circumstances that led to the valuation allowance change.
– Unexpired risk provisions are established for contracts on which the premiums are expected to be insufficient to cover expected future claims and claims expenses. The calculation of the provision includes estimated future losses, administration expenses and investment income.
3.6.3. PROVISION FOR LIQUIDITY RISK A provision for liquidity risk must be recorded as a liability by an insurance company if there is a risk of liquidity, principally in the case of large contract surrender, and if the total net book value of investments (excluding fixed maturity investments) of such company is greater than its total market value.
Even though analyses did not demonstrate any liquidity risk, for French regulatory reasons at December 31, 2002, a provision was recorded in the consolidated financial statements for €72 million before tax, or €47 million net Group share. In accordance with the statement made by the “Comité d’urgence” on January 21, 2004, this provision was deemed unnecessary and was reversed to the income statement at December 31, 2003.
In respect of these contracts, the investment risks and rewards are principally transferred to the policyholders and the guarantees on the benefits are realized and supported by the investment funds. For these contracts the liability represents the fair value of the investment funds / assets linked to those contracts at the balance sheet date.
3.6.5. CAPITALIZATION RESERVE In France, increases and decreases in capitalization reserve are accounted for in the local statutory accounts and are eliminated in preparing consolidated financial statements. A deferred tax charge is recorded if there is a strong probability that this reserve will be released. In the event that the entity is a Life insurance company, this will also include a deferred policyholder participating benefit.
This opinion is consistent with the existing principles applied by AXA, with the exception of the recognition until 2001 of unrealized gains on derivatives instruments in transactions that do not qualify as hedges.
3.8.3. NET INVESTMENT RESULT The net investment result in respect of insurance activities includes: – Investment income from the insurance-related invested assets, net of depreciation expense on real estate investments (depreciation expense on real estate not held for investment is included in administrative expenses),
In respect of banking activities, interest income and financial charges including interest expenses are included in bank operating income and bank operating expenses, respectively.
3.9. TREASURY SHARES Treasury shares are recorded as a reduction of consolidated shareholders’ equity. However, such investments in Parent
Company stock are accounted for as an investment in equity securities if the treasury shares are held to stabilize the Company’s share price in the market, to be attributed to employees in connection with share purchase programs, or are treated as investments supporting separate account (unit linked) contracts.
Company) to the employee, in principle no expense is recorded. For share option plans issued by AXA entities other than AXA (the Company) in which the grant provides an advantage to the employees (the exercise price is less than the market price at the date the number of options and the exercise price are known), a liability is recorded on a systematic basis over the vesting period.
For all share options granted by AXA (the Company) or any other AXA entity that provide a liquidity guarantee, a liability
In respect of acquisitions of minority interests, the share repurchase leads to an increase in the Group’s interest.
The cost of settling or exchanging the target company’s outstanding employee share options is included in the purchase price, as the buyout includes the cost of acquiring the minority shareholders interests plus the potential shares to be issued by the target company in respect of the share options granted to its employees. The excess price should be split between a charge corresponding to the increase in the Group’s interest to the initial interest level and additional goodwill corresponding with the additional interest acquired.
MAIN CHANGES IN THE SCOPE OF CONSOLIDATION IN 2003 The main changes in the scope of consolidation in 2003 were the disposal of activities in Austria and Hungary, finalized in June 2003, the sale of AXA Asia Pacific Holdings’ 50% stake in Members’ Equity Pty Ltd in January 2003, and, in Germany, the sale of AXA’s stake in Colonia Re JV to General Re in July 2003.
In France, the activities of Jour Finance were merged with AXA France Vie, and real estate company Vendôme
Haussmann joined the scope of consolidation on June 30, 2003. Other 2003 changes are detailed in the schedules presented in paragraph 4.2.
MAIN CHANGES IN THE SCOPE OF CONSOLIDATION IN 2002 The main change in scope of consolidation in 2002 was the sale of AXA Health Insurance Pty Ltd in Australia, taken into account as of August 31, 2002 (8 months of activity in 2002).
Asia / Pacific National Mutual International Pty Ltd 100.00 51.66 100.00 51.66 AXA Insurance Holdings Co. Japan 96.42 96.42 96.42 96.42 AXA Asia Pacific Holdings Ltd 51.66 51.66 51.66 51.66
Germany GRE Continental Europe Holding Gmbh 100.00 91.05 100.00 90.17 Kölnische Verwaltungs AG für Versicherungswerte 99.56 97.50 99.56 97.30 AXA Konzern AG 91.69 91.05 90.86 90.17
AXA Non Life Insurance Co Ltd (Japan) 100.00 100.00 100.00 100.00
Colisée Suresnes Merger with SCI Vendôme Tridor – – 96.33 96.30
Argovie Accounted for by the equity method in 2002 (a) 94.47 94.25 94.03 93.46
AXA Insurance Singapore Accounted for by the equity method in 2002 (a) 100.00 100.00 100.00 100.00
National Mutual Home Loans Origination Fund No. 1 100.00 51.66 100.00 51.66
AXA Oyak Hayat Sigorta AS Accounted for by the equity method in 2002 (a) 100.00 50.00 100.00 50.00
AXA Oyak Sigorta AS Accounted for by the equity method in 2002 70.91 35.45 70.91 35.45
/243 5. Total Asset by Segment An analysis of total assets by segment is given below: The split of assets by activity in 20031 was similar to 2002. The decrease in total assets between 2001 and 2002 was mainly attributable to unfavorable financial market conditions.
AXA Colonia (acquisition of minority interests) 211 – – (6) (51)
Royale Belge (acquisition of minority interests) 593 – – (22) (2)
Financial Reorganization AXA Equity & Law 449 – (28) (15) (0)
At December 31, At December 31, 2002 Acquisition Currency Amorti- Other 2003 Years
– €7,316 million in cash relating to the cost of settling or exchanging outstanding employee share options of AXA
As a result, AXA increased its ownership interest in AXA Financial from 60% to 100%. For purposes of these consolidated financial statements, the date of acquisition was December 31, 2000 given that, pursuant to the
Based on the carrying value of the net assets acquired of €3,913 million, the goodwill amounted to €7,301 million.
the entire excess purchase price in proportion to the ratio of the value of ordinary shares issued by AXA to total purchase price. The remaining €4,782 million goodwill was recorded as an asset.
At December 31, 2003, this goodwill had a net book value of €4,100 million, and was being amortized over a remaining useful life of 27 years.
The recurrent amortization charge was €176 million in 2003 based on the following notional attribution (estimated on the expected contribution of the acquired activities): – 80% was attributed to the Life insurance operations (being amortized over 30 years),
Had no goodwill been charged directly to retained earnings and reserves, additional goodwill amortization of €92 million would have been recorded.
L.P. for an aggregate purchase price of US$1.6 billion and, as a result, recorded goodwill of €583 million. Added to the €3,689 million recorded at time of acquisition, the total goodwill linked to the acquisition of Sanford C. Bernstein amounted to €4,272 million, amortized over 20 years.
Sanford C. Bernstein over an eight-year period following a two-year lockout period. Not more than 20% of the original units issued to the former Bernstein shareholders may be put to AXA Financial in any one annual period.
After the completion of this lockout period in October 2002, Sanford C. Bernstein’s former shareholders exercised their options and AXA Financial acquired 8.16 million of their units, thus generating additional goodwill of US$122 million, which was amortized completely in 2002 (€127 million at 2002 closing exchange rate).
At December 31, 2003, this goodwill had a net value of €253 million, and was being amortized over a remaining useful life of 16 years. The annual amortization charge in 2003 was €16 million.
GUARDIAN ROYAL EXCHANGE (1999) The excess purchase price over the fair value of net assets acquired of €1,138 million was attributed to goodwill to be amortized over 30 years.
At December 31, 2003, this goodwill had a net value of €688 million, and was being amortized over a remaining useful life of 26 years. The annual amortization charge in 2003 was €36 million.
ROYALE BELGE (1998) At December 31, 1999, gross goodwill from the buy-out of the minority interests of Royale Belge amounted to €1,007 million, of which €337 million was charged directly to retained earnings and reserves. At December 31, 2001 the gross value of the goodwill recorded in the Group balance sheet amounted to €670 million. Given accumulated amortization of €77 million (of which €22 million were recorded during the year), the net carrying value was €593 million at December 31, 2001. In 2003, the goodwill charge was €22 million (as in 2002). Had no goodwill been charged directly to retained earnings and reserves, additional goodwill amortization of €11 million would have been recorded against income (as in 2002). At December 31, 2003, this goodwill had a net value of €547 million, and was being amortized over a remaining useful life of 25 years.
UAP (1997) In 1997, AXA acquired UAP, and a €1,863 million goodwill was booked, of which €1,641 million was charged directly to retained earnings and reserves. As a result of purchase accounting adjustments made in 1998 and in 1999, the total goodwill increased to €1,866 million at December 31, 1999, of which €1,584 million represented the amount charged directly to retained earnings and reserves.
An exceptional amortization charge of €57 million was recorded in 2003 following the release of provisions booked when the Group acquired its German activities in 1997. This release took place after the Group’s sale of its stake in
GOODWILL AMORTIZATION An analysis of goodwill amortization (positive and negative) is presented below: At December 31, 2003, accumulated amortization on goodwill totaled €3,686 million (2002: €3,083 million), following amortization charges of €844 million and a €–241 million impact from currency variations.
GOODWILL CHARGED DIRECTLY TO RETAINED EARNINGS AND RESERVES At December 31, 2003, goodwill (net of notional amortization) recorded in retained earnings and reserves totaled €3,547 million (2002: €3,882 million net and 2001: €4,038 million net). Gross goodwill was €4,432 million. The notional amortization in 2003 was €337 million and included €11 million for Royale Belge, €234 million for UAP (of which €181 million relating to the release of a provision booked when acquiring German activities in 1997) and €92 million for AXA Financial.
At December 31, 2003, the value of purchased Life insurance business in force (resulting from business acquisitions)
totaled €2,814 million. The value of purchased Life business in force on a consolidated basis and by product type, including the changes thereto, are set out in the table below. In 2001, in connection with financial reorganization plan of AXA Equity & Law (UK Life & Savings subsidiary), the unit-linked business was transferred from a participating fund to a non-participating fund. As a result of this transfer, VBI of €466 million was recorded.
Amortization of the value of purchased Life insurance business in force, net of accrued interest, was €226 million in 2003, and is expected to be €212 million in 2004, €189 million in 2005, €190 million in 2006, €182 million in 2007 and €2,041 million thereafter. This amortization pattern has been determined based on expected profits emerging over the contract period, and is subject to annual recoverability testing.
8. Investments 8.1. DETERMINING FAIR VALUE The accounting principles applicable to investments in determining Fair Value (or ‘Market value’) are described below: – For publicly traded fixed maturities and equity investments, estimated fair value is determined using quoted market prices.
– In other cases, fair value is estimated based on financial and other information available in the market, or estimated discounted cash flows, including an element of premium risk.
A. An analysis of investments is presented below: Assets invested December 31, 2003 Insurance activities Other activities TOTAL
In 2003, AXA sold 1.3 million treasury shares, realizing a capital gain of €1 million (2001 and 2002: 0), and acquired 0.4 million shares.
Gross Net Gross Net Gross Net carrying carrying Fair carrying carrying Fair carrying carrying Fair
– Equity holdings in fixed maturity-based mutual funds – 16,526 16,444 – 40 49 – 16,566 16,493
Equity securities and holdings in mutual funds 59,349 57,303 52,048 455 421 447 59,804 57,724 52,495
Listed companies: Unlisted companies: Investment holdings under euro 50 million each 2,040 1,736
– Held by non-insurance companies 854 863 8.3 INVESTMENTS IN PARTICIPATING INTERESTS An analysis of investments in participating interests at December 31, 2003 is presented below: Fin an cia l S
In 2003, Crédit Lyonnais shares were tendered to Crédit Agricole’s public exchange offer.
(in euro millions) historical cost value unrealized gains (a) losses (a) value
(b) Allocated to UK with-profits business trading – – – – 14,989
TOTAL 228,783 (a) The realization of unrealized gains and losses upon disposal of the investments may give rise to an allocation to participating insurance contracts, minority interests and tax.
Fixed Maturities: (a) Held to maturity and available for sale 138,265 137,688 9,595 (738) 146,546
Equity investments and holdings in mutual funds 2,268 1,982 (448) (271) 3,531
Fixed maturities and other fixed income securities 577 368 (334) (73) 538
Equity investments and holdings in mutual funds 1,853 1,147 (563) (169) 2,268
Depreciation of real estate used for operating purposes 1,060 134 – (357) 837
Carrying value Carrying value Contribution at January Change Other at December to 2003
AXA Seguros affiliates – Hilo Direct de seguros y reaseguros 39 – (18) 21 3
AXA Insurance Hong Kong 69 – (8) 60 7 AXA Insurance Singapore 49 – (4) 45 3
Carrying value Carrying value Contribution at January Change Other at December to 2002
(in euro millions) 1, 2002 in Scope changes (a) 31, 2002 Net income
AXA Germany affiliates: AXA Asia Pacific Holdings affiliates: – NM Home Loans Trust 69 – (5) 65 – – NM Property Trust 85 – (7) 78 (2)
TOTAL 1,569 586 (63) 2,093 23 (a) Includes foreign currency fluctuations and net income for the period adjusted for dividends received. (b) Includes €60 million from Hungarian and Austrian entities in application of Regulation 99-02 and €37 million from Compagnie
The 2002 changes in scope were mainly related to entities that were consolidated under the equity method in 2002
The 2003 changes in scope resulted from the sale of the stake in Colonia Re JV (€–654 million), the disposal of AXA
For the years ended December 31, 2003, 2002 and 2001, AXA received cash dividends from companies accounted for by the equity method of €72 million, €46 million and €63 million respectively. The increase in dividends received in 2003 related to the dividends paid by the Australian entities.
Carrying value Carrying value Contribution at January Change Other at December to 2001
– Ticor 63 – (32) 31 5 – Other affiliates 229 490 (40) 678 8 Banque Worms 54 (54) – – –
Total at December 31, 2003 12,092 (411) 11,680 8,312 Total at December 31, 2002 14,379 (376) 14,003 8,299
Cash and cash equivalents 19,428 17,592 From insurance activities 16,445 16,362 From banking activities 211 259 From other companies 2,772 971
14. Deferred Acquisition Costs The table below presents the deferred acquisition costs (DAC) by insurance segment: Changes in other deferred acquisition costs in the Life & Savings segment are provided below: At December 31, 2003 At Life & Property & International December
Retained Share- Number Capital Retained earnings holders’ of ordinary in excess earnings for the equity shares Nominal of nominal brought financial (in euro outstanding value value forward year millions) (in millions)
(July and December 2002) 42 279 – – 321 18 – Cash dividend – – (1,053) – (1,053) – – Impact of foreign currency fluctuations – – 300 – 300 –
(July and December 2002) 62 192 – – 254 27 – Exercise of share options 2 6 – – 8 1 – Cash dividends – – (1,117) – (1,117) – – Impact of foreign currency fluctuations – – (1,197) – (1,197) –
(July and December 2003) 35 154 – – 189 15 – Exercise of share options 2 6 – – 8 1 – Cash dividends (a) – – (680) – (680) – – Impact of foreign currency fluctuations – – (985) – (985) –
– Net Income – – – 1,005 1,005 – Balance at December 31, 2003 4,072 13,984 (4,587) 9,930 23,401 1,778 (a) Includes the dividend of €599 million and the related supplemental tax charge of €81 million. (b) Including €181 million in couterpart of an exceptional amortization of a goodwill which was offset against shareholder’s equity in 1997 at the time of purchase of German operations by the Group.This exceptional amortization of goodwill has been posted following the release of a provision set-up at the time of acquisition, this release was due to the disposal, during 2003, of Colonia Re participation to General Re.
Changes in Consolidation Scope and Impact of Acquisitions The €228 million decrease in 2001 primarily related to the deconsolidation of AXA Millésimes (€–135 million)
In 2003, the change arose mainly from: – the acquisition of BNP Paribas’ stake in AXA RE subsidiary SPS RE: €–49 million
– the buyout of around 1% of minority interests in Germany: €–26 million
18. Subordinated Debt At December 31, 2003, subordinated debt totaled €8,453 million (2002: €8,300 million), and broke down as follows: At December 31, 2003, maturing subordinated debt due in 2004 and the following four years totaled €38 million in 2004, €336 million in 2005, €0.1 million in 2006, nil in 2007 and €50 million in 2008, followed by €8,028 million thereafter.
In 2003, the Group’s borrowings and subordinated debt increased by €153 million, or by €615 million at constant exchange rates. The positive impact of exchange rate movements was therefore €462 million. This change was mainly the result of: – the issue of $500 million (€396 million) and €500 million of securities as part of the Euro Medium Term Note (EMTN)
In 2002, the impact of exchange rate movements (€–582 million) accounted for most of the €–568 million decrease compared to 2001.
(in euro millions, at December 31) 2003 2002 2003 2002 2003 2002 2003 2002
– Separate account (unit-linked) liabilities, gross of reinsurance ceded 101,069 90,011 – – – – 101,069 90,011
Less reinsurance ceded on: – Claim reserves and others reserves 423 400 2,219 2,405 2,362 3,333 5,003 6,138
– UK “With-Profit” business liabilities 29,119 30,745 (a) Transfert as at January 1, 2002 of UK discontinued business from “Property & Casualty” to “International Insurance” for €988 million.
ENVIRONMENTAL POLLUTION, ASBESTOS AND OTHER EXPOSURES In prior years, AXA issued insurance policies and assumed reinsurance for cover related to environmental pollution and asbestos exposure. Its insurance companies have been and continue to be involved in disputes regarding policy coverage and judicial interpretation of legal liability for potential environmental and asbestos claims. AXA has received and continues to receive notices of potential claims asserting environmental and asbestos losses under insurance policies issued or reinsured by AXA. Such claim notices are frequently merely precautionary in nature. There are significant uncertainties that affect the insurance companies’ ability to estimate future losses for these types of claims and there are a number of issues now being litigated, which may ultimately determine whether and to what extent insurance coverage exists. In France, the French Supreme Court (Cour de Cassation) has recently extended the notion of inexcusable offense to occupational diseases. AXA companies concerned by this new case law are reviewing their portfolio so as to identify the contracts that may be concerned by this extended guarantee.
Under insurance and reinsurance contracts related to environmental pollution and asbestos, AXA paid claims and legal costs of €53 million in 2003 (2002: €45 million and 2001: €77 million). At December 31, 2003, AXA had made cumulative payments relating to such contracts of €536 million (2002: €377 million). The main reason for this change, alongside payments made during the year, was the adjustment of the declared amount of payments taking place prior to the acquisitions of GRE (Guardian Royal Exchange) and AXA Provincial in the UK, which did not affect 2003 results.
At December 31, 2003, AXA had insurance claim reserves (gross of reinsurance) of €944 million or €858 million net of reinsurance (2002: €909 million gross of reinsurance and €825 million net of reinsurance), including (i) €365 million for reported claims (2002: €350 million) and (ii) €579 million for IBNR (incurred but not reported) claims (2002: €559 million). The IBNR liabilities are estimated and evaluated regularly based on information received by management.
(in euro millions) & Casualty Insurance & Casualty Insurance & Casualty Insurance Gross claims reserves to be paid, January 1 23,730 11,533 25,162 11,841 24,012 8,602 Changes in scope of consolidation, portfolio transfers and change in accounting principles (a) 102 (90) (1,619) 1,136 191 (9) Impact of foreign currency fluctuations (b) (238) (1,015) (479) (1,345) 58 235 23,594 10,428 23,064 11,632 24,261 8,828 Provision attributable to the current year 11,245 2,661 10,884 2,904 12,125 5,100 Increase (decrease) in provision attributable to prior years (331) (25) (118) 1,008 (262) 920 Total claims and claims expenses 10,914 2,636 10,766 3,912 11,863 6,020 Claims and claims expenses attributable to current year (4,660) (768) (4,279) (1,266) (4,882) (1,264) Claims and claims expenses attributable to prior years (5,641) (2,192) (5,820) (2,744) (6,080) (1,743) Total payments (10,301) (2,960) (10,099) (4,011) (10,962) (3,006) Gross claims reserves to be paid, December 31 24,208 10,104 23,730 11,533 25,162 11,841 (a) Changes in the scope of consolidation are mainly due to the transfer of UK discontinued business from Property & Casualty to International Insurance (€1,142 million at January 1, 2002), the disposal of the activities in Austria and Hungary (€234 million) and the removal or addition of entities accounted for by the equity method, mainly Hong Kong Property & Casualty (€176 million), Direct Assurances (Spain, €48 million) and Singapore Property & Casualty (€60 million).
The cost of the contributions paid is an expense in the statement of income, and amounted to € 58 million for the year ended December 31, 2003.
The assumptions for each plan are consistent with the economic features of the countries in which the liabilities lie.
Given the long-term trend of employee benefit liabilities, the changes due to financial market variations and other actuarial gains or losses are amortized2 over the liability duration (approximately 15 years). They are brought into the income statement as an expense starting in the following accounting year.
Balance sheet information The balance sheet information for employee benefits captures the difference between the Projected Benefit Obligation
Expected rate of return on plan assets 6.5% 9.0% 3.5% 8.2%
Change in plant assets: Fair value of plan assets, beginning of year 5,531 6,876 7 7
Fair value of plan assets, end of year (B) 5,526 5,531 8 7
Recorded in the balance sheet for plans: With a positive net position (Asset) 1,824 2,029 – –
Other employment benefits AXA provides certain medical and life insurance benefits (“post-retirement benefits”) to qualifying employees, managers and agents who retire after having met certain age and service requirements. The life insurance benefits are related to age and salary at retirement. The expected costs of providing post-retirement benefit are accrued during the period that the employees earn such benefits. AXA funds post-retirement benefits costs as the benefits are utilized, and made post-retirement benefits payments of €32 million, €40 million and €41 million for the years ended
The post-retirement benefits are principally in the US Life & Savings operations whereby the assumed health care cost trend rate used in measuring the accumulated post-retirement benefits obligation in 2003 was 8.50%, gradually declining to 5.0% in 2013 (2002: 9.0% gradually declining to 5.0% in 2012). If the health care cost trend rate assumptions were increased by 1%, the accumulated post-retirement benefits obligation as of December 31, 2003 would be increased by 0.3%, representing an 0.3% increase in the sum of the service cost and interest cost. If the health care cost trend rate assumptions were decreased by 1%, the accumulated post-retirement benefits obligation as of
December 31, 2003 would be decreased by 0.5% representing a 0.5% increase on the sum of the service cost and interest cost. The limited impact of the change in trend rate assumptions reflects the application of AXA Financial’s contribution limit.
(a) Represents the sum of the negative net position of the pension benefits (€1,781 million) and other social liabilities (€386 million). (b) Mainly pre-retirement benefits.
In 2003, €45 million of provisions were used for “early retirement” measures in France. €6 million of provisions for site restructuring were released. Provisions were also used for restructuring costs at AXA Financial (€12 million), in
Australia and New Zealand (€6 million), in Belgium (€4 million) and in the UK (€1 million).
III. OTHER PROVISIONS Compared to 2002, the other provisions fell by €79 million in 2003, but increased by €132 million at constant exchange rates, the additional allowances (AXA SA and AXA France) being offset by the utilization of provisions at AXA
At 31 December 2003, other provisions mainly include the following: – The remaining €483 million balance of the provision set up in 2000 to offset the dilution profit realized by AXA Financial when acquiring Sanford C. Bernstein, Inc. This balance was €583 million in 2002, and the change was due to exchange rate movements.
– The remaining €122 million balance on the provisions recorded in 2000 in connection with the sale of Banque Worms,
– Provisions for the vacating of premises, mainly in France (€30 million) and the UK (€22 million).
21.Tax 21.1. DEFERRED TAX An analysis of deferred tax is given below: At end-2003, the net deferred tax balance was €+98 million (2002: €+171 million). The decrease of €73 million, or €157 million at constant exchange rates, was due to: – In Japan, an increase in the deferred tax asset valuation allowance (€–161 million).
– In the United States (€–99 million), the impact of deferred tax liability release (€211 million) following the review of the deferred tax positions, more than offset the deferred tax liability generated by the increase in operational activity.
(€+282 million), (ii) a local equalization provision, restated in the consolidated figures (€–132 million) and (iii) the impact of taking into account dividends receivable (€–123 million).
21.2 INCOME TAX EXPENSES Fin an cia l S ta te m en ts
At December 31, 2003 At December 31, 2002 (in euro millions) Net Deferred Tax (a) Net Deferred Tax (a)
In 2002, in the United States, the IRS adopted a more favorable position on the treatment of financial revenues from investments related to separate account investments, leading to a €152 million tax credit.
In 2003, the difference between the theoretical and actual tax charges was mainly due to: – €148 million of permanent differences on financial revenues and chargesmostly relating to the parent-subsidiary tax regime (€82 million) mainly in France,
– permanent differences on other revenues and charges, mainly relating to cumulative goodwill amortization amounting to €275 million,
Re (€+80 million before the impact of the exceptional goodwill amortization included in the permanent differences on other revenues and charges), (ii) in the United States, the impact of deferred tax liability release (€211 million)
Income tax expense at French statutory base rate (617) (609) (340)
Permanent differences relating to: – Operating expenses and other (275) (271) (379)
Impact of difference between the statutory tax rate and the effective tax rate 96 (7) 309
AXA, The Company: Euro Medium Term Notes, 6.0%, due through 2013 1,350 1,370
AXA Germany: AXA Financial, Inc.: Senior Notes, 7.30% due through 2003 – 74
French banks: AXA SA operating debts on behalf of its French, UK and German subsidiaries 162 232
At December 31, 2003, aggregate maturies of non-subordinated debt issued by AXA and its subsidiaries based on required payment of principal at maturity for 2004, the four succeeding years and thereafter totaled €2,355 million in 2004, €348 million in 2005, €338 million in 2006, €3 million in 2007, €348 million in 2008 and the remainder
– and the partial redemption of AXA Financial senior bonds (€–296 million or €–73 million at constant exchange rates).
2) A reduction in operating debt (€–297 million at constant exchange rates) relating mainly to: – AXA Banque (€–316 million) which, after absorbing Banque Directe, became a net lender in the market, and as a result was able to repay maturing debts without raising new money on the market,
– partly offset by an increase in other operating debt, arising from the entry of Vendôme Haussmann into the scope of consolidation (€+95 million).
The main changes in 2002 were as follows: – favorable foreign exchange impact (€–528 million),
The reduction in amounts owed to credit institutions in 2003 (€–1,167 million) was due to: – a reduction in operating debt at AXA Bank Belgium (€–480 million), whose financing at the moment relies mainly on current accounts with the National Bank of Belgium,
– a reduction in operating debt at Colonia Bausparkasse (€–160 million), mainly due to the reduction in regulatory liquidity requirements for real estate companies introduced at the start of 2003,
Other – 254 Other 29 50 OPERATING DEBT 2,806 3,636 Other financial services in France
OTHER FINANCIAL SERVICES 836 1,020 1,128 French banks 139 134 187
Years ended December 31, Insurance reserves (in euro millions) 2003 2002 2001 at December 31, 2003
Fees, commissions and other revenues 513 539 486 TOTAL 46,799 48,586 48,399
(a) Since January 1, 2003, UK Health business is presented in the UK Property & Casualty segment (€ 1,134 millions of gross revenues in 2002).
Total benefits, claims and other deductions 1,575 224 (182) 1,005 184 (210) – 2,597
Income after income tax expense 1,456 71 (139) 865 120 (202) – 2,171
Gross written premiums and financial services revenues 48,407 15,928 5,751 4,100 1,168 1 (522) 74,832
Total benefits, claims and other deductions 1,751 (60) (551) 974 47 (439) – 1,721
/283 24.4. TECHNICAL RESULTS The table below summarizes AXA’s technical results: Life & Savings segment Years ended December 31,
Net investment result included in technical result 10,032 – 10,032 6,340 7,454
Other revenues, net of benefits, claims and other deductions 13 24 27
Fixed maturities 52 726 73 145 46 62 (4) (10) 0 – – – 193 762 136 Equity investments (136) (5,457) (3,186) 27 361 2 34 446 429 – – – (74) (4,650) (2,755) Mortgage, policy and other loans (36) (108) (129) (0) – – – (12) (25) – – – (37) (120) (154) Real Estate 224 557 344 3 10 0 0 1 9 – – – 227 567 353 Other (3) 87 7 16 (41) 33 (7) (1) (19) – – – 6 45 20
Change in fair value of separate account (unit-linked) assets (net) 14,949 (17,576) (11,613) – – – – – – – – – 14,949 (17,576) (11,613) Net investment result (a) 27,187 (9,058) (1,170) 146 331 73 (423) (33) (217) 26 47 70 26,935 (8,713) (1,244) (a) Amounts do not include investment income and investment expenses from the banking operations, which are included in “Revenues from banking activities” and in “Bank operating expenses” in the consolidated statements of income. Also, depreciation expense related to real estate held by AXA’s real estate companies is excluded in the above presentation, as also included in “Bank operating expenses”.
Fixed maturities (7) 532 (127) 5 88 106 53 106 95 52 726 73 Equity investments 150 (5,047) (3,401) (273) (298) 252 (13) (113) (37) (136) (5,457) (3,186) Mortgage, policy and other loans (36) (106) (125) (1) (1) (4) (0) (36) (108) (129) Real Estate 156 474 333 68 75 19 (0) 8 (8) 224 557 344 Other 21 43 (4) (4) (9) (0) (20) 53 11 (3) 87 7
– Capital gains, net of valuation allowances, totaled €315 million, as opposed to net capital losses of €3.4 billion in 2002 and €2.4 billion in 2001. This figure included a €+1.1 billion impact (2002: €–3.4 billion) from the change in market value on “With-Profit” assets in the UK (accounted for at market value in the balance sheet, excluding the positive impact of investment revenues), valuation allowances of €2 billion for the impairment of equity securities, and valuation allowances of €368 million for the impairment of the bond portfolio. The capital gain realized on the sale of Crédit Lyonnais shares was €542 million. Crédit Agricole shares received in exchange for Crédit
Lyonnais shares were sold in their entirety, resulting in an additional capital gain of €8 million.
26. Reinsurance The components of reinsurance ceded as presented in the consolidated statements of income are summarized as follows: The fall in reinsurance ceded in 2003 took place across all three business segments, and was mainly due to the following factors: – In Property & Casualty insurance, the fall was due to improvement in claims gross of reinsurance in Germany, due to the lack of major claims following the floods in 2002, and in the UK due to the increase in reserves carried out in 2002, which was not repeated in 2003; – In International Insurance, the fall was due to (i) the decrease in reinsurance ceded at AXA Corporate Solutions
Change in unearned premium reserve ceded 95 139 99 18 (39) (46) 5 (60) 165 5 10 (7) 123 49 210
Insurance benefits and claims ceded 672 885 762 432 840 1,003 494 716 2,338 (131) (110) (47) 1,467 2,331 4,056
/287 27. Operating Charges The analysis of operating expenses below does not include operating expenses in respect of banking activities, which are presented separately in the statements of income.
Life & Property national Total Mana- Financial Holding elimi- TOTAL (in euro millions) Savings & Casualty Insurance Insurance gement Services companies nations
Including: Other charges (2,234) (928) (367) (3,528) (1,642) (171) (105) 378 (5,067) (a) Represents total acquisition expenses as presented in the statement of income including amortization expense for value of purchased life business in-force (VBI) and the change in deferred acquisition costs (DAC) net of changes in unearned premium reserves. (b) Before amortization of value of purchased business in-force, the change in deferred acquisition costs and the change in unearned premium reserves.
(c) Such costs are included within “insurance benefits and claims” in the consolidated statement of income. (d) Such costs are included within “net investment results” in the consolidated statement of income.
The members of the Supervisory Board do not receive remuneration with the exception of fees for attending meetings, which totaled less than €1 million.
(2002: 37 million) relating to stock options were not included in the calculation of the weighted average number of shares on a fully diluted basis. In addition, the 23 million shares that may be issued in order to redeem the ORAN
bonds issued as part of the MONY acquisition plan were taken into account from the date that subscription rights were issued in October 2003. As a result of these factors, along with the anti-dilutive effect of convertible bond plans, the fully diluted number of shares is 1,790 million.
Years ended December 31, 2003 2002 2001 Pro-forma (a) 2001 as published
Net Income and Adjusted Earnings (Group Share) 1,763.66 1,005 1,450 1,736.13 949 1,357 1,715.71 520 1,201 1,715.71 520 1,201
Net Income and Adjusted Earnings attributable to ordinary shares and potentially dilutive securities 1,790.12 1,005 1,450 1,739.12 949 1,357 1,723.34 520 1,201 1,787.33 571 1,251
AXA has no credit risk related to notional principal amounts. The notional amounts do not represent the amounts actually exchanged by the parties and thus are not a measure of AXA’s exposure to the derivative instruments. AXA’s exposure is represented by the mark value of the derivative contract at a point-in-time.
AXA’s operations for hedging purposes totaled €154,791 million, €1,383 million and €–225 million, respectively (2002: €153,445 million, €962 million and €517 million, respectively). The impact on AXA’s 2003 consolidated net income was a gain of €120 million in 2003 (2002: a gain of €119 million), net group share.
date and can be either exchange or non-exchange traded. On a consolidated basis, the notional amount, net fair value and net carrying value of such instruments as at December 31, 2003 was €58,171 million, €–103 million and €–559 million (2002: €49,301million, €–79 million and €15 million). The net impact on AXA’s 2003 consolidated net income was a charge of €132 million (2002: a charge of €199 million). Non-foreign currency related forward and future contracts accounted for more than 80% of these instruments (based on notional amounts)
and were predominantly used by AXA’s French insurance operations and AXA Bank Belgium mainly to hedge future operating margins. Additionally, AXA’s U.S. insurance operations uses forward and futures contracts to hedge certain risks associated with the guaranteed minimum death benefit feature of certain annuity products. At
– Interest rate caps and floors are option-like agreements where the seller agrees to pay to the counterparty an amount equal to the differential, based on a notional amount, between the interest rate of the specified index and the interest rate cap or floor. These products are used to hedge for an interest rate increase (caps) or decrease
(€+573 million) and Alliance Capital (€+212 million, not included at December 31, 2002). This increase was partly offset by the reduction in loan facilities and subordinated debt at National Mutual Financial Services
– Guarantee commitments received from customers and credit institutions increased by €426 million in 2003. This increase was mainly due to AXA Corporate Solutions Assurance’s reclassification of €311 million of collateralized commitments under guarantees received from credit institutions. At December 31, 2003, guarantee commitments received totaled €2,997 million, relating to Life insurance (€1,513 million) and the Belgian banking business
Due after one Due after three Due in one year through year through Due after 2003 2002 year or less three years five years five years TOTAL TOTAL
Guarantees : Other : Pledged assets and Collaterized commitments 9,266 7,708 1,952 205 5 1,506 3,668 4,779
– Collateralized commitments are mainly given by customers of AXA Bank Belgium (€7,827 million), of the French
Life insurance and banking businesses (€1,090 million) and of AXA Corporate Solutions Assurance (€260 million).
Collateralized commitments increased by €1,558 million in 2003, of which €2,027 million are relating to an increase in AXA Bank Belgium’s collateralized commitments following higher production of home and professional loans.
Bank Belgium (€+235 million) and (ii) an increase in financing commitments to unlisted companies by AXA
– Guarantee commitments rose by €1,231 million with respect to 2002.
– Other commitments given: AXA has issued the following subordinated convertible debt instruments (i) €1,524 million 2.5% debt instrument issued in February 1999 and due in 2014, and (ii) €1,099 million 3.75% debt instrument issued in February 2000 and due in 2017. At maturity, if such debt instruments are not converted to ordinary shares of
AXA, they will be redeemed by AXA at a price in excess of the original issue price per note. This difference totaled €1,133 million after the allocation of a €82 million provision at December 31, 2003.
The scheme governing the financial reorganization of AXA Sun Life in 2001 (the “Scheme”) details arrangements under which assets from the inherited estate, attributed to AXA through the reorganization, may be transferred on a temporary or permanent basis to the “With-Profit” funds as required to support the capital requirements of these funds, as determined under the Scheme. In the case of a temporary transfer, assets and related investment income remain attributable to AXA since they will be returned when they are no longer required to support the capital requirements of the “With-Profit” funds, under the stringent tests set out in the Scheme. If, in the opinion of the Appointed
To comply with French regulatory requirements on assets representing technical commitments, in the first half of 2002, AXA Collectives (now AXA France Vie) placed a part of its direct collective contingency insurance receivables in a Special Purpose Vehicle. This operation led to the replacement of a balance sheet receivable by cash and cash equivalents of €250 million. In respect of this 5-years operation, AXA France Assurance has given a guarantee limited to €230 million, to cover any default risk from AXA France Vie (formerly AXA Collective) representatives in charge of the recovery of these debts.
On September 12, 2001 an agreement was established between AXA and BNP Paribas for a period of three years, under which AXA guaranteed the liquidity of BNP Paribas’ holdings in ordinary shares of Finaxa. In addition and in connection with Alliance Capital’s acquisition of Sanford C. Bernstein in October 2000, AXA Financial, Inc. agreed to provide liquidity to the former shareholders of Sanford C. Bernstein who received 40.8 million of private Alliance
Capital units. After the completion of this lockout period in October 2002, Sanford C. Bernstein’s former shareholders exercised their options and AXA Financial acquired 8.16 million of their units. The remaining 32.6 million private Alliance
of such units may be sold to AXA Financial in any one annual period.
In addition to other employment related obligations, various AXA subsidiaries are required to indemnify their employees against certain liabilities and costs that they may incurred from time to time in performing activities within the scope of their employment duties. These activities may include, for example, service as a director, officer, agent, general partner, or in a similar capacity for (i) an AXA Group company other than the employee’s principal employer or (ii) a company outside the AXA Group where service is at the request of (or for the benefit of) the Group (e.g. joint ventures, partnerships, or special purposes investment companies or funds).
31. Special Purposes Vehicles In the ordinary course of conducting business, AXA in the role of investment manager may act as investment adviser in certain asset-backed investment vehicles commonly known as collateralized debt obligations (“CDOs”). CDOs raise capital by issuing debt and equity securities (the latter if “not rated instruments”) and use the capital to invest in portfolios of interest bearing securities. These vehicles are structured to take advantage of the yield differential between their assets and liabilities including paying investment advisory fees and other expenses. Any net losses of the CDO are borne first by the equity owners to the extent of their investments, and then by debt owners in ascending order of subordination. In addition, AXA’s operating entities may from time to time invest directly in some of these
AXA. AXA’s maximum exposure to loss in these vehicles is limited to its investment and prospective investment management fees (where managed by AXA).
Similarly, AXA may also undertake specific transactions to securitize the value of specific assets on the books, such as real estate or premium receivables. All of these undertakings described in this note can be considered activities conducted through a special purposes entity (“SPE”).
As at December 31, 2003, AXA did not hold one equity share in a SPE in which it conducts activities that would require consolidation in AXA’s consolidated financial statements for the year ended December 31, 2003.
From January 1, 2004, the French regulations will require entities to consolidate SPEs in which there is effective control, even if there is no holding in equity shares of the SPE. AXA has identified several CDOs in which it is involved where it is reasonably possible that it has effective control over the activities (even though it does not own one equity share)
At such date, these vehicles had total assets of roughly €5.3 billion.
/297 32. Related Party Transactions From time to time AXA enters into agreements and transactions with its subsidiaries and affiliates for various business purposes including the furnishing of services and / or financing of operating activities. These agreements are formalized under French regulation as “Groupement d’Intérêt Economique” or Economic Interest Grouping (GIE).
The expenses invoiced to entities through the GIE may be calculated using allocation keys. In 2003, expenses invoiced by the GIE to the Company, its subsidiaries and affiliates amounted to €558 million, as compared to €626 million in 2002 and €770 million in 2001.
The three “mutuelles” mentioned above and several entities of the French insurance segment have signed agreements related to the management of the “mutuelles” portfolio.
In 2002, Property & Casualty technical results from the brokers network were allocated to AXA Courtage IARD SA
Finaxa2 has granted AXA a non-exclusive license to use the AXA trademark in the jurisdictions in which AXA
currently has operations and in any additional jurisdictions in which the AXA trademark is registered. AXA has the possibility to grant sub-licence to the entities controlled by the Group.
(1) At December 31, 2003, the three AXA “mutuelles” (AXA Assurance IARD Mutuelle, AXA Assurance Vie Mutuelle et AXA Courtage Assurance Mutuelle) own 2.75% of the Company’s equity capital.
Net change in banking activities including broker-dealer receivables & payables 0 1 (187)
Subordinated debt and mandatorily convertible bonds and notes 614 (810) (1,774)
Cash flows from other activities: Net impact of foreign exchange fluctuations (696) (768) (514)
Change in cash due to change in scope of consolidation (280) (157) 91
Net (decrease) increase in cash and cash equivalents (d) 1,897 497 (10,047)
AXA (the Company) is not subject to legal restrictions on the amount of dividends it may pay to its shareholders provided that accumulated earnings available for distribution are sufficient. However, some AXA subsidiaries, principally insurance companies, are subject to restrictions on the amount of funds they may transfer in the form of cash dividends or otherwise to their shareholders.
Union are also subject to capital adequacy and solvency margin regulations. At December 31, 2003, management believes AXA’s subsidiaries are in compliance with all applicable solvency and capital adequacy margin requirements.
In our opinion, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and results of the consolidated group of companies in accordance with the accounting rules and principles applicable in France.
Justification of our assessments In accordance with the requirements of Article L.225-235 of the Commercial Code relating to the justification of our assessments, which came into effect for the first time this year, we bring to your attention the following matters which are contributing to the development of the unqualified audit opinion on the consolidated financial statements taken as a whole : – Consolidated balance sheet line items that are specific to the insurance and reinsurance business are estimated on the basis of statistical and actuarial data, particularly actuarial reserves, deferred acquisition costs and their amortization, and the value of business in force. The methods and assumptions used to calculate the carrying values of these items are described in notes 3.6.2, 3.5.5 and 3.5.2 of the notes to the consolidated financial statements.
– The carrying values of purchase goodwill are tested at each closing for recoverability using the methods described in note 3.5.1 of the consolidated financial statements.
We have assessed whether the multi-criteria approaches used rely on assumptions that are consistent with the forecasts that emerge from the strategic plans established by the AXA Group.
– The methods and assumptions used to establish valuation allowances for other than temporary impairment in the investment portfolio are described in note 3.5.3 of the consolidated financial statements.
U.S. GAAP Financial information The following information referred as ‘U.S. GAAP financial information’ reflects AXA Group consolidated financial statements, restated according to generally accepted accounting principles in the United States (“U.S. GAAP”). French accounting principles, as described in Note 3 of the Notes to Financial statements are referred hereafter as ‘French
AXA’s consolidated financial statements are prepared in accordance with French GAAP. These accounting principles differ in certain material respects from U.S. GAAP. Certain significant differences between French GAAP and U.S.
GAAP arise in each of the three years ended December 31, 2003, 2002 and 2001 as a result of (i) the implementation of new French regulations that became effective from January 1, 2001, and (ii) certain new accounting principles under U.S. GAAP. The significant differences in accounting principles between French GAAP and U.S. GAAP
FAS 141 addresses financial accounting and reporting for business combinations, including investments accounted for under the equity method, collectively referred to in this section as “business combinations”, with an acquisition date on or after July 1, 2001. All business combinations in the scope of FAS 141 are to be accounted for using the purchase method whereby the identifiable assets and liabilities are recorded at their fair value at the date of acquisition. The difference between the purchase price over the estimated fair value of net identifiable assets acquired is recorded as a goodwill. If the goodwill is negative, it will no longer be set up as a deferred credit and included in income over the estimated useful life but rather recognized as an after-tax extraordinary gain in the income statement in the period of acquisition. Pooling-of-interests is no longer permitted. In addition, other intangible assets can be recognized apart from goodwill if the intangible either (i) reflects a contractual-legal right, or (ii) is separable, that is, capable of being separated, sold, divided, transferred (regardless of intent / existence in the market and either individually or with a group of related assets and liabilities). Prior to FAS 141, only intangibles that could be identified and named could be recognized as an asset apart from goodwill. FAS 141 had no material impact on the results of operations or financial position of AXA upon its adoption on January 1, 2002.
FAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets, including intangible assets that are acquired individually or with a group of other assets not acquired in a business combination.
In future periods, any negative goodwill identified in connection with a business combination will be recorded immediately in income in the period of transaction. AXA’s intangible assets have finite useful lives and continue to be amortized over their estimated useful lives.
FAS 144 retains many of the fundamental recognition and measurement provisions previously required under FAS
FAS 133, as amended: accounting for derivative instruments and hedging activities
On January 1, 2001, AXA adopted statement of Financial Accounting Standards (“FAS”) No. 133, as amended
“Accounting for derivative instruments and hedging activities” (“FAS 133”). FAS 133 established new accounting and disclosure requirements for all derivative instruments, including certain derivative instruments embedded in other contracts (including insurance contracts) referred to as “embedded derivatives”, and hedging activities. FAS 133 requires all derivatives to be recognized on the balance sheet and measured at fair value.
– Net investment hedges. Derivatives but also certain non derivatives can be qualified as “investment hedges” for net investment in a subsidiary. The change in fair value of the derivative or non-derivative instrument attributable to the effective portion of the foreign currency hedge, together with the associated foreign exchange gain or loss on the hedged item, is recorded in a component of "other comprehensive income" as a part of the cumulative foreign translation adjustment. The change in fair value of the derivative attributable to the ineffective portion of the hedge is recorded in income.
and the DIG limits the extent to which existing hedge arrangements qualify for hedge accounting under FAS 133.
French GAAP, rather than U.S. GAAP. As a result, certain hedging relationships established by AXA have not be designated as qualifying hedging relationships under FAS 133 and, therefore, are not subject to U.S. GAAP hedge accounting and consequently are referred to as “free standing derivatives” with the change in fair value recorded in income effective from January 1, 2001 for U.S. GAAP. In accordance with the transition provision of FAS 133 to recognize the difference between the carrying values and fair values of the free standing derivative instruments at January 1, 2001, the after tax cumulative-effect-type credit to income was €18 million at January 1, 2001.
Given that AXA’s hedging strategies are designed to comply with French GAAP measurement and recognition requirements, AXA’s U.S GAAP consolidated net income could be subject to increased volatility in future periods.
Significant differences could arise between the AXA’s consolidated net income and shareholders’ equity under French
– US$ 257 million (or approximately €273 million at transition date) of “held-to-maturity” securities as “available forsale ” securities, resulting in an after-tax cumulative-effect-type adjustment of US$ 9 million in other comprehensive income (or approximately €10 million at transition date).
For entities that meet the characteristics of a VIE, FIN 46 introduced a consolidation model that focuses on the relative exposures of the participants to the economic risks and rewards from the assets of the VIE rather than on percentage ownership of voting interest, if any, to determine whether a parent-subsidiary relationship exists. Under the VIE consolidation model, the party with the majority of the economic risks or rewards associated with a VIE’s activities,
including those conveyed by derivatives, credit enhancements and other arrangements, is the “primary beneficiary”
AXA adopted FIN 46 with immediate effect for VIEs created on or after February 1, 2003 with no impact on the consolidated financial statements at December 31, 2003. However, AXA will adopt FIN 46 for any remaining VIEs created before February 1, 2003 with effect from January 1, 2004. FIN 46 not only provides a consolidation model but also requires specific disclosures relating to VIEs in which AXA has a significant interest.
FAS 146: Accounting for Costs Associated with Exit or Disposal Activities
FASB 146 “Accounting for costs associated with exit or disposal activities” (“FAS 146”) requires that the liability for a cost associated with the exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. AXA adopted FAS 146 on a prospective basis from January 1, 2003. FAS 146 had no material impact on AXA’s consolidated statement of financial position or consolidated income statement under U.S. GAAP
FAS 150 establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equity in the statement of financial position. AXA adopted FAS 150, which is effective for financial instruments entered into or modified after May 31, 2003 and FAS 150 had no material impact on AXA’s consolidated statement of financial position upon adoption. For all other pre-existing financial instruments, FAS 150 is effective at the beginning of the first interim period beginning after June 15, 2003 but given that AXA does not publish U.S.
GAAP interim financial reports, the effective date would be as at January 1, 2004.
– For entities that are not VIEs, AXA is required to fully consolidate the entity if AXA has a majority ownership interest, that is an direct or indirect interest of more than 50% based on voting rights, whereas under French GAAP control is presume if AXA directly or indirectly holds at least 40% of the voting rights and no other shareholder directly or indirectly holds a percentage interest greater than that held by AXA.
– Under U.S. GAAP, the equity method of accounting is used for investments in companies (which are not VIEs), in which AXA’s ownership interest approximates 20% and is not greater than 50% including those companies proportionately consolidated under French GAAP.
– Under French GAAP, AXA accounts for its investments in investment companies and real estate companies
(including mutual funds) owned by insurance subsidiaries using the cost method. Under U.S. GAAP, such entities are first assessed for consolidation under the “variable interest” model before assessing for consolidated based on ownership interest. In consolidating mutual funds or investments in investment companies for U.S. GAAP purposes, fixed maturity and equity securities held by the funds are classified as trading and, therefore, are stated at estimated fair value and changes in estimated fair value are included in net income.
The significant differences in accounting principles used for determining goodwill between French GAAP and U.S.
Purchase Price – Under both French GAAP and U.S. GAAP, the purchase price is determined at transaction date unless newly issued ordinary shares are exchanged. If ordinary shares are issued in connection with an acquisition, under French GAAP
Goodwill Under French GAAP and in respect of acquisitions completed prior to January 1, 2001, a portion of goodwill could have been charged directly to shareholders’ equity to the extent that ordinary shares were issued by the parent company in connection with the transaction, with the remaining amount recorded as a goodwill asset. For all acquisitions completed on or after January 1, 2001, the difference between the purchase price and the value of the portion of net assets acquired is recorded as a goodwill asset. However, the French GAAP basis may not generate a goodwill asset value that is equal to that determined under U.S. GAAP due to (i) the accounting for net assets acquired in respect of a buyout of minority interests, (ii) the accounting for the value of shares exchanged, if applicable, (iii) the accounting for the settlement or exchange of outstanding employee share options of the acquired company, (iv) the identification and valuation of identifiable intangible assets, and (v) goodwill is maintained in the functional currency of the acquired company under U.S. GAAP rather than at the historical rate.
Revisions to Goodwill Under French GAAP, revisions can be made to the goodwill calculation up to the end of financial year following the acquisition. Under U.S. GAAP, revisions can be made to the goodwill calculation up to 12 months from the date of acquisition only with respect to outstanding known contingencies at date of acquisition.
Under both French GAAP and U.S. GAAP, if a subsidiary issues shares for a price in excess of or less than the carrying value of the investment in that subsidiary, the difference is generally reflected as an after-tax gain or loss in income.
asset portfolios, under French GAAP, fixed maturities and equity investments are, in general, carried at amortized
– securities classified as “available for sale” are reported at fair value with changes in unrealized gains and losses included in “other comprehensive income” (a separate component of shareholders’ equity).
French GAAP, the impairment charge can be reversed in future periods in the event that market conditions change.
Under U.S. GAAP, unless evidence exists to support a realizable value equal to or greater than the cost basis of the investment, an impairment write-down to fair value should be recorded as realized loss in the income statement.
The write-down is not reversible in future periods. As a result of the large number of investments in equity securities,
compared to cost and (ii) for a time period of less than six consecutive months. In addition, the Company reviews whether there are any qualitative factors specific to the issuer and or industry in which it operates that would indicate that the decline in value was other-than-temporary.
Profit”) fund. Therefore, changes in the estimated market value of these assets held in the “With-Profit” fund impact the valuation of the fund and, therefore, the valuation of the underlying insurance liabilities.
Under French GAAP, assets supporting the UK participating (“With-Profit”) fund are stated at market value with changes in market value included in income, as the unrealized investment gains and losses on these investments are included in the determination of the related insurance liability. These assets include fixed maturity and equity securities, real estate and loans.
Under U.S. GAAP, real estate assets and loans allocated to UK “With-Profit” contracts are carried at historical cost less accumulated depreciation and amortized cost or unpaid principal balance, respectively. In addition and prior to January 1, 2001, the fixed maturity and equity investments allocated to UK “With-Profit” contracts were classified as “available-for-sale” and stated at market value. Consequently, the entire change in market value, being the net unrealized investment gains or losses, was recorded in “other comprehensive income” (a separate component of shareholders’ equity) even though the related impact of the change in unrealized gains and losses on assets on UK-
business have been reclassified from “available-for-sale” to “Trading”. These investments continue to be stated at market value, however, the changes in market value of these investments are no longer recognized in «other comprehensive income» (a separate component of shareholders’ equity), but are recognized in income. Consequently, from 2001, AXA’s presentation of “U.S. GAAP, except for adjustment for the change in unrealized investment gains and losses on assets allocated to UK “With-Profit” contracts”, in the reconciliations of consolidated net income and consolidated shareholders’ equity from French GAAP to U.S. GAAP, was no longer necessary since 2001.
Under French GAAP, insurance liabilities for Life & Savings business, also referred to as future policy benefits, are calculated in accordance with the applicable local regulatory and accounting rules if consistent with the French accounting principles used by AXA. The future policy benefits are actuarially determined using actuarial assumptions relating to investment yields, mortality, morbidity and expenses. Contracts are assumed to remain in-force until their contractual maturity date or the death of the insured.
Under U.S. GAAP, future policy benefits for traditional life policies, that is for contracts with significant mortality or morbidity risk, are computed using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest based on the insurance company’s experience, with a margin for adverse deviation; such actuarial assumptions are established as of the date of policy issue. When the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses, a premium deficiency reserve is established by a charge to earnings.
/ separate account type contracts are accounted for as insurance contracts under French GAAP on a prospective basis whereby the amount is recognized over the contract term. Under U.S. GAAP the reinsurance contract covering the income feature represents a derivative instrument accounted for under FAS 133 at fair value.
Under French GAAP, equalization reserves are recognized in respect of future catastrophe risks, which are determined in accordance with local regulatory requirements in certain jurisdictions in which AXA operates. Such reserves are not permitted to be recognized as a liability under U.S. GAAP until such losses are incurred.
Accounting for the Transaction In connection with the Plan, as described in note 4 “business combinations” to the consolidated financial statements, a portion of the surplus assets held in the participating (“With-Profit”) fund, referred to as the «Inherited Estate» was attributed to AXA, as the shareholder. AXA’s portion of the Inherited Estate along with the non-participating insurance business was transferred out of the participating (“With-Profit”) fund into separate legal non-participating funds in which 100% of the operating results would inure to AXA in future periods. As a consequence of the plan and effective from January 1, 2001, additional significant differences arose between French GAAP and U.S. GAAP as set out below.
Profit Recognition for UK “With-Profit” Business as a Result of the Plan Under French GAAP, the profit recognized by AXA in respect of the UK “With-Profit” business represents 10% of the bonus declared by the actuary and represented a change in methodology under French GAAP in 2001. Under
U.S. GAAP, 10% of all changes in the UK with-profit fund (revenues and expenses) are recognized in the income statement, with the remaining 90% attributed to “unallocated policyholder dividend liability”.
1.1.8. IMPACT OF CHANGES IN FRENCH ACCOUNTING PRINCIPLES IN 2001 The implementation of new French regulations effective from January 1, 2001 resulted in certain one-time adjustments to the reconciliations of consolidated net income and consolidated shareholders’ equity from French GAAP to U.S.
Equalization Reserve As a result of the new French regulations, equalization reserves are limited only to future catastrophe risks; reserves are no longer permitted under French GAAP for future unusual losses in any one period. These equalization reserves are not recognized as a liability under U.S. GAAP, until such loss is incurred and, therefore, such liabilities are eliminated under U.S. GAAP.
The cumulative effect of the change has been recorded as an adjustment to opening shareholders’ equity on in French
GAAP. Future policy benefits as presented in AXA’s reconciliations of consolidated net income and consolidated shareholders’ equity from French GAAP to U.S. GAAP include this new difference in accounting.
Intercompany Transactions Effective for intercompany transactions on or after January 1, 2001 and under the new French regulations, realized gains and losses on intercompany sales of assets are eliminated in their entirety, unless there is an other-than temporary impairment that is to be recorded as a loss immediately, which is the similar to U.S. GAAP. No difference exists between
Under French GAAP, realized gains are recognized when securities or real estate with appreciated values are contributed to mutual funds or real estate funds established for the purpose of supporting French savings contracts.
Under U.S. GAAP, such gains are proportionately recognized when the savings contracts are issued or the fund shares are sold to entities not included in the consolidated financial statements.
In respect of all new exit or disposal activities established on or after January 1, 2003, U.S. GAAP has been changed due to the implementation of FAS 146 and is different from French GAAP as it relates to (i) timing of recognition
Share-Based Compensation (Other Than in Respect of Business Combinations) Under French GAAP, the accounting of share-based compensation is limited to share option plans and depends on whether the share option plan (i) relates to the purchase of shares in the open market or the increase in AXA share capital, (ii) provides for a guarantee of liquidity, or (iii) is issued by AXA (the Company) or another AXA entity.
Under U.S. GAAP, the accounting for share-based is identical whatever the characteristics of the plan.
– Under French GAAP share-based compensation is not recorded in respect of certain share option plans issued by AXA (the Company) that do not provide a guarantee for liquidity whereas under U.S. GAAP a compensation charge is recorded if at grant date the options are issued at a significant discount; and
– For all other share option plans issued by AXA (the Company) and other AXA entities, the principles for measuring share-based compensation under French GAAP are principally similar to those used under U.S. GAAP. However, the compensation expense is recorded over the vesting period in the income statement and included as a liability under French GAAP whereas under U.S. GAAP the amount is recorded against shareholders’ equity.
AXA Equity & Law’s pension plan, was recorded and is being amortized over the remaining fifteen-year average service life of employees. If the accumulated benefit obligation exceeds the fair value of plan assets, an additional minimum pension liability is recorded such that the total liability in the balance sheet is at least equal to the unfunded accumulated benefit obligation. The after-tax amount is, in general, recorded in “Other Comprehensive Income”
Deferred Tax Under French GAAP, deferred income taxes are not required to be recognized in respect of distributions if the distribution is not going to be made in the foreseeable future and the ability to make such a distribution is at the control of management.
Under U.S. GAAP, deferred income taxes arising on distributions are recorded in full if subject to local tax upon distribution (inside tax basis) even if the distribution is not going to be made in the foreseeable future and the ability to make such a distribution is under the control of management.
(based on an analysis of future statutory profits), the deferred tax assets are deemed recoverable. U.S. GAAP FAS
French GAAP and U.S. GAAP, particularly in respect of the value of fixed maturity and equity investments (held at amortized cost or historical cost under French GAAP and generally at market value under U.S. GAAP), the impact of the change in tax rates on income under French GAAP and U.S. GAAP will differ accordingly mainly regarding stock price regulation or shares attributed to employees plans.
Treasury Shares Under French GAAP, treasury shares are reported as an asset if certain conditions are satisfied. Under U.S. GAAP, the cost of treasury shares is reported as a deduction from shareholders’ equity. If such shares are then reissued, the proceeds received are correspondingly reported as a change in shareholders’ equity. Therefore, any gains or losses from holding such shares are recorded as adjustments to shareholders’ equity.
UPDATE OF U.S. GAAP CONSOLIDATED FINANCIAL STATEMENTS FOR 2001 AND 2002 In its accounts, the AXA Group records valuation allowances for the non-temporary impairment of some of its portfolio assets. Following work carried out in conjunction with the SEC1, the AXA Group has reviewed its method of determining the non-temporary nature of an asset’s impairment, and therefore its method of recording capital losses. The Group’s new rules are described in section 1.4 of this report. Since these methods were not in place in 2001, AXA has restated its 2001 U.S. GAAP consolidated financial statements to reflect the impairment of some assets under these new methods, and has taken into account the consequences on its 2002 U.S. GAAP financial statements.
(OCI). The net effect of this gross charge is reduced by its impact on policyholder bonuses, minority interests and the corresponding tax, since amounts allocated to policyholder bonuses, minority interests and tax were also previously recorded under OCI. The net impact of this additional impairment on the statement of income is €1,128 million, resulting in 2001 net income Group share of €356 million under U.S. GAAP. These restatements have no impact on the Group’s consolidated shareholders’ equity, since AXA had already recorded the underlying effect of the lower market value of its assets under OCI, a separate component of consolidated shareholders’ equity.
These new methods were not in place when the 2002 reference document was published. As a result, the AXA Group has also updated its 2002 U.S. GAAP consolidated statement of income. The net impact on the statement of income in 2002 was an additional gain of €647 million gross or €300 million net. Again, there was no impact on U.S. GAAP
Net income Group share for 2003 under U.S. GAAP was €3,673 million, higher by €2,668 million than net income under French GAAP.
This increase was principally due to: – The impact of accounting derivatives and hedges (€+752 million), and notably the application of FAS 133, which in particular caused changes in the market value of various derivative instruments to be included within net income under U.S. GAAP
– The exclusion of goodwill amortization charges under U.S. GAAP (€+562 million).
– A net release of deferred tax depreciation reserves (€+343 million) recorded under U.S. GAAP in 2002 by AXA Japan.
The Life & Savings segment was the one most affected by these restatements. Net income Group share was 1,327 million higher under U.S. GAAP, due to: - The impact of accounting derivatives and hedges (€+439 million).
- A net release of Japanese deferred tax depreciation reserves (€+343 million).
These factors were partially offset by the non-recognition under U.S. GAAP of the profit recorded at AXA Financial under French GAAP (€–89 million), relating to a review of deferred tax positions.
Net income Group share in the International Insurance segment was €160 million higher under U.S. GAAP, due to
(i) the difference in valuation of reinsurance liabilities relating to Guaranteed Minimum Income Benefit contracts
(€+58 million), (ii) reduced valuation allowances on equity securities (€+37 million), (iii) the increase in market value of mutual fund investments (€+44 million) and (iv) the elimination of equalization reserves, which are not recognized under U.S. GAAP (€+20 million).
was mainly due to the lack of goodwill amortization charges under U.S. GAAP (€+138 million).
(described in section 1.1.4 below) led to the recording of €2,270 million (net group share) of valuation allowances under U.S. GAAP, compared with €614 million (net group share) under French GAAP; – The adverse impact of financial market trends (i) on the value of investments in mutual funds, which are consolidated at net asset value under U.S. GAAP (€–1,008 million), and (ii) on the profit emerging from the UK “With-
Profit” funds, of which 10% is recognized in the U.S. GAAP net income (€–274 million); – An additional valuation allowance recorded against the Japanese deferred tax asset (€–1,014 million), arising automatically under U.S. GAAP due to a cumulative tax loss taking place over a three-year period, and the recognition of the deferred tax liability on future distributions in the UK (€–345 million) relating to the profit emerging from the non-profit fund; under U.S. GAAP, any distribution tax is recorded, regardless of the probability of distribution in a foreseeable future; – The elimination under U.S. GAAP of the exceptional profit accounted for in Alliance Capital under French GAAP
(€148 million) relating to the partial release of the dilution profit recorded at the time of acquisition of Sanford Bernstein in 2000. Under U.S. GAAP, this dilution profit was entirely accounted for within shareholder’s equity; – The non-recognition of the disposal gain on the Australian health insurance business (€–87 million); – The valuation difference between French and U.S. GAAP (€–119 million) concerning assets and liabilities relating to reinsurance contracts with guaranteed minimum income benefit features at AXA Financial (reinsurance ceded)
These factors were partly offset by: – The absence of goodwill amortization under U.S. GAAP as of 2002 (€+588 million), and the impact of fair value accounting for derivatives under FAS 133 (€+412 million).
In the Property & Casualty segment, net income Group share was €918 million lower under U.S. GAAP than under
French GAAP, as a result of (i) the valuation difference on accepted reinsurance contracts that cover guaranteed minimum income benefits, which are treated as derivatives instruments under U.S. GAAP rather than valued as insurance contracts
(€–148 million), (ii) a higher impairment charge on equity securities (€–75 million), and (iii) the adverse impact of financial market trends on the value of investments in mutual funds (€–67 million).
In the Asset Management segment, the positive impact of eliminating goodwill amortization (€+154 million) was almost fully offset by the elimination of the exceptional profit recorded under French GAAP relating to Sanford Bernstein
The net income Group share of Holding companies was €284 million higher under U.S. GAAP, due to (i) fair value accounting for derivatives under FAS 133 (€+498 million), partly offset by (ii) the elimination of the gain realized on the disposal of AXA Australia health activities (€–87 million), (iii) a higher impairment charge on equity securities
Investment accounting and valuation (excluding UK “With-Profit” related assets) 1,142 (1,637) (1,693)
CONSOLIDATED NET INCOME IN ACCORDANCE WITH U.S. GAAP 3,673 (2,588) 356 (a) 2002 : includes profit booked in Alliance Capital of €148 million in French GAAP non recognised in U.S. GAAP of which €277 million related to the partial release of the dilution profit and €–129 million related to the exceptional goodwill amortization in relation with.
Management Board’s Report on the Parent Company Financial Statements . . . . . . . . . 324
The decrease in dividends from European companies primarily reflected the absence of dividend payments from
Income from short-term investments declined by €134 million due to the decrease of loans outstanding resulting notably from asset reallocations within the AXA group during 2002 and 2003, as well as the impact of euro strengthening on interest income received in foreign currencies.
In addition, interest expense declined by €107 million. The favorable impact of the reduction in average outstanding debt and the positive impact of currency fluctuations have been partly offset by higher financial charges resulting from the partial shift from variable-rate funding to fixed rates in order to protect future financial charges.
Operating expenses reached €131 million, compared to €152 million in 2002.The €21 million decrease, consistent with expense reduction efforts undertaken by the group, mainly reflected lower Group Management Services re invoicing and AXA brand advertising expenses.
Result on capital operations showed a net gain of €75 million, versus a net loss of €2 million in 2002. They included realized capital gains and losses, impairment valuation allowances for the impairment of financial assets and subsequent releases thereof, allowances to provisions for contingent liabilities, realized foreign exchange gains or losses, and non-recurring items.
Tax expense, which totaled €32 million, decreased primarily owing to the reduction in taxation on foreign exchange unrealized gains.
ASSETS Investments in subsidiaries net of valuation allowances, totaled €35,932 million, versus €35,853 million at year-end 2002.
The reorganization of the group’s reinsurance branch during 2003 prompted the Company to increase its direct shareholding in certain units. For instance, AXA Cessions, the group’s subsidiary handling retrocession programs on behalf of various group units, is now wholly-owned by the Company following the repurchase of 100% of shares from AXA RE for €46 million. In addition, the Company now owns 100% of AXA RE following the repurchase of 5%
Vendôme Tridor enabled the former to repay asset contributions amounting to €57 million and the latter to reduce its shareholders’ equity by €44 million to the benefit of the Company.
Other receivables totaled €369 million at December 31, 2003. They comprise primarily interest receivable on swaps and the tax current accounts of companies belonging to AXA’s tax consolidation group.
Cash and cash equivalents totaled €1,839 million, compared to €193 million at year-end 2002. This €1,646 million increase was mainly attributable for €1,406 million to the reinvestment of the proceeds of the issue of bonds redeemable in shares or cash (ORANs) during the final quarter of 2003, intended to finance the proposed acquisition of MONY in the US.
Other shareholders’ equity amounted to €2,719 million, compared with €1,892 million in 2002. In particular, the
Provisions for contingent liabilities, which totaled €865 million, primarily include €585 million to cover the possible repayment of tax savings in connection with tax consolidation and €161 million for the redemption of premiums on convertible bonds.
Spa, as well as €82 million in payables to minority investors in AXA Financial.
The amount available for the appropriation of earnings stands at €3,202,755,924 deriving from: – net income for the year €863,125,347
TOTAL ASSETS 42,280 624 41,656 38,950 39,371 (a) In 2002, this item included €35,853 million in investments in subsidiaries and €30 million in receivables.
As at As at As at (in euro millions) December 31, 2003 December 31, 2002 December 31, 2001
From 01/01/2003 From 01/01/2002 From 01/01/2001 (in euro millions) to 12/31/2003 to 12/31/2002 to 12/31/2001
b) Ordinary shares (numbers in million) 356 416 1,734 1,762 1,778 c) Bonds mandatorily convertible into ordinary shares (numbers in million) 9 16 16 16 126 2 - INCOME STATEMENT SUMMARY
(a) Dividend of €0.38 per share to be proposed at the AGM on April 21, 2004.
Share Other Percentage value capital shareholders’ of capital of securities equity held held
AXA ASSISTANCE 42 22 100.00% 48 12 bis, boulevard des Frères Voisins 92130 Issy-les-Moulineaux
AXA CESSION 40 1 100.00% 47 109, rue La Boétie, 75008 Paris
AXA EQUITY AND LAW plc 1 1,503 99.95% 1,133 107, Cheapside EC2V 6DU, London
AXA OYAK HOLDING AS 63 (4) 50.00% 47 Meclisi Mebusan Caddasi N 81 Oyak hann Salipazari - 80040 Istanbul
AXA PARTICIPATION 2 3 502 100.00% 455 23, avenue Matignon, 75008 Paris
AXA INSURANCE HOLDING JAPAN 1,075 705 96.42% 2,372 1-2-19 Higashi - Shibuya-ku
VINCI B.V. 472 2,183 100.00% 2,910 Graadt van Roggenweg 500, Postbus 30800 3503 AP Utrecht, Pays-Bas
LOR PATRIMOINE 53 0 100.00% 53 23, avenue Matignon, 75008 Paris
AXA RE PARIS (b) 313 1,162 100.00% 1,433 39, rue du Colisée, 75008 Paris
AXA INSURANCE INVESTMENT HOLDING 43 (1) 100.00% 78 77, Robinson road - # 11, 00 SIA Building 068896 Singapore
AXA FINANCIAL, Inc. (b) 3 10,590 96.34% 11,759 1290, avenue of the Américas, New York 10104
AXA ONA 526 8 51.00% 229 120, avenue Hassan II, Casablanca 21000
AXA Portugal COMPANHIA DE SEGUROS 37 25 83.01% 72 Praca Marquês de Pombal, 14 - 1058-801 Lisboa
ST GEORGES RE 10 2 100.00% 82 21, avenue de Messine, 75009 Paris
AXA TECHNOLOGY SERVICES 35 (26) 99.78% 73 14, rue de Londres, 75009 Paris 2) Participating interests (10 to 50% owned)
AXA INVESTMENT MANAGERS SA 48 566 47.77% 117 Cœur Défense - Tour B - La Défense 4 - 100, esplanade du Général-de-Gaulle, 92932 Paris-La Défense
AXA ASIA PACIFIC HOLDING LIMITED (b) 694 423 42.65% 541 447 Collins Street, Melbourne, Victoria 3000
B. General information about other units and participating interests 1) Subsidiaries not shown in section A
a) French subsidiaries (total) 101 b) Foreign subsidiaries (total) 199 2) Participating interests not shown in section A
TOTAL (A + B) 36,344 (a) For insurance companies: gross written premiums.
Net book Loans and cash Guarantees and Last Last closingvalue of advances given commitments closing result Dividends Closing date securities by the company given by the revenues available(b) received and other held still outstanding Company available (a) observations 7 – – – – – –
Principal Statutory Information concerning the Company . . . . . . . . . . . . . . . . . . . . . . . . 340
Summary of share option plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
A form of limited liability company (French société anonyme) with a Management Board and a Supervisory Board, governed by the laws of France, in particular the French Company Code (the Code de commerce) and the French
Corporate purpose (Article 3 of the articles of incorporation and bylaws): – to acquire, manage and/or dispose of equity interests in French or foreign companies or businesses, regardless of their legal form,
Documents pertaining to the Company can be consulted at the Legal Department - 21, av. Matignon - 75008 Paris.
Shareholders are convened, meet, and deliberate in accordance with applicable law and regulations.
Any shareholder has the right to attend meetings of shareholders either personally or by proxy, provided that the shareholder is registered with the Company.
Each shareholder is entitled to one vote per share held. However, since the Extraordinary Shareholders’ meeting of
May 26, 1977, provision 23 of the Company’s by laws provides that holders of shares that are fully paid up and registered in the name of their owner for at least two years, at the end of the civil year preceding the scheduled date of a shareholders’ meeting, enjoy double voting rights with respect to these shares. In the event of a share capital increase through capitalization of reserves, profits, share or issue premiums, registered shares that are freely allotted to shareholders on the basis of existing shares granting a double voting right shall also grant a double voting right to their holders.
The law also allows the Company to request from the depository trust company concerned, at its own expense and at any time, any information pertaining to the identity of holders of shares of the Company carrying immediate or future voting rights in shareholders’ meetings and the number of shares held by each individual or legal entity.
Any person or entity that directly or indirectly becomes the owner of at least 0.5% of the share capital and/or voting rights must notify the Company of the total number of shares held. Notification must be made by certified letter, return receipt requested, within five days of the date on which the shares that allowed the holder to reach or pass said threshold were registered.
– Mazars & Guérard: 39, rue de Wattignies - 75012 Paris, represented by Messrs Patrick de Cambourg and Charles
The term of office of AXA’s statutory auditor Mazars & Guérard is scheduled to expire at the close of this annual meeting.
After conducting a selection process to fill these offices and on the recommendation of its Audit Committee, the AXA
Supervisory Board hereby re-elect Mazars & Guerard to serve as statutory auditor of the Company for a term of six years.
Alternate auditors: – Mr. Patrick Frotiée: 32, rue Guersant - 75017 Paris, first appointed on May 17, 1995. The current appointment is for a period of 6 years, until the annual general meeting of the shareholders called to approve the financial statements for the fiscal year 2005.
– Mr. José Marette: 39, rue de Wattignies - 75012 Paris, first appointed on June 8, 1994. The current appointment is for a period of 6 years, until the annual general meeting of the shareholders called to approve the financial statements for the fiscal year 2003.
The term of office of AXA’s alternate statutory auditor Mr. José Marette is scheduled to expire at the close of this annual meeting. On the recommendation of its Audit Committee, the AXA Supervisory Board hereby appoint
Mr. Jean-Louis Simon to serve as alternate statutory auditor of the Company for a term of six years.
FINAXA granted the Company a non-exclusive license to use the AXA trademark in countries in which the Company and its subsidiaries currently have operations. This license grants AXA the right to grant sublicenses to use the AXA
trademark and/or its derivatives around the world. As of February 1, 2004, the Company had granted 30 sublicenses.
Pursuant to this licensing agreement, the Company is required to pay FINAXA an annual fee of €762,245.
Exercise of stock options 5,415 718,859 428,332,821 3,919,245,312 Exercise of stock options 116,486 3,463,637 428,449,307 3,920,311,159 Stock split – – 1,713,797,228 3,920,311,159 New equity issue – (4,284,493) 1,713,797,228 3,924,595,652 Exercise of stock options 54,684 603,822 1,713,851,912 3,924,720,878
New equity issue reserved for employees of AXA 978,476 22,524,517 1,714,810,392 3,926,915,797 Exercise of stock options 942,524 11,600,032 1,715,752,916 3,929,074,177 Conversion of bonds into shares 106 4,047 1,715,753,022 3,929,074,420 New equity issue reserved for employees 16,702,674 245,465,482 1,732,455,696 3,967,323,543
New equity issue reserved for employees of AXA 25,506,749 171,015,878 1,761,121,658 4,032,968,596
New equity issue reserved for employees based in Germany 977,622 8,798,598 1,762,099,280 4,035,207,351
Exercise of stock subscription warrants (employees based in Germany) 3,887 34,983 1,762,508,013 4,036,143,350
To the best of the Company’s knowledge, the table below summarizes its capital ownership and voting rights at
As of February 29, 2004, the Mutuelles AXA directly or indirectly owned, primarily through Finaxa (a listed holding company), 20.17% of the share capital and 32.05% of voting rights in meetings of the Company’s shareholders.
of the share capital and 0.50% of the voting rights in meetings of the Company’s shareholders.
The Mutuelles AXA, acting as a group, directly and indirectly holds controlling interest in Finaxa (71.11% of the share capital and 80.36% of voting rights as of February 29, 2004). Each of the Mutuelles AXA is party to an agreement pursuant to which it grants the other parties a preemptive right to acquire its shares of Finaxa.
Number of shares Capital ownership Voting rights of which: – Mutuelles AXA 48,903,116 2.75% 4.40%
( ) : In voting power. (a) Directly and indirectly in share capital and in voting power.
CHANGE IN CAPITAL OWNERSHIP Changes in ownership of the Company’s share capital between December 31, 2001 and December 31, 2003 reflect the various operations detailed in the table of changes to share capital hereinabove.
At December 31, 2003, the members of the AXA Management Board and AXA Supervisory Board owned 1,188,743 shares and AXA ADRs, equal to 0.07% of the Company’s share capital and 0.05% of the voting rights.
Dividends not claimed within five years of the date of payout become the property of the French government.
Date Distribution Number Net dividende Tax credit Gross dividend in millions of per share per share per share euro shares in euros in euros in euros
(a) Amounts taking into account a four-for-one stock split. (b) Proposal submitted to the Extraordinary and Ordinary Shareholders’ Meeting held on April 21, 2004. (c) Including shares issued in connection with the buyout of the minority interests in AXA Financial on January 2, 2001.
By virtue of the various authorizations granted by extraordinary meetings of shareholders and following the acquisition of options granted in absorbed companies, the Board of Directors (and subsequently the Management Board) of the Company granted options to purchase shares of the Company, as summarized in the following tables: Date of Board meeting 04/13/94 03/29/95 05/14/96 07/10/96 01/22/97 (c) (c) (b) (c) (c)
Term of exercise of stock options 25% 13/04/96 25% 29/03/97 30% 14/05/98 25% 10/07/98 25% 01/22/99
Number of shares subscribed at 02/29/2004 (d) 8,430,621 3,282,695 1,062,900 1,838,808 1,750,156
(a) Last quarter submitted to the realization of objectives assigned to different entities for the period as of 12/31/1996 to 12/31/2000. (b) Of UAP origin.
Date of Board meeting 11/18/99 07/05/00 07/12/00 11/13/00 05/09/01 (a) (a) (a) (a) (a)
Term of exercise of stock options 25% 11/18/01 33.33% 07/05/02 25% 07/12/02 33.33% 11/13/02 33.33% 05/09/03
(b) Of AXA origin. (c) Adjusted amounts. (d) Adjusted subscription price. (e) Actual Executive Committee.
Stock options granted in plans from July 5, 2000 onward may be exercised under the following conditions: – 33.33% of the total grant is exercisable at the end of the second year following the date of the grant,
(c) Adjusted amounts. (d) Adjusted subscription price. (e) Actual Executive Committee.
Subscription price in euros 31.47 35.06 83.13 92.62 (a) Last quarter submitted to the realization of objectives assigned to different entities for the period as of 12/31/1996 to 12/31/2000.
FINAXA is a form of limited liability company (French société anonyme) with registered capital stock of €208,569,269.35 at March 16, 2004. Its stock option grants are summarized in the following tables: Date of Board meeting 05/26/99 07/05/00 05/30/01 04/02/03 Date of Shareholders’ meeting 05/26/99 05/26/99 05/26/99 05/30/05
Term of exercise of stock options 25% 05/26/01 33.33% 07/05/02 33.33% 05/30/03 33.33% 04/02/05 100% 05/26/04
MOFIPAR is a form of limited liability company (French société anonyme) with registered capital stock of €11,491,355.70.
This single plan allows holders of options to benefit indirectly from the appreciation of the share price of ordinary shares of AXA Asia Pacific Holdings.
At December 31, 2002, the number of beneficiaries of Mofipar share option plans was 119.
Issues with preferential subscription rights Maximum Maximum amount amount of the capital
PURCHASE AND SALE OF SHARES BY THE COMPANY At the shareholders’ meeting held on April 30, 2003, the shareholders were asked to authorize the Management Board to trade in the Company’s shares for the purpose of stabilizing the market price, under the following conditions: Maximum purchase price .................................................................................. €30
Maximum number of shares that can be bought or sold .................................. 176,216,734
This stock repurchase program was the subject of the prospectus (note d’information) which received the visa of the AMF number 04-228, dated March 30, 2004.
AGREEMENTS WITH DIRECTORS AND OFFICERS OF THE COMPANY No agreements were entered into by and between the Company and any of its directors and officers.
This is a free translation into English of the special report of auditors on regulated agreements issued in the French language and is provided solely for the convenient of English speaking readers. This report includes information specifically required by French law. This report should be read in conjunction with French law and professional auditing standards applicable in France.
In our capacity as Independent Auditors of AXA, we hereby submit our report on the regulated agreements.
It does not fall within the scope of our assignment to ascertain the potential existence of other agreements but rather, on the basis of the information that was supplied to us, to inform you, the shareholders, of the relevant features of those agreements of which we were informed. It is not our responsibility to express an opinion on the utility or merits of such agreements. Pursuant to Article 117 of the French Decree of March 23, 1967, you are asked to form an opinion on the relevance of such agreements for the purpose of approving them.
With France Telecom: AXA Technology Services (as the Principal), AXA (as the Guarantor) and France Telecom entered into an agreement on December 15, 2003, after the Supervisory Board granted its authorization on December 10, 2003. This agreement entrusts the management of all AXA Group communications networks worldwide to a single global provider, and contains a clause committing to expenditures totaling approximately 280 million euros over the term of the agreement (six and a half years starting from July 1, 2003). It also provides for a contract performance guarantee from AXA to France Telecom on behalf of AXA Technology Services, the amount of which is capped at 50 million euros and the term of which is the term of the agreement.
December 31, 2003: In addition, pursuant to the French Decree of March 23, 1967, we were informed that the following agreements, approved in prior fiscal years, remained in force in 2003: /354
With BNP Paribas: The Groups AXA (AXA, Finaxa and the Mutuelles AXA) and BNP Paribas signed an agreement on September 12, 2001, according to which each party undertakes to maintain a minimum cross-shareholding (4.9%
ownership of AXA in BNP Paribas and 22.25% ownership of BNP Paribas in Finaxa, respectively) and grants right of first refusal to the other party on this minimum cross-shareholding and a call right in the event of a change in the control of the other Group. Under the terms of this agreement, the AXA Group also undertakes to guarantee the liquidity of the interest owned by BNP Paribas in Finaxa. This latest agreement is valid for a period of three years as of the date of signature, and is automatically renewed thereafter for periods of three years, subject to early termination by either party, notified at least three months prior to the date on which the term under way expires.
With AXA Conseil Vie, which has since become AXA France Vie: In fiscal year 1994, AXA granted a subsidy of 9,451,839.07 million euros to its subsidiary AXA Conseil Vie to cover the latter’s solvency margin requirement.
With FINAXA: In May 1996, FINAXA granted AXA a non-exclusive license to use the AXA trademark in the countries where the Company and its subsidiaries operate. Under the terms of this licensing agreement, and subject to the prior written consent of FINAXA, AXA may grant sub-licenses to companies it controls. In addition, the Company is required to pay an annual fee of 762,245.09 euros to Finaxa, as well as 50 percent of all net fees it receives from its own licensees.
As of December 31, 2003, AXA had granted a total of 20 sub-licenses to 20 subsidiaries it controls, which in turn may sub-license the right to use the "AXA" trademark to their own affiliates, provided that the latter are controlled within the meaning of Article L.233-3 of the Commercial Code.
In 2003, AXA amended these licenses by adding an additional clause setting the global annual use fee at 7.634.900 euros.
Gérard Dantheny - Catherine Pariset Patrick de Cambourg - Charles Vincensini
PERSONS RESPONSIBLE FOR THE DOCUMENT DE REFERENCE To the best of our knowledge, the information contained in this document accurately reflects the true financial position of the Company. It comprises all information required to enable investors to reach an informed opinion of the assets, activities, financial position, earnings and prospects of the Company. It contains no misleading omissions.
This annual report was prepared under the responsibility of the Chairman of the Management Board. Our responsibility is to express an opinion on the accuracy of the information contained herein concerning the Company’s financial position and financial statements.
Our procedures, which were performed in accordance with French professional standards consisted of assessing the accuracy of the information about the financial position and the financial statements and verifying its consistency with the audited financial statements, reading the other information contained in this annual report in order to identify any material inconsistencies with the disclosures relating to the financial position and the financial statements, and of drawing your attention to any manifestly misleading statements that may have come to our attention based on our general understanding of the company as acquired during our audit, with the exception of information concerning AXA’s Embedded Value (excluding Adjusted NAV, which was subject to the same procedures set forth hereinabove), which we did not review.
With respect to: – information pertaining to Embedded Value, included on pages 60-63 of the Financial Highlights section of the annual report, we verified its consistency with the findings of the independent actuarial firm Tillinghast dated February 25, 2004, issued after a limited examination of AXA’s own calculations.
– AXA’s European consolidated solvency margin, the estimates established at the December 31, 2003 reporting date were calculated on the basis of European Life Insurance Directives.
PricewaterhouseCoopers Audit Mazars & Guérard Gérard Dantheny - Catherine Pariset Patrick de Cambourg - Charles Vincensini
Certification by the independent auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
Chairman’s Supervisory Board report on internal control procedures . . . . . . . . . . . . . . . . . . . . . . . . . 11-19 and 28-39
Independent Auditors report on Chairman’s Supervisory Board report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
INFORMATION CONCERNING TRADING OF THE COMPANY’S SECURITIES Table of changes in share volume and price during the past 20 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Information by segment (by activity, by geographic area and/or by country) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
– Market risks (liquidity, rates, exchange, shares portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
(dependence on suppliers, clients, agreements, and manufactory processes...) . . . . . . . . . . . . . . . . . . . . . . . . 148
– Legal risks (particular regulation, patent, licenses, significant litigation, exceptional facts...) . . . . . . . . . . . . . . 151
Independent auditors fees and network members fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
Regulatory prudential ratios (bank, insurance, brokers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Company’s financial statements and appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
CORPORATE GOVERNANCE AND ADMINISTRATION Composition and organization of direction, management and officers boards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Directors officers (fees, bonus, stock option plans). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Pursuant to AMF Regulation 98-01, this Annual Report (document de reference) was registered with the AMF (the French stock exchange regulatory authority) on April, 7th 2004.
: Ph o to g ra p h y cr ed its : M éd ia th
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