Under French company law, AXA must allocate 5% of its net income in each fiscal year, after reduction for losses carried forward from previous years, if any, to a legal reserve fund until the amount in that fund equals 10% of the nominal amount of its share capital. The legal reserve is distributable only upon AXA’s liquidation.
AXA’s statuts provide that AXA ordinary shares may be held in registered or bearer form.
Under French regulations relating to the replacement of share certificates and share registers by a system of entries in share accounts (dématérialisation), AXA no longer maintains a register of holders of ordinary shares but instead maintains, through a transfer agent, share accounts in which transfers of registered ordinary shares are recorded. As a result, no share certificates are issued by or on behalf of AXA. Shareholders’ ownership rights are represented by book entries instead of share certificates.
Any owner of ordinary shares of AXA may elect to have its ordinary shares held in registered form and registered in its name in an account maintained by BNP-Paribas for and on behalf of AXA or held in bearer form and recorded in its name in an account maintained by an accredited financial intermediary, such as a French broker, bank or other authorized financial institution. It may, at its expense, change from one form of holding to the other. Both methods are operated through Sicovam SA (which we refer to in this annual report as “SICOVAM”, an organization which maintains share and other securities accounts of French publicly quoted companies and a central depositary system through which transfers of shares and other securities in French publicly quoted companies between accredited financial intermediaries are recorded.
Registered ordinary shares must be converted into bearer shares before being traded on the ParisBourse and, accordingly, must be registered in an account maintained by an accredited intermediary. A shareholder may initiate a transfer by giving instructions to the relevant accredited intermediary. For dealings on the ParisBourse, a tax assessed on the price at which the securities were traded, or impôt sur les opérations de bourse, is payable at the rate of 0.3% on transactions of up to FF1 million and at a rate of 0.15% on transactions exceeding this amount, capped at FF4,000 per transaction. This tax is subject to a rebate of FF150 per transaction. However, non-residents of France are not required to pay this tax. In addition, a fee or commission is payable to the broker involved in the transaction, regardless of whether the transaction occurs within or outside France. Normally, no registration duty is payable in France, unless the transfer instrument has been executed in France.
(“inscription en compte”) of the ordinary shares or in the case of a holder of ADSs, within five days of the registration of the ADRs representing the ADSs), as a result of which the shareholder, acting alone or in concert with others, has reached or exceeded that percentage. The individual or entity must further notify AXA pursuant to the above conditions each time an additional 0.5% threshold is passed. Any shareholder, including any holder of AXA ADRs representing the AXA ADSs, whose holding falls below any of these thresholds must also notify AXA.
In order to permit holders of ordinary shares to give the notices required by law and the statuts of AXA,
AXA is obligated to publish in the Bulletin des Annonces Légales Obligatoires (“BALO”) not later than fifteen calendar days after AXA’s annual ordinary general meeting of shareholders, information with respect to the total number of voting rights outstanding as of the date of the meeting. In addition, if the number of outstanding voting rights changes by 5% or more, AXA is required to publish in the BALO, within fifteen calendar days of a change, the number of voting rights outstanding and provide the Conseil des Marchés Financiers with a written notice.
A holder of ordinary shares, including, for purposes of this paragraph, a holder of ADSs, who fails to comply with the disclosure requirements under French company law set forth in the above paragraphs, will not be permitted, in accordance with, and subject to limitations provided under French company law and the deposit agreement, to exercise voting rights with respect to any ordinary shares exceeding the above referenced thresholds to the extent ownership of these ordinary shares was not properly disclosed to AXA, until the end of a two year period following the date on which the holder complies with these disclosure requirements. In case of violation of the notification requirements provided for under AXA’s statuts, the voting limitations described above will apply if one or more shareholders holding 5% or more of the share capital request their implementation and if their demand is registered in the minutes of the relevant shareholders general meeting. In addition, in both cases, a French court may in specified circumstances, upon the request of AXA’s Management Board, any holder of AXA ordinary shares or the COB, eliminate all or part of the voting rights (and not only with respect to the shares in excess of the relevant threshold) of the relevant holder for a period not to exceed five years.
Under the stock market regulations of the Conseil des Marchés Financiers, and subject to limited exemptions granted by the Conseil des Marchés Financiers, any person or persons acting in concert acquiring one-third or more of the share capital or voting rights of AXA must immediately notify the Conseil des Marchés Financiers and initiate a public tender offer for the balance of its share capital. The tender offer must also cover all securities issued by AXA that are convertible into or exchangeable for equity securities.
January 1, 2017. At the time of issuance, each note was convertible into one ordinary share of AXA, subject to adjustment for transactions including the issuance of securities with preferential subscription rights the increase of share capital in specified circumstances and the absorption, merger or spin-off of the company. Each note is presently convertible into 1.01 AXA ordinary shares following adjustments made in connection with the issuance
of ordinary shares by AXA in June 2000. The notes have a redemption price on maturity of € 269.16 per note.
On February 8, 1999, AXA issued 8,034,204 subordinated convertible notes, each at an issue price of 165, for an aggregate principal amount of € 1,524,489.945. The interest rate is 2.50% per year, payable annually on January 1 of each year, and the gross yield to maturity is 4.45% per year, assuming no conversion or redemption takes place prior to maturity. The notes have a maturity date of January 1, 2014. At the time of issuance, each note was convertible into one ordinary share of AXA, subject to adjustment for transactions, including the issuance of securities with preferential subscription rights, the increase of share capital in specified circumstances, and the absorption merger or spin-off of the company. Each note is presently convertible into 1.01 AXA ordinary shares following adjustments made in connection with the issuance of ordinary shares by AXA in June 2000.
In October 1995, AXA issued mandatorily convertible bonds having an aggregate principal amount of € 320,000,000. The bonds have an interest rate of 4.5% per year and a maturity date of January 1, 2001. In
December 1996, certain of AXA’s subsidiaries repurchased by cash € 128,000,000 of aggregate principal amount of the mandatorily convertible bonds. At December 31, 1999 mandatorily convertible bonds in an aggregate principal amount of € 192,000,000 were outstanding, after intercompany elimination on consolidation. At maturity on January 1, 2001, the outstanding bonds would be converted into an aggregate of 7.08 million AXA ordinary shares, of which 2.83 million will be owned by subsidiaries of AXA. Following adjustments made in connection with the issuance of ordinary shares by AXA in June 2000, the mandatorily convertible bonds were converted into 7.2 million ordinary shares of AXA, of which 2.8 million ordinary shares will be owned by subsidiaries of
AXA. This will increase shareholders’ equity by €320 million and decrease subordinated debt in 2001 by € 192 million (€ 128 million of debt was held by AXA affiliates and, therefore, eliminated on consolidation in prior periods).
currently is located at 101 Barclay Street, New York, New York 10286 and at the principal Paris office of the custodian, currently BNP-Paribas, or any of their successors.
ordinary shares and the consequences of non-compliance as of the date of this prospectus.
French law provides that ownership of capital shares issued by a French company generally will be evidenced only by a record of ownership maintained by either the issuer or its agent or an accredited financial intermediary, such as a bank. Thus references to deposit, receipt, surrender, withdrawal and delivery of AXA ordinary shares refer only to book-entry transfers and do not contemplate the physical transfer or delivery of certificates evidencing such AXA ordinary shares. See “Description of Capital Stock of AXA-Form, Holding and Transfer of Securities” for further information.
Subject to the provisions of the deposit agreement, the depositary has agreed that, upon receipt of notice from the custodian as provided in the deposit agreement of a deposit of AXA ordinary shares with the custodian in form satisfactory to the custodian (in the case of AXA ordinary shares to be held in bearer form), or upon delivery to the depositary of AXA ordinary shares (in the case of AXA ordinary shares to be held in registered form), together with any required certifications, the depositary will execute and deliver, at its Corporate Trust
Upon surrender of an ADR at the Corporate Trust Office for the purpose of withdrawal of the Deposited
Holders of AXA ordinary shares generally cannot receive physical certificates evidencing such AXA ordinary shares. Under French law, no fractional AXA ordinary shares may be delivered. Therefore, the depositary will only accept the surrender for such purpose of ADSs representing a whole number of AXA ordinary shares.
ADRs in lieu of AXA ordinary shares in satisfaction of a pre-release. Each such pre-release or delivery of AXA ordinary shares must be: • subject to a written representation from the person to whom ADRs or AXA ordinary shares are to be delivered that that person or its customer
– assigns all beneficial right, title and interest in the relevant AXA ordinary shares or ADRs, as the case may be, to the depositary in its capacity as such and for the benefit of the holders of ADRs, and
The depositary will also set dollar limits with respect to pre-release transactions to be entered into with any particular pre-releasee on a case-by-case basis as the depositary deems appropriate. For purposes of enabling the depositary to fulfill its obligations to holders of ADRs under the deposit agreement, the collateral referred to in the preceding paragraph shall be held by the depositary as security for the performance of the pre-releasee’s obligations to the depositary in connection with a pre-release transaction, including the pre-releasee’s obligation to deliver AXA ordinary shares or ADRs upon termination of a pre-release transaction.
Act prior to public sale in the United States, unless a registration statement is in effect relating to these AXA
• the deposit of which would, to the actual knowledge of the depositary, infringe any provisions of French law.
AXA ordinary shares on behalf of an owner of AXA ordinary shares, by taking such action will be deemed to represent and warrant that these AXA ordinary shares are validly issued, fully paid and non-assessable and that the person making the deposit is duly authorized so to do. Every such person, including every person depositing
ADRs, subject to the provisions of the deposit agreement, including the provisions in respect of the withholding of taxes and governmental charges and the payment of fees, additional ADRs for an aggregate number of ADSs representing the number of AXA ordinary shares received as dividend or free distribution. The depositary may withhold any such distribution if it does not receive adequate assurances from AXA that the distribution does not require registration under the Securities Act. Instead of distributing ADRs for fractional ADSs, the depositary will sell the aggregate of such fractions and distribute the net proceeds as in the case of a distribution received in cash, or take any other action, with the approval of AXA, as may be appropriate. If additional ADRs are not so distributed, each ADS shall also represent the additional AXA ordinary shares distributed in respect of the
If AXA offers or causes to be offered to the holders of Deposited Securities any rights to subscribe for additional AXA ordinary shares or any rights of any other nature, the depositary, after consultation with AXA, will determine the procedure to be followed to make these rights available to ADR holders or to dispose of these rights on behalf of ADR holders. If the depositary, by the terms of the rights offering or for any other reason, may not either make these rights available to ADR holders or dispose of these rights and distribute the net proceeds to the holders, then the depositary will allow the rights to lapse. If the depositary determines in its discretion that it is lawful and feasible to make these rights available to certain holders of ADRs but not to others: • the depositary will distribute to every ADR holder with respect to whom it determines the distribution to be lawful and feasible, in proportion to the number of ADSs held by that holder, warrants or other instruments, as set forth in the deposit agreement, and
ADRs, to receive any payment in respect of the avoir fiscal for which these holders and beneficial owners may be eligible from the French tax authorities and to receive a refund of any précompte paid to the French Treasury by AXA. Upon request of any U.S. registered holder of ADRs, the depositary will provide a copy of Form RF 1A
• whenever the depository shall receive notice of any meeting of, or solicitation of consents or proxies from, holders of AXA ordinary shares or other Deposited Securities, or
Upon receipt by the depositary of notice of any meeting of holders of AXA ordinary shares, the depositary will mail to the ADR holders: • A copy or summary in English of the notice of the meeting sent by AXA.
• A statement that the registered ADR holders as of the close of business on a record date fixed by the depositary pursuant to the deposit agreement will be entitled, subject to the applicable provisions of French law, AXA’s statuts and the Deposited Securities, which will be summarized in the statement, to instruct the depositary with regard to the exercise of the voting rights, if any, pertaining to the AXA ordinary shares or other Deposited
• Copies or summaries in English of any materials or other documents provided by AXA for the purpose of enabling the ADR holders to give voting instructions.
In accordance with French company law and the statuts of AXA, fully paid AXA ordinary shares that have been held in registered form in the name of the same shareholder since at least the beginning of the second full calendar year preceding the date of the relevant shareholders’ meeting are entitled to double voting rights. Similarly, any eligible owner who has held continuously in its name, since at least the beginning of the second full calendar year preceding the date of the relevant shareholders’ meeting, ADRs evidencing
ADSs representing AXA ordinary shares entitled to double voting rights will be eligible to instruct the depositary as to the exercise of double voting rights. No other ADR holder, including any beneficial owner of ADSs evidenced by ADRs registered in the name of a bank, broker or other nominee, will be eligible to instruct the depositary as to the exercise of double voting rights. Deposited AXA ordinary shares will be entitled to double voting rights to the sole extent that: • since at least the beginning of the second full calendar year preceding the date of the shareholder meeting in question the depositary, upon the request of holders of ADRs, has held the deposited AXA ordinary shares in registered form; • the relevant holders have since at least the same date continuously held ADRs evidencing ADSs representing that number of AXA ordinary shares; and
Upon receipt by the depositary from a holder of ADRs evidencing ADSs of a properly completed voting instruction card on or before the receipt date, the depositary will either, in its discretion,
• use its reasonable efforts, insofar as practical and permitted under any applicable provisions of French law, the statuts of AXA and the Deposited Securities, to vote or cause to be voted the AXA ordinary shares represented by these ADSs in accordance with any non-discretionary Instructions set forth in the voting instruction card or
United States law or the statuts of AXA. These modifications, amendments or additional voting procedures may limit the practical ability of registered holders and beneficial owners of ADRs to give voting instructions in respect of the AXA ordinary shares represented by ADSs or may include restrictions on the ability of registered holders and beneficial owners of ADRs to sell ADSs during a specified period of time prior to a shareholders’ meeting.
AXA will furnish to the depositary annual reports in English containing audited consolidated financial information, semi-annual reports in English containing unaudited interim consolidated financial information and English versions or copies or summaries in English of notices of shareholders’ meetings and other reports and communications that are made generally available by AXA to its shareholders. The depositary will mail, publish or otherwise make available these annual and semi-annual reports and notices of shareholders’ meetings and, at the written request of AXA, any other reports and communications or summaries thereof to holders of ADRs upon receipt from AXA.
ADR at the time the relevant amendment becomes effective will be deemed, by continuing to hold such ADR, to consent and agree to the amendment and to be bound by the deposit agreement as amended thereby. In no event may any amendment impair the right of any ADR holder to surrender its ADRs and receive in exchange the Deposited Securities represented by the ADSs evidenced by these ADRs, except where the amendment is required in order to comply with mandatory provisions of applicable law.
Whenever so directed by AXA, the depositary has agreed to terminate the deposit agreement by mailing notice of the termination to the holders of all ADRs then outstanding at least 30 days prior to the date fixed in the notice for the termination. The depository may likewise terminate the deposit agreement if at any time 90
• a fee for the distribution of securities pursuant to the deposit agreement in an amount equal to the fee for the execution and delivery of ADRs referred to above which would have been charged as a result of the deposit of these securities, but which securities are instead distributed by the depositary to holders of
If any tax or other governmental charge becomes payable by the custodian or the depositary with respect to any ADR or any Deposited Securities represented by the ADSs evidenced by that ADR, such tax or other governmental charge will be payable by the holder of the ADR to the depositary. The depositary may refuse to effect registration of any transfer of that ADR or any withdrawal of Deposited Securities underlying that ADR
York generally close their transfer books, and at any other time, following consultation with AXA to the extent practicable, when deemed expedient by the depositary in connection with the performance of its duties or at the request of AXA. As a condition precedent to the execution and delivery, registration of transfer, splitup, combination or surrender of any ADR, the delivery of any relevant distribution or the withdrawal of Deposited
The depository may refuse to deliver ADRs, register the transfer of any ADR or make any distribution of, or related to, AXA ordinary shares until it has received such proof of citizenship, residence, exchange control approval or payment of taxes and other governmental charges, the identity of any person legally or beneficially interested in the ADR and the nature of that person’s interest, or to provide such other information as the depositary may deem necessary or proper or AXA reasonably may require. The delivery, transfer and registration of transfer of ADRs generally may be suspended during any period when the transfer books of the depositary are closed, or if any such action is deemed necessary or advisable by the depositary or AXA at any time or from time to time, subject to the provisions of the deposit agreement. The surrender of outstanding ADRs and the withdrawal of Deposited Securities may not be suspended, subject only to: • temporary delays caused by closing the transfer books of the depositary for the deposit of AXA ordinary shares in connection with voting at a shareholders’ meeting or the payment of dividends; • the payment of fees, taxes and similar charges; and
The Deposit Agreement is governed by the laws of the State of New York.
United States or any other country, or of any other governmental or regulatory authority or stock exchange, or by reason of any provision, present or future, of AXA’s statuts, or by reason of any provision of any securities issued or distributed by AXA, or any offering or distribution thereof, or by reason of any act of God or war or other circumstances beyond its control, the Depositary or AXA or any of their respective directors, employees, agents, or affiliates shall be prevented, delayed or forbidden from, or be the subject of any civil or criminal penalty on account of, doing or performing any act or thing which by the terms of the deposit agreement or the Deposited
Each holder of ordinary shares or ADSs is entitled to one vote for each ordinary share (or ADS) held of record. However, holders of fully paid ordinary shares who have held these shares in registered form since at least the beginning of the second full calendar year preceding the date of a shareholders’ meeting, enjoy double voting rights with respect to these shares.
Two types of shareholders’ meetings exist under French company law, ordinary and extraordinary. AXA’s statuts provides that an annual ordinary general meeting of shareholders must be convened by the Management
Generally, only actions set forth in a meeting’s agenda may be taken at a shareholders’ meeting. Shareholders may, however, dismiss directors even if this matter was not included in the agenda. Additional resolutions may be submitted for shareholder approval at a meeting by the Management Board if made within 10 days of the publication of the preliminary notice in the BALO by: • one or several shareholders holding 5% of AXA’s ordinary shares; or
ordinary shares must be present (including shares voted by correspondence) for a quorum to exist for an extraordinary shareholders’ meeting.
Under French company law, shares held by entities controlled directly or indirectly by AXA do not have voting rights.
Under French law, a Management Board may be composed of up to seven members that are appointed by the Supervisory Board. Members of the Management Board are appointed for three years and may be reappointed without any limitation for additional three-year terms. The Supervisory Board appoints one of the members of the Management Board as Chairman for a period corresponding to his term as member of the
Under French law, a Supervisory Board may consist of no less than three and no more than twenty-four members. French company law provides that in particular circumstances, such as in the event of a merger, the
Pursuant to French company law, any change in the composition of the Management Board or the
AXA may distribute dividends to its shareholders from net income in each fiscal year (after deductions for depreciation and provisions), as increased or reduced by any profit or loss carried forward from prior years, and as reduced by the legal reserve fund allocation described below. These distributions are also subject to the requirements of French law and the statuts of AXA. Under French law, AXA must allocate 5% of its net income in each fiscal year, after reduction for losses carried forward from previous years, if any, to a legal reserve fund until the amount in that fund equals 10% of the nominal amount of its share capital. The legal reserve is distributable only upon AXA’s liquidation. For additional information on dividend distributions, see “Item 3 - Key Information - Dividends” in “Item 8 - Financial Information - Dividends” included elsewhere in this annual report.
There are no French anti-takeover statutes similar to the anti-takeover statutes enacted by certain states in the United States. However, a number of provisions are available under French company law that have certain anti-takeover effects. In the case of AXA, the relevant provisions include, among other things: • a company’s ability to repurchase its own shares; • the existence of shares with double voting rights; and
• the Management Board’s ability, after prior authorization by the Supervisory Board, to increase the share capital of a company during a tender offer provided that that increase by the Management Board had previously been authorized by the shareholders, the relevant shareholders’ authorization expressly refers to tender offer periods, the share issuance is not reserved and is in compliance with the company’s interest.
AXA that are convertible into or exchangeable for equity securities. For provisions of French company law and
AXA’s statuts imposing notification and disclosure requirements on holders whose AXA shareholding exceeds specified thresholds see “Description of Capital Stock of AXA-Form, Holding and Transfer of Securities”.
Under French company law, the vote of holders of a two third majority of the votes of the shareholders attending or represented at the general meeting is necessary to approve a merger or consolidation. The vote is cast at an extraordinary general meeting of shareholders.
Under French company law, the vote of the shareholders of a surviving corporation to a merger at an extraordinary general meeting is needed (except for a merger of a wholly-owned subsidiary with and into the surviving corporation).
French company law provides that any shareholders may inspect the company’s stock ledger, financial statements, resolutions proposed at general meetings, minutes of general meetings, the list of the members of the Management and Supervisory Boards and shareholders the reports of the Management and Supervisory
Boards, the statutory auditors’ reports, information concerning candidates for the Supervisory Board and certain of its other books and records during the company’s usual business hours at the registered office of AXA. Only documents relating to the last three fiscal years are required to be made available to shareholders.
Under French company law, one or more shareholders can sue the members of the Management
Board and the Supervisory Board of AXA, on behalf of AXA, for damages caused to AXA by the members of the Management Board or the Supervisory Board. Any damages awarded are paid to AXA. One or more shareholders can also sue the members of the Management Board and the Supervisory Board, in his or her own name, for damages personally suffered by him or her. In such a case, any damages awarded are paid to the dissenting shareholder or shareholders. There are no class action lawsuits permitted under French company law.
In addition to financial information required to be published in France, AXA is required to file periodic reports with the U.S. SEC containing certain financial information. AXA files its annual report on Form 20-F, which contains
Under French law, the shareholders have generally the power to amend the statuts. Such an amendment requires the approval of two thirds of the shareholders attending or represented at an extraordinary shareholders’
AXA Merger Corp. and AXA Financial, Inc., filed as an exhibit to the Company’s Registration Statement on Form
F-4 (registration No. 333-50438) filed with the U.S. SEC on November 21, 2000.
Under current French company law and AXA’s statuts, there are no general limitations on the right of non-resident or non-French persons to own or, where applicable, vote the AXA ordinary shares, whether held in the form of shares or ADSs. No prior authorization is required in connection with acquiring a controlling
• loans and guarantees granted by the acquiring party to the French company in amounts evidencing control over the financing of the French company, and
Ministry of the Economy. No prior authorization or prior notice, as the case may be, is required for such a transaction entered into by a person, or group of persons acting in concert, who is a resident of a member state of the
European Economic Area, although that person, or group of persons, is required to provide the French Ministry of the Economy with notice upon completion of the transaction.
For purposes of this discussion “U.S. Holder” is any one of the following: • An individual who is a citizen or resident of the United States; • A corporation, or other entity taxable as a corporation, created or organized in or under the laws of the
United States or of any political subdivision of the United States, including the District of Columbia; • An estate the income of which is subject to U.S. Federal income taxation regardless of its source; • A trust if a court within the United States is able to exercise primary supervision over the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust; or
If a partnership holds shares of AXA Financial common stock or AXA ordinary shares or ADRs representing
This summary is not a complete description of all of the tax consequences of the ownership or disposition of AXA ordinary shares or ADRs representing ADSs. It is based on the current tax laws of France and the United
Republic of France for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to
Taxes on Income and Capital dated August 31, 1994 (which we refer to in this annual report as the “Treaty”), all as in effect on the date of this annual report and all subject to change, possibly with retroactive effect. In particular, the following discussion does not take into account any changes to the French tax law provisions relating to the précompte and the avoir fiscal. The French Government has recently amended the rules relating to the avoir fiscal. Under these amendments, the avoir fiscal granted to shareholders who are not individuals was reduced from 40% to 25% for distributions effected in 2001 and will by further reduced from 25% to 15%
The summary is not intended to apply to holders of shares of AXA ordinary shares or ADRs in particular circumstances, such as: • Dealers in securities; • Traders in securities who elect to apply a mark-to-market method of accounting; • Financial institutions; • Regulated investment companies; • Tax-exempt organizations; • Insurance companies; • Persons holding shares of AXA Financial common stock, AXA ordinary shares or ADRs representing ADSs as part of a hedging, straddle, conversion or other integrated transaction; • U.S. Holders who hold their shares of AXA Financial common stock, AXA ordinary shares or ADRs representing
• Holders of AXA ordinary shares or ADRs representing ADSs that own directly or indirectly or are deemed to own, five percent or more of either the total voting power or the total value of the stock of AXA or that carry on a trade or business in France through a permanent establishment or fixed base for the purpose of which AXA ordinary shares or ADRs have been acquired or held.
ADRs representing ADSs is not attributable to a permanent establishment or fixed base in France and who is
If a U.S. Holder is a corporation that owns, directly or indirectly, 10% or more of the capital of AXA, the withholding tax rate will be reduced to 5%, provided that all other requirements set forth in the preceding paragraph are met.
Pursuant to an instruction published on June 7, 1994 (which we refer to in this annual report as the
“Instruction”), dividends paid in cash or in the form of AXA ordinary shares to an Eligible U.S. Holder who is entitled to the “avoir fiscal” (as discussed below) will no longer be subject to the French withholding tax of 25% (with this tax reduced at a later date to 15%, subject to filing formalities), but will be immediately subject to the reduced rate of 15% provided that the Holder establishes before the date of payment that he is a resident of the United States under the Treaty.
Under French domestic tax law, a resident of France generally is entitled to the avoir fiscal, which is a form of tax credit, in respect of a dividend received in cash or in the form of ordinary shares from a French corporation in an amount equal to: • 50% of the net dividend received if the beneficiary of the distribution is an individual; • 40% of the net dividend received if the beneficiary of the distribution is not an individual, increased by an amount corresponding to 20% of the précompte per share actually paid in cash by AXA, if any, less the 15% withholding tax.
Under French domestic law, shareholders who are not resident in France are not eligible for the avoir fiscal. Under the Treaty, however, an Eligible U.S. Holder is generally entitled to a payment from the French
• The Eligible U.S. Holder, where required by the French tax administration, must show that he or she is the beneficial owner of the AXA ordinary shares or ADRs and that the holding of those AXA ordinary shares or ADRs does not have as one of its principal purposes the purpose of allowing another person to take advantage of the grant of the avoir fiscal under the Treaty.
• If the Eligible U.S. Holder is a regulated investment company, it should not own, directly or indirectly, 10%
Under the Treaty, any payment of the avoir fiscal is subject to the 15% dividend withholding tax. Thus, for example, if a dividend of 100 were payable by AXA to: • an Eligible U.S. Individual Holder and the requirements are satisfied, that holder would initially receive 85, the 100 dividend less a 15 withholding tax). That holder would also receive an additional payment from the French Treasury of 42.5, consisting of the avoir fiscal of 50, less the withholding tax on that amount.
Thus, the total net payment to the Eligible U.S. non Individual Holder would be 119.02, although, as discussed below, that holder would recognize 140 of income for U.S. Federal income tax purposes.
• were earned and taxed more than five years before the distribution, would be subject to the “précompte” (a French equalization tax). The précompte is a tax paid by the corporation at the time of a dividend distribution that is equal to 50% of the net dividend distributed, except that, when a dividend is distributed from the long-term capital gains reserve, the précompte is equal to the difference between a tax based on the regular corporate tax rate applied to the amount of the declared dividend and the taxes previously paid by the corporation on the income being distributed. The amount of any précompte would be charged to shareholders’ equity as part of the dividend distribution.
• have certified by the U.S. financial institution that is in charge of the administration of the AXA ordinary shares or ADRs of that Eligible U.S. Holder, and
The Application for Refund and instructions for its completion is available from the U.S. Internal Revenue
Under the Treaty, special rules apply to: • any “Eligible Pension Fund”, which is a tax-exempt entity established in, and sponsored or established by a resident of, the United States, the exclusive purpose of which is to provide retirement or employee benefits and which does not own, directly or indirectly, 10% or more of the capital of AXA,
• any “Individual Holding Shares in a Retirement Plan”, meaning an individual who is a resident of the United
States under the Treaty and who owns AXA ordinary shares or ADRs through an individual retirement account, a Keogh plan or any similar arrangement. (“Eligible Pension Funds”, “Eligible Not-For-Profit Organizations”
and “Individuals Holding Shares in a Retirement Plan” are referred to collectively in this annual report as
Provided they are entitled to Treaty benefits under the limitation on benefits provisions in Article 30 of the Treaty, Eligible Tax-Exempt Individual Holders are entitled to receive from the French Treasury a payment equal to 30/85ths of the gross avoir fiscal (the “partial avoir fiscal”), less a 15% dividend withholding tax on that amount, notwithstanding the general requirement described above that the individual holder be subject to U.S. tax on both the dividend and the avoir fiscal. Thus, for example, if a dividend of 100 were payable by AXA to an Eligible Tax-Exempt Individual Holder and the requirements of the instruction are satisfied, that individual holder would initially receive 85 (the 100 dividend less a 15 withholding tax). The Eligible Tax-Exempt
Individual Holder would be further entitled to an additional payment from the French Treasury of 15, consisting of the partial avoir fiscal of 30/85ths of 50, less the 15% withholding tax on that amount. When the avoir fiscal is equal to 40% of the net dividend (for instance for “Eligible Pension Funds” and “Eligible Not-for-Profit
Organizations”), Eligible Tax-Exempt Holders are entitled to receive from the French Treasury a payment equal to 30/85ths of the avoir fiscal, less a 15% withholding tax on that amount. Thus, the total net payment to the Eligible Tax-Exempt Individual Holder would be 100. The Eligible Tax-Exempt Individual Holder, where required by the French tax administration, must show that it is the beneficial owner of the AXA ordinary shares or ADRs and that the holding of those AXA ordinary shares or ADRs does not have as one of its principal purposes the purpose of allowing another person to take advantage of the grant of the partial avoir fiscal under the Treaty.
Tax on Sale or Redemption of AXA Ordinary Shares or ADRs
Under the Treaty, no French tax is levied on any capital gain derived from the sale of AXA ordinary shares or ADRs representing ADSs by a U.S. Holder who: • is a resident of the United States under the Treaty,
Transfers of AXA ordinary shares and ADRs representing ADSs will not be subject to French transfer taxes unless the transfer is effected by means of a written agreement that is executed or enforced within France.
Should such written agreement be executed or enforced in France, it would be subject to transfer taxes at the rate of 1%, up to a maximum of FF20,000 per transaction.
AXA ordinary shares or ADRs representing the right to less than 25% of AXA’s profits.
For U.S. Federal income tax purposes, the gross amount of a distribution by AXA to U.S. Holders, including any amounts of French tax withheld, will be treated as dividend income to the extent paid out of AXA’s current or accumulated earnings and profits, as determined for U.S. Federal income tax purposes. If a U.S. Holder has the option to receive a distribution either in cash or in the form of AXA ordinary shares, and such U.S. Holder chooses to receive AXA ordinary shares (a “Stock Distribution”), such U.S. Holder will be treated for purposes of the preceding sentence as having received a distribution to the extent of the fair market value of these AXA
ordinary shares. The gross amount of any related avoir fiscal or précompte payment also will be treated as dividend income. That dividend income will not be eligible for the dividend received deduction generally allowed to corporations under Section 243 of the Code. To the extent that an amount received by a U.S. Holder exceeds the U.S. Holder’s allocable share of AXA’s current and accumulated earnings and profits, the excess will be applied first to reduce the Holder’s basis in his or her AXA ordinary shares or ADRs, and then, any remaining excess would constitute gain from the deemed sale or exchange of his or her AXA ordinary shares or ADRs. See “Tax on Sale or Exchange of AXA Ordinary Shares or ADRs” below.
U.S. Holder may generally elect to treat these French withholding taxes as either a deduction from gross income or a credit against the U.S. Federal income tax liability of that U.S. Holder. The maximum foreign tax credit allowable generally is equal to the U.S. Holder’s U.S. Federal income tax liability for the taxable year multiplied by a fraction, the numerator of which is the U.S. Holder’s taxable income from sources without the United States and the denominator of which is the U.S. Holder’s taxable income from all sources for the taxable year. That foreign tax credit limitation is applied separately to different “baskets” of income. For purposes of applying the foreign tax credit limitation, dividends are generally included in the “passive income” basket or, if received by certain holders and certain other conditions are met, the “financial services income” basket.
French paying agent, which represents the difference between the 25% and the 15% tax rates, would not be eligible for the foreign tax credit.
Tax on Sale or Exchange of AXA Ordinary Shares or ADRs
ordinary shares or ADRs by a U.S. Holder will be treated as United States source income for foreign tax credit limitation purposes.
• is notified by the U.S. Internal Revenue Service that he or she has failed to properly report payments of interest and dividends and the U.S. Internal Revenue Service has notified AXA that that individual holder is subject to backup withholding, or
In addition to U.S. Federal income taxes, U.S. Holders may be subject to United States state and local taxes wih respect to their AXA ordinary shares or ADRs representing ADSs. U.S. Holdes should consult their own tax advisors regarding such matters.
The commentary below describes the impact of market risk exposures on AXA’s financial position and operating results under French GAAP.
RISK MANAGEMENT In an effort to protect and enhance shareholder value, AXA actively manages its exposures to market risks. Risk exposures are reduced through asset-liability management and prudent and diversified underwriting and investing. Primary responsibility for risk management rests with the local subsidiaries that know best their respective products, clients and risk profile. This approach allows subsidiaries to react in a timely manner to changes in financial markets, insurance cycles, and economic and political environments.
AXA’s exposure to market risk is minimized as a result of the nature of its operations. By virtue of AXA’s geographic diversification, the impact of local economic and insurance cycles is reduced. Furthermore, a large proportion of
AXA’s insurance operations consists of products where the majority of the investment risk is borne by the policyholders.
Life and Savings. At December 31, 2000, approximately 36% of the total net life insurance liabilities represented separate account (unit linked) contracts, whereby all investment risks and rewards are transferred to the policyholders. Amounts due to policyholders are based on the fair value of the investments supporting such products.
At December 31, 2000, interest-sensitive products and policies with long-term fixed payout patterns represented 29% of the total net life insurance liabilities. Interest-sensitive products earn income primarily from the spread between investment income, largely earned on investment grade fixed-income securities, and interest credited to policyholder account values. AXA strives to maintain this spread by adjusting interest credited rates at contractually specified intervals. AXA’s ability to adjust interest-crediting rates may be constrained by competitive
Item 19 forces and minimum guaranteed crediting rates, if any. Interest rate risk is further reduced by managing the duration and maturity structure of each investment portfolio in relation to the estimated duration of the liabilities it supports. Proceeds from policies with long-term fixed payout patterns, such as guaranteed income contracts, annuities in the payout phase, and disability income policies, are predominately invested in highly-rated fixedincome securities with the objective of matching their duration to the underlying liabilities.
As a result of the diversity of insurance products and the regulatory environments in which AXA operates, different methods of asset-liability management are utilized by different subsidiaries. Most of these methods fall into two major categories as set out below: • Duration analysis is primarily used for interest sensitive products and policies with long-term fixed payout patterns. AXA uses duration analysis to create a portfolio of predominately fixed income securities that minimizes the risk of changes in interest rates to AXA.
Property Casualty Insurance and Reinsurance. Generally, management of market risk is less critical for property and casualty insurance and reinsurance as the amounts and timing of claims do not vary significantly with interest rates or other market changes that affect the underlying investments. The premiums received and the return on investments (net investment income and realized gains and losses) provide substantial liquidity to meet claims payments and associated expenses as they arise. Consequently, there is greater flexibility in investment strategies while managing investments to ensure sufficient liquidity to meet the claims as they become due based on actuarial assessment.
SENSITIVITY ANALYSES AXA performs sensitivity analyses to quantify the exposure of certain financial instruments to interest rate risk, equity price risk and foreign currency exchange risk. Such sensitivity analyses quantify the potential loss in terms of estimated fair value or future earnings under certain scenarios of reasonably possible adverse changes in financial markets. The sensitivity analyses estimate risk exposure and, therefore, potential net gains are ignored.
Financial instruments within the scope of the analyses include fixed maturity and equity securities, mortgage loans, policy and other loans, debt and other borrowings, derivative instruments, and insurance contracts (life and savings, property and casualty, and international insurance). In accordance with SEC regulations, real estate was not included within the scope of the analyses.
Such analyses include AXA’s material insurance operations and holding companies in France, the United
The carrying value of AXA’s consolidated invested assets is generally at historical cost or amortized costs except for assets backing UK with-profit contracts, separate account assets and trading account securities, which are held at market value.
• For life insurance contracts with mortality and morbidity provisions, the portion of estimated fair value attributed to such provisions is considered to be unaffected by changes in interest rates or equity prices.
• For participating life insurance contracts, the fair value was considered to be the greater of 1) the fair value of the assets designated to support such policies or 2) the future cash flows discounted using the guaranteed minimum interest rate, if any. For interest-sensitive life insurance contracts, a discounted cash flow approach was used. As is the case with most variable rate liabilities, interest sensitive life insurance contracts’ fair values were not significantly affected by market changes as future crediting rates can be adjusted, subject to guaranteed minimum interest rates, if any, to reflect market changes.
Equity Price Risk. The estimated potential exposure to a 10 % decline in the value of December 31, 2000 and 1999 stock markets would result in an estimated fair value loss for all items within the scope of the analyses of approximately €2.3 billion and €1.8 billion, respectively, before minority interest allocations and tax effects. A 20% decline would result in fair value losses of approximately €4.6 billion and €3.5 billion at December 31, 2000 and 1999, respectively. The increase in exposure was mainly due to the increase in insurance-related invested assets following the acquisition of Nippon Dantai in March 2000 and an increase in equity investments in the U.S. operations.
Foreign Exchange Rate Risk. The potential exposure to a 10% adverse fluctuation of December 31, 2000 and 1999 foreign currency exchange rates would be a French GAAP earnings loss of €240 million and €69 million, respectively. In order to calculate the largest potential exposure to foreign currency fluctuations, all material combinations of foreign currency fluctuations were analyzed. The analyses revealed the most adverse scenario for AXA in terms of French GAAP earnings would be a decline in all currencies relative to the Euro.
Other limitations on the sensitivity analyses include: the use of hypothetical (but reasonably possible) market movements which do not represent management’s view of expected future market changes; the assumption that interest rates in all countries move identically; the assumption that all global currencies move in tandem against the euro; and the lack of correlation of interest rates, equity prices and foreign currency exchange rates.
In addition, the analyses do not include certain significant items such as real estate, deferred acquisition costs and value of purchased business in-force. These factors limit the ability of these analyses to accurately predict the impact of future market movements on fair values and future earnings.
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2000, 1999 and 1998 F-5
We conducted our audits in accordance with generally accepted auditing standards in the United States.
In our opinion, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 2000, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with generally accepted accounting principles in France. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
Generally accepted accounting principles in France vary in certain material respects from generally accepted accounting principles in the United States. The application of the latter would have affected the determination of consolidated net income for each of the three years in the period ended December 31, 2000 and determination of consolidated shareholders’ equity and consolidated financial position at December 31, 2000 and 1999 to the extent summarized in notes 26 and 27 to the consolidated financial statements.
Investments in companies accounted for by the equity method 1,217 1,408 1,193
Future policy benefits and other policy liabilities (Note 12) 182,896 145,648 131,272
Ordinary shares, € 9.15 nominal value, 525.5 million authorized shares and 416.2 million issued and outstanding shares at December 31, 2000 (1999: 465.6 million authorized shares and 356.3 million issued and outstanding shares) 3,809 3,260 3,204
TOTAL LIABILITIES, MINORITY INTERESTS, SUBORDINATED DEBTS, MANDATORILY CONVERTIBLE BONDS AND NOTES, AND SHAREHOLDERS’ EQUITY 474,616 507,480 384,835
(a) The Euro amounts were converted using the previously reported financial information in French francs and the French franc to Euro exchange rate established on January 1, 1999 of FF 6,55957 = €1.00. See Note 1.
(in euro millions except per ordinary share amounts) 2000 1999 1998 (a)
Equity in income of unconsolidated entities (Note 3) (23) (10) 11
Net Income Per Ordinary Share (Note 16) : Impact of exceptional operations (b) 1,643 156 –
(b) The consolidated statements of income under French GAAP include as supplemental information the after-tax effect of exceptional operations on net income and net income per ordinary share data (basic and diluted basis). U.S. GAAP does not allow such disclosure of the per share effects of exceptional operations, which do not qualify as extraordinary items and such non-recurring items do not qualify as extraordinary items under U.S. GAAP. It should be noted that “net income excluding exceptional operations” as defined may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
The exceptional operations include: – In 2000: – the consolidated net realized gain on the sale of Donaldson, Lukfin & Jenrette (“DLJ”), which totaled €2,004 million net group share (€2,071 million net group share and net of realized and unrealized losses on Credit Suisse Group shares received in respect of that transaction of €67 million); – realized losses and valuation allowances of €236 million (net group share) relating primarily to the Equitable Life highyield bond portfolio as a result of broad weaknesses in credit markets from a slowing economy during the third and fourth quarter of 2000, coupled with a review of investment strategy following AXA’s acquisition of the minority interests in AXA Financial ; and
– In 1999: €156 million (net group share) related to the acquisition of Guardian Royal Exchange (GRE).
AXA - CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Ordinary Shares Capital in Retained
Number Nominal excess of earnings (in euro millions except number of shares) in millions value nominal value and reserves Total
Cumulative effect of change in accounting principle stock options – – – (67) (67) Issuance of ordinary shares 9.56 87 897 – 985 Cash dividend – – – (425) (425) Exercise of stock options 1.05 10 59 – 68
Goodwill from Royale Belge acquisition – – – (388) (388) Impact of foreign currency fluctuations – – – (488) (488) Effect of restructurings – – – 81 81 Purchase accounting adjustments – – – (85) (85) Net income – – – 1,531 1,531
Change in goodwill arising from Royale Belge acquisition – – – 52 52 Impact of foreign currency fluctuations – – – 954 954 Change in goodwill arising from UAP acquisition (b) – – – 88 88 Effect of restructurings – – – 8 8 Transition allowance – – – 7 7 Net income – – – 2,021 2,021
Conversion of 6.0% mandatorily convertible bonds at maturity 4.10 38 245 – 282 Issuance of ordinary shares – Merger of AXA Participations 2.00 19 197 – 216
Adjustments to reconcile net income to net cash provided by operating activities: Net realized investment gains (d) (10,256) (3,669) (3,605)
Depreciation and amortization expense 1,163 1,999 396 Change in insurance reserves 14,873 14,863 10,331 Net change in trading activities and broker-dealer receivables & payables 1,457 (494) (4,953) Net change in repurchase agreements (2,907) 9,817 1,011
Net cash provided by operating activities 14,078 33,776 12,947 Cash flows from investing activities (e): Maturities and sales: Loans and other 4,787 3,138 2,862
Net cash provided by financing activities 11,710 2,192 111 Net impact of foreign exchange fluctuations 915 837 (150) Change in cash due to change in scope of consolidation 452 3,606 (7) Net increase in cash and equivalents 11,935 3,709 2,214 Cash and equivalents beginning of year 14,130 10,421 8,207 Cash and Equivalents End of Year (f) 26,065 14,130 10,421 Supplemental cash flow information: continuing and discountinued operations
(a) The Euro amounts were converted using the previously reported financial information in French francs and the French franc to Euro exchange rate established on January 1, 1999 of FF 6.55957 = €1.00. See Note 1
(d) Includes the realized gain on the sale of Donaldson, Lufkin & Jenrette (DLJ) in 2000 of €3,407 million of which €1,336 million was attributed to minority interests.
(e) Includes the cost of acquisitions and proceeds from the sale of subsidiaries. (f) In 2000, non-cash transactions, whereby ordinary shares were issued or exchanged by AXA, included (i) conversion of the mandatorily convertible notes that matured in January 2000 of €282 million, (ii) the merger of AXA Participations (an existing wholly-owned subsidiary of AXA) with and into AXA (the Company) of €216 million, and (iii) ordinary shares of AXA exchanged in connection with the buyout of the minority interests in AXA Financial of €3,131 million.
AXA, a French société anonyme (the “Company” and, together with its consolidated subsidiaries, “AXA”), is the holding company for a worldwide leader in financial protection and wealth management. AXA’s principal non-French operations include (i) AXA Financial, Inc. (“AXA Financial”) and its consolidated subsidiaries including
Holding (“AXA Nichidan”) and its consolidated subsidiary AXA Nichidan Life, which includes the operations of Nippon Dantai acquired in March 2000 (Japan). Refer to note 24 for further information on the entities included within AXA.
The Company’s consolidated financial statements are prepared as at December 31. Certain entities within
AXA have a reporting year-end that does not coincide with December 31st. However, AXA Asia Pacific Holdings,
AXA Nichidan and their subsidiaries have a fiscal year of September 30th and therefore the financial statements used in consolidation are those as at September 30th for such subsidiaries.
(Third Insurance Directive) of December 19, 1991, (collectively, the “New Regulation”); Décret No. 95-153 of
February 7, 1995 and its related Arrêté of April 19, 1995, modifying certain claims reserves calculations, and
December 31, 2000 and at December 31, 2000 and 1999 are included in notes 26 and 27.
USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenues and expenses for the accounting period. Changes in such estimates and assumptions may affect the amounts reported and disclosed in future periods.
FOREIGN EXCHANGE TRANSLATION The consolidated financial statements in prior periods were prepared in French francs. Amounts reported in Euros for the year ended December 31, 1999 were derived from the financial information prepared in French francs. Amounts presented for the year ended December 31, 1998 were prepared and reported in French francs.
For the year ended December 31, 2000 and as at December 31, 2000,
The principal changes in presentation for the year ended December 31, 2000 include the following and, unless otherwise stated below, the prior year financial information has been restated accordingly for comparative purposes: – In order to improve profitability measurements of the operating units, general expenses that were allocated previously to intermediate holding companies were reallocated to the relevant operating subsidiaries.
– In order to better reflect actual business volume, income related to the sale of investment products by insurance companies, in particular income earned by AXA Client Solutions (United States), has been recorded as revenues.
– In 2000, acquisition costs that relate to unearned premiums in respect of the property and casualty business were included under the balance sheet caption “Other assets”. They were previously under the Balance
BASIS OF CONSOLIDATION AXA’s principles of consolidation are generally as follows: – Companies in which AXA exercises controlling influence are fully consolidated. Controlling influence is generally presumed when AXA directly or indirectly holds at least 40% of the voting rights and no other shareholder directly or indirectly holds a percentage greater than AXA.
and other shareholders have agreed to exercise joint controlling influence are proportionately consolidated.
Subsidiaries and equity interests are not consolidated if: – from the date of acquisition, the corresponding subsidiary or equity securities are held for sale,
– the subsidiary does not have a material impact on the Company’s consolidated financial condition, or
In preparing the consolidated financial statements, the effect of transactions among consolidated companies is generally eliminated. In accordance with French insurance regulations, realized gains or losses on sales of assets, other than shares of subsidiaries, from or to a consolidated insurance company, are not eliminated if the assets were supporting or are intended to support insurance reserves.
Intercompany gains or losses realized on the sale of a subsidiary’s shares are eliminated, except if they are included in the calculation of policyholder dividends.
The total or partial transfer of securities between two AXA consolidated subsidiaries (for which AXA has a level of interest less than 100% in either entity) will effect the value of that security as reported in AXA’s consolidated financial statements, after the transfer. This difference does not impact operating results as it is reported as change within shareholders’ equity (and presented separately in the Statement of Shareholders’ Equity as “effect of restructurings”).
The principal changes in scope of consolidation in 2000 are set out below.
Financial occurred on January 2, 2001. 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
Japan. In March 2000, AXA acquired Nippon Dantai and integrated its existing Japanese life insurance operations (formerly AXA Life Japan) along with Nippon Dantai’s operations into a new company called AXA
Argentaria (“BBVA”), and as a result, AXA increased its ownership interest in AXA Aurora to 100%.
has a 51% ownership interest) acquired the 26% minority interest in AXA China Region. As a result, AXA’s ownership interest in AXA China Region increased from 35% to 51%. The impact of this transaction was to reduce the net income attributed to minority interests and, therefore, increase AXA’s consolidated net income for the post ninemonth operating period in 2000 (as AXA China Region has a September 30th fiscal year end).
The principal divestiture in 2000 was DLJ, which was sold to Credit Suisse Group. As a result, only nine months of DLJ’s operating results were included in AXA’s consolidated statement of income.
(“GRE”), which had insurance operations in the United Kingdom, Ireland, continental Europe and Asia.
In accordance with Article D 248-3 Decree of February 17, 1986 and the recommendation of the COB, the French stock exchange authority, and Bulletin No. 210 in January 1988, when new shares are issued by
Goodwill and VBI will be evaluated based on circumstances and events that may arise and indicate the carrying value is no longer recoverable resulting in a change in estimated useful life or a writedown of the carrying amount. In the event that certain facts or circumstances arise (that is, “triggering events”), an evaluation will be performed to determine whether the carrying value of goodwill and VBI is supportable based on the future operating cash flows and profits (before amortization of goodwill and VBI). The operating cash flows used in this assessment are those of the entity acquired, if separately identifiable, or the business segment that acquired the entity, or at the level of AXA as a whole in the event that such an acquired company has activities that fall in more than one business segment of AXA.
VALUATION OF INVESTMENTS Fixed maturity securities are stated at amortized cost, less valuation allowances. Purchase premium or discount is amortized over the life of the security. Generally, valuation allowances are recorded for declines in the value of a specific fixed maturity security that are deemed to be permanent. In the case of AXA’s non-
Real estate, including real estate acquired in satisfaction of debt, is stated at depreciated cost, less valuation allowances. Real estate acquired in satisfaction of debt is valued at estimated fair value at the date of foreclosure.
or depreciated cost. AXA considers current fair value to be equal to the anticipated sales price for those cases where a sale is in negotiation.
or on quoted market prices of comparable securities. Unrealized investment gains and losses are included in net investment results.
Assets allocated to UK with-profit contracts, for which the policyholder participates in the investment return under the contract terms (refer to “Liabilities for insurance benefits and claims”), are reported at estimated fair value, with the change in estimated fair value of such assets recorded in income leading to an adjustment to the related insurance reserves.
(“ACAVI”), U.S.: Separate Accounts and UK and Australia: unit linked funds). The policyholder bears the investment risks and receives the rewards of the associated assets. The assets supporting these contracts are generally segregated and not subject to claims of creditors which may arise out of the companies’ other businesses. The assets are reported at estimated fair value with the change in estimated fair value of such assets included as an adjustment to the related insurance reserves.
Securities sold under agreements to repurchase and securities purchased under agreements to resale are treated as financing arrangements and carried at the contract amounts that reflect the amounts at which the securities will be subsequently reacquired or resold as specified in the respective agreements. Interest is accrued on such contract amounts and is included in broker-dealer-related receivables or payables in the consolidated balance sheets. Repurchase and resale agreements with the same counterparty and same maturity date are presented net in the consolidated financial statements.
The difference between the carrying amount (original cost or amortized cost) and the fair value represents unrealized gains and losses will be reflected in AXA’s operating results after taking account of tax, attribution to participating policyholder contracts (as an adjustment to insurance reserves) and allocation to minority interests.
(except for certain participating policies), deferred acquisition costs are amortized in proportion to anticipated premiums. For universal life and investment-type contracts, and certain participating policies, deferred acquisition costs are amortized over the expected average life of the contracts based on estimated gross profits emerging
OTHER ASSETS Real estate (property) owned and occupied by AXA is included under the balance sheet caption “Other assets” and depreciated on a straight-line basis over the estimated useful life of the buildings, ranging from 20 to 50 years.
Liabilities are established for participation rights whether or not such amounts have been credited to the policyholders.
performance and other company experience with policyholders. Benefit amounts paid for UK with-profit contracts reflect, in part, the estimated fair value of assets allocated to the contracts. Accordingly, the liability for these contracts (including terminal bonuses) fluctuates with the estimated fair value of assets, as well as management’s assessment of the future level of benefits to be paid. Terminal bonuses are the principal way UK with-profit contracts fulfil the objective of providing for the policyholders’ reasonable expectations.
The balance sheet in a UK insurance company will include not only the policyholder insurance benefits but also the “Fund for Future Appropriations” (“FFA”). The FFA represents the excess of assets over liabilities in the long term business fund, and in general is used to fund the future terminal bonuses to be attributed to participating policyholders in accordance with the terms of the insurance contract. In the consolidated financial statements, the portion of the FFA attributable to future terminal bonuses is included in the balance sheet caption
The liability for insurance claims and claims expenses is based upon estimates of the expected losses and unexpired risks for all lines of business and takes into consideration management’s judgement on the anticipated level of inflation, regulatory risks and the trends in cost and frequency of claims. Estimates of expected losses are developed using historical claims experience, actual against estimated claims experience, other known trends and development and local regulatory requirements. The liability is undiscounted except for disability annuities for which the payments are fixed and determinable.
The estimated fair value of derivative instruments is determined based on quoted market prices, dealer quotes, pricing models or other methods determined by management, based on amounts estimated to be realized on settlement, assuming current market conditions and an orderly and reasonable disposition. Fair value of option contracts includes unamortized premiums, which are deferred and amortized over the life of the option contracts on a straight-line basis or are recognized through the change in the fair value of the option in the net investment results.
REVENUE RECOGNITION Gross premiums from all types of life insurance are generally recognized as revenue when due. The revenues also include the premiums received on separate account contracts and contracts with insignificant mortality or morbidity risk, which are accounted for as deposits under U.S. GAAP, whereby only policy charges related to acquisition, administration, investment management and mortality charges are included as revenue. The life insurance operations revenues also include revenues from other business activities, in particular, commissions earned on the sale or distribution of investment products.
The change in the unearned premium reserve in the period is included in gross premiums and, therefore, total revenues in the period.
Asset management and other financial services revenues mainly include commissions and other related fees earned for services rendered.
NET INVESTMENT RESULTS Net investment results include investment income, realized investment gains and losses, net of investment expenses (including interest expense except in respect of other financial services operations, which are recorded in bank operating expenses) and valuation allowances. Realized investment gains and losses are determined principally on a specific identification basis.
Net investment results exclude the net investment income and realized and unrealized gains and losses on separate account (unit linked) assets that are reflected as a change in the separate account (unit linked) liabilities.
AXA’s ownership interest in that subsidiary decreases and a dilution gain or loss arises. This gain or loss is recorded in the net investment results.
OTHER Restructuring Costs. Pursuant to a defined plan, provisions for restructuring operations related to an acquired company are established for costs such as severance payments and other staff reduction expenses, costs associated with closing office sites and other associated exit activity. Such provision is included in the opening balance sheet of the acquired company with no impact on post-acquisition operating results of the acquirer.
Pensions and other post-retirement benefits. AXA administers pension plans and provides other post-retirement related benefits to its employees worldwide. The pension cost is charged against income. The pension cost and the related provision is based on the advice of qualified actuaries and calculated using actuarial valuation methods, which give a substantially even charge over the expected service lives of employees on a going concern basis. The pension cost for AXA (the Company) and its subsidiaries is recorded under the balance sheet caption “Other liabilities” (for pension plans not administered within AXA) or “Future policy benefits” (for pension plans administered by insurance companies within AXA).
Treasury Shares. The investment holding of a parent company’s shares by AXA (the Company) or its subsidiaries (“treasury shares”) is accounted for as an investment in equity securities if the treasury shares are considered held for sale. The carrying amount represents the original cost of these shares. However, if the treasury shares are not considered held for sale, they are accounted for as a reduction of shareholders’ equity.
Accounting for stock-based compensation. In general, AXA uses the intrinsic value-based method of accounting for compensatory share option incentive plans offered by its subsidiaries. Under such method, stock-based compensation expense is recorded only if the current market price of the underlying ordinary shares
Regulation No. 2000-05 of the Comité de la Réglementation Comptable, which became effective as of
January 1, 2001, sets forth a new basis for preparing consolidated financial statements in France for insurance companies. Most of the accounting policies set forth in this new statement are already in effect at AXA and, therefore, the adoption will result only in the following changes: – Newly consolidated entities and acquisitions of additional equity investments in consolidated subsidiaries: In general, for acquisitions completed after January 1, 2001, it will no longer be possible to charge goodwill to shareholders’ equity in an amount equal to the portion of the acquisition financed through the issuance of new shares.
– Corporate income tax: The elimination in consolidation of the “capitalization reserve” (specific to French life insurance companies) will not give rise to the recording of a deferred tax asset and deferred interest credited to policyholders, except in cases where securities (eligible to the capitalization reserve) are likely to generate a realized loss upon sale.
– Equalization reserves: Equalization reserves that were not established to cover catastrophic risks will be eliminated in future periods.
– Unexpired risk provision: Interest income generated by unearned premiums will be deducted from the amount of the reserve to be established.
COB). As a result, AXA will not be required to restate the prior years to be presented in the consolidated financial statements for the year ended December 31, 2001. The new accounting policies will lead to relatively few changes in the presentation and disclosures provided in the notes to the consolidated financial statements.
In addition, effective from January 1, 2002, the French accounting regulations relating to provisions for restructuring and other related costs will become more restrictive. The impact of this future change is not expected to be material.
Fixed Maturities: Assets allocated to UK with-profit contracts (3,529) (3,313) – – (3,529)
Total Equity Securities and Mutual Funds 45,135 45,492 8,581 957 52,758
of total equity investments at December 31, 2000; – the insurance-related invested assets backing the insurance liabilities were predominantly holdings in domestic investments (or in the local currency of the liabilities); – breakdown by industry sector : 40% in government institutions, 20% in financial services, 30% in nonfinancial services such as manufacturing and pharmaceuticals and 10% in mutual funds; and
Fixed maturities not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 2000, approximately 33% of fixed maturities were due from French borrowers, 17% from US borrowers, 11% from Belgium borrowers and 11% from UK borrowers, with no other country representing more than 10% of the borrowings.
is accounted for as an investment in equity securities if the treasury shares are considered held for sale. At December 31, 2000 and 1999, treasury shares held for sale totaled 4.8 million and 3.7 million, respectively. The carrying value of such shares was €385 million and €265 million, respectively, and the market value was €740 million and €511 million, respectively. In 2000, AXA sold 1.1 million of its shares held in treasury to third parties and recorded a realized gain of €60 million, net group share (1999: nil and 1998: €161 million).
Balance at Other Balance at (in euro millions) January 1, 1999 Additions Deductions Changes December 31, 1999
(a) In 1999, there was a reclassification of assets from invested assets to other assets of €953 million and a corresponding reclassification of the related provision for valuation allowances of €451 million.
The provisions for valuation allowances relating to financial services operations were included in bank operating expenses. The related provision increased by €3 million in 2000, €4 million in 1999 and decreased by €154 million in 1998.
AXA Colonia affiliates: – General Ré-CKAG 654 – – – 654 –
National Mutual Life affiliates: – AXA Australia Home Loans Trust 74 – – 1 74 –
– AXA Australia Diversified Property Trust 90 – – (2) 89 5
– AXA Australia Home Loans Trust 61 – – 13 74 8
– AXA Australia Diversified Property Trust 73 – – 18 90 1
INVESTMENTS IN OTHER AFFILIATES The following table sets forth an analysis of entities accounted for using the cost method at December 31, 2000: F-25
The approximate fair value of financial instruments that are subject to fair value disclosure requirements, is based on quoted market prices, if available, estimated discounted cash flow, or quoted market prices of comparable instruments. The fair value information for AXA’s significant derivative activity is included in note 17. Estimates of fair value do not reflect any premium or discount that could result from offering for sale at one time AXA’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the disclosed fair value estimates cannot necessarily be realized in immediate settlement of the instruments and, therefore, do not necessarily represent values for which these instruments could have been sold at the date of the consolidated balance sheet.
For publicly traded fixed maturities and equity investments, estimated fair value is determined using quoted market prices. For fixed maturities without a readily ascertainable market value, AXA has generally estimated fair value using a discounted cash flow approach, including provisions for credit risk, generally based upon the assumption such securities will be held to maturity. Fair value for equity investments which do not have a readily ascertainable market value has been estimated by AXA generally based on financial and other information, including reference to quoted prices for similar securities.
Real estate assets are subject to periodic valuations conducted by qualified external appraisers based on local legal requirements. Such expert valuations are based on a number of techniques including comparative studies and capitalization of income.
Acquired Companies: AXA Colonia and Albingia (acquisition of minority interests) 39 158 – (3) – 195 29 – (7) – 217 29
DLJ (1998 issuance of ordinary shares) 56 – – (2) – 54 – 4 – (58) – 29
Royale Belge (acquisition of minority interests) 738 – – (22) (78) 638 – – (22) – 616 28
AXA Financial Inc. (acquisition of minority interests) – – – – – – 4,782 – – – 4,782 20/30b
Goodwill under euro 30 million each 201 27 7 (32) – 203 130 – (100) – 233 –
(a) Structural changes include additional acquisitions and sales of acquired companies. (b) The portion of goodwill attributed to the Asset Management Segment is to be amortized over 20 years.
The following acquisitions in 2000 were all accounted for under the purchase method of accounting.
In December 2000, AXA and AXA Merger Corp. (a special purpose wholly-owned subsidiary of AXA created specifically for purposes of effecting the transaction) completed their exchange offer for all of the outstanding shares of common stock of AXA Financial, other than the shares owned by AXA and its subsidiaries and the shares held in treasury by AXA Financial. Each share of AXA Financial validly tendered was exchanged for $35.75 in cash and 0.295 of an AXA American Depositary Share (ADS). As a result of the exchange offer, AXA and its subsidiaries, including AXA Merger Corp., increased their ownership interest from 60% to 92.4% of the issued and outstanding shares of AXA Financial common stock. In addition, pursuant to an Agreement of Plan of Merger dated October 17, 2000 among AXA, AXA Merger Corp. and AXA Financial, AXA had an obligation to acquire all of the remaining shares of AXA Financial common stock outstanding through the merger of AXA Merger
Corp. with and into AXA Financial. The merger was completed on January 2, 2001 (see note 25 “Events Subsequent to December 31, 2000”). For the purposes of the consolidated financial statements, the date of acquisition was
In connection with the transaction, AXA issued 25.8 million of ordinary shares in the form of AXA ADSs, of which 20.9 million were issued by December 31, 2000 (€3.1 billion in increase in shareholders’ equity at
December 31, 2000 following the completion of the exchange offer, or a total increase of €3.9 billion after the completion of the merger in January 2001 as additional 4.9 million shares were issued on January 2, 2001).
The aggregate purchase consideration was $10,504 million (€11,213 million) and included the following items: – €3,868 million, representing the value of the 25.8 million ordinary shares issued by AXA at a price of €149.90 per share at December 22, 2000, being the closing date of the offer period, and
by Alliance Capital, goodwill in the aggregate totaled $3.9 billion (approximately €4.3 billion) and is being amortized over 20 years, or €214 million per year before allocation to minority interests in Alliance Capital. Three months of post-acquisition operating results of Sanford C. Bernstein, Inc. were included in AXA’s consolidated net income in 2000, including goodwill amortization expense of €23 million (group share).
Sun Life & Provincial Holdings (SLPH) – buyout of minority interests (44%)
In July 2000, AXA acquired the minority interests in SLPH. The date of acquisition was July 12, 2000 and at such time SLPH was delisted from the London Stock Exchange and, subsequently, renamed AXA UK Holdings.
As a result of the transaction, AXA’s ownership interest in SLPH increased from 56% to 100% and, therefore, 100% of SLPH’s post-acquisition operating results were included in AXA’s consolidated net income, including goodwill amortization expense of €35 million.
Nichidan’s capital. The purchase price and additional cash injections were funded primarily by subordinated debt issued by AXA in February and March 2000. The goodwill in respect of this acquisition was ¥192 billion1
(€1.9 billion) and is being amortized over 30 years. In addition, value of purchased life business in-force was recorded of €1.4 billion, see the related section below.
AXA’s ownership interest in AXA Nichidan was 96.4% at year-end, being September 30, 2000 as AXA
Since the year-end reporting date for AXA Nichidan is September 30th, AXA’s consolidated financial statements for the year ended December 31, 2000 include only six months of post-acquisition operating results (April 1-
September 30), including goodwill amortization expense of €31 million (group share).
The excess purchase price over the carrying value of the portion of net assets acquired totaled AU$473 million (€300 million). Goodwill is being amortized over 20 years, or €15 million per year, and is consistent with the estimated useful life used in the accounting for the acquisition of AXA Asia Pacific Holdings (formerly
As a result of the transaction, AXA’s consolidated net income in 2000 included the post-acquisition operating results of AXA China Region on a 51% basis, including goodwill amortization expense of €15 million.
Through SLPH, AXA acquired the UK group Guardian Royal Exchange (GRE) in May 1999. The acquisition was accounted for under the purchase method of accounting. Total purchase consideration was £3,417 million
(€5,110 million). The estimated fair value of the net assets acquired totaled €3,972 million. The excess purchase price over the fair value of net assets acquired totaled €1,138 million, which was attributed to goodwill. The goodwill primarily related to GRE’s UK, Irish and German insurance subsidiaries and is being amortized over 30 years.
A portion of the goodwill was attributable to a decrease in net assets of the acquired companies at date of acquisition, as there was a significant deficiency in insurance claims reserves recorded in the opening balance sheet by AXA. This deficiency related to the difference between local statutory basis and AXA’s accounting policies on establishing property and casualty claims reserves. Consequently, an exceptional amortization of goodwill of €446 million (€259 million, net group share) was recorded as a charge against French GAAP income in 1999.
At December 31, 2000 and 1999, gross goodwill relative to this transaction was €1,007 million. The portion of goodwill corresponding to the value of cash paid by the issuance of treasury shares was €337 million at December 31, 1999 (1998: €388 million), which was charged directly to retained earnings and reserves.
At December 31, 2000 accumulated amortization totaled €54 million (of which €22 million represented an amortization charge in 2000) and, therefore goodwill net of accumulated amortization totaled €616 million.
In accordance with French GAAP, a portion of the goodwill in proportion to value of ordinary shares issued to total purchase price can be charged directly to retained earnings and reserves. Consequently, €1,641 million of the excess purchase price was charged directly to retained earnings and reserves and the remaining amount of €222 million was recorded as a goodwill asset. As a result of purchase accounting adjustments made in 1998 and in 19991, the excess purchase price increased to €1,866 million at December 31, 1999, of which €1,577 million represented the amount charged directly to retained earnings and reserves and €289 million represented the goodwill asset.
At December 31, 2000, gross goodwill asset was €289 million, accumulated amortization was €39 million
(of which €10 million represented an amortization charge in 2000) and, therefore, goodwill net of accumulated amortization totaled €250 million.
An analysis of goodwill amortization (positive and negative) is presented below: F-32
Worms of €36 million was written off in 1999 as the operations were generating operating losses.
At December 31, 2000, accumulated amortization on goodwill totaled €1,552 million (1999: €1,514 million).
At December 31, 2000, goodwill (net of notional amortization) recorded in retained earnings and reserves totaled €4,194 million (1999: €1,740 million and 1998: €1,942 million). The increase of €2,454 million in 2000 was due to (i) the buyout of minority interests in AXA Financial of €2,518 million as ordinary shares of
AXA were issued, and (ii) notional amortization of €64 million (€11 million relating to the Royale Belge acquisition in 1998 and €53 million relating to the UAP acquisition in 1997).
The decrease between 1998 and 1999 was due to adjustments relating to the (i) acquisition of AXA Royale
Belge’s minority interests of €52 million, (ii) notional amortization relating to UAP due to the dilution of AXA’s ownership interest in SLPH in 1999 (as SLPH issued additional ordinary shares to partly fund the GRE acquisition)
(a) Acquisition of Nippon Dantai (March 2000). (b) Includes the impact of foreign currency fluctuations.
7 - Financing Debt Long-term and short-term financing debt consist of the following: F-35
Long-Term Financing Debt: AXA, The Company: Medium Term Notes, 3.3% to 8.2%, due through 2005 162 162
Compagnie Financière de Paris: Variable rate due through 2003 108 108
(A) The Company had standby committed credit facilities at December 31, 2000 of €4.6 billion, of which €188 million was outstanding (1999: €2.3 billion of which €758 million was outstanding). These committed credit facilities consist of several different credit lines with interest rates based on the Euro Interbank Offered
(C) In July 2000, AXA Financial issued Senior Notes of $480 million at 7.75% due 2010. At December 31, 2000, $476 million was outstanding (€507 million).
Other financial services: AXA Banque: fixed and variable rate 315 230
(A) As a result of the sale of DLJ, short-term operating debt decreased by €1,801 million. At December 31, 2000, the principal short-term borrowings related to AXA Bank Belgium (€1,684 million) and AXA Banque
The decrease in minority interests in 2000 was primarily attributable to the buyout of minority interests in AXA Financial (€3,457 million), Sun Life & Provincial Holdings (€1,718 million) and AXA China Region
SUBORDINATED DEBT In accordance with the French regulations, debt for which reimbursement is subordinated to other creditors in the event of a company’s liquidation, insolvency or bankruptcy and which has an original maturity date of at least five years (notice period of at least five years in the case of perpetual debt) is considered mezzanine capital.
National Mutual Life: Deferrable Loan Agreement, variable rate due 2001 174 173
(D) In February 2000, the Company issued €1,099 million 3.75% subordinated convertible notes. The proceeds were used primarily to finance the acquisition of minority interests in AXA China Region and the acquisition of Nippon Dantai. In 2000, €1 million of the total debt was converted into ordinary shares of AXA. The conversion into shares of all notes issued would result in the issuance of 6.7 million of AXA ordinary shares.
The Company has the right to redeem these notes starting in January 2007 at a price of €196.00 per note.
(F) In connection with a $5.0 billion debt “shelf” registration filed with the U.S. SEC in November 2000, on December 15, 2000, AXA issued an aggregate of US$1,940 million (€2,138 million using year-end exchange rates) of dated subordinated notes in three currency tranches as set out below.
At December 31, 2000, the aggregate maturities of subordinated debt based on required principal payments at maturity for 2001 and the succeeding four years totaled €239 million, €nil, €11 million, €93 million and €417 million, and €7,501 million in 2006 thereafter.
MANDATORILY CONVERTIBLE BONDS AND NOTES In October 1995, in connection with its acquisition of Abeille Ré, the Company issued €320 million aggregate principal amount of 4.5% Mandatorily Convertible Bonds. In December 1996, certain of AXA’s subsidiaries repurchased (by cash) €128 million of aggregate principal amount. The outstanding amount at December 31, 2000, after elimination of intercompany activities, was €192 million. The Mandatorily Convertible Bonds will mature in January 2001 and convert into an aggregate of 7.2 million ordinary shares (subject to certain antidilution adjustments), of which 2.8 million ordinary shares will be owned by subsidiaries of the Company. See note 25
In January 1997, in conjunction with the acquisition of UAP, AXA issued €282 million of 6.0% Notes
(“AXA Notes”). The AXA Notes matured in January 2000 and were converted into 4.1 million ordinary shares, which decreased mezzanine capital and increased shareholders’ equity by €282 million.
Expected return on plan assets 4.5% to 9.0% 4.5% to 9.0% 5.5% 5.5%
Expected return on plan assets (629) (475) (318) – (1) (1)
At December 31, 2000 and 1999, AXA Financial had a prepaid pension cost of $270 million (€287 million)
and $216 million (€214 million), respectively. At December 31, 2000, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for AXA Financial pension plans with accumulated benefit obligations in excess of plan assets were €354 million and €45 million (1999: €323 million and €36 million).
At December 31, 2000 and 1999, plan assets relating to pension plans sponsored by AXA (the Company)
and its French and certain other European subsidiaries and represented by investment contracts issued by AXA’s consolidated life insurance subsidiaries amounted to €615 million and €542 million, respectively. AXA carries an equal amount as a liability for future policy benefits. Other plan assets consist primarily of investments in corporate and government fixed maturity securities and equity securities, real estate investments, and investments in mutual funds.
The expected costs of providing postretirement benefits are accrued during the period that the employees earn such benefits. AXA funds postretirement benefits costs as the benefits are utilized, and made postretirement benefits payments of €46 million, €3 million and €28 million for the years ended December 31, 2000, 1999 and 1998, respectively. The assumed health care cost trend rate used in measuring the accumulated postretirement benefits obligation in 2000 was 7%, gradually declining to 4.25% in 2010 (1999: 7.5% gradually declining to 2.5% in the year 2009).
Future policy benefits and unearned premium reserves 186,619 148,097 4,947 4,699 1,816 1,583 193,382 154,380
Claim reserves, net of reinsurance ceded 8,588 7,898 24,348 23,481 6,305 6,325 39,242 37,703
(a) At December 31, 2000, approximately 71% of total life insurance liabilities relate to participating policyholder contracts (whereby the policyholder participates in the investment return / profits of the insurance company including UK with-profit contracts) and separate account contracts (1999: 73%).
(in euro millions) and Casualty Insurance and Casualty Insurance and Casualty I0nsurance
Impact of foreign currency fluctuations 11 51 407 269 (160) (116)
Increase (decrease) in provision attributable to prior years 247 951 (631) (123) (794) (566)
Claims and claims expenses attributable to prior years 6,845 1,693 4,956 809 4,681 633
In prior years, AXA has issued insurance policies and assumed reinsurance for cover related to environmental pollution and asbestos exposure. The 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, principally in the US. 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.
December 31, 2000, AXA has made cumulative payments relating to such contracts of €254 million (1999: At December 31, 2000 and specific to environmental pollution and asbestos, claims, AXA had insurance claim reserves for (i) reported insurance and reinsurance claims of €306 million (1999: €194 million) and (ii)
additional reserves for incurred but not reported (IBNR) claim liabilities of €497 million (1999: €375 million).
13 - Net Investment Results The sources of net investment results are summarized as follows: F-47
Net investment income: Mortgage, policy and other loans 1,496 1,279 1,221 – – – – – 3 1,496 1,279 1,224
Realized investment gains (losses): Mortgage, policy and other loans (6) (43) (31) (41) 40 – 1 (1) 11 (46) (4) (21)
Of which: Investment Spread Before Intersegment Elimination 7,886 6,039 5,246 218 227 169 2,865 644 179 10,968 6,910 5,594
Net realized investment gains (losses): Mortgage, policy and other loans (6) (31) (26) – (12) (5) – – 1 (6) (43) (31)
On November 3, 2000, AXA sold its interest in DLJ to the Credit Suisse Group. Total proceeds were $7.3 billion (€8.4 billion) and included $2.4 billion in cash and 25.7 million shares of Credit Suisse Group. On November 6, 2000 Credit Suisse Group repurchased 6.4 million of its shares for $1.2 billion, leaving 19.3 million shares of
In addition, the net investment result for the Life and Savings Segment included a realized loss and investment valuation allowance related to the high-yield bond portfolio in the U.S. operations. As a result of broad weaknesses in the credit market from a slowing economy during third and fourth quarter 2000, a loss of €604 million was recorded (€236 million net group share and net of the impact on deferred acquisition costs). Investment valuation allowances on fixed maturities at AXA Financial amounted to €236 million and €291 million for the years ended
In connection with the Sanford C. Bernstein, Inc, transaction, AXA Financial’s ownership interest in Alliance
and note 23 “Other Liabilities” for further details). As a result, there was no impact on AXA’s consolidating operating results.
In May 1999, DLJ completed its offering of 18.4 million shares of a new class of its common stock, priced at US$20 per share, representing 17.9% of DLJdirect, DLJ’s online brokerage unit. A realized gain of €120 million
When securities or real estate assets are contributed to the funds, a gain or loss is recognized corresponding to the difference between the estimated fair value of the securities or real estate transferred and AXA’s historical carrying value of such assets at the date of transfer.
Net investment income: Change in unearned premium reserve ceded 66 97 94 (40) (46) (49) 8 (24) (32) 34 27 13
Years ended December 31, (in euro millions) 2000 1999 1998 (a)
(a) Reclassification of €15 million between Property and Casualty Segment and International Insurance Segment and reinsurance ceded
At December 31, 2000, accounts receivable from reinsurers totaled €775 million, accounts payable to reinsurers totaled €1,642 million and cash deposits from reinsurers totaled €1,954 million (1999: €1,248 million, €1,297 million and €1,699 million, respectively).
Deferred income tax expense results from changes in temporary differences in the basis of assets and liabilities for financial reporting and income tax purposes. The sources of these differences are presented below.
Insurance policy acquisition costs, policy reserves and reinsurance (499) 41 (118)
(b) The change between the balance at December 31, 1999 and 2000 is primarily due to the disposal of DLJ (€523 million) and the impact of the tax reform in Germany that reduced the enacted tax rate ( €115 million).
In addition, net operating loss carryforwards for tax purposes of €130 million that are available indefinitely include AXA Corporate Solutions Insurance Co. of €39 million and AXA Global Risks UK Ltd of €91 million.
Effect of dilutive securities: Dilutive securities issued by subsidiaries (a) – (5) – (29) – (16)
Net income attributable to ordinary shares and potentially dilutive securities 405.95 3,954 376.14 2,031 361.67 1,534
Net Income Per Ordinary Share excluding exceptional operations (diluted) – 5.69 – 4.98 – 4.24
RISK MANAGEMENT ACTIVITIES AXA’s insurance and reinsurance operations use derivative instruments to manage their asset and liability exposures and, principally, interest rate and foreign currency exposures.
December 31, 2000 was €41,280 million (1999: €17,410 million). The unexpired terms at December 31, 2000 and 1999 generally ranged from less than one year to five years. At December 31, 2000, the cost of terminating outstanding interest rate swaps in a loss position would be €65 million, and the unrealized gain on outstanding swaps in a gain position would be €320 million. AXA currently has no intention of terminating these contracts prior to maturity. In 2000, a net loss of €6 million was recorded in connection with interest rate swap activity
(1999: net gain of €10 million and 1998: net gain of €20 million).
Equitable Life has an interest rate cap program designed to hedge crediting rates for interest sensitive individual annuity contracts. Interest rate caps 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. The outstanding notional amounts of contracts purchased and sold as at December 31, 2000 totaled €735 million and €750 million, respectively. The net premium paid by Equitable
In addition, the French insurance companies use interest rate caps to hedge interest rate fluctuations.
At December 31, 2000, the notional amount of purchased interest rate caps was €14,329 million (1999: € 36,579 million). The net premium paid in 2000 was €31 million (1999: €32 million) with an initial average duration of between seven to ten years. The premium is amortized on a straight-line basis over the life of the contracts.
The notional value of call and put options used by the insurance companies and financial services operations
(excluding DLJ and its trading activities in 1999) was approximately €430 million in 2000 (1999: €377 million).
The net premiums received related to these options totaled €3 million in 2000 (1999: €4 million). AXA Asia
U.S. insurance regulators and the State of Israel in the context of the ICHEIC.
In addition, AXA is cooperating with a similar body in Belgium, the Buysse Commission.
OTHER COMMITMENTS In the normal course of business, AXA principally through its financial services operations enters into letters of credit for the purpose of facilitating certain financing transactions and for securing various margin requirements.
Commitments to finance : Guarantees : Other : Commitments for future construction – – 11 –
Assessing the extent of unpaid policies issued to Holocaust victims is complex due to the passage of time, incomplete records, restitution programs, payments to blocked accounts, currency devaluations, insurance portfolio transfers and nationalization of insurance companies. This assessment involves historical, actuarial, economic, regulatory and legal expertise, research and analysis. While the outcome of these matters cannot be predicted with certainty, based on the information currently available to it, management believes that the ultimate resolution of these matters should not have a material adverse effect on the consolidated financial position of AXA, taken as a whole. Due to the significant uncertainties and complexities involved in resolving these matters (including the risk of regulatory sanctions against AXA’s U.S. affiliates under legislation that has been adopted in various
To date no such lawsuit or investigation has resulted in an award or settlement against AXA in an amount material to the consolidated financial position or results of operations of AXA, taken as a whole. Although the outcome of any lawsuit or investigation cannot be predicted with certainty, particularly in the early stages of an action, management believes that the ultimate resolution of the lawsuits and investigations referred to in this paragraph should not have a material adverse effect on the consolidated financial position of AXA, taken as a whole. Due to the nature of such
In some cases, amounts available for dividends are also subject to regulatory capital adequacy tests, individual subsidiary restrictions contained in company by-laws or approval of the company chief actuary.
In accordance with European Union directives, insurance companies organized in European Union member countries are required to maintain minimum solvency margins which must be supported by capital, retained earnings and reserves, including unrealized appreciation or depreciation on securities and, in France or in certain other countries (as approved by local regulators), unrealized capital gains on real estate as reported in regulatory filings. AXA’s insurance operations in countries outside of the European Union are also subject to capital adequacy and solvency margin regulations. At December 31, 2000, management believes AXA’s subsidiaries are in compliance with all applicable solvency and capital adequacy margin requirements.
Germany and Belgium accounted for nearly 90 % of AXA’s consolidated insurance reserves at December 31, 2000 and 1999. The table below presents certain statutory information that related to these entities (and before allocation to minority interests).
Principal life Principal Property Principal life Principal Property operations & Casualty (including operations & Casualty (including the international the international (in euro millions) insurance operations) insurance operations)
(a) The amount at December 31, 2000 is an estimate, as certain insurance operations have not yet completed their regulatory returns for 2000. (b) The statutory capital and surplus is an aggregate number, being the sum of the statutory capital and surplus for each insurance company in each country subject to local regulatory requirements, which may differ from jurisdiction to jurisdiction.
Options exercisable at year end 2,307,936 51.67 1,427,502 38.02 2,746,209 35.87
(a) Price refers to weighted average exercisable price in Euro. (b) In June 2000, AXA issued 30.2 million ordinary shares, which were issued with preferential subscription rights and according to the terms and conditions of the AXA share option plans, the number of share options in AXA ordinary shares were increased in proportion to the increase in share capital.
Stock options issued to AXA employees, outstanding at December 31, 2000 and exercisable at such date are as follows: F-60
In connection with AXA’s buyout of minority interests in AXA Financial and upon completion of the merger with AXA Merger Corp. ( a wholly owned subsidiary of AXA) with and into AXA Financial on January 2, 2001, a portion of the outstanding employee stock options in AXA Financial were exchanged for options in AXA ADSs, refer to Note 25 “Events Subsequent to December 31, 2000” for further information.
Under a separate variable option plan, in 1996 AXA granted key managers options which vest over five years to acquire approximately 2 million shares of a wholly-owned subsidiary which has as its principal asset bonds which are exchangeable into 21,523,125 AXA Asia Pacific Holdings shares. The shares under option would represent 25% of the shares issued by the subsidiary, if and when such options are exercised. Any shares acquired by exercising options are nontransferable and the holders have certain rights to put the shares to AXA for a price based on the equivalent market price of AXA Asia Pacific Holdings common stock at the date when put.
Total employee stock-based compensation cost charged to earnings was €21 million, €21 million and €19 million for the years ended December 31, 2000, 1999 and 1998, respectively.
Since January 1, 2000, AXA has been party to the following transactions which may be deemed to have been either material to AXA or the related party in question or unusual in their nature or conditions which involved goods, services, or tangible/intangible assets: AXA/Finaxa Trademark License. The name “AXA” and the AXA trademark are owned by Finaxa. On
May 21, 1996, AXA and Finaxa entered into a licensing agreement pursuant to which Finaxa (1) 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, and (2) agreed not to grant licenses to use the AXA trademark to any other company or partnership unless (i) that company or partnership holds an ownership interest in Finaxa or (ii) Finaxa and/or AXA hold, directly or indirectly, an interest in that company or partnership.
AXA’s non-exclusive license may be terminated at any time by either party, three months after delivery to the other party of a written notice of termination. Finaxa has, however, agreed not to exercise its right to terminate the license so long as Finaxa is AXA’s largest shareholder. Upon termination, AXA and the companies to which it has granted sublicenses are required to cease utilization of the AXA trademark and any sublicenses will immediately terminate.
AXA Financial: (i) sold 6.5 million shares of the Credit Suisse Group, received in connection with the sale of DLJ, to AXA for $1.2 billion; and
All these transactions were on arms-length terms. Also in connection with this transaction, AXA Financial entered into continuity agreements with 43 executives of AXA Financial. These agreements were approved by the special committee of independent AXA Financial Board members created to review the terms and conditions of AXA’s offer in order to promote the stability of AXA Financial’s management and its focus on the ongoing business of
AXA Financial. Among the executives who entered into these continuity agreements were Edward D. Miller,
Acquisition of the Minority Interest in Sun Life & Provincial Holdings (SLPH). In connection with
AXA’s buyout of the minority interests in SLPH in July 2000 and described in note 6 “Business Combinations”
Combinations”, AXA contributed cash of approximately Yen 207 billion (€2 billion) to increase AXA Nichidan’s capital.
Loans. AXA from time to time makes capital contributions and/or loans to its subsidiaries and affiliates to finance their business operations. As at December 31, 2000, the aggregate amount outstanding in respect of loans made by AXA to its subsidiaries or affiliates was approximately €2.88 billion and the largest amount of such loans outstanding during 2000 was also approximately €2.88 billion. This amount represents approximately 30 separate loans originated at different times and bearing interest at varying rates which generally reflected prevailing market rates at the respective dates such loans were originated. At December 31, 2000, there were no loans from AXA (the Company) to any member of AXA’s Management or Supervisory Board.
AXA has had certain significant acquisitions including Compagnie UAP (1997), Royale Belge minority interests
As a result of these acquisitions, AXA increased significantly its participation in insurance, financial services and other operations throughout AXA. Partly due to these acquisitions and partly due to objectives to improve AXA
former Reinsurance Segment (AXA Corporate Solutions Reinsurance, formerly named AXA Reinsurance) and the
Transnational Property and Casualty Group, formerly included in the Property and Casualty Segment (AXA Corporate
No customer accounted for 10% or more of AXA’s consolidated revenues in 2000. No segment is dependent upon a single customer, or a few customers, the loss of which would have a significant effect on the earnings of the segment. AXA is not dependent on any one, or a few, independent brokers or independent agents or other insurance companies for which a loss of business would have a material adverse effect on the earnings of any one of the segments or AXA as a whole.
Life and Savings Segment products and services. Includes individual and group traditional term and whole life insurance (including participating policies whereby policyholder participates in the net investments results or profits of the insurance company), immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products and other investment-linked products)
International Insurance Segment products and services. The reinsurance operations principally focus on property damage, third party liability and marine property and third party liability reinsurance primarily through proportional and non-proportional treaties. The products in the insurance operations within this segment, which specifically relate to AXA Corporate Solutions Insurance, include large commercial risk coverage to large national and international corporations principally including property and casualty; marine aviation and transport; construction risk; financial risk; and directors and officers liability.
Other Financial Services Segment products and services. Principally related to DLJ that was sold in 2000, whose products and services included securities underwriting, sales and trading, merchant banking, financial advisory services, investment research, venture capital, correspondent brokerage services, securities lending, online interactive brokerage services and other advisory services. This segment also includes other financial services activities conducted primarily in France and Belgium.
Information described as “Insurance’’ below includes the three insurance segments: Life and Savings,
Property and Casualty and International Insurance. Information described below as “Financial Services” includes both the Asset Management Segment and the Other Financial Services Segment.
Gross premiums and financial services revenues 45,997 15,579 3,651 2,984 11,760 – 79,971
Change in unearned premium reserve (32) (210) (197) – – – (439)
Insurance benefits and claims (51,002) (12,824) (3,739) – – – (67,564)
Income before income tax expense 4,382 304 207 865 751 2,668 9,177
(a) Includes acquisition costs (net of change in DAC and change in unearned premium reserve) plus amortization of value of purchased life business in-force (VBI).
Change in unearned premium reserve (1) 207 (197) – – – 9
Total benefits, claims and other deductions (41,748) (12,978) (3,294) (1,106) (7,802) (61) (66,987)
Income before income tax expense 1,955 787 67 372 552 77 3,810
Equity in income (loss) of unconsolidated entities 6 2 – – – 2 11
In addition to the amortization of goodwill, AXA also has amortization expense related to value of purchased business in-force (VBI), which relates specifically to the Life and Savings Segment, see note 6 “ Business Combinations”
ANALYSIS OF OPERATING COSTS AND EXPENSES: Year ended December 31, 2000 Life Other and Property International Total Asset Financial Holding
Investments in companies accounted for by the equity method 646 646 73 73 499 499 1,217 1,217
TOTAL CASH AND INVESTED ASSETS 381,097 395,374 17,717 17,883 7,964 8,980 406,774 422,236
Carrying Fair Carrying Fair Carrying Fair Carrying Fair (in euro millions) value value value value value value value value
Assets allocated to UK with-profit contracts 25,332 25,332 – – – – 25,332 25,332
Mortgage, policy and other loans 25,098 25,169 863 862 53 53 26,014 26,084
TOTAL CASH AND INVESTED ASSETS 340,823 351,740 32,419 35,495 7,855 8,139 381,097 395,374
Pension obligations and other similar liabilities (see note 11) (a) 3,395 2,212
In 2000, €221 million of total restructuring provisions was utilized and included: (i) €19 million in respect of Albingia acquired in 1999 in connection with the GRE acquisition (Germany), (ii) €45 million in respect of the restructuring of the UK and Irish operations of GRE acquired in 1999, (iii) €54 million relating to the restructuring of AXA’s Belgium operations that commenced in 1998, and (iv) €64 million relating to the restructuring of AXA’s
French operations that commenced in 1999. In addition, €41 million established as part of the restructuring provision in France in 1999 was released to income in 2000.
In 1999, the increase in provisions was attributable to the acquisition of GRE and the change program project being undertaken in AXA France as summarized below.
• France. In order to consolidate the Company’s leading position in its market, AXA France has undertaken a full-scale change program that involves the entire organization. AXA France recorded a provision in 1999 of €213 million (net of tax) to cover the cost of implementing this change initiative.
(see note 6 “ Business Combinations” and note 13 “Net Investment Results” for further details).
EURO The total estimated cost of the changeover of AXA’s operations to report in Euros is approximately €180 million, of which €75 million was incurred up to December 31, 2000. 45% of the total cumulative costs to
December 31, 2000 related to the information systems and 28% relate to training costs. These costs are charged against income in the period that the cost is incurred. No material provision was established.
In 2000, the names of certain subsidiaries were changed as set out below.
– In connection with the integration of reinsurance and large commercial risk operations (within the International
– In the United Kingdom, the asset management operations of AXA Sun Life Asset Management began to market its products under the name of AXA Investment Managers UK. In Germany, AXA Colonia Asset
Management and AXA Colonia AG were renamed AXA Asset Management Deutschland Gmbh and AXA
– In the United Kingdom, Sun Life & Provincial Holdings (SLPH) was renamed AXA UK Holdings, following the buyout of minority interests in SLPH by AXA in 2000.
United Kingdom AXA Asset Management Ltd 100.00 94.90 100.00 93.79 AXA Equity & Law Plc 99.94 99.94 99.94 99.94 AXA Reinsurance UK Holding Ltd 100.00 99.70 100.00 99.72 Guardian Royal Exchange Plc 100.00 99.99 100.00 56.31 Guardian Royal Exchange International BV – – 100.00 56.31 AXA UK Holdings Plc 100.00 99.99 56.32 56.31
Germany AXA Colonia Konzern AG 90.86 90.17 86.98 86.04 GRE Continental Europe Holding Gmbh 100.00 90.17 100.00 86.04
Asia/Pacific AXA Nichidan Life (*) 100.00 96.39 – – AXA Insurance Hong Kong 100.00 100.00 100.00 100.00
Spain AXA Aurora Iberica de Seguros y Reaseguros 99.68 99.68 99.82 69.72 AXA Aurora Vida de Seguros y Reaseguros 99.68 99.68 99.82 69.72
Portugal AXA Portugal Companhia de Seguros 93.76 99.30 99.55 98.97 AXA Portugal Seguros Vida 95.09 95.09 95.09 95.06
Compagnie Financière de Paris 100.00 100.00 97.18 97.18 Compagnie Parisienne de Participations 100.00 100.00 100.00 97.18
Germany AXA Asset Managers Deutschland Gmbh 100.00 94.90 100.00 90.00 AXA Colonia Bausparkasse AG 99.65 89.85 99.65 85.75 AXA Investment Managers Deutschland Gmbh 85.00 80.66 77.50 70.64 AXA Vorsorgebank (*) 100.00 90.17 – –
Asia/Pacific Dongbu AXA Life Assurance Co Ltd – – 50.00 50.00
Belgium Assurances de la Poste 50.00 49.90 50.00 49.90 Assurances de la Poste Vie 50.00 49.90 50.00 49.90
Asia/Pacific Members Equity Pty Ltd (*) 50.00 25.50 – – AXA Australia Home Loans Trust 100.00 51.00 100.00 47.11 AXA Australia Diversified Property Trusts 23.00 11.70 25.50 10.90 Sime AXA Behad – – 30.00 30.00
Worms to Deutsche Bank. Under the terms of the agreement, AXA will retain certain of Banque Worms’ business assets, including those related to discontinued businesses, as well as the majority of its investment securities. In addition, AXA will provide a guaranty to Deutsche Bank covering certain losses incurred by Banque Worms in the event of payment defaults associated with loans transferred with Banque Worms in the transaction. AXA’s consolidated financial statements for 2000 included an exceptional charge of €125 million relating to the provision for current and future losses relative to this transaction. The sale was completed on April 2, 2001. The final purchase price is currently being determined.
CAPITAL AND FINANCING OPERATIONS On January 1, 2001, the outstanding 4.5% mandatory convertible bonds matured. At such time, the debt was converted into 7.2 million ordinary shares of AXA, of which 2.8 million ordinary shares will be owned by subsidiaries of AXA. This will increase shareholders’ equity by €320 million and decrease subordinated debt in 2001 by €192 million (€128 million of debt was held by AXA affiliates and, therefore, eliminated on consolidation in prior periods).
On January 2, 2001 and in connection with the exchange offer and subsequent merger of AXA Financial
In February 2001 and in response to favorable market conditions, AXA increased the amount of debt issued under its $5.0 billion debt shelf registration statement filed with the U.S. SEC by $770 million (approximately €827 million at transaction date). The debt securities issued were denominated in two currencies: U.S. dollar and Euro. In the aggregate, the amounts issued under this debt shelf registration statement have increased to $1,250 million, €1,100 million and £325 million.
AXA has sold the remaining shares of Credit Suisse Group received in connection with the sale of DLJ.
At the annual general meeting of shareholders of AXA held on May 9, 2001: • AXA’s shareholders approved a 4-for-1 stock split of AXA’s outstanding ordinary shares. Immediately following this stock split, which became effective on May 16, 2001, the ratio between the AXA ordinary share and the ADS was changed from one ADS representing one-half of an ordinary share to one ADS representing one ordinary share. The pro-forma impact on net income per ordinary share (and per ADS) is presented in note 27 “ Condensed U.S. GAAP Financial Statements and Additional U.S. GAAP disclosures”; and
• the declaration of a dividend in respect of 2000 of €2.20 per ordinary share on a pre-stock split basis. The dividend was paid on May 14, 2001 to holders of AXA ordinary shares and is payable on June 8, 2001 to holders of AXA ADSs.
26 - Summary of Material Differences Between Accounting Principles Generally Accepted in France and in the United States
AXA’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in France (French GAAP). These accounting principles differ in certain material respects from generally accepted accounting principles in the United States (U.S. GAAP). The significant differences between French
Statement of Position No. 98-7 “Accounting for Insurance and Reinsurance Contracts That Do Not Transfer
Insurance Risk” (“SOP 98-7”) became effective on January 1, 2000. SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, suing the deposit method of accounting. SOP 98-7 did not have a material impact on AXA’s financial condition and operating results under U.S. GAAP.
status that occur on or after that date. In general, the adoption of FIN 44 did not have a material impact on
No. 125” (“FAS 140”). FAS 140 addresses the recognition and measurement of servicing assets and liabilities and the extinguishments of liabilities. FAS 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities that occur after March 31, 2001, and is to be applied prospectively with certain exceptions. Special Purpose Entities (“SPEs”) used in securitizations that are currently qualifying SPEs under FAS
125 will continue to be treated as qualifying SPEs as long as they issue no beneficial interests and accept no new asset transfers after March 31, 2001, other than transfers committed to prior to that date. Under FAS 140, the transferor does not consolidate qualifying SPEs. In addition, FAS 140 also amends the accounting for collateral and requires new disclosures for collateral, securitizations and retained interests in securitizations for fiscal years ending after December 15, 2000. The accounting for collateral, as amended, requires (a) certain assets pledged as collateral to be reported separately in the consolidated balance sheet from assets not so encumbered, and
(b) disclosure of assets pledged as collateral that have not been reclassified and reported separately. Adoption of the new requirements is not expected to have a significant impact on AXA’s financial condition and operating results under U.S. GAAP.
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial
Statements” (“SAB 101”), which became effective in fourth quarter 2000. SAB 101 addresses the issues relating to revenue recognition. SAB 101 did not have a material impact on AXA’s financial condition and operating results under U.S. GAAP.
SCOPE OF CONSOLIDATION Under U.S. GAAP, majority-owned companies, based on voting rights directly or indirectly held of 50%
or more, are fully consolidated. Entities that are less than majority-owned companies but AXA exercises significant influence (generally 20% or more owned), including those companies proportionately consolidated under French
Under French GAAP, AXA accounts for its investments in investment companies and real estate companies
BUSINESS COMBINATIONS - PURCHASE ACCOUNTING Business acquisitions are generally accounted for using the purchase method under both French GAAP
and U.S. GAAP. The basis for determining goodwill under French GAAP differs significantly from the basis used under U.S. GAAP as described below.
• 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 the purchase price is determined at the closing date of the offer period whereas under U.S.
and U.S. GAAP, the purchase price includes the cost of settling or exchanging outstanding employee share options of the target company. However, in respect of a minority interest buyout, costs associated with settling or exchanging outstanding employee share options are included in the purchase price under French GAAP, but are excluded from the purchase price and recorded as compensation expense under U.S. GAAP.
Under French GAAP, the difference between the purchase price and the value of the portion of net assets acquired represents goodwill. A portion of goodwill can be charged directly to shareholders’ equity to the extent that ordinary shares are issued in connection with the transaction. The remaining amount is recorded as a goodwill asset. Under U.S. GAAP, the difference between the purchase price and the fair value of the portion of net identifiable assets acquired represents goodwill, which is recorded as an asset. Under both French GAAP
and U.S. GAAP, the goodwill asset is amortized over the remaining estimated useful life.
Under U.S. GAAP, securities classified as “held to maturity’’ are reported at amortized cost, securities classified as “trading’’ are reported at fair value with changes in unrealized gains and losses included in income, and 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). Assets in respect of separate account (unit linked) contracts (with the exception of separate accounts with guaranteed investment returns) are reported at fair value with changes in unrealized gains and losses recorded in income, similar to fixed maturity and equity securities classified as trading.
Under French GAAP, in accounting for UK with-profit contracts, revenues and expenses are matched in net income given that both changes in the estimated fair values of assets (including real estate) allocated to the
UK with-profit contracts and the corresponding increases or decreases in the UK with-profit contract policyholder benefits are included in net income.
The reconciliations that present the effect of significant differences between French GAAP and U.S. GAAP
on consolidated net income and consolidated shareholders’ equity present consolidated net income and consolidated shareholders’ equity in accordance with U.S. GAAP, except for adjustment for the change in unrealized investment gains and losses on assets allocated to UK with-profits contracts, resulting in a presentation AXA believes is more meaningful under the circumstances.
Under U.S. GAAP, future policy benefits for traditional life policies 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.
European subsidiaries and the life operations in United Kingdom and the Netherlands, excluding Equitable Life, the calculation of future policy benefits under French GAAP is substantially the same as under U.S. GAAP.
CATASTROPHE EQUALIZATION RESERVE Under French GAAP, in accordance with local regulatory requirements in certain jurisdictions in which
TREASURY SHARES Under French GAAP, treasury shares are reported as an asset if they are held for sale. The gain or loss realized on the sale of such shares is included in income. 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 an increase to shareholders’ equity. Therefore, any gains or losses from holding such shares are recorded as adjustments to shareholders’ equity.
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. However, the after-tax gain or loss may differ between French GAAP and U.S. GAAP due to differences in the underlying accounting principles used for determining the value of net assets disposed.
– As described in note 6 “Business Combinations”, in connection with the acquisition of Sanford C. Bernstein,
OTHER DIFFERENCES Restructuring Provisions. Under French and U.S. GAAP, the nature of costs that can be included in restructuring provisions is generally similar. However, U.S. GAAP requires that certain conditions exist before recording a restructuring provision which are not required under French GAAP. Among such conditions is the U.S. GAAP
requirement that the benefit arrangement be communicated to employees and include sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are terminated. As a result of this and other conditions, certain costs included in restructuring provisions under French GAAP are not permitted under U.S. GAAP.
Intercompany Transactions. Under French GAAP, realized gains or losses on intercompany sales of assets are not eliminated if (i) one of the parties to the transaction is an insurance or reinsurance company of AXA, or
Under French GAAP, capital gains are recognized when appreciated securities or real estate are contributed to mutual funds or real estate funds established for the purpose of supporting Savings Contracts (see note 13).
Stock-Based Compensation (other than in respect of business combinations). Under French GAAP the accounting is similar to U.S. GAAP with the exception that no compensation expense is recorded for the Company’s stock option plans and its employee stock purchase plans. Additional compensation expense attributable to these stock option plans and employee stock purchase plans is recorded under U.S. GAAP.
Pension plans. For U.S. GAAP purposes, AXA has adopted FAS 87, “Employer’s Accounting for Pensions”, as of January 1, 1989. At the date of adoption a transition asset, reflecting the overfunded status of AXA
Equity & Law’s pension plan, was recorded and is being amortized over the remaining fifteen-year average service life of employees.
Under FAS 87, if the liability is less than the excess of the accumulated benefit obligation over the fair value of plan assets, an additional minimum pension liability must be recorded net of tax as a reduction to shareholders’ equity. This is recorded under U.S. GAAP but is not recognized under French GAAP.
Deferred tax. Under both French GAAP and U.S. GAAP, the impact of a change in enacted tax rates on deferred tax assets and liabilities is recorded in income. Due to certain significant differences in the underlying accounting principles between 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 will differ accordingly.
Consolidated Net Income in Accordance with French GAAP 3,904 2,021 1,531 Differences in scope of consolidation (171) 564 140 Goodwill and purchase accounting (398) (17) (140) Cost of stock options (buyout of minority interests) (828) – – Investment accounting and valuation (31) (182) (48) Deferred acquisition costs (45) (3) 3 Catastrophe equalization reserves (246) (141) 40 Future policy benefits (54) (16) (65) Elimination of intercompany transactions 20 (18) (7) Elimination of gain on sale of treasury shares (75) – (207)
Tax effect of U.S. GAAP reconciling adjustments 732 (29) 31 Total reconciling adjustments (1,133) 217 (74)
Under French GAAP, in accounting for UK with-profit contracts, revenue and expense are matched in net income by including both changes in the estimated fair values of assets allocated to UK with-profit contracts and corresponding increases or reductions in the liability for UK with-profit policyholder benefits. U.S. GAAP, which was developed in an environment that differs from the one in which the UK with-profit contract was developed, requires the change in unrealized investment gains on assets allocated to UK with-profit contracts be excluded from net income, while requiring recognition of the corresponding change in the liability for with-profit policyholder benefits in net income. Accordingly, AXA believes this exclusion results in amounts that do not fully reflect the economic effect of the UK with-profit contracts. An increase in the fair value of these assets results in an increase in the liability for policyholder benefits and a reduction in AXA’s consolidated U.S. GAAP net income. The adjustment below eliminates the change in unrealized investment gains and losses on assets allocated to UK with-profit contracts, which are included in net income in accordance with U.S. GAAP, except for such adjustment. AXA
The impact on consolidated net income of material differences between French GAAP and U.S. GAAP
Difference in value of shares exchanged (buyout of minority interests) (265) –
Consolidated shareholder’s equity in accordance with U.S. GAAP, except for adjustment for the change in unrealized investments gains on assets allocated to UK with-profit contracts 31,834 22,886
relate primarily to (i) the different methods of determining the purchase price attributable to the issuance of ordinary shares of AXA and settling / exchanging outstanding employee share options, (ii) the differences in the underlying accounting principles used for determining the value of net assets acquired between French GAAP
The table below presents the determination of goodwill under both French GAAP and U.S. GAAP in respect of the acquisition of minority interests in Sun Life & Provincial Holdings (subsequently renamed AXA UK Holdings)
Sun Life & Provincial Holdings AXA Financial, Inc. U.S. GAAP French GAAP U.S. GAAP French GAAP
Cost to settle/exchange outstanding employee stock options – 44 – 539
Excess purchase price over the portion of net assets acquired (c) 1,178 1,971 6,250 7,300
(insurance operations) for AXA Financial and 30 years for Sun Life & Provincial Holdings. (c) Under French GAAP, the goodwill was determined based on the carrying value of the assets at date of acquisition. Under U.S. GAAP, the goodwill was determined based on the estimated fair value of the portion of net identifiable assets acquired at date of acquisition. Consequently, the determination of goodwill under U.S. GAAP is preliminary for both of these transactions as: – AXA Financial: The transaction was completed close to year-end and, therefore, certain estimated fair values assigned to the portion of identifiable assets acquired and liabilities assumed may be subject to change, which could impact the determination of the goodwill asset. – Sun Life & Provincial Holdings. The estimated fair value in respect of policyholder reserves and the value of purchased business in-force were based on best estimates using information currently available at that time, however, these did not take account of the impact of the financial reorganization of the inherited estate of AXA Equity & Law, for which Court and policyholder approval was in process at the time of the acquisition of minority interests (see note 25 “Events Subsequent to December 31, 2000” for further information on the inherited estate). Completion of the financial reorganization could impact the estimated fair values of the portion of net assets acquired and, therefore, impact the determination of the goodwill asset. Therefore the determination of goodwill is preliminary as it is subject to the completion of the financial reorganization.
Royale Belge (1998). Under French GAAP, gross goodwill totaled €1,007 million at December 31, 2000, of which €337 million was charged directly to retained earnings and reserves, as AXA issued and exchanged shares in connection with the transaction. The goodwill asset under French GAAP was €670 million as compared to the goodwill asset under U.S. GAAP of €527 million, or a difference €143 million. Under both French GAAP
The following condensed U.S. GAAP financial statements reflect the effects of the material differences between French GAAP and U.S. GAAP on consolidated net income and shareholders’ equity identified in note 26 as well as differences of presentation between French GAAP and U.S. GAAP.
UNIVERSAL LIFE AND INVESTMENT CONTRACTS Under French GAAP total premiums received for all insurance contracts, including life insurance contracts with flexible premiums or insignificant mortality or morbidity risk (such as, separate account contracts and universal life contracts) are recorded as revenues and benefits paid to the policyholder on all insurance contracts are recorded as expenses in AXA’s consolidated operating results.
Unearned revenue amounts are classified as part of the liability for future benefits under U.S. GAAP and as a reduction of deferred acquisition costs under French GAAP.
MEZZANINE CAPITAL Certain subordinated debt and mandatorily convertible bonds and notes which are classified as mezzanine capital under French GAAP would be classified as debt under U.S. GAAP.
Future policy benefits, other policy liabilities, insurance claims and claims expenses 257,347 257,347 254,033
TOTAL LIABILITIES, MINORITY INTERESTS, SUBORDINATED DEBT, MANDATORILY CONVERTIBLE BONDS AND NOTES, AND SHAREHOLDERS’ EQUITY 428,527 429,071 403,121
(a) U.S. GAAP, except for adjustment for the unrealized investment gains on real estate and related deferred tax asset allocated to UK withprofit contracts.
Insurance claims and claims expenses, net of reinsurance (37,181) (37,181) (64,093)
Income from continuing operations before income tax expense 1,478 553 2,522
(a) U.S. GAAP, except for adjustment for the increase in net unrealized investment gains and losses on assets allocated to UK with-profit contracts of €477 million.
Insurance claims and claims expenses, net of reinsurance (33,119) (33,119) (54,029)
Income from discontinued DLJ operations, net of tax 344 344 345
(b) Total revenues attributable to the discontinued DLJ operations were €9,768 million under both French GAAP and U.S. GAAP.
Change in unearned premium reserves, net of reinsurance 92 92 46
Insurance claims and claims expenses, net of reinsurance (29,875) (29,875) (47,855)
Income from continuing operations, net of tax 618 1 328 1 402
(a) U.S. GAAP, except for adjustment for the increase in net unrealized investment gains and losses on assets allocated to UK with-profit contracts of €709 million.
Analysis by segment for 2000 and 1999 is provided below: F-96
COMPREHENSIVE INCOME Comprehensive income includes net income and represents the change in shareholders’ equity during a period from non-owner sources. It includes “other comprehensive income” which represents revenues, expenses, gains and losses that under U.S. GAAP are excluded from net income. The changes in AXA’s U.S. GAAP accumulated other comprehensive income were as follows: F-97
Balance at January 1 in accordance with U.S. GAAP 7,938 4,704 6,920 4,126 5,291 3,180
Effect of restructurings and intercompany sales of consolidated subsidiaries (14) (14) 10 10 26 28
Balance at December 31 in accordance with U.S. GAAP 6,276 3,578 7,938 4,704 6,920 4,126
(a) U.S. GAAP, except for adjustment for the increase in net unrealized gains (net of deferred tax) on real estate allocated to UK with-profit contracts.
(b) Includes 100% of the unrealized gains and losses from debt and equity investments held by SLPH and its subsidiaries following the date of the buyout of minority interests by AXA in July 2000.
Assumed exercise of stock options (d) 5.6 2.7 4.1 5.6 2.7 4.1
Assumed conversion of convertible bonds 7.2 11.2 18.8 7.2 11.2 18.8
(b) Weighted average of outstanding ordinary shares after the elimination of the weighted average number of ordinary shares held in Treasury. (c) Before the recommended 4-for-1 stock split (see “Unaudited Pro Forma Information Concerning the Recommended Stock Split”). (d) In 2000, the assumed exercise of stock options includes the AXA Financial stock options, which were exchanged into option for ordinary shares in connection with the buyout of the minority interests in AXA Financial.
The calculation of basic and diluted net income per ordinary share under U.S. GAAP is based on the same methodology as for French GAAP (see note 16). However, differences arise due to the underlying differences in accounting principles as noted below.
– Income dilution relating to subsidiaries which offer share options to its employees, as the underlying accounting principles to determine net income differ between French GAAP and U.S. GAAP; – treatment of treasury shares held by AXA and its subsidiaries; and
– impact or discontinued operations on the calculation of nett income per ordinary share on a diluted basis.
The €1,099 million of 3.75% subordinated convertible debt issued in 2000 and the €1,524 million of 2.5%
subordinated convertible debt issued in 1999 in the aggregate are convertible into 16 million ordinary shares of AXA. As a result of the accounting treatment of the DLJ discontinued operations under U.S. GAAP there was anti-dilution and, as a result, excluded from the calculation of next income per ordinary share (diluted)
At December 31, 2000 and 1999, net unrealized gains from available for sale securities included in other comprehensive income in accordance with the U.S. GAAP totaled €5,524 million and €7,265 million, respectively.
• net of amounts allocated for policyholders and minority interests of €4,233 million and €7,417 million, respectively (including amounts attributable to assets allocated to UK with-profit contracts of €2,499 million and €3,450 million, respectively (net of taxes of €2,319 million and €2,628 million, respectively).
SUPPLEMENTAL CASH FLOW INFORMATION For the years ended December 31, 2000, 1999 and 1998, deposits related to investment contracts amounted to €20,690 million, €14,674 million and €9,825 million, respectively, and withdrawals related to investment contracts amounted to €12,566 million, €7,004 million and €7,269 million, respectively, and are part of operating cash flow under French GAAP. Such deposits and withdrawals would be reflected as financing activities in a statement of cash flows prepared in accordance with U.S. GAAP.
Total stock-based compensation cost charged against income under U.S. GAAP in 2000 was €684 million
accounted for share options granted since January 1, 1995, in accordance with FAS 123, net income and net income per ordinary share under U.S. GAAP (on a pro forma basis) would be as follows: F-100
Years ended December 31, (in euro millions except per share amounts) 2000 (b) 1999 1998
Net Income: Net Income per ordinary share: Basis: – Basic as reported 8.65 3.46 2.24
(a) 1999 net income per ordinary share (diluted) has been restated due to the accounting treatment of DLJ discontinued operations. (b) In connection with the buyout of the minority interests in AXA Financial, certain outstanding stock options in AXA Financial common stock were subject to accelerated vesting.
ordinary share such as the pro forma does not take account of options granted before January 1, 1995.
GAAP and are for comparative purposes only and are not indicative of the results of operations which actually would have resulted had the acquisition occurred on the dates indicated, or which may result in the future.
(ii) excludes profit recognized in earnings in 1999 due to the dilution of AXA’s ownership interest in SLPH to 56% from 71.6% (€469 million, group share) in connection with the issuance of capital by SLPH to fund the acquisition of GRE,
(a) As total revenues of SLPH and AXA Financial (and their subsidiaries) were already included in AXA’s consolidated total revenues, the impact of the acquisition of the minority interests would be nil. However, for comparability purposes, the pro forma revenues excludes revenues from the DLJ discontinued operations of €10,894 million in 2000 and €9,768 million in 1999.
(b) The pro forma financial information eliminates the after-tax income from the DLJ discontinued operations (including the gain on the sale of DLJ) for the years ended December 31, 2000 and 1999 for comparability purposes.
(d) As a result of the acquisition of minority interests in AXA Financial, 25.8 million ordinary shares were issued. In addition, AXA issued 30.2 million of ordinary shares in June 2000, which was used primarily to fund the acquisition of minority interests in SLPH. As a result of these two share issuances net income per ordinary share (basic and diluted) would be effected.
The effects of other acquisitions that occurred in 2000, 1999 and 1998 were not material and, accordingly, have been excluded from the pro forma presentation.
The 4-for-1 stock split does not effect shareholders’ equity as it only decreases the price per ordinary share with a corresponding increase in the number of ordinary shares issued and outstanding. Based on the weighted average number of ordinary shares outstanding as at December 31, 2000, 1999 and 1998, the increase in additional ordinary shares would correspond to: • Basic: 1,126 million in 2000, 1,048 million in 1999 and 1,002 million in 1998; and
Standards No. 137 (“FAS 137”), “Deferral of the Effective Date of FASB Statement No 133”. FAS 137 allows entities which have not yet adopted FAS 133 to defer its effective date to all fiscal years beginning on or after June 15, 2000. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138 “Accounting for
Certain Derivative Instruments and Certain Hedging Activities – An Amendment of FASB Statement No. 133”, which amended certain provisions of FAS 133.
FAS 133, as amended, establishes new accounting and reporting standards for derivative instruments, including derivatives embedded in assets and liabilities (collectively referred to as derivatives), and for hedging activities. It requires all derivatives to be recognized on the balance sheet and measured at fair value.
With respect to the adoption of the requirements on embedded derivatives, AXA elected a January 1, 1999 transition date, thereby effectively “grandfathering” existing accounting for derivatives embedded in hybrid instruments acquired, issued or substantively modified on or before that date. As a consequence of this election coupled with interpretative guidance issued by the FASB and the DIG specifically related to insurance contracts and features therein, adoption of the new requirements for embedded derivatives have no immediate material impact on AXA’s financial condition and operating results under U.S. GAAP.
The accounting for changes in the fair value of a derivative (that is, the gains and losses) depends on its intended use as summarized below.
• Cash Flow Hedges: The derivative is designated as hedging the exposure to variable cash flows. The effective portion of the hedge determines the extent to which the change in fair value of the derivative is recorded in a component of “Other comprehensive income” (a separate component of shareholders’ equity) or in income. The amount recorded in “Other comprehensive income” is subsequently reclassified into income in the same period in which the forecasted transaction affects income.
• Net Investment Hedges: The derivative or non-derivative (in limited circumstances) is designated as hedging the foreign currency exposure of a net investment in a foreign operation. The effective portion of the hedge determines the extent to which the change in fair value attributable to the foreign currency risk on the derivative or non-derivative is recorded in a component of “other comprehensive income” (together with the associated gain or loss on the hedged item) or in income.
AXA adopted FAS 133, as amended, as at January 1, 2001. Transition adjustments resulting from the adoption of FAS 133, as amended, will be presented in the U.S. GAAP condensed consolidated financial statements and based on the appropriate hedge designations, if any. At initial adoption the cumulative effect in change in accounting principle will not have a material impact on AXA’s financial condition and operating results under
AXA manages its risk and, therefore, its hedging strategies to meet the hedging requirements as set forth under French GAAP, rather than U.S. GAAP. In addition, the application of FAS 133, as amended, is subject to additional interpretative guidance to be issued by the FASB after the effective date of FAS 133, which could effect the accounting under FAS 133, as amended, in future periods. As a result there may be increased volatility in AXA’s net income as reported under U.S. GAAP in future periods.
Adjustments to reconcile net income to net cash provided by operating activities: Net realized investment (gains) losses 10 (50) (368)
Prior to 2000, the parent company condensed financial statements were presented on the basis of AXA’s investment in subsidiaries and its share in the net income of such subsidiaries under the equity method of accounting, being the basis for which AXA prepares its consolidated financial statements.
The parent company condensed financial statements of AXA (the Company), a French société anonyme
à Directoire et Conseil de surveillance for years prior to 2000 have been represented to conform to those financial statements published in France, except for certain formatting differences. In France, parent company financial statements are prepared using a French statutory basis of accounting which uses the cost method of accounting for investments. As a result of the new presentation of prior years, the financial statements for all years presented have been translated, with certain formatting differences from those published in France.
These parent company condensed financial statements should be read in conjunction with AXA’s consolidated financial statements and the notes thereto prepared in accordance with French GAAP and reconciled to U.S. GAAP, which are included elsewhere in this annual report.
At December 31, 2000 and 1999, long-term debt amounted to €424 million and €389 million, respectively.
The parent company condensed financial statements for AXA (the Company) are prepared in accordance with French GAAP. These accounting principles differ in certain material respects from U.S. GAAP.
The principle difference between French statutory GAAP and French GAAP (on a consolidated basis) as well as U.S. GAAP at the parent company level, relates to the accounting for the Company’s investments under
The following is a list of the exhibits filed with this annual report or incorporated herein by reference: 1. By-laws of the Company (filed herewith).
New York and all owners from time to time of American Depositary Receipts issued thereunder, filed as an Exhibit to the Company’s Registration Statement on Form F-6 filed on April 18, 2001 (registration no. 333-13376) and incorporated herein by reference.
3. Voting Trust Agreement, as amended, dated as of January 22, 1997, filed as Exhibit 9.2 to the Company’s
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