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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-14603
THE MONY GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3976138
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1740 BROADWAY
NEW YORK, NEW YORK 10019
(212) 708-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 8, 2001 there were 49,568,373 shares of the Registrant's common
stock, par value $0.01, outstanding.
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2
THE MONY GROUP INC. AND SUBSIDIARIES
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION
Item 1: Unaudited interim condensed consolidated balance sheets as
of March 31, 2001 and December 31, 2000................... 4
Unaudited interim condensed consolidated statements of
income and comprehensive income for the three-month
periods ended March 31, 2001 and 2000..................... 5
Unaudited interim condensed consolidated statement of
changes in shareholders' equity for the three-month period
ended March 31, 2001...................................... 6
Unaudited interim condensed consolidated statements of cash
flows for the three-month period ended March 31, 2001 and
2000...................................................... 7
Notes to unaudited interim condensed consolidated financial
statements................................................ 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Item 3: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 41
PART II OTHER INFORMATION
Item 1: Legal Proceedings........................................... 44
Item 6: Exhibits and Reports on Form 8-K............................ 44
SIGNATURES........................................................... S-1
2
3
FORWARD-LOOKING STATEMENTS
The Company's management has made in this report, and from time to time may
make in its public filings and press releases as well as in oral presentations
and discussions, forward-looking statements concerning the Company's operations,
economic performance, prospects and financial condition. Forward-looking
statements include, among other things, discussions concerning the Company's
potential exposure to market risks, as well as statements expressing
management's expectations, beliefs, estimates, forecasts, projections and
assumptions, as indicated by words such as "believes," "estimates," "intends,"
"anticipates," "expects," "projects," "should," "probably," "risk," "target,"
"goals," "objectives," or similar expressions. The Company claims the protection
afforded by the safe harbor for forward-looking statements as set forth in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
subject to many risks and uncertainties. Actual results could differ materially
from those anticipated by forward-looking statements due to a number of
important factors including those discussed elsewhere in this report and in the
Company's other public filings, press releases, oral presentations and
discussions and the following: venture capital gains or losses could differ
significantly from our assumptions because of further significant changes in
equity values; fees from assets under management could be significantly higher
or lower than we have assumed if there are further major movements in the equity
markets; the value of our overall investment portfolio could fluctuate
significantly as a result of additional major changes in the equity and debt
markets generally; actual death claims experience could differ significantly
from our mortality assumptions; we may have as-yet unascertained tax
liabilities; sales of variable products, mutual funds and equity securities
could differ materially from our assumptions because of further unexpected
developments in the equity markets and changes in demand for such products;
major changes in interest rates could affect our earnings; we could have
liability from as-yet unknown or unquantified litigation and claims; pending or
known litigation or claims could result in larger settlements or judgments than
we anticipate; the Company may have higher operating expenses than anticipated;
changes in law or regulation, including tax laws, could materially affect the
demand for the Company's products and the Company's net income after tax; and
the Company may not achieve the assumed economic benefits of consolidating
acquired enterprises. The Company undertakes no obligation to update or revise
any forward-looking statement, whether as a result of new information, future
events, or otherwise.
3
4
ITEM 1:
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair
value................................................... $ 6,846.0 $ 6,693.0
Fixed maturity securities held to maturity, at amortized
cost.................................................... 2.8 --
Trading account securities, at market value (Note 3)...... 689.7 --
Equity securities available-for-sale, at fair value....... 317.5 328.6
Mortgage loans on real estate............................. 1,701.0 1,754.7
Policy loans.............................................. 1,259.2 1,264.6
Real estate to be disposed of............................. 166.6 171.3
Real estate held for investment........................... 47.8 40.7
Other invested assets..................................... 91.2 100.0
--------- ---------
11,121.8 10,352.9
========= =========
Cash and cash equivalents................................... 625.1 869.6
Accrued investment income................................... 193.9 189.0
Amounts due from reinsurers................................. 604.5 598.0
Premiums receivable......................................... 8.5 10.9
Deferred policy acquisition costs........................... 1,145.9 1,209.7
Securities borrowed......................................... 779.4 --
Receivable from brokerage customers, net.................... 474.7 --
Other Assets................................................ 872.0 549.4
Assets transferred in Group Pension Transaction............. 4,832.0 4,927.7
Separate account assets..................................... 5,255.4 5,868.1
--------- ---------
Total assets....................................... $25,913.2 $24,575.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Future policy benefits...................................... $ 7,799.3 $ 7,794.5
Policyholders' account balances............................. 2,184.2 2,191.3
Other policyholders' liabilities............................ 307.5 295.9
Amounts due to reinsurers................................... 87.2 85.6
Securities loaned........................................... 791.4 --
Securities sold, not yet purchased, at market value......... 439.0 --
Payable to brokerage customers.............................. 216.7 --
Accounts payable and other liabilities...................... 627.5 578.7
Short term debt............................................. 385.9 52.3
Long term debt.............................................. 585.0 571.1
Current federal income taxes payable........................ 116.8 120.4
Deferred Federal Income Taxes............................... 118.3 84.1
Liabilities transferred in Group Pension Transaction........ 4,800.0 4,897.2
Separate account liabilities................................ 5,252.7 5,865.3
--------- ---------
Total liabilities.................................. 23,711.5 22,536.4
========= =========
Commitments and contingencies (Notes 6)
Common stock, $0.01 par value; 400 million shares
authorized; 51.2 million shares issued, 49.8 million
shares outstanding........................................ 0.5 0.5
Capital in excess of par.................................... 1,760.2 1,616.3
Treasury stock at cost: 1.4 million and 1.1 million shares
at March 31, 2001 and December 31, 2000 respectively...... (44.3) (33.0)
Retained earnings........................................... 455.5 442.2
Accumulated other comprehensive income...................... 32.1 13.0
Unamortized restricted stock compensation................... (2.3) (0.1)
--------- ---------
Total shareholders' equity......................... 2,201.7 2,038.9
--------- ---------
Total liabilities and shareholders' equity......... $25,913.2 $24,575.3
========= =========
See accompanying notes to unaudited interim condensed consolidated financial
statements.
4
5
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
2001 2000
--------------- ---------------
($ IN MILLIONS, EXCEPT SHARE DATA
AND PER SHARE AMOUNTS)
REVENUES:
Premiums.................................................... $ 165.1 $ 165.0
Universal life and investment-type product policy fees...... 49.7 49.9
Net investment income....................................... 183.7 351.8
Net realized gains on investments........................... 2.5 18.6
Group Pension Profits (Note 5).............................. 9.9 10.1
Retail Brokerage and Investment Banking revenues............ 71.1 18.4
Other income................................................ 30.3 41.2
----------- -----------
512.3 655.0
----------- -----------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 197.7 180.7
Interest credited to policyholders' account balances........ 28.3 28.4
Amortization of deferred policy acquisition costs........... 37.2 37.5
Dividends to policyholders.................................. 54.6 57.2
Other operating costs and expenses.......................... 174.2 139.0
----------- -----------
492.0 442.8
----------- -----------
Income before income taxes and extraordinary item........... 20.3 212.2
Income tax expense.......................................... 7.0 74.3
----------- -----------
Income before extraordinary item............................ 13.3 137.9
Extraordinary loss, net of tax.............................. -- 36.7
----------- -----------
Net income.................................................. 13.3 101.2
Other comprehensive gain/(loss), net........................ 19.1 (14.9)
----------- -----------
Comprehensive income........................................ $ 32.4 $ 86.3
=========== ===========
PER SHARE DATA:
Income before extraordinary items:
Basic earnings per share.................................. $ 0.27 $ 2.93
=========== ===========
Diluted earnings per share................................ $ 0.26 $ 2.89
=========== ===========
Net Income:
Basic earnings per share.................................. $ 0.27 $ 2.15
=========== ===========
Diluted earnings per share................................ $ 0.26 $ 2.12
=========== ===========
SHARE DATA:
Weighted-average shares used in basic per share
calculation............................................... 48,720,335 47,104,995
Plus: incremental shares from assumed conversion of dilutive
securities................................................ 1,594,447 598,886
----------- -----------
Weighted-average shares used in diluted per share
calculations.............................................. 50,314,782 47,703,881
=========== ===========
See accompanying notes to unaudited interim condensed consolidated financial
statements.
5
6
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY
THREE-MONTH PERIOD ENDED MARCH 31, 2001
ACCUMULATED UNAMORTIZED
CAPITAL OTHER RESTRICTED TOTAL
COMMON IN EXCESS TREASURY RETAINED COMPREHENSIVE STOCK SHAREHOLDERS'
STOCK OF PAR STOCK EARNINGS INCOME COMPENSATION EQUITY
------ --------- -------- -------- ------------- ------------ -------------
($ IN MILLIONS)
BALANCE, DECEMBER 31, 2000......... $0.5 $1,616.3 (33.0) $442.2 $13.0 (0.1) $2,038.9
Issuance of Shares................. 143.9 143.9
Purchases of treasury stock, at
cost............................. (11.3) (11.3)
Unamortized restricted stock
compensation..................... (2.2) (2.2)
Comprehensive income:
Net income..................... 13.3 13.3
Other comprehensive
income(1).................... 19.1 19.1
--------
Comprehensive income......... 32.4
---- -------- ------ ------ ----- ----- --------
BALANCE, MARCH 31, 2001............ $0.5 $1,760.2 $(44.3) $455.5 $32.1 $(2.3) $2,201.7
==== ======== ====== ====== ===== ===== ========
---------------
(1) Represents unrealized gains on investments (net of unrealized losses, the
effect of unrealized gains on deferred acquisition costs and dividends to
policyholders), reclassification adjustments, minimum pension liability and
taxes.
See accompanying notes to unaudited interim condensed consolidated financial
statements.
6
7
THE MONY GROUP INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
2001 2000
-------- --------
($ IN MILLIONS)
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES......... $ (7.2) $ 22.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayment of:
Fixed maturities securities............................... 228.4 249.2
Equity securities......................................... 15.3 194.3
Mortgage loans on real estate............................. 87.5 39.9
Real estate............................................... 7.7 0.3
Other invested assets..................................... 1.0 1.5
Acquisitions of investments:
Fixed maturities securities............................... (230.4) (318.9)
Equity securities......................................... (8.8) (29.1)
Mortgage loans on real estate............................. (39.0) (149.6)
Real estate............................................... (57.2) (3.5)
Other invested assets..................................... (16.8) (2.8)
Policy loans, net......................................... 5.3 (3.8)
Property, plant and equipment, net........................ (10.3) (6.8)
Acquisition of subsidiaries, net of cash acquired......... (208.0) 0.0
------- -------
Net cash provided by/(used in) investing activities......... (225.3) $ 20.7
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt............................................ -0- 297.0
Repayments of debt.......................................... -0- (286.6)
Receipts from annuity and universal life policies credited
to policyholder's account balances........................ 286.8 646.2
Return of policyholder account balances on annuity and
universal life policies................................... (288.1) (681.3)
Treasury stock repurchases.................................. (11.1) (12.4)
Other....................................................... 0.4 0.0
------- -------
Net cash (used in) financing activities..................... (12.0) (37.1)
------- -------
Net (decrease)/increase in cash and cash equivalents........ (244.5) (35.6)
Cash and cash equivalents, beginning of period.............. 869.6 377.1
------- -------
Cash and cash equivalents, end of period.................... $ 625.1 $ 341.5
======= =======
See accompanying notes to unaudited interim condensed consolidated financial
statements
7
8
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
On November 16, 1998, pursuant to its Plan of Reorganization (the "Plan")
which was approved by the New York Superintendent of Insurance on the same day
(the "Plan Effective Date"), The Mutual Life Insurance Company of New York
("MONY") converted from a mutual life insurance company to a stock life
insurance company (the "Demutualization") and became a wholly owned subsidiary
of The MONY Group Inc. ("MONY Group"), a Delaware corporation organized on June
24, 1997. In connection with the Plan, MONY established a closed block ("Closed
Block") to fund the guaranteed benefits and dividends of certain participating
insurance policies, and eligible policyholders received cash, policy credits, or
shares of common stock of the MONY Group in exchange for their membership
interests in MONY. Also, on November 16, 1998, the MONY Group consummated an
initial public offering (the "Offerings") of approximately 12.9 million shares
of its common stock and MONY changed its name to MONY Life Insurance Company.
The shares of common stock issued in the Offerings are in addition to
approximately 34.3 million shares of common stock of the MONY Group distributed
to the aforementioned policyholders. As used in these financial statements, the
"Company" shall be a reference to MONY Group and its direct and indirect
subsidiaries; "MONY Life" shall be a reference to MONY Life Insurance Company
and its direct and indirect subsidiaries and the "Transaction" shall be a
collective reference to the Plan and Offerings.
The Company is primarily engaged in the business of providing a wide range
of life insurance, annuity, and investment products and services to higher
income individuals, particularly family builders, pre-retirees, and small
business owners. In addition, as a result of the acquisitions of Advest and
Matrix during the first quarter of 2001 (see Note 2), the Company provides
trading, investment banking, trust and asset management services and has
significantly enhanced its securities brokerage offering.
The Company distributes its products and services primarily through its
career agency sales force, Advest financial advisors and various complementary
distribution channels. Complementary distribution includes: (i) sales of mutual
funds by Enterprise Capital Management, a Company subsidiary, through
third-party broker dealers, (ii) sales of protection products sold by U.S.
Financial Life Insurance Company ("USFL"), also a Company subsidiary, through
brokerage general agencies, (iii) sales of corporate-owned life insurance
("COLI") products by the Company's corporate marketing team and (iv) sales of a
variety of financial products and services through the Company's Trusted
Securities Advisors Corp. subsidiary. The Company primarily sells its products
in all 50 of the United States, the District of Columbia, the U.S. Virgin
Islands, Guam and the Commonwealth of Puerto Rico.
2. ACQUISITIONS:
On January 31, 2001, the Company completed a merger in which it acquired
all of the outstanding capital stock of The Advest Group Inc. ("Advest") in
exchange for approximately $305.9 million of consideration (including
transaction and other acquisition related expenses of approximately $15.0
million) consisting of cash of approximately $165.9 million and 3.9 million
shares of common stock of the MONY Group with a fair value of approximately
$142.3 million. As a result of the merger, Advest became a wholly owned
subsidiary of MONY Group Inc. Advest through its principal operating
subsidiaries, Advest Inc., a securities broker-dealer and, Advest Bank and Trust
Company, a federal savings bank, provides diversified financial services
including, securities brokerage, trading, investment banking, trust and asset
management services. The transaction was accounted for under the purchase method
of accounting. Goodwill recorded in connection with the transaction was
approximately $140.4 million and is being amortized on a straight line basis
over 20 years. In connection with the transaction, a retention program was
established for certain Advest personnel, which is expected to cost, on a
present value basis, approximately $45.0 million over the five-year period
commencing from the date the transaction was consummated. Pursuant to the terms
of this retention program the Company expects to record a charge of $7.5 million
in each of the two 12 month periods following the date the transaction was
consummated and $10.0 million in each of the three succeeding 12 month periods.
In addition, a separate
8
9
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
retention program was established for certain of Advest's key management
personnel that could result in total costs of approximately $15.0 million,
depending upon the achievement of specified performance goals, over the two year
period following the date the transaction was consummated.
Effective January 1, 2001, the Company acquired 100% of the equity of
Matrix Capital Markets Group Inc. and Matrix Private Equities, Inc. (referred to
together as "Matrix") for $12.1 million in cash, plus the obligation to make
certain contingent payments in the event that Matrix achieves certain profit
goals. Matrix primarily provides investment banking services to middle market
companies. The transaction was accounted for under the purchase method of
accounting. Goodwill recorded in connection with the transaction was
approximately $11.1 million and is being amortized on a straight line basis over
15 years.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles in the United States ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. In the opinion of management these statements include all
normal recurring adjustments necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods presented.
These statements should be read in conjunction with the consolidated financial
statements of the Company for the year ended December 31, 2000, which are
presented in MONY Group's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 ("MONY Group's 2000 Annual Report"). The results of operations
for the three-month period ended March 31, 2001 are not necessarily indicative
of the results to be expected for the full year. Certain reclassifications have
been made in the amounts presented for the comparative prior periods to conform
those periods to the current presentation.
New Accounting Pronouncements
On December 26, 2000 the American Institute of Certified Public Accountants
issued Statement of Position 00-3, Accounting by Insurance Enterprises for
Demutualizations and Formations of Mutual Insurance Holding Companies and For
Certain Long-Duration Participating Contracts ("SOP 00-3"). SOP 00-3 provides
guidance with respect to accounting for demutualizations and requires, among
other things, that (i) Closed Block assets, liabilities, revenues, and expenses
should be displayed in financial statements combined with all other assets,
liabilities, revenues, and expenses outside the Closed Block, and (ii)
demutualization expenses be classified as a single line item within income from
continuing operations. The guidance in SOP 00-3 requires restatement of
financial statements presented for years prior to its issuance and is effective
for fiscal years beginning after December 15, 2000, except as it pertains to
demutualization expenses which was effective immediately upon its issuance. The
financial statements herein reflect the adoption of SOP 00-3. Accordingly, the
consolidated statements of income and comprehensive income and balance sheets
presented herein for the three month period ended March 31, 2000 has been
restated from that previously reported in the prior year to conform the
presentation thereof to that required by SOP 00-3.
In the first quarter of 2001, the Company adopted SFAS 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires
all derivatives to be recognized in the statement of financial position as
either assets or liabilities and measured at fair value. The corresponding
derivative gains and losses should be reported based on the hedge relationship
that exists, if there is one. Changes in the fair value of derivatives that are
not designated as hedges or that do not meet the hedge accounting criteria in
SFAS 133, are required to be reported in earnings. SFAS 133, is effective for
all fiscal quarters of the fiscal
9
10
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
years beginning after June 15, 2000. SFAS 133 did not have a material affect on
the Company's financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities, a
replacement of SFAS No. 125." SFAS No. 140 specifies the accounting and
reporting requirements for securitizations and other transfers of financial
assets and collateral, recognition and measurement of servicing assets and
liabilities and the extinguishment of liabilities. SFAS No. 140 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and is to be applied prospectively with certain
exceptions. This statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Adoption of the new
requirements did not have a significant impact on the Company's consolidated
financial position or earnings.
New Accounting Policies
Following is a summary of significant accounting policies for certain new
line items appearing in the Company's financial statements for the first time
due to the acquisition of Advest.
Receivables from and payables to brokerage customers
Receivables from and payables to brokerage customers arise from cash and
margin transactions executed by Advest on their behalf. In virtually all
instances, receivables are collateralized by securities with market values in
excess of the amounts due. The collateral is not reflected in the accompanying
financial statements. A reserve for doubtful accounts is established based upon
reviews of individual credit risks, as well as prevailing and anticipated
economic conditions. Included in payables to brokerage customers are free credit
balances of $191.9 million as of March 31, 2001. Advest pays interest on credit
balances when the customer has indicated that the funds are for reinvestment
purposes.
Collateralized financing transactions
Securities loaned and borrowed are accounted for as collateralized
financing transactions and are recorded at the amount of cash collateral
received or advanced. The fee received or paid by Advest is recorded as interest
revenue or expense and is reflected in Retail Brokerage and Investment Banking
revenues and other operating costs and expenses, respectively, in the
consolidated statement of income. The initial collateral advanced or received
has a market value in excess of the market value of the underlying securities.
The Company monitors the market value of securities borrowed and loaned on a
daily basis, with additional collateral obtained or refunded, as necessary.
Advest utilizes short-term repurchase agreements as supplementary
short-term financing and delivers U.S. Treasury securities as collateral for
cash received. These repurchase agreements are accounted for as collateralized
financings. The fee paid by Advest is recorded as interest expense. Advest
monitors the market value of securities transferred on a daily basis, and
obtains or refunds collateral as necessary.
Securities
Advest's trading securities and securities sold, not yet purchased are
valued at market with unrealized gains and losses reflected in current period
revenues from principal transactions or investment banking. Periodically, Advest
receives stock warrants in connection with its investment banking activities.
Warrants are carried at their fair value which is determined using the
Black-Scholes model or another standard option valuation technique.
10
11
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
At March 31, 2001, trading securities and securities sold, not yet
purchased consisted of:
SECURITIES SOLD,
TRADING SECURITIES NOT YET PURCHASED
MARCH 31 MARCH 31
2001 2001
------------------ -----------------
($ IN MILLIONS)
Corporate obligations................................ $451.1 $355.6
State and municipal obligations...................... 57.3 .1
U.S. government and agency obligations............... 101.0 79.1
Mortgage-backed securities........................... 77.9 3.0
Stocks and warrants.................................. 2.4 1.2
------ ------
$689.7 $439.0
====== ======
Investment banking
Investment banking revenues are recorded, net of expenses, on the
settlement date for management fees and sales concessions, and on the dates the
underwriting syndications are closed for underwriting fees. Investment banking
revenues are included in Retail Brokerage and Investment Banking revenues in the
consolidated statement of income.
Short term borrowings
In the ordinary course of business, primarily to facilitate securities
settlements and finance margin debits and trading inventories, Advest obtains
bank loans which are collateralized by its trading securities and customers'
margin securities. The loans are payable on demand and bear interest based on
the federal funds rate. At March 31, 2001, Advest had $378.9 million in bank
loans all collateralized by firm and customer trading securities. The weighted
average interest rate on bank loans outstanding at March 31, 2001, was 5.62%.
4. SEGMENT INFORMATION:
For management and reporting purposes, the Company's business is organized
in three principal operating segments, the "Protection Products" segment, the
"Accumulation Products" segment and the "Retail Brokerage and Investment
Banking" segment. Substantially all of the Company's other business activities
are combined and reported in the "Other Products" segment.
In its Protection Products segment, the Company currently offers a wide
range of individual life insurance products, including: whole life term life,
universal life, variable universal life, corporate-owned life insurance, last
survivor variable universal life, group universal life, corporate-owned life
insurance, last survivor variable universal life, group universal life and
special risk products. The Protection Products segment also includes the inforce
business from sales of last survivor universal life and last survivor whole
life. Also included in the Protection Products segment are the: (i) assets and
liabilities transferred pursuant to the Group Pension Transaction, as well as
the related profits therefrom (see Note 5), and (ii) the Closed Block assets and
liabilities, as well as all the related revenues and expenses relating thereto.
In its Accumulation Products segment, the Company primarily offers flexible
premium variable annuities and proprietary retail mutual funds. The Accumulation
Products segment also includes the in-force business from single premium
deferred annuities and immediate annuities.
The Retail Brokerage and Investment Banking segment is comprised of the
operations of Advest, Matrix and MONY Securities Corporation ("MSC"). Advest
provides diversified financial services including
11
12
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
securities brokerage, trading, investment banking, trust and asset management
services. Matrix is a middle market investment bank specializing in merger and
acquisition services for a middle market client base. MSC is a securities broker
dealer that transacts customer trades primarily in securities and mutual funds.
In addition to selling the Company's protection and accumulation products, MSC
provides the Company's career agency distribution system access to other
non-proprietary investment products (including stocks, bonds, limited
partnership interests, tax-exempt unit investment trusts and other investment
securities). MSC was previously reported in the Other Products segment. The
segmented data presented below as of and for the three month period ended March
31, 2000 has been restated from that reported in the prior year period to
reflect the reclassification of MSC from the Other Products segment to the
Retail Brokerage and Investment Banking segment.
The Company's Other Products segments primarily consists of an insurance
brokerage operation and certain lines of insurance business no longer written by
the Company (the "run-off businesses").The insurance brokerage operation
provides the Company's career agency sales force with access to life, annuity,
small group health and specialty insurance products written by other carriers to
meet the insurance and investment needs of its customers. The run off businesses
primarily consist of group life and health business as well as group pension
business that was not included in the Group Pension Transaction (see Note 5).
Amounts reported as "reconciling amounts" in the table below primarily
relate to: (i) contracts issued by the Company relating to its employee benefit
plans and, (ii) assets, liabilities, revenues and expenses of the MONY Group.
Set forth in the following table is certain financial information with respect
to the Company's operating segments as well as amounts not allocated to the
segments as of March 31, 2001 and December 31, 2000 and for each the three-month
periods ended March 31, 2001 and 2000.
SEGMENT SUMMARY FINANCIAL INFORMATION
FOR THE THREE-MONTH
PERIODS ENDED
MARCH 31,
--------------------
2001 2000
-------- --------
($ IN MILLIONS)
PREMIUMS:
Protection Products......................................... $161.6 $162.5
Accumulation Products....................................... 1.3 0.1
Other Products.............................................. 2.2 2.4
------ ------
$165.1 $165.0
====== ======
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Protection Products......................................... $ 34.5 $ 30.3
Accumulation Products....................................... 15.2 18.9
Other Products.............................................. 0.0 0.7
------ ------
$ 49.7 $ 49.9
====== ======
12
13
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE-MONTH
PERIODS ENDED
MARCH 31,
--------------------
2001 2000
-------- --------
($ IN MILLIONS)
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Protection Products......................................... $149.9 $283.6
Accumulation Products....................................... 20.2 50.6
Retail brokerage and investment banking..................... 0.8 0.1
Other Products.............................................. 6.0 33.6
Reconciling amounts......................................... 9.3 2.5
------ ------
$186.2 $370.4
====== ======
OTHER INCOME:
Protection Products(1)...................................... $ 7.7 $ 14.2
Accumulation Products....................................... 26.2 31.3
Retail Brokerage and Investment Banking..................... 71.1 18.4
Other Products.............................................. 4.5 4.5
Reconciling amounts......................................... 1.8 1.3
------ ------
$111.3 $ 69.7
====== ======
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS:
Protection Products......................................... $ 30.9 $ 30.0
Accumulation Products....................................... 6.3 7.5
------ ------
$ 37.2 $ 37.5
====== ======
BENEFITS TO POLICYHOLDERS:(2)
Protection Products......................................... $198.7 $183.8
Accumulation Products....................................... 16.1 17.8
Other Products.............................................. 8.4 6.4
Reconciling amounts......................................... 2.8 1.1
------ ------
$226.0 $209.1
====== ======
OTHER OPERATING COSTS AND EXPENSES:
Protection Products......................................... $ 49.6 $ 79.1
Accumulation Products....................................... 28.1 29.9
Retail Brokerage and Investment Banking..................... 73.8 18.1
Other Products.............................................. 9.6 9.5
Reconciling amounts......................................... 13.1 2.4
------ ------
$174.2 $139.0
====== ======
INCOME BEFORE INCOME TAXES:
Protection Products......................................... $ 20.5 $141.1
Accumulation Products....................................... 12.0 45.3
Retail brokerage and investment banking..................... (1.9) 0.4
Other Products.............................................. (5.5) 25.1
Reconciling amounts......................................... (4.8) 0.3
------ ------
$ 20.3 $212.2
====== ======
13
14
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
(IN MILLIONS)
ASSETS:(5)
Protection Products(3)...................................... $16,109.3 $16,239.1
Accumulation Products....................................... 5,094.0 5,593.4
Retail Brokerage and Investment Banking..................... 2,304.2 9.8
Other Products.............................................. 1,005.0 1,050.9
Reconciling amounts......................................... 1,400.7 1,682.0
--------- ---------
$25,913.2 $24,575.3
========= =========
DEFERRED POLICY ACQUISITION COSTS:
Protection Products......................................... $ 1,009.8 $ 1,064.3
Accumulation Products....................................... 136.1 145.4
--------- ---------
$ 1,145.9 $ 1,209.7
========= =========
POLICYHOLDERS LIABILITIES:
Protection Products(4)...................................... $10,297.2 $10,290.7
Accumulation Products....................................... 1,038.3 1,060.0
Other Products.............................................. 379.2 381.4
Reconciling amounts......................................... 17.4 17.7
--------- ---------
$11,732.1 $11,749.8
========= =========
SEPARATE ACCOUNT LIABILITIES:(5)
Protection Products(6)...................................... $ 3,849.9 $ 3,939.5
Accumulation Products....................................... 3,577.1 4,072.9
Other Products.............................................. 455.8 499.5
Reconciling amounts......................................... 716.0 770.1
--------- ---------
$ 8,598.8 $ 9,282.0
========= =========
---------------
(1) Includes Group Pension Profits, Retail Brokerage and Investment Banking
revenues and other income.
(2) Includes benefits to policyholders and interest credited to policyholders'
account balances.
(3) Includes assets transferred in the Group Pension Transaction of $4,832.0
million and $4,927.7 million as of March 31, 2001 and December 31, 2000,
respectively (see Note 5).
(4) Includes policyholder liabilities transferred in the Group Pension
Transaction of $1,441.1 million and $1,468.1 million as of March 31, 2001
and December 31, 2000, respectively (see Note 5).
(5) Each segment includes separate account assets in an amount equal to the
corresponding liability reported.
(6) Includes separate account liabilities transferred in the Group Pension
Transaction of $3,346.1 million and $3,416.7 million as of March 31, 2001
and December 31, 2000 respectively (see Note 5).
14
15
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of premiums and universal life and
investment-type product policy fees by product for the three-month periods ended
March 31, 2001 and 2000, respectively.
THREE-MONTH
PERIODS ENDED
MARCH 31,
----------------
2001 2000
------ ------
($ IN MILLIONS)
PREMIUMS:
Individual life............................................. $161.5 $162.4
Group insurance............................................. 2.2 2.4
Disability income insurance................................. 0.1 0.1
Other....................................................... 1.3 0.1
------ ------
Total.................................................. $165.1 $165.0
------ ------
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Universal life.............................................. $ 18.4 $ 15.9
Variable universal life..................................... 13.7 11.5
Group universal life........................................ 2.4 2.9
Individual variable annuities............................... 15.2 18.7
Individual fixed annuities.................................. 0.0 0.9
------ ------
Total.................................................. $ 49.7 $ 49.9
====== ======
5. THE GROUP PENSION TRANSACTION:
The following sets forth certain summarized financial information relating
to the Group Pension Transaction (as defined in the notes to the audited
consolidated financial statements included in MONY Group's 2000 Annual Report)
as of and for the periods indicated, including information regarding: (i) the
general account assets transferred to support the existing deposits in the Group
Pension Transaction (such assets hereafter referred to as the "AEGON
Portfolio"), (ii) the transferred separate account assets and liabilities, and
(iii) the components of revenue and expense comprising the Group Pension Profits
(as defined
15
16
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
in the notes to the audited consolidated financial statements included in MONY
Group's 2000 Annual Report):
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
ASSETS:
General Account
Fixed Maturities: available for sale, at estimated fair
value (amortized cost; $1,397.9 million and $1,420.8
million, respectively)................................. $1,416.0 $1,419.0
Mortgage loans on real estate............................. 43.9 47.5
Cash and cash equivalents................................. 4.3 18.5
Accrued investment income................................. 21.7 26.0
-------- --------
Total general account assets........................... 1,485.9 1,511.0
Separate account assets..................................... 3,346.1 3,416.7
-------- --------
Total assets........................................... $4,832.0 $4,927.7
======== ========
LIABILITIES:
General Account(1)
Policyholders' account balances........................... $1,441.1 $1,468.1
Other liabilities......................................... 12.8 12.4
-------- --------
Total general account liabilities...................... $1,453.9 $1,480.5
-------- --------
Separate account liabilities (2)............................ $3,346.1 $3,416.7
-------- --------
Total Liabilities...................................... $4,800.0 $4,897.2
======== ========
---------------
(1) Includes general account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $73.8 million
and $74.2 million as of March 31, 2001 and December 31, 2000, respectively.
(2) Includes separate account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $12.6 million
and $14.7 million as of March 31, 2001 and December 31, 2000, respectively.
16
17
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE
THREE-MONTH
PERIODS ENDED
MARCH 31,
----------------
2001 2000
------ ------
($ IN MILLIONS)
REVENUES:
Product policy fees......................................... $ 5.2 $ 6.1
Net investment income....................................... 27.2 30.1
Net realized gains on investments........................... 1.7 0.6
----- -----
Total Revenues......................................... 34.1 36.8
BENEFITS AND EXPENSES:
Interest Credited to policyholders' account balances........ 18.5 20.9
Other operating costs and expenses.......................... 5.7 5.8
----- -----
Total benefits and expenses............................ 24.2 26.7
----- -----
Group Pension Profits..................................... $ 9.9 $10.1
===== =====
6. COMMITMENTS AND CONTINGENCIES:
Since late 1995 a number of purported class actions have been commenced in
various state and federal courts against the Company alleging that it engaged in
deceptive sales practices in connection with the sale of whole and universal
life insurance policies from the early 1980s through the mid 1990s. Although the
claims asserted in each case are not identical, they seek substantially the same
relief under essentially the same theories of recovery (i.e., breach of
contract, fraud, negligent misrepresentation, negligent supervision and
training, breach of fiduciary duty, unjust enrichment and violation of state
insurance and/or deceptive business practice laws). Plaintiffs in these cases
seek primarily equitable relief (e.g., reformation, specific performance,
mandatory injunctive relief prohibiting the Company from canceling policies for
failure to make required premium payments, imposition of a constructive trust
and creation of a claims resolution facility to adjudicate any individual issues
remaining after resolution of all class-wide issues) as opposed to compensatory
damages, although they also seek compensatory damages in unspecified amounts.
The Company has answered the complaints in each action (except for one being
voluntarily held in abeyance). The Company has denied any wrongdoing and has
asserted numerous affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified one of those
cases, Goshen v. The Mutual Life Insurance Company of New York and MONY Life
Insurance Company of America (now known as DeFilippo, et al v. The Mutual Life
Insurance Company of New York and MONY Life Insurance Company of America), the
first of the class actions filed, as a nationwide class consisting of all
persons or entities who have, or at the time of the policy's termination had, an
ownership interest in a whole or universal life insurance policy issued by MONY
and sold on an alleged "vanishing premium" basis during the period January 1,
1982 to December 31, 1995. On March 27, 1997, MONY filed a motion to dismiss or,
alternatively, for summary judgment on all counts of the complaint. All of the
other putative class actions have been consolidated and transferred by the
Judicial Panel on Multidistrict Litigation to the United States District Court
for the District of Massachusetts and/or are being held in abeyance pending the
outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted MONY's motion
for summary judgment and dismissed all claims filed in the Goshen case against
MONY. On December 20, 1999, the New York State Court of Appeals affirmed the
dismissal of all but one of the claims in the Goshen case (a claim under New
York's General Business Law), which has been remanded back to the New York State
Supreme Court for further proceedings consistent with the opinion. The New York
State Supreme Court has subsequently reaffirmed that, for purposes of the
remaining New York General Business Law claim, the class
17
18
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
is now limited to New York purchasers only, and has further held that the New
York General Business Law claims of all class members whose claims accrued prior
to November 29, 1992 are barred by the applicable statute of limitations. MONY
intends to defend itself vigorously against the sole remaining claim. There can
be no assurance, however, that the present litigation relating to sales
practices will not have a material adverse effect on MONY.
On November 16, 1999, The MONY Group Inc. and MONY Life Insurance Company
were served with a complaint in an action entitled Calvin Chatlos, M.D., and
Alvin H. Clement, On Behalf of Themselves And All Others Similarly Situated v.
The MONY Life Insurance Company, The MONY Group Inc., and Neil D. Levin,
Superintendent, New York Department of Insurance, filed in the United States
District Court for the Southern District of New York. The action purports to be
brought as a class action on behalf of all individuals who had an ownership
interest in one or more in-force life insurance policies issued by MONY Life
Insurance Company as of November 16, 1998. The complaint alleges that (i) the
New York Superintendent of Insurance, Neil D. Levin, violated Section 7312 of
the New York Insurance Law by approving the plan of demutualization, which
plaintiffs claim was not fair and adequate, primarily because it allegedly
failed to provide for sufficient assets for the mechanism established under the
plan to preserve reasonable dividend expectations of the closed block, and (ii)
MONY violated Section 7312 by failing to develop and submit to the
Superintendent a plan of demutualization that was fair and adequate. The
plaintiffs seek equitable relief in the form of an order vacating and/or
modifying the Superintendent's order approving the plan of demutualization
and/or directing the Superintendent to order MONY to increase the assets in the
closed block, as well as unspecified monetary damages, attorneys' fees and other
relief.
In early January 2000, MONY and the New York Superintendent wrote to the
District Court seeking a pre-motion conference preliminary to the filing of a
motion to dismiss the federal complaint on jurisdictional, federal abstention
and timeliness grounds and for failure to state a claim. Following receipt of
those letters, plaintiffs' counsel offered voluntarily to dismiss their
complaint, and a stipulation and order to that effect was thereafter filed and
approved by the court.
On March 27, 2000, plaintiffs filed a new action in New York State Supreme
Court bearing the same caption and naming the same defendants as the previously
filed federal action. The state court complaint differs from the complaint
previously filed in federal court in two primary respects. First, it no longer
asserts a claim for damages against the Superintendent, nor does its prayer for
relief seek entry of an order vacating or modifying the Superintendent's
decision or requiring the Superintendent to direct MONY to place additional
assets into the closed block. Rather, it seeks an accounting and an order from
the Court directing MONY to transfer additional assets to the closed block.
Second, the new complaint contains claims for breach of contract and
fiduciary duty, as well as new allegations regarding the adequacy of the
disclosures contained in the Policyholder Information Booklet distributed to
policyholders soliciting their approval of the plan of demutualization (which
plaintiffs claim violated both the Insurance Law and MONY's fiduciary duties).
In order to challenge successfully the New York Superintendent's approval
of the plan, plaintiffs would have to sustain the burden of showing that such
approval was arbitrary and capricious or an abuse of discretion, made in
violation of lawful procedures, affected by an error of law or not supported by
substantial evidence. In addition, Section 7312 provides that MONY may ask the
court to require the challenging party to give security for the reasonable
expenses, including attorneys' fees, which may be incurred by MONY or the
Superintendent or for which MONY may become liable, to which security MONY shall
have recourse in such amount as the court shall determine upon the termination
of the action.
MONY and the Superintendent have moved to dismiss the state court complaint
in its entirety on a variety of grounds. On April 20, 2001, the New York Supreme
Court granted both motions and dismissed all claims against MONY and the
Superintendent. The time for an appeal from this decision has not yet expired,
18
19
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
and it is not known whether plaintiffs will appeal. There can be no assurance,
however, that the present litigation will not have a material adverse effect on
the Company.
In addition to the matters discussed above, the Company is involved in
various other legal actions and proceedings (some of which involve demands for
unspecified damages) in connection with its business. In the opinion of
management of the Company, resolution of contingent liabilities, income taxes
and other matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
At March 31, 2001, the Company had commitments to contribute capital to its
equity partnership investments of $115.6 million and commitments to purchase
$34.5 million of private fixed and floating rate maturity securities with
interest rates ranging from 7.00% to 11.50%.
At March 31, 2001, the Company had commitments to issue $15.4 million of
fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from approximately 7.25% to 8.85%. In
addition, the Company had commitments to issue $97.4 million of fixed rate and
floating rate commercial mortgage loans with interest rates ranging from 7.53%
to 8.65%.
At March 31, 2001, the Company had commitments to issue $7.9 million of
mezzanine financing with pay rates ranging from 9.00% to 10.00%.
In addition, the Company maintains a bank line of credit facility with
domestic banks aggregating $150.0 million, with a scheduled renewal date in June
2001. In accordance with certain covenants under these lines of credit, the
Company is required to maintain a certain statutory tangible net worth and debt
to capitalization ratio. The purpose of this facility is to provide additional
liquidity for any unanticipated short-term cash needs the Company might
experience and also to serve as support for the Company's $150.0 million
commercial paper program which was activated in the third quarter of 2000. The
Company has complied with all covenants under these lines of credit, has not
borrowed against these lines of credit since their inception, and does not have
any commercial paper outstanding as of March 31, 2001.
At March 31, 2001, Advest was contingently liable under bank letter of
credit agreements in the amount of $5.3 million, which are collateralized by
securities held in customer accounts.
19
20
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
7. CLOSED BLOCK:
The following tables set forth certain summarized financial information
relating to the Closed Block, as of and for the periods indicated:
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
ASSETS:
Fixed Maturities:
Available for sale, at estimated fair value (amortized
cost; $3,546.2 and $3,535.8, respectively)............. $3,621.1 $3,543.1
Mortgage loans on real restate............................ 566.4 566.0
Policy loans.............................................. 1,175.6 1,183.9
Cash and cash equivalents................................. 209.4 167.8
Premiums receivable....................................... 8.2 13.6
Deferred policy acquisition costs......................... 485.3 552.6
Other assets.............................................. 230.9 224.2
-------- --------
Total Closed Block assets.............................. $6,296.9 $6,251.2
======== ========
LIABILITIES:
Future policy benefits.................................... $6,820.9 $6,826.8
Policyholders' account balances........................... 293.0 293.3
Other Policyholders' liabilities.......................... 180.1 173.5
Other liabilities......................................... 76.6 22.2
-------- --------
Total Closed Block liabilities......................... $7,370.6 $7,315.8
======== ========
FOR THE
THREE-MONTH
PERIODS ENDED
MARCH 31,
----------------
2001 2000
------ ------
($ IN MILLIONS)
REVENUES:
Premiums.................................................... $129.3 $135.7
Net investment income....................................... 99.9 96.4
Net realized gains (losses) on investments.................. (0.1) (2.5)
Other income................................................ 0.5 0.8
------ ------
Total revenues......................................... 229.6 230.4
------ ------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 141.4 141.6
Interest credited to policyholders' account balances........ 2.1 2.2
Amortization of deferred policy acquisition costs........... 21.2 17.6
Dividends to policyholders.................................. 53.5 56.6
Other operating costs and expenses.......................... 1.7 1.8
------ ------
Total benefits and expenses............................... 219.9 219.8
====== ======
Contribution from the Closed Block.......................... $ 9.7 $ 10.6
====== ======
20
21
THE MONY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
For the three-month periods ended March 31, 2001 and 2000, there were $2.4
million and $3.0 million, respectively, in charges for other than temporary
impairments on fixed maturity securities in the Closed Block.
8. EXTRAORDINARY ITEM:
On March 8, 2000, MONY Group issued $300.0 million principal amount of
senior notes (the "Senior Notes"). The Senior Notes mature on March 15, 2010 and
bear interest at 8.35% per annum. The principal amount of the Senior Notes is
payable at maturity and interest is payable semi-annually. The net proceeds to
the Company from the issuance of the Senior Notes, after deducting underwriting
commissions and other expenses (primarily legal and accounting fees), were
approximately $296.6 million. Approximately $280.0 million of the net proceeds
from the issuance of the Senior Notes was used by the MONY Group to finance the
repurchase, on March 8, 2000, by MONY Life of all of its outstanding $115.0
million face amount 9.5% coupon surplus notes, and $116.5 million face amount of
its $125.0 million face amount 11.25% coupon surplus notes (hereafter referred
to as the "9.5% Notes" and "11.25% Notes", respectively), which were outstanding
at December 31, 1999. The balance of the net proceeds from the issuance of the
Senior Notes was retained by the MONY Group for general corporate purposes.
As a result of the repurchase of the 9.5% Notes and substantially all of
the 11.25% Notes (See "Liquidity and Capital Resources"), the Company recorded a
pre-tax tax loss of $56.5 million ($36.7 million after tax) during the first
quarter of 2000. The loss resulted from the premium paid by MONY Life to the
holders of the 9.5% Notes and the 11.25% Notes reflecting the excess of their
fair value over their carrying value on the Company's books at the date of the
transaction of approximately $7.0 million and $49.5 million, respectively. This
loss is reported, net of tax, as an extraordinary item on the Company's income
statement for the three-month period ended March 31, 2000.
21
22
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition and results of
operations of the Company for the periods indicated. The discussion of the
Company's results of operations is based on the results of the Closed Block
combined on a line by line basis with the results of operations outside the
Closed Block, for such respective periods. The discussion and analysis of the
Company's financial condition and results of operations presented below should
be read in conjunction with the Company's unaudited interim condensed
consolidated financial statements and related notes to the unaudited interim
condensed consolidation financial statements included elsewhere herein and MONY
Group's 2000 Annual Report.
RESULTS OF OPERATIONS
The following tables present the Company's consolidated and segment results
of operations for the three-month period ended March 31, 2001 and 2000. The
discussion following these tables discusses the Company's consolidated and
segment results of operations.
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2001
------------------------------------------------------------------------------
RETAIL
BROKERAGE AND
INVESTMENT
PROTECTION ACCUMULATION BANKING OTHER RECONCILING CONSOLIDATED
---------- ------------ ------------- ----- ----------- ------------
($ IN MILLIONS)
REVENUES:
Premiums......................... $161.6 $ 1.3 $ -- $ 2.2 $ -- $165.1
Universal life and
investment-type product policy
fees........................... 34.5 15.2 -- -- -- 49.7
Net investment income and
realized gains on
investments.................... 149.9 20.2 0.8 6.0 9.3 186.2
Group Pension Profits............ 9.9 -- -- -- -- 9.9
Retail Brokerage and investment
Banking........................ -- 71.1 -- -- 71.1
Other income..................... (2.2) 26.2 -- 4.5 1.8 30.3
------ ----- ----- ----- ----- ------
353.7 62.9 71.9 12.7 11.1 512.3
------ ----- ----- ----- ----- ------
BENEFITS AND EXPENSES:
Benefits to policyholders........ 183.2 5.8 -- 5.9 2.8 197.7
Interest credited to
policyholders' account
balances....................... 15.5 10.3 -- 2.5 -- 28.3
Amortization of deferred policy
acquisition costs.............. 30.9 6.3 -- -- -- 37.2
Dividends to policyholders....... 54.0 0.4 -- 0.2 -- 54.6
Other operating costs and
expenses....................... 49.6 28.1 73.8 9.6 13.1 174.2
------ ----- ----- ----- ----- ------
333.2 50.9 73.8 18.2 15.9 492.0
------ ----- ----- ----- ----- ------
Income before income taxes....... $ 20.5 $12.0 $(1.9) $(5.5) $(4.8) 20.3
====== ===== ===== ===== =====
Income tax expense............... 7.0
------
Net Income....................... $ 13.3
======
22
23
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
------------------------------------------------------------------------------
RETAIL
BROKERAGE AND
INVESTMENT
PROTECTION ACCUMULATION BANKING OTHER RECONCILING CONSOLIDATED
---------- ------------ ------------- ----- ----------- ------------
($ IN MILLIONS)
REVENUES:
Premiums......................... $162.5 $ 0.1 $ -- $ 2.4 $ -- $165.0
Universal life and
investment-type product policy
fees........................... 30.3 18.9 -- 0.7 -- 49.9
Net investment income and
realized gains on
investments.................... 283.6 50.6 0.1 33.6 2.5 370.4
Group Pension Profits............ 10.1 -- -- -- -- 10.1
Retail Brokerage and investment
banking........................ 18.4 18.4
Other income..................... 4.1 31.3 -- 4.5 1.3 41.2
------ ------ ----- ----- ----- ------
490.6 100.9 18.5 41.2 3.8 655.0
BENEFITS AND EXPENSES:
Benefits to policyholders........ 170.4 5.3 -- 3.9 1.1 180.7
Interest credited to
policyholders' account
balances....................... 13.4 12.5 -- 2.5 -- 28.4
Amortization of deferred policy
acquisition costs.............. 30.0 7.5 -- -- -- 37.5
Dividends to policyholders....... 56.6 0.4 -- 0.2 -- 57.2
Other operating costs and
expenses....................... 79.1 29.9 18.1 9.5 2.4 139.0
------ ------ ----- ----- ----- ------
349.5 55.6 18.1 16.1 3.5 442.8
------ ------ ----- ----- ----- ------
Income before income taxes and
extraordinary item............. $141.1 $ 45.3 $ 0.4 $25.1 $ 0.3 212.2
====== ====== ===== ===== =====
Income tax expense............... 74.3
------
Income before extraordinary
item........................... 137.9
Extraordinary item............... 36.7
------
Net Income....................... $101.2
======
Three-Month Period Ended March 31, 2001
Compared to the Three-Month Period Ended March 31, 2000.
Premiums --
Premium revenue was $165.1 million for the three-month period ended March
31, 2001, an increase of $0.1 million, or less than 1.0% from $165.0 million
reported for the comparable prior year period ended March 31, 2000. The increase
was a result of higher sales of a new immediate annuity product in the
Accumulation Products segment of $1.2 million that was offset by decreases in
the Protection Products segment of $0.9 million. The decrease was primarily
comprised of lower renewal premiums of $7.0 million due to the reduction of the
in-force block, offset by an increase of $5.6 million in new and renewal
premiums, respectively, from special risk term insurance products offered by the
Company's subsidiary, U.S. Financial Life Insurance Company ("USFL"). The
increase in new premiums written by USFL is primarily attributable to the
expansion of its distribution, the improvement of its financial strength ratings
since being acquired by the Company. Management believes that the decrease in
traditional life insurance premiums is consistent with industry trends,
particularly the continuing shift by consumers from traditional protection
products to asset accumulation products. See "New Business Information" for a
discussion regarding period to period sales and related trends.
Universal life and investment-type product policy fees --
Universal life and investment-type product policy fees were $49.7 million
for three-month period ended March 31, 2001, a decrease of $0.2 million, or 0.4%
from $49.9 million reported for the comparable prior year
23
24
period ended March 31, 2000. The decrease was a result of lower fees in the
Accumulation Products segment of $3.7 million primarily attributable to lower
fund balances and a $2.2 million decrease in surrender charges in the Company's
flexible payment variable annuity ("FPVA") product. The decrease in surrender
charges reflects the positive effects of the efforts of the Company's
conservation unit and other measures designed to improve persistency. This was
offset by higher fees of $4.2 million in the Protection Products segment which
was primarily attributable to higher variable universal life ("VUL") and
corporate sponsored VUL ("CSVUL") fees of $0.5 million and $1.7 million,
respectively and lower reinsurance ceded of $2.5 million. For the period ended
March 31, 2001, the Company reported total fees from its VUL business of
approximately $11.5 million, as compared to $11.0 million reported for
comparable prior year period. Higher sales and the growth in inforce are the
primary reasons for the increase. The total fee income for CSVUL was $2.2
million as of March 31, 2001, as compared to $0.5 million for the comparable
prior period. The $1.7 million increase is primarily due to growth in inforce.
Net investment income and realized gains on investments --
Net investment income was $183.7 million for the three-month period ended
March 31, 2001, a decrease of $168.1 million, or 47.8%, from $351.8 million
reported for the comparable prior year period. The decrease in net investment
income is primarily related to a decrease in income recorded by the Company from
its investments in limited partnership interests. Such partnerships provide
venture capital funding to companies through the purchase of or investment in
equity securities issued by such companies. For the three-month period ended
March 31, 2001, the Company had a loss of $4.8 million relating to such
partnership investments, a decrease of $170.6 million from a gain of $165.8
million recorded for the three-month period ended March 31, 2000. As of March
31, 2001, invested assets excluding trading portfolio assets of $689.7 million
were $11,057.2 million (including cumulative unrealized gains of $120.4 million
on fixed maturity securities) compared to $10,968.7 million (including
cumulative unrealized losses of $208.1 million on fixed maturity securities) for
the prior period. At March 31, 2001, fixed maturity securities, mortgage loans
and real estate represented approximately 61.9%, 15.4% and 1.9%, respectively,
of total invested assets (excluding trading portfolio assets), as compared to
60.0%, 16.6% and 3.4%, respectively, at March 31, 2000. See
"Investments -- Results by Asset Category."
Net realized capital gains were $2.5 million for the three-month period
ended March 31, 2001, a decrease of $16.1 million, from gains of $18.6 million
for the comparable prior year period. The following table sets forth the
components of net realized gains (losses) by investment category for the
three-month period ended March 31, 2001 compared to the three-month period ended
March 31, 2000.
FOR THE THREE-MONTH
PERIODS ENDED
MARCH 31,
-------------------
2001 2000
----- -----
($ IN MILLIONS)
Real estate................................................. $(1.6) $(0.6)
Equity securities........................................... (1.6) 20.2
Fixed maturities............................................ 4.7 (3.0)
Mortgage loans.............................................. 1.7 2.1
Other....................................................... (0.7) (0.1)
----- -----
$ 2.5 $18.6
===== =====
As of March 31, 2001, the Company had approximately $25.0 million of
additional pretax gains related to its venture capital limited partnership
investments that may be realized in the future subject to market fluctuation.
Net investment income and net realized gains on investments are allocated
to the Company's segment based on the assets allocated to such segments to
support the associated liabilities of each segment and to maintain a targeted
regulatory risk-based capital level for each segment.
24
25
Group Pension Profits --
Group Pension Profits were $9.9 million for the three-month period ended
March 31, 2001, a decrease of $0.2 million, or 2.0%, from $10.1 million in the
comparable prior year period ended March 31, 2000. The decrease was due to a
reduction in operating income of $1.3 million due to the run off of the Group
Pension business, offset by higher realized gains due to a bond prepayments in
2001.
For summary financial information relating to the Group Pension profits,
refer to Note 5 of the Unaudited Interim Condensed Consolidated Financial
Statements included herein. Management expects that Group Pension Profits will
decline in future periods through the termination of the Group Pension
Transaction on December 31, 2002 consistent with the continuing run-off of the
underlying business.
Retail Brokerage and Investment Banking Revenues --
Retail Brokerage and Investment Banking revenues were $71.1 million for the
three month period ended March 31, 2001, an increase of $52.7 million compared
$18.4 million for the three month period ended March 31, 2000. The increase is
primarily attributable to the acquisitions of Advest and Matrix in the first
quarter of 2001. Revenues for Advest for the period January 31, 2001 (date of
acquisition) through March 31, 2001, were $58.3 million. See "New Business
Information."
Other income --
Other income (which consists primarily of fees earned by the Company's
mutual fund management, revenues from interest on deposits held under financial
reinsurance arrangements, certain other asset management fees, and other
miscellaneous revenues) was $30.3 million for the three-month period ended March
31, 2001, a decrease of $10.9 million, or 26.5%, from $41.2 million reported for
the comparable prior year period. The decrease was primarily due to lower income
of $6.3 million and $5.1 million in the Protection Products segment and the
Accumulation Products segment, respectively.
The decrease in income recorded in the Protection Products was primarily
due to the decrease in cash surrender value of the Company's corporate owned
life insurance ("COLI") contract as a result of unfavorable market conditions.
In the second quarter of 2000, the Company purchased a COLI contract from a
third party insurance company to better hedge the changes in the value of the
Company's non-qualified employee compensation plans. The decrease in income
recorded in the Accumulation Products segment was primarily attributable to
lower fees earned from the Company's mutual fund management operations. The
Company's mutual fund management operations reported $23.8 million in fees from
advisory, underwriting and distribution services in 2001 as compared to $27.3
million in 2000, as assets under management decreased to approximately $7.2
billion at March 31, 2001 from $9.1 billion at March 31, 2000.
Benefits to policyholders --
Benefits to policyholders were $197.7 million for the three-month period
ended March 31, 2001, an increase of $17.0 million, or 9.4%, from $180.7 million
reported for comparable prior year period. The increase consisted primarily of
higher benefits of approximately $12.8 million, $2.0 million and $1.7 million in
the Company's Protection Products segment, Other Product segment and the
Company's benefit plans, respectively. The increase of $12.8 million in the
Protection Products segment was due to higher death benefits of $9.6 million,
and an increase in USFL of $5.1 million, which is consistent with the growth of
traditional in-force block. The increase in the Other Products segment was due
to higher death claims and higher long-term disability claims in the run-off
businesses.
Interest credited to policyholders' account balances --
Interest credited to policyholders' account balances was $28.3 million for
the three-month period ended March 31, 2001, a decrease of $0.1 million, or
0.4%, from $28.4 million reported for the comparable prior year period. The
decrease was the result of lower interest crediting of $2.2 million in the
Company's Accumulation Products segment primarily due to lower interest
crediting on single premium deferred annuities ("SPDA")
25
26
of $1.0 million. During the first quarter of 2001, SPDA account value decreased
approximately $5.1 million to $290.2 million as compared to $295.3 million in
the prior year period. The decrease in account value in 2001 was primarily due
to continuing withdrawals, which management believes partially reflects consumer
preferences for separate account products. This was offset by higher interest
crediting of $2.1 million in the Company's Protection Products segment due to a
$1.8 million increase in CSVUL consistent with an increase in the general
account fund values.
Amortization of deferred policy acquisition costs --
Amortization of deferred policy acquisition costs ("DAC") was $37.2 million
for the three-month period ended March 31, 2000, a decrease of $0.3 million, or
0.8%, from $37.5 million reported in the comparable prior year period. The
decrease primarily resulted from lower amortization FPVA of $1.2 million due to
a decline in FPVA inforce business and the exchange activity to the new variable
annuity products where better persistency is anticipated. This was offset by
higher amortization in the Company's Protection Products segment of $0.9
million, which primarily consisted of an increase of $3.4 million in the
traditional life products due to poorer than expected persistency, offset by
lower universal life and VUL of $1.5 million and $0.7 million, respectively due
to higher death claims and a decrease in amortization related to USFL.
Dividends to policyholders --
Dividends to policyholders were $54.6 million for the three-month period
ended March 31, 2001, a decrease of $2.6 million, or 4.5%, from $57.2 million
reported for the comparable prior year period. The decrease, substantially all
of which occurred in the Protection Products segment, resulted primarily from a
reduction in the additional dividend liability established in the Closed Block
as of March 31, 2001, as compared to March 31, 2000.
Other operating costs and expenses --
Other operating costs and expenses were $174.2 million for the three-month
period ended March 31, 2001, an increase of $35.2 million, or 25.3%, from $139.0
million reported for the comparable prior year period. This increase consisted
of $55.7 million for the Retail Brokerage and Investment Banking segment,
resulting from the acquisition of Advest and $5.2 higher interest expense
resulting from the financing of the Advest acquisition. Offsetting these
increases were $6.9 million lower benefit plan expenses primarily due to the
decline in the market and $21.8 million lower incentive compensation.
NEW BUSINESS INFORMATION
The Company distributes its products primarily through its career agency
sales force and various complementary distribution channels which include: (i)
sales of proprietary retail mutual funds through third party broker-dealers,
(ii) sales of Protection Products by the Company's USFL subsidiary through
brokerage general agencies, (iii) sales of COLI products by the Company's
corporate marketing team, and (iv) sales of a variety of financial products and
services through the Company's Trusted Advisors subsidiary. The table below and
discussion which follows present certain information with respect to the
Company's sales of protection and accumulation products during the three month
periods ended March 31, 2001 and 2000 by source of distribution. Management uses
this information to measure the Company's sales production from period to period
by source of distribution as well as revenues generated by the retail brokerage
and investment banking segment. The amounts presented with respect to life
insurance sales represent annualized statutory-basis premiums. Annualized
premiums in the Protection Products segment represent the total premium
scheduled to be collected on a policy or contract over a twelve-month period.
Pursuant to the terms of certain of the policies and contracts issued by the
Company, premiums and deposits may be paid or deposited on a monthly, quarterly,
or semi-annual basis. Annualized premium does not apply to single premium paying
business. All premiums received on COLI business and single premium paying
policies during the periods presented are included. Statutory basis premiums are
used in lieu of GAAP basis premiums because, in accordance with statutory
accounting practices, revenues from all classes of long-duration contracts are
measured on the same basis, whereas GAAP provides different revenue recognition
rules for different classes of long-duration contracts as defined by the
requirements of SFAS No. 60, Accounting and Reporting by Insurance Enterprises,
SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long
26
27
Duration Contracts and for Realized Gains and Losses from the Sale of
Investments, and SOP 95-1, Accounting for Certain Insurance Activities of Mutual
Life Insurance Enterprises. The amounts presented with respect to annuity and
mutual fund sales represent deposits made by customers during the periods
presented. The amounts presented with respect to the Retail Brokerage and
Investment Banking segment represent fees earned by Advest, Matrix and MSC
primarily from securities brokerage, investment banking and asset management
services.
NEW BUSINESS AND REVENUES BY SOURCE
THREE-MONTHS ENDED
MARCH 31,
-------------------
2001 2000
----- -----
($ IN MILLIONS)
NEW BUSINESS BY SOURCE OF DISTRIBUTION
Protection Products
Career Agency System................................... $17.1 $20.2
U.S. Financial Life Insurance Company.................. 9.8 8.9
Complementary Distribution (4)......................... 22.4 23.6
----- -----
Total New Annualized Life Insurance Premiums......... $49.3 $52.7
===== =====
Accumulation Products
Career Agency System -- Variable Annuities (1)......... $ 72 $ 116
Career Agency System -- Mutual Funds................... 116 212
Third Party Distribution -- Mutual Funds............... 249 549
----- -----
Total Accumulation Sales............................. $ 437 $ 877
===== =====
RETAIL BROKERAGE & INVESTMENT BANKING REVENUES
Advest (2)............................................. $58.3 $75.7
MONY Securities Corp................................... 11.0 18.4
Matrix Capital Markets (3)............................. 1.8 1.4
----- -----
Total Revenue........................................ $71.1 $95.5
===== =====
---------------
(1) Excludes sales associated with an exchange program offered by the Company
wherein contractholders surrendered old FPVA contracts and reinvested the
proceeds therefrom in a new enhanced FPVA product offered by the Company
(2) Amounts presented for Advest are for the two month periods ended March 31,
2001 and March 31, 2000. Advest was acquired on January 31, 2001 and
accordingly, the Company's consolidated results of operations include only
the activity of Advest for the two month period ended March 31, 2001. The
comparable prior year activity is shown in the table above for discussion
purposes only and such results are not included in the results of operations
of the Company for the three month period ended March 31, 2000.
(3) Amounts presented for Matrix are for the three month periods ended March 31,
2001 and March 31, 2000. Matrix was acquired effective January 1, 2001 and
accordingly, the Company's consolidated results of operations include only
the activity of Matrix for the three month period ended March 31, 2001. The
comparable prior year activity is shown in the table above for discussion
purposes only and such results are not included in the results of operations
of the Company for the three month period ended March 31, 2000.
(4) Amounts are primarily comprised of COLI cases.
27
28
Protection Products Segment -- New Business Information for the three month
period ended March 31, 2001 compared to the three month period ended March
31, 2000
Total new annualized and single life insurance premiums for the three month
period ended March 31, 2001 were $49.3 million, compared to $52.7 million for
the comparable prior year period. Sales of COLI and bank-owned life insurance
("BOLI") were $22.1 million for the three month period ended March 31, 2001,
compared to $23.2 million for the three month period ended March 31, 2000.
Corporate sales are large-premium cases that typically generate revenues that
can fluctuate considerably from quarter-to-quarter. New USFL premiums through
its brokerage general agency distribution channel rose to $9.8 million for the
three month period ended March 31, 2001 from $8.9 million in the three month
period ended March 31, 2000. A greater percentage of USFL's business is
generated by permanent insurance, resulting in higher margins. New career agency
life insurance premiums (first-year and single premiums) were $17.1 million for
the three month period ended March 31, 2001, compared to $20.2 million for the
three month period ended March 31, 2000. Sales of variable-based life insurance
products, which comprise a significant portion of the Company's life insurance
products, are heavily influenced by the performance of the stock market.
Last year, the Company introduced MONY Independent Network, which sells the
Company protection products through brokerage general agents and broker/dealers.
As of the end of the first quarter, the Company secured 50 agreements with
brokerage general agencies and broker/dealers. Through these agreements, the
Company has access to 150 locations, representing over 10,000 active producers.
Accumulation Products Segment -- New Business Information for the three
month period ended March 31, 2001 compared to the three month period ended
March 31, 2000
The following tables set forth assets under management as of March 31, 2001
and March 31, 2000, and changes in the primary components of assets under
management for the three-month periods ended March 31, 2001 and 2000:
AS OF AS OF
MARCH 31, MARCH 31,
2001 2000
--------- ---------
($ IN BILLIONS)
ASSETS UNDER MANAGEMENT:(1)
Individual variable annuities............................... $3.9 $ 4.9
Individual fixed annuities.................................. 0.7 0.8
Proprietary retail mutual funds............................. 4.3 5.2
---- -----
$8.9 $10.9
==== =====
FOR THE
THREE-MONTH
PERIODS ENDED
MARCH 31,
----------------
2001 2000
------ ------
($ IN BILLIONS)
INDIVIDUAL VARIABLE ANNUITIES:
Beginning account value..................................... $ 4.4 $ 4.9
Sales(2).................................................... 0.1 0.1
Market appreciation......................................... (0.5) 0.1
Surrenders and withdrawals(2)............................... (0.1) (0.2)
----- -----
Ending account value........................................ $ 3.9 $ 4.6
===== =====
PROPRIETARY RETAIL MUTUAL FUNDS:
Beginning account value..................................... $ 4.8 $ 4.8
Sales....................................................... 0.4 0.8
Dividends reinvested........................................ 0.0 0.1
28
29
FOR THE
THREE-MONTH
PERIODS ENDED
MARCH 31,
----------------
2001 2000
------ ------
($ IN BILLIONS)
Market appreciation......................................... (0.6) 0.2
Redemptions................................................. (0.3) (0.3)
----- -----
Ending account value........................................ $ 4.3 $ 5.2
===== =====
---------------
(1) Results exclude USFL.
(2) Excludes sales and surrenders associated with an exchange program offered by
the Company wherein contractholders surrendered old FPVA contracts and
reinvested the proceeds therefrom in a new enhanced FPVA product offered by
the Company.
New accumulation assets raised during the three month period ended March
31, 2001 were $437 million, compared to a record $877 million in the three month
period ended March 31, 2000. The sales record achieved during the three month
period ended March 31, 2000 was due to strong demand for the Enterprise Internet
and growth mutual funds as a result of the unprecedented performance of the
equity markets.
Against difficult market conditions, The Enterprise Group of Funds had
sales of $365 million during the three month period ended March 31, 2001,
compared to sales of $761 million during the three month period ended March 31,
2000. Despite these difficult market conditions, net inflows during the three
month period ended March 31, 2001 were $68 million. Enterprise mutual fund sales
through third-party broker-dealers were $249 million during the three month
period ended March 31, 2001, compared with $549 million in the comparable prior
year period. Enterprise funds sold through the career system were $116 million
for the three month period ended March 31, 2001, compared to $212 million for
the three month period ended March 31, 2000. Sales of variable annuities were
$72 million for the three month period ended March 31, 2001, compared with $116
million in the comparable prior-year period.
Retail Brokerage & Investment Banking Segment -- Revenue Information for the
three month period ended March 31, 2001 compared to the three month period
ended March 31, 2000
The Retail Brokerage and Investment Banking segment includes securities
brokerage, trading, investment banking, trust and asset management services to
high-net worth individuals and small to mid-size business owner clients through
Advest, Matrix and MSC. The Retail Brokerage and Investment Banking segment
revenues were $71.1 million for the three month period ended March 31, 2001.
Advest revenues were $58.3 million for February and March 2001, compared
with a record $75.7 million for the months of February and March 2000. The
Company completed its acquisition of Advest on January 31, 2001 and accordingly
only those revenues generated by Advest subsequent to the acquisition are
included in the results of operations of the Company. Advest earned $2.3 million
during the three month period ended March 31, 2001, before merger related
expenses of $2.8 million which were primarily comprised of $1.3 million in
broker retention expenses and $1.1 million of goodwill amortization. Advest's
pretax loss was $0.5 million for the two month period ended March 31, 2001.
Revenues from Advest's private client group were $30.1 million for the
months of February and March 2001, compared to $43.7 million for the same period
in 2000. Market volatility adversely affected revenue. Advest's private client
group includes the retail sale of equities, asset management products, fixed
income products and annuities to individual investors through Advest financial
advisors.
For the three month period ended March 31, 2001, MSC., a registered
securities broker-dealer for the Company's career network, posted revenues of
$11 million for the three months ended March 31, 2001, compared with $18.4
million during the comparable prior year period. MSC reported a pre-tax loss of
$1.4 million for the three month period ended March 31, 2001 compared to a $0.4
million pre-tax gain for the three month period ended March 31, 2000. The
decrease was primarily attributable to the equity market
29
30
volatility which resulted in lower trading volumes. The financial performance of
MSC was previously reported in the Other Products segment in the Company's
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
MONY Group
MONY Group's cash flow consists of investment income from its invested
assets (including interest from the Inter-company Surplus Notes, as hereafter
defined) and dividends from MONY Life, if declared and paid, offset by expenses
incurred in connection with the administration of MONY Group's affairs and
interest expense on its outstanding indebtedness. As a holding company, MONY
Group's ability to meet its cash requirements, pay interest expense on its
outstanding indebtedness, and pay dividends on its Common Stock substantially
depend upon payments from its subsidiaries, including the receipt of; (i)
dividends, (ii) interest income on the Inter-company Surplus Notes, and (iii)
other payments. The payment of dividends by MONY Life to MONY Group is regulated
under state insurance law. In addition, payments of principal and interest on
the Inter-company Surplus Notes can only be made with the prior approval of the
New York Superintendent whenever, in his judgment, the financial condition of
such insurer warrants. Such payments further may be made only out of surplus
funds, which are available for such payments under the New York Insurance Law.
Issuance of Senior Notes and Repurchase of Surplus Notes
On January 12, 2000, the MONY Group filed a registration statement on Form
S-3 with the SEC to register certain securities (the "Shelf Registration"). This
registration, provides the Company with a vehicle to offer various securities to
the public, when it deems appropriate, to raise proceeds up to an amount not to
exceed $1.0 billion in the aggregate for all issuances of securities thereunder.
On March 8, 2000, the MONY Group issued $300.0 million principal amount of
senior notes (the "Senior Notes") pursuant to the Shelf Registration. The Senior
Notes mature on March 15, 2010, bear interest at 8.35% per annum and were priced
at a discount to yield 8.38%. The principal amount of senior notes is payable at
maturity and interest is payable semi-annually. The net proceeds to the Company
from the issuance of the Senior Notes, after deducting underwriting commissions
and other expenses (primarily legal and accounting fees), were approximately
$296.6 million. Approximately $280.0 million of the net proceeds from the
issuance of the Senior Notes was used by the MONY Group as discussed below to
finance the repurchase, on March 8, 2000, by MONY Life of all of its outstanding
$115.0 million face amount 9.5% coupon surplus notes, and a $116.5 million face
amount of its $125.0 million face amount 11.25% coupon surplus notes (hereafter
referred to as the "9.5% Notes" and "11.25% Notes, respectively), which were
outstanding at December 31, 1999.
To finance MONY Life's repurchase of the 9.5% Notes and the 11.25% Notes,
the MONY Group, on March 8, 2000: (i) purchased two surplus notes from MONY Life
(hereafter referred to as the "Inter-company Surplus Notes") to replace the 9.5%
Notes and the 11.25% Notes. The terms of the Inter-company Surplus Notes are
identical to the 9.5% Notes and the 11.25% notes, except that the Inter-company
Surplus Notes were priced to yield a current market rate of interest and the
inter-company surplus note issued to replace the $116.5 million face amount of
the 11.25% Notes was issued at a face amount of $100.0 million and
(ii) contributed capital to MONY Life in the amount of $65.0 million.
As a result of the repurchase of the 9.5% Notes and substantially all of
the 11.25% Notes, the Company recorded an after-tax loss of $36.7 million during
the first quarter of 2000. The loss resulted from the premium paid by MONY Life
to the holders of the 9.5% Notes and the 11.25% Notes reflecting the excess of
their fair value over their carrying value on the Company's books at the date of
the transaction of approximately $7.0 million and $49.5 million, respectively.
This loss is reported, net of tax, as an extraordinary item on the Company's
income statement in 2000.
On December 7, 2000, MONY Group issued $275 million principal amount of
Senior Notes (the "$275 million Senior Notes") pursuant to the aforementioned
Shelf Registration. The $275 million Senior
30
31
Notes mature on December 15, 2005 and bear interest at 7.45% per annum. The
principal amount of the $275 million Senior Notes is payable at maturity and
interest is payable semi-annually. The net proceeds, after deducting
underwriting commissions and other expenses were used to fund the acquisition of
Advest.
Capitalization
The Company's total capitalization, excluding accumulated comprehensive
income and short term debt, increased to $2,754.6 million at March 31, 2001, as
compared to $2,597.0 million at December 31, 2000. The increase was primarily
the result of an increase in paid in capital from the issuance of common stock
in connection with the acquisition of Advest. The Company's debt to equity and
debt to total capitalization ratios (excluding accumulated comprehensive income
and short term debt) decreased to 27% and 21% at March 31, 2001, respectively,
from 28% and 22% at December 31, 2000, respectively. Included in total debt used
in the above calculations are $54.0 million and $52.3 million of non-recourse
indebtedness as of March 31, 2001 and December 31, 2000, respectively.
MONY Life
MONY Life's cash inflows are provided mainly from life insurance premiums,
annuity considerations and deposit funds, investment income and maturities and
sales of invested assets. Cash outflows primarily relate to the liabilities
associated with its various life insurance and annuity products, dividends to
policyholders, operating expenses, income taxes, acquisitions of invested
assets, and principal and interest on its outstanding debt obligations. The life
insurance and annuity liabilities relate to the MONY Life's obligation to make
benefit payments under its insurance and annuity contracts, as well as the need
to make payments in connection with policy surrenders, withdrawals and loans.
The following table sets forth the withdrawal characteristics and the
surrender and withdrawal experience of the Company's total annuity reserves and
deposit liabilities at March 31, 2001 and December 31, 2000.
WITHDRAWAL CHARACTERISTICS OF
ANNUITY RESERVES AND DEPOSIT LIABILITIES
AMOUNT AT
AMOUNT AT PERCENT DECEMBER 31, PERCENT
MARCH 31, 2001 OF TOTAL 2000 OF TOTAL
-------------- -------- ------------ --------
($ IN MILLIONS)
Not subject to discretionary withdrawal
Provisions....................................... $1,278.2 20.1% $1,352.9 19.4%
Subject to discretionary withdrawal with market
value adjustment or at carrying value less
surrender charge................................. 4,038.6 63.4 4,537.7 65.2
-------- ----- -------- -----
Subtotal........................................... 5,316.8 83.5 5,890.6 84.6
-------- ----- -------- -----
Subject to discretionary withdrawal -- without
adjustment at carrying value..................... 1,052.8 16.5 1,071.8 15.4
-------- ----- -------- -----
Total annuity reserves and deposit liabilities
(gross).......................................... 6,369.6 100.0% 6,962.4 100.0%
-------- ===== -------- =====
Less reinsurance................................... 74.2 74.2
-------- --------
Total annuity reserves and deposit liabilities
(net)............................................ $6,295.4 $6,888.2
======== ========
31
32
The following table sets forth by product line the actual surrenders and
withdrawals paid for the period indicated.
FOR THE
THREE-MONTH
PERIOD ENDED
MARCH 31,
----------------
2001 2000
------ ------
($ IN MILLIONS)
PRODUCT LINE:
Tradition life.............................................. $ 97.8 $109.5
Variable and universal life................................. 28.0 10.3
Annuities(1)................................................ 134.3 241.1
Pensions(2)................................................. 33.7 102.8
------ ------
Total.................................................. $293.8 $463.7
====== ======
---------------
(1) Excludes surrenders associated with an exchange program offered by the
Company wherein contract holders surrendered old FPVA contracts and
reinvested the proceeds therefrom in a new enhanced FPVA product offered by
the Company.
(2) Excludes transfers between funds within the company benefit plans.
Annuity surrenders have decreased for the three-month period ended March
31, 2001 compared to the comparable prior year period reflecting the Company's
conservation efforts and positive effects of the exchange program.
The Company's principle sources of liquidity to meet cash outflows of
liquid assets and its net operating cash flow. During the three-month period
ended March 31, 2001 the net cash outflow from operations was ($7.2) million, a
$29.3 million decrease from March 31, 2000 which was $22.1 million. The decrease
primarily relates to lower payments form the Group Pension Profits, higher death
benefit payments, higher general expenses offset in part by lower tax payments.
The Company's liquid assets include substantial U.S. Treasury holdings,
short-term money market investments and marketable long-term fixed maturity
securities. Management believes that the Company's sources of liquidity are
adequate to meet its anticipated needs. As of March 31, 2001, the Company had
readily marketable fixed maturity securities with a carrying value of $6,848.8
million (including fixed maturities in the Closed Block), which were comprised
of $3,718.5 million public and $3,130.3 million private fixed maturity
securities. At that date, approximately 92.0% of the Company's fixed maturity
securities were designated in NAIC rating categories 1 and 2 (considered
investment grade, with a rating of "Baa" or higher by Moody's or "BBB" or higher
by S&P). In addition, at March 31, 2001 the Company had cash and cash
equivalents of $625.1 million (including cash and cash equivalents in the Closed
Block).
32
33
INVESTMENTS
The Company's invested assets are allocated between the Closed Block and
operations outside the Closed Block. In view of the similar asset quality
characteristics of the major asset categories in the two portfolios, the
invested assets in the Closed Block have been combined with the Company's
invested assets outside the Closed Block for purposes of the following
discussion and analysis. In addition, the following discussion excludes invested
assets transferred in the Group Pension Transaction. Accordingly, this
discussion should be read in conjunction with the summary financial information
regarding assets transferred in the Group Pension Transaction presented in Note
5 to the Unaudited Interim Condensed Consolidated Financial Statements.
The following discussion analyzes the results of the major categories of
general account invested assets, which includes invested assets of the Closed
Block and excludes trading securities of Advest.
The following table summarizes the invested assets of the Company at the
dates indicated:
AS OF AS OF
MARCH 31, 2001 DECEMBER 31, 2000
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
--------- ----- --------- -----
INVESTED ASSETS ($ MILLIONS)
---------------
Fixed Maturities, Available for Sale..................... $ 6,846.0 61.9% $ 6,693.0 59.6%
Fixed Maturities, Held to Maturity....................... 2.8 0.0 -- 0.0
Equity Securities, Available for Sale.................... 317.5 2.9 328.6 2.9
Mortgage Loans on Real Estate............................ 1,701.0 15.4 1,754.7 15.6
Policy Loans............................................. 1,259.2 11.4 1,264.6 11.3
Real Estate to be Disposed Of............................ 166.6 1.5 171.3 1.6
Real Estate Held for Investment.......................... 47.8 0.4 40.7 0.4
Other Invested Assets.................................... 91.2 0.8 100.0 0.9
Cash and Equivalents..................................... 625.1 5.7 869.6 7.7
--------- ----- --------- -----
Invested Assets, excluding Trading Securities.......... $11,057.2 100.0% $11,222.5 100.0%
===== =====
Trading Securities....................................... 689.7 --
--------- ---------
Total Invested Assets.................................. $11,746.9 $11,222.5
========= =========
The following table illustrates the net investment income yields on average
assets for each of the components of the Company's investment portfolio,
excluding net realized gains and losses as of the indicated dates. The yields
are based on quarterly average carrying values, (excluding unrealized gains and
losses in the fixed maturity asset category). Equity real estate income is shown
net of operating expenses, depreciation and minority interest. Total investment
income includes non-cash income from amortization, payment-in-kind distributions
and undistributed equity earnings. Investment expenses include mortgage
servicing fees and other miscellaneous fees.
33
34
INVESTMENT RESULTS BY ASSET CATEGORY
THREE-MONTH
ENDED
MARCH 31,
------------
2001 2000
---- -----
Fixed Maturities............................................ 7.5% 7.3%
Equity securities(1)........................................ (5.7) 128.6
Mortgage loans on real estate............................... 8.2 8.0
Policy loans................................................ 7.0 6.7
Real estate................................................. 5.1 6.7
Other invested assets....................................... 5.5 17.4
Cash and cash equivalents................................... 5.8 6.7
Total invested assets before investment expenses.......... 7.0% 13.0%
Investment expenses....................................... (0.4) (0.3)
---- -----
Total invested assets after investment expenses(1)........ 6.6% 12.7%
==== =====
---------------
(1) The decrease in net investment income yields was primarily due to a decrease
in limited partnership income included in the equity securities asset
category of $170.6 million. The net investment income yields excluding the
limited partnership income are 7.0% and 6.9% for the three-month periods
ended March 31, 2001 and 2000, respectively.
The yield on general account invested assets (including net realized gains
and losses on investments) was 6.7% and 13.4% for the three-month period ended
March 31, 2001 and 2000, respectively.
FIXED MATURITIES
Fixed maturities consist of publicly traded debt securities, privately
placed debt securities and small amounts of redeemable preferred stock, and
represented 61.9% and 59.6% of total invested assets at March 31, 2001 and
December 31, 2000, respectively.
The Securities Valuation Office of the National Association of Insurance
Commissioners ("NAIC") evaluates the bond investments of insurers for regulatory
reporting purposes and assigns securities to one of six investment categories
called "NAIC Designations". The NAIC Designations closely mirror the Nationally
Recognized Securities Rating Organizations' credit ratings for marketable bonds.
NAIC Designations 1 and 2 include bonds considered investment grade ("Baa" or
higher by Moody's, or "BBB" or higher by S&P) by such rating organizations. NAIC
Designations 3 through 6 are referred to as below investment grade ("Ba" or
lower by Moody's, or "BB" or lower by S&P).
The following table presents the Company's fixed maturities by NAIC
Designation and the equivalent ratings of the Nationally Recognized Rating
Organizations as of the dates indicated, as well as the percentage, based on
fair value, that each designation comprises.
34
35
TOTAL FIXED MATURITIES BY CREDIT QUALITY
QUARTER ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
-------------------------------- --------------------------------
NAIC AMORTIZED % OF ESTIMATED AMORTIZED % OF ESTIMATED
RATING RATING AGENCY EQUIVALENT DESIGNATION COST TOTAL FAIR VALUE COST TOTAL FAIR VALUE
------ ------------------------------------ --------- ----- ---------- --------- ----- ----------
($ MILLIONS) ($ MILLIONS)
1 Aaa/Aa/A $3,743.5 55.9% $3,830.7 $3,739.7 56.1% $3,757.9
2 Baa 2,402.4 35.7% 2,445.9 2,389.8 35.7% 2,388.7
3 Ba 455.4 6.6% 450.1 442.9 6.4% 427.7
4 B 78.2 1.0% 71.9 80.2 1.1% 73.6
5 Caa and lower 17.4 0.3% 17.7 20.7 0.3% 17.5
6 In or near default 4.1 0.1% 5.4 2.0 0.0% 1.8
-------- ----- -------- -------- ----- --------
Subtotal 6,701.0 99.6% 6,821.7 6,675.3 99.6% 6,667.2
Redeemable preferred stock 27.4 0.4% 27.1 27.4 0.4% 25.8
-------- ----- -------- -------- ----- --------
Total Fixed Maturities $6,728.4 100.0% $6,848.8 $6,702.7 100.0% $6,693.0
======== ===== ======== ======== ===== ========
Of the Company's total portfolio of fixed maturity securities at March 31,
2001, 92.0% were investment grade and 8.0% were below-investment grade, based on
designations assigned by the Securities Valuation Office of the NAIC.
The Company reviews all fixed maturity securities at least once each
quarter and identifies investments that management concludes require additional
monitoring. Among the criteria are: (i) violation of financial covenants, (ii)
public securities trading at a substantial discount as a result of specific
credit concerns, and (iii) other subjective factors relating to the issuer.
The Company defines problem securities in the fixed maturity category as
securities (i) as to which principal and/or interest payments are in default or
are to be restructured pursuant to commenced negotiations or (ii) issued by a
company that went into bankruptcy subsequent to the acquisition of such
securities or (iii) are deemed to have other than temporary impairments to
value.
The Company defines potential problem securities in the fixed maturity
category as securities that are deemed to be experiencing significant operating
problems or difficult industry conditions. Typically these credits are
experiencing or anticipating liquidity constraints, having difficulty meeting
projections/budgets and would most likely be considered a below investment grade
risk.
The Company defines restructured securities in the fixed maturity category
as securities where a concession has been granted to the borrower related to the
borrower's financial difficulties that the Company would not have otherwise
considered. The Company restructures certain securities in instances where a
determination was made that greater economic value will be realized under the
new terms than through liquidation or other disposition. The terms of the
restructure generally involve some or all of the following characteristics: a
reduction in the interest rate, an extension of the maturity date and a partial
forgiveness of principal and/or interest. There were no restructured fixed
maturities at March 31, 2001 and December 31, 2000.
As of March 31, 2001 the fair value of the Company's problem, potential
problem and restructured fixed maturities were $59.9 million, $34.3 million and
$0.0 million, respectively, which, in the aggregate, represented approximately
1.4% of total fixed maturities. As of December 31, 2000, the fair value of the
Company's problem, potential problem and restructured fixed maturities were
$54.1 million, $6.6 million and $0.0 million, respectively, which, in the
aggregate, represented approximately 0.9% of total fixed maturities.
At March 31, 2001, the Company's largest unaffiliated single concentration
of fixed maturities was $248.1 million of Federal National Mortgage Association
("FNMA") which represents 2.2% of total invested assets. The largest
non-government issuer consists of $201.9 million of notes purchased in
connection with the Group Pension Transaction. These notes represent
approximately 1.8% of total invested assets at March 31, 2001. No other
individual non-government issuer represents more than 0.5% of total invested
assets.
35
36
The Company held approximately $1,104.6 million and $1,103.9 million of
mortgage-backed and asset-backed securities as of March 31, 2001 and December
31, 2000, respectively. Of such amounts, $326.9 million and $338.9 million, or
29.6% and 30.7%, respectively, represented agency-issued pass-through and
collateralized mortgage obligations ("CMOs") secured by Federal National
Mortgage Association, FHLMC, Government National Mortgage Association and
Canadian Housing Authority collateral. The balance of such amounts were
comprised of other types of mortgage-backed and asset-backed securities. The
Company believes that its active monitoring of its portfolio of mortgage-backed
securities and the limited extent of its holdings of more volatile types of
mortgage-backed securities mitigate the Company's exposure to losses from
prepayment risk associated with interest rate fluctuations for this portfolio.
At March 31, 2001 and December 31, 2000, 84.2% and 84.5%, respectively, of the
Company's mortgage-backed and asset-backed securities were assigned an NAIC
Designation of 1 at such dates.
The following table presents the types of mortgage-backed securities
("MBSs"), as well as other asset-backed securities, held by the Company as of
the dates indicated.
MORTGAGE AND ASSET-BACKED SECURITIES
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
CMOs........................................................ $ 481.3 $ 497.1
Pass-through securities..................................... 30.4 28.0
Commercial MBSs............................................. 116.5 106.4
Asset-backed securities..................................... 476.4 472.4
-------- --------
Total MBSs and asset-backed securities................. $1,104.6 $1,103.9
======== ========
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates, (excluding scheduled sinking funds) as of March
31, 2001 and December 31, 2000 are as follows:
FIXED MATURITY SECURITIES BY CONTRACTUAL MATURITY DATES
AS OF AS OF
MARCH 31, 2001 DECEMBER 31, 2000
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
($ IN MILLIONS)
Due in one year or less.............................. $ 136.8 $ 137.6 $ 25.8 $ 25.8
Due after one year through five years................ 1,912.3 1,958.6 1,500.2 1,506.4
Due after five years through ten years............... 2,650.7 2,703.7 2,754.2 2,751.2
Due after ten years.................................. 941.3 944.3 1,325.5 1,305.7
-------- -------- -------- --------
Subtotal........................................... 5,641.1 5,744.2 5,605.7 5,589.1
Mortgage-backed and other asset-backed securities.... 1,087.3 1,104.6 1,097.0 1,103.9
-------- -------- -------- --------
Total.............................................. $6,728.4 $6,848.8 $6,702.7 $6,693.0
======== ======== ======== ========
MORTGAGE LOANS
Mortgage loans comprised 15.4% and 15.6% of total invested assets as of
March 31, 2001 and December 31, 2000, respectively. Mortgage loans consisted of
commercial, agricultural and residential loans. As of March 31, 2001 and
December 31, 2000 commercial mortgage loans comprised $1,391.5 million and
$1,443.3 million or 81.8% and 82.2% of total mortgage loan investments,
respectively. Agricultural loans comprised $308.4 million and $310.3 million, or
18.1% and 17.7% of total mortgage loans, respectively.
36
37
Residential mortgage loans comprised $1.1 million and $1.1 million, or 0.1% and
0.1% of total mortgage loan investments at March 31, 2001 and December 31, 2000,
respectively.
COMMERCIAL MORTGAGE LOANS
For commercial mortgages, the carrying value of the largest amount loaned
on any one single property aggregated $46.1 million and represented less than
0.5% of general account invested assets as of March 31, 2001. Amounts loaned on
20 properties were $20 million or greater, representing in the aggregate 39.2%
of the total carrying value of the commercial loan portfolio at the same date.
Total mortgage loans to the five largest borrowers accounted in the aggregate
for approximately 20.5% of the total carrying value of the commercial loan
portfolio and less than 2.6% of total invested assets at March 31, 2001.
The following table presents the Company's commercial mortgage loan
maturity profile for the period indicated.
COMMERCIAL MORTGAGE LOAN PORTFOLIO MATURITY PROFILE
AS OF AS OF
MARCH 31, 2001 DECEMBER 31, 2000
---------------- ------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- --------- ------
($ IN MILLIONS)
1 year or less............................................. $ 112.6 8.1% $ 118.0 8.2%
Due after one year through five years...................... 454.5 32.7 464.7 32.2
Due after five years through ten years..................... 487.9 35.0 525.6 36.4
Due after ten years........................................ 336.5 24.2 335.0 23.2
-------- ----- -------- -----
$1,391.5 100.0% $1,443.3 100.0%
======== ===== ======== =====
Loans that are delinquent and loans in process of foreclosure are
categorized by the Company as "problem" loans. Loans with valuation allowances,
but that are not currently delinquent, and loans which are on watchlist are
categorized by the Company as "potential problem" loans. Loans for which the
original terms of the mortgages have been modified or for which interest or
principal payments have been deferred are categorized by the Company as
"restructured" loans.
The following table presents the carrying amounts of problem, potential
problem and restructured commercial mortgage loans relative to the carrying
value of all commercial mortgage loans as of the dates indicated. The table also
presents the valuation allowances and writedowns recorded by the Company
relative to commercial mortgages defined as problem, potential problem and
restructured as of each of the dates indicated.
37
38
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED
COMMERCIAL MORTGAGES AT CARRYING VALUE
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
Total commercial mortgages.................................. $1,391.5 $1,443.0
-------- --------
Problem commercial mortgages(1)............................. 13.4 14.8
Potential problem commercial mortgages...................... 72.5 64.7
Restructured commercial mortgages........................... 69.0 75.6
-------- --------
Total problem, potential problem & restructured commercial
mortgages................................................. $ 154.9 $ 155.1
-------- --------
Total problem, potential problem and restructured commercial
mortgages as a percent of total commercial mortgages...... 11.1% 10.7%
======== ========
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
Valuation allowances/writedowns(2)
Problem loans............................................... $ 0.1 $ 0.4
Potential problem loans..................................... 16.4 14.3
Restructured loans.......................................... 7.0 7.7
----- -----
Total valuation allowances/writedowns(2).................... $23.5 $22.4
----- -----
Total valuation allowances/writedowns as a percent of
problem, potential problem and restructured commercial
mortgages at carrying value before valuation allowances
and writedowns............................................ 13.2% 12.6%
===== =====
---------------
(1) Problem commercial mortgages included delinquent mortgages of $5.4 million
and $0.0 million and loans in process of foreclosure of $8.0 million and
$14.8 million at March 31, 2001 and December 31, 2000, respectively.
(2) Includes impairment writedowns recorded prior to the adoption of FASB No.
114, Accounting by Creditors for Impairment of a Loan, of $11.1 million at
March 31, 2001 and December 31, 2000.
In addition to valuation allowances and impairment writedowns recorded on
specific commercial mortgage loans classified as problem, potential problem, and
restructured mortgage loans, the Company records a non-specific estimate of
expected losses on all other such mortgage loans based on its historical loss
experience for such investments. As of March 31, 2001 and December 31, 2000,
such reserves were $15.5 million, and $17.7 million, respectively.
AGRICULTURAL MORTGAGE LOANS
The Company defines problem, potential problem and restructured
agricultural mortgages in the same manner as it does for commercial mortgages.
The following table presents the carrying amounts of problem, potential problem
and restructured agricultural mortgages relative to the carrying value of all
agricultural mortgages as of the dates indicated. The table also presents the
valuation allowances established by the Company relative to agricultural
mortgages defined as problem, potential problem and restructured as of each of
the aforementioned dates indicated.
38
39
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED
AGRICULTURAL MORTGAGES AT CARRYING VALUE
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
Total agricultural mortgages................................ $308.4 $310.3
------ ------
Problem agricultural mortgages(1)......................... $ 19.7 $ 10.2
Restructured agricultural mortgages....................... 9.3 10.1
------ ------
Total problem, potential problem & restructured agricultural
mortgages................................................. $ 29.0 $ 20.3
------ ------
Total problem, potential problem and restructured
agricultural mortgages as a percent of total agricultural
mortgages................................................. 9.4% 6.5%
====== ======
---------------
(1) Problem agricultural mortgages include delinquent mortgage loans of $19.7
million and $10.1 million and loans in process of foreclosure of $0.0
million and $0.1 million at March 31, 2001 and December 31, 2000,
respectively.
In addition to valuation allowances and impairments writedowns recorded on
specific agricultural mortgage loans classified as problem, potential problem,
and restructured mortgage loans, the Company records a non-specific estimate of
expected losses on all other agricultural mortgage loans based on its historical
loss experience for such investments. As of March 31, 2001 and December 31,
2000, such reserves were $2.8 million and $2.9 million, respectively. As of
March 31, 2001 and December 31, 2000, valuation allowances and impairment
writedowns recorded on specific agricultural mortgage loans classified as
restructured mortgage loans were $0.1 million and $0.2 million, respectively.
EQUITY REAL ESTATE
The Company holds real estate as part of its general account investment
portfolio. The Company has adopted a policy of not investing new funds in equity
real estate except to safeguard values in existing investments or to honor
outstanding commitments. As of March 31, 2001 and December 31, 2000, the
carrying value of the Company's real estate investments was $214.4 million and
$212.0 million, respectively, or 1.9% and 1.9%, respectively, of general account
invested assets. The Company owns real estate, interests in real estate joint
ventures (both majority owned and minority owned), and real estate acquired upon
foreclosure of commercial and agricultural mortgage loans. The following table
presents the carrying value of the Company's equity real estate investments by
such classifications.
EQUITY REAL ESTATE
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
Real estate................................................. $ 53.9 $ 54.2
Joint ventures.............................................. 119.4 116.3
------ ------
Subtotal.................................................. 173.3 170.5
Foreclosed.................................................. 41.1 41.5
------ ------
Total............................................. $214.4 $212.0
====== ======
39
40
EQUITY SECURITIES
The Company's equity securities consist of investments in common stocks and
limited partnership interests. The following table presents the carrying values
of the Company's equity securities at the dates indicated:
INVESTMENTS IN EQUITY SECURITIES
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
Common Stocks............................................... $ 47.4 $ 50.6
Limited partnership interests............................... 270.1 277.9
------ ------
Total............................................. $317.5 $328.5
====== ======
Common Stocks:
The Company's investments in common stocks represented 0.4% and 0.5% of
invested assets at March 31, 2001 and December 31, 2000, respectively. The
Company's investments in common stocks are classified as available-for-sale and
are reported at estimated fair value. Unrealized gains and losses on the
Company's common stocks are reported as a separate component of other
comprehensive income, net of deferred income taxes, and an adjustment for the
effect on deferred policy acquisition costs that would have occurred if such
gains and losses had been realized.
Limited Partnership Interests:
The Company accounts for its investments in limited partnership interests
in accordance with either the equity method of accounting or the cost method of
accounting depending upon the Company's percentage of ownership of the
partnership and the date the partnership was acquired.
The following table sets forth the carrying value of the Company's
investments in limited partnership interests sorted by the basis upon which the
Company accounts for such investments, as well as the amount of such investments
attributable to the partnerships' ownership of public and private common stocks
of the dates indicated:
CARRYING VALUE
------------------------
AS OF AS OF
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
($ IN MILLIONS)
EQUITY METHOD
Public common stock.................................... $ 27.1 $ 47.8
Private common stock................................... 108.8 97.2
------ ------
Sub Total............................................ 135.9 145.0
COST METHOD
Public common stock.................................... 25.2 26.8
Private common stock................................... 109.0 106.2
------ ------
Sub Total............................................ 134.2 133.0
Total Limited Partnership Interests.................. $270.1 $278.0
====== ======
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41
The following table sets forth the Company's investments in equity limited
partnership interests by business sector:
AS OF
AS OF DECEMBER 31,
MARCH 31, 2001 2000
---------------- ----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
($ IN MILLIONS, EXCEPT PERCENTAGES)
Information Technology...................................... $141.0 52.2% $144.1 51.8%
Domestic LBO................................................ 49.9 18.5% 50.8 18.3%
Life Sciences............................................... 20.7 7.6% 21.0 7.6%
Telecommunications.......................................... 13.8 5.1% 15.9 5.7%
International LBO........................................... 16.4 6.1% 18.2 6.6%
Merchant Banking............................................ 13.2 4.9% 13.7 4.9%
Other....................................................... 15.1 5.6% 14.3 5.1%
------ ----- ------ -----
Total............................................. $270.1 100.0% $278.0 100.0%
====== ===== ====== =====
At March 31, 2001, and December 31, 2000, the Company had investments in
approximately 54 and 53 different limited partnerships which represented 2.4%
and 2.5%, respectively, of the Company's general account invested assets.
Investment results for the portfolio are dependent upon, among other things,
general market conditions for initial and secondary offerings of common stock.
For the three-month periods ended March 31, 2001 and 2000, investment income
from equity partnership interests (which is comprised primarily of the Company's
pro rata share of income reported by partnerships accounted for under the equity
method and income recognized upon distribution for partnership investments
accounted for under the cost method) was approximately ($4.8) million and $165.8
million, respectively.
INVESTMENT IMPAIRMENTS AND VALUATION ALLOWANCES
The cumulative asset specific impairment adjustments and provisions for
valuation allowances that were recorded as of the end of each period are shown
in the table below and are reflected in the corresponding asset values discussed
above.
CUMULATIVE IMPAIRMENT ADJUSTMENTS AND PROVISIONS
FOR VALUATION ALLOWANCES ON INVESTMENTS
AS OF MARCH 31, 2001 AS OF DECEMBER 31, 2000
-------------------------------- ---------------------------------
IMPAIRMENT VALUATION IMPAIRMENT VALUATION
ADJUSTMENTS ALLOWANCES TOTAL ADJUSTMENTS ALLOWANCES TOTAL
----------- ---------- ----- ----------- ---------- ------
($ IN MILLIONS)
Fixed maturities.................... $25.8 $ -- $25.8 $27.5 $ -- $ 27.5
Equity securities................... 2.6 -- 2.6 2.6 -- 2.6
Mortgages........................... 11.1 30.9 42.0 11.1 32.2 43.3
Real estate(1)...................... 14.4 0.5 14.9 31.0 4.5 35.5
----- ----- ----- ----- ----- ------
Total..................... $53.9 $31.4 $85.3 $72.2 $36.7 $108.9
===== ===== ===== ===== ===== ======
---------------
(1) Includes $5.9 million and $22.5 million at March 31, 2001 and December 31,
2000, respectively, relating to impairments taken upon foreclosure of
mortgage loans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the MONY Group's 2000 Annual Report for a description of the
Company's exposures to market risk, as well as the Company's objectives,
policies and strategies relating to the management of such
41
42
risks. The relative sensitivity to changes in fair value from interest rates and
equity prices at March 31, 2001 is not materially different from that presented
in MONY Group's 2000 Annual Report except as described below with respect to the
recently acquired subsidiary, Advest, whose market risk differs from market
risks previously disclosed in MONY Group's 2000 Annual Report.
The following tables and analysis includes quantitative and qualitative
disclosures about market risk as they pertain to Advest.
RISK MANAGEMENT
In the ordinary course of its business, Advest engages in the trading of
securities, primarily fixed income, in both a proprietary and market making
capacity, and holds securities for trading, rather than investment, purposes.
Advest makes a market in certain investment-grade corporate bonds,
mortgage-backed securities, municipal bonds and over-the-counter equities in
order to facilitate order flow and accommodate its retail and institutional
customers. Advest also engages in institutional corporate bond, government
agency and mortgage-backed securities trading activities.
Market Risk
Market risk represents the potential change in the value of financial
instruments due to fluctuations in interest rates, foreign currency exchange
rates, equity and commodity prices. In the ordinary course of its trading and
hedging activities, Advest is exposed to interest rate and equity price risk.
Advest is exposed to market risk arising from changes in interest rates.
Advest's management seeks to reduce the risk of its trading portfolio on an
aggregate basis. Its risk management activities include inventory and hedging
policies. Inventory policies reflect the level of aggregate short and long
positions that may be held for trading and are specified by product line. Risk
management strategies also include the use of derivatives, principally
exchange-traded futures contracts.
Advest is exposed to equity price risk as a result of making a market in
over-the-counter equity securities. Equity price risk arises from changes in the
price and volatility of equity securities.
Trading Accounts (Value at Risk Analysis)
Advest performs a value at risk analysis of its trading financial
instruments and derivatives. The value at risk calculation uses standard
statistical techniques to measure the potential loss in fair value based upon a
one-day holding period and a 95% confidence level. These computations are
performed monthly in order to achieve a better understanding of Advest's entire
risk/return profile. The establishment of improved management controls includes,
as needed, the extension of our monitoring process to the security, product,
trader, department, and firm wide levels. Most significantly, Advest's
institutional book of business, which represents the vast majority of its usual
holdings, is typically monitored daily. Although value at risk models are
sophisticated, they can be limited, as historical data is not always an accurate
predictor of future conditions. Accordingly, Advest manages its market exposure
through other measures, including predetermined trading authorization levels and
hedging.
At March 30, 2001 Advest's value at risk for each component of market risk
and in total was as follows:
IN THOUSANDS MARCH 2001
------------ ----------
Interest rate risk.......................................... $492.0
Equity price risk........................................... 26
Diversification benefit..................................... (20)
------
Total....................................................... $ 498
======
The potential future loss represented by the total value at risk falls
within predetermined levels of loss that are not material to the Advest's
results of operations, financial condition or cash flows.
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The value at risk estimate has limitations that should be considered in
evaluating Advest's potential future losses based on the year-end portfolio
positions. Recent market conditions may result in statistical relationships that
result in a higher value at risk than would be estimated from the same portfolio
under different market conditions. In addition, a critical risk management
strategy is the active management of portfolio levels to mitigate market risk.
Advest's market risk exposure will continue to change with changes in the
portfolio and market conditions.
Non-trading Accounts (Tabular Presentation)
The following table shows the interest sensitivity of non-trading assets,
liabilities and financial instruments of Advest at March 31, 2001 based on their
estimated maturity/repricing structure:
MARCH 31, 2001 PERCENT OF AFTER
IN THOUSANDS, EXCEPT PERCENTAGES AMOUNT TOTAL 2001 2002 2003 2004 2005 2005
-------------------------------- -------- ---------- -------- ------ ------ ---- -------- ------
Interest-sensitive assets
Investment securities................. $ 8,912 100.00% $ 1,053 $2,004 $2,376 $ -- $ -- $3,479
Average interest rate............... 7.09% 7.41% 6.63% 7.09% -- -- 7.33%
-------- ------ -------- ------ ------ ---- -------- ------
Total interest-sensitive assets......... $ 8,912 100.00% $ 1,053 $2,004 $2,376 $ -- $ -- $3,479
-------- ------ -------- ------ ------ ---- -------- ------
Interest-sensitive liabilities
Other borrowings.................... $399,881 100.00% $385,881 $7,000 $7,000 $ -- $ -- $ --
Average interest rate............. 6.33% 6.27% 7.95% 7.95% -- -- --
-------- ------ -------- ------ ------ ---- -------- ------
Total interest-sensitive
liabilities................... $399,881 100.00% $385,881 $7,000 $7,000 $ -- $ -- $ --
-------- ------ -------- ------ ------ ---- -------- ------
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 6 of the Unaudited Interim Condensed Consolidated Financial
Statements included in Part I of this Report. Except as disclosed in Note 6,
there have been no new material legal proceedings and no new material
development in matters previously reported in MONY Group's 2000 Annual Report.
In addition to the matters discussed therein, in the ordinary course of its
business the Company is involved in various other legal actions and proceedings
(some of which involve demands for unspecified damages), none of which is
expected to have a material adverse effect on the Company.
ITEM 2. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
23.1 Consent of Pricewaterhouse Coopers LLP, independent accountants.
(b) Reports on Form 8-K
(1) Current Report on Form 8-K filed with SEC on March 19, 2001
(responding to Items 7 and 9 of Form 8-K).
(2) Current Report on Form 8-K filed with SEC on February 9, 2001
(responding to Items 5,7 and 9 of Form 8-K).
(3) Current Report on Form 8-K filed with SEC on February 7, 2001
(responding to Item 2 of Form 8-K).
(4) Current Report on Form 8-K filed with SEC on January 15, 2001
(responding to Items 7 and 9 of Form 8-K).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MONY GROUP INC.
By: /s/ RICHARD DADDARIO
------------------------------------
Richard Daddario
Executive Vice President and
Chief Financial Officer
(Authorized Signatory and Principal
Financial Officer)
Date: May 14, 2001
By: /s/ LARRY COHEN
------------------------------------
Larry Cohen
Vice President and Controller
(Principal Accounting Officer)
Date: May 14, 2001
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