Back to GetFilings.com
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 1-12785
NATIONWIDE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1486870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215 (614) 249-7111
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK (par value $.01 per share) NEW YORK STOCK EXCHANGE
(Title of Class) (Name of each exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (for such shorter period that the registrant was
required to file such reports) and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates on
March 20, 2001 was $866,691,659.
The number of shares outstanding of each of the registrant's classes of common
stock on March 20, 2001 was as follows:
CLASS A COMMON STOCK (par value $.01 per share) 24,108,252 shares issued and
outstanding
CLASS B COMMON STOCK (par value $.01 per share) 104,745,000 shares issued and
outstanding
(Title of Class)
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II of this Form 10-K incorporate by reference certain information
from the registrant's 2000 Annual Report to Shareholders. Part III of this Form
10-K incorporates by reference certain information from the registrant's
definitive Proxy Statement for the 2001 Annual Shareholders' Meeting.
2
PART I
ITEM 1 BUSINESS
- ------ --------
OVERVIEW
Nationwide Financial Services, Inc. (NFS, or collectively with its
subsidiaries, the Company) was formed in November 1996 as a
holding company for Nationwide Life Insurance Company (NLIC) and
other companies that comprise the retirement savings operations of
the Nationwide group of companies (Nationwide). NFS is
incorporated in Delaware and maintains its principal executive
offices in Columbus, Ohio.
The Company is a leading provider of long-term savings and
retirement products in the United States (U.S.). The Company
develops and sells a diverse range of products including
individual annuities, private and public sector pension plans and
other investment products sold to institutions, life insurance and
mutual funds and other asset management services. The Company
markets its products through a broad distribution network,
including independent broker/dealers, brokerage firms, financial
institutions, pension plan administrators, life insurance
specialists, Nationwide agents, Nationwide Retirement Solutions
and The 401(k) Company. The Company believes its unique
combination of product innovation and strong distributor
relationships positions it to compete effectively in the rapidly
growing retirement savings market under various economic
conditions.
The Company has grown substantially in recent years as a result of
its long-term investments in developing the distribution channels
necessary to reach its target customers and the products required
to meet the demands of these customers. The Company believes its
growth has been enhanced further by favorable demographic trends,
the growing tendency of Americans to supplement traditional
sources of retirement income with self-directed investments, such
as products offered by the Company and the performance of the
financial markets, particularly the U.S. stock markets, in recent
years. From 1995 to 2000, the Company's assets grew from $38.51
billion to $93.18 billion, a compound annual growth rate of 19%.
Asset growth during this period resulted from sales of the
Company's products as well as market appreciation of assets in the
Company's separate accounts and in its general account investment
portfolio. The Company's sales of variable annuities grew from
$4.40 billion in 1995 to $10.40 billion in 2000, a compound annual
growth rate of 19%. The Company's separate account assets, which
are generated by the sale of variable annuities and variable
universal life insurance, grew from 48% of total assets as of
December 31, 1995 to 71% of total assets as of December 31, 2000.
During this period of substantial growth, the Company controlled
its operating expenses by taking advantage of economies of scale
and by increasing productivity through investments in technology.
INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS
On March 6, 1997, NFS sold, in an initial public offering, 23.6
million shares of its newly-issued Class A common stock for net
proceeds of $524.2 million (the Equity Offering). In March 1997,
NFS also sold, in companion public offerings, $300.0 million of 8%
Senior Notes (the Notes) and, through a wholly owned subsidiary
trust, $100.0 million of 7.899% Capital Securities (the Capital
Securities). Aggregate net proceeds from the Equity Offering, the
offering of the Notes and the sale of the Capital Securities
totaled $917.0 million. NFS contributed $836.8 million of the
proceeds to the capital of NLIC and retained $80.2 million of the
proceeds for general corporate purposes.
Prior to the initial public offering, NFS was a wholly owned
subsidiary of Nationwide Corporation (Nationwide Corp.).
Nationwide Corp. continues to own all of the outstanding shares of
Class B common stock, which represents 81.4% of the total number
of common shares outstanding and 97.8% of the combined voting
power of the stockholders of NFS. During the first quarter of
1997, NFS's Board of Directors approved a 104,745 for one split of
the Company's Class B common stock, which became effective
February 10, 1997.
2
3
During 1996 and 1997, Nationwide Corp. and NFS completed
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable
to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of certain subsidiaries that do
not offer or distribute long-term savings or retirement products.
On January 27, 1997, Nationwide Corp. contributed the common stock
of NLIC and three marketing and distribution companies to NFS.
Accordingly, the consolidated financial statements include the
results of NLIC and its subsidiaries and the three marketing and
distribution companies as if they were consolidated with NFS for
all periods presented.
In addition to the transactions discussed previously, the Company
paid dividends of $50.0 million and $850.0 million to Nationwide
Corp. on December 31, 1996 and February 24, 1997, respectively, as
part of the restructuring.
BUSINESS SEGMENTS
The Company has redefined its business segments in order to align
this disclosure with the way management currently views its core
operations. This updated view better reflects the different
economics of the Company's various businesses and also aligns well
with the Company's current market focus. As a result, the Company
now reports four product segments: Individual Annuity,
Institutional Products, Life Insurance and Asset Management. In
addition, the Company reports certain other revenues and expenses
in a Corporate segment. All 1999 and 1998 amounts have been
restated to reflect the new business segments.
Individual Annuity
The Individual Annuity segment consists of both variable and fixed
annuity contracts. Individual annuity contracts provide the
customer with tax-deferred accumulation of savings and flexible
payout options including lump sum, systematic withdrawal or a
stream of payments for life. In addition, variable annuity
contracts provide the customer with access to a wide range of
investment options and asset protection in the event of an
untimely death, while fixed annuity contracts generate a return
for the customer at a specified interest rate fixed for a
prescribed period. The Company's individual annuity products
consist of single premium deferred annuities, flexible premium
deferred annuities and single premium immediate annuities.
Individual Annuity segment revenues, operating income before
federal income tax expense and account balances are summarized in
the following table.
(in millions) 2000 1999 1998
==========================================================================================================
Total revenues $ 1,112.9 $ 970.5 $ 844.4
Operating income before federal income tax expense 276.3 254.4 230.2
Account balances as of year end 43,694.9 44,023.7 35,315.2
----------------------------------------------------------------------------------------------------------
The Company is one of the leaders in the development and sale of
individual annuities. As of December 31, 2000, the Company was the
third largest writer of individual variable annuity contracts in
the U.S., according to The Variable Annuity Research & Data
Service. The Company believes that demographic trends and shifts
in attitudes toward retirement savings will continue to support
increased consumer demand for its products. The Company believes
that it possesses distinct competitive advantages in the market
for variable annuities. Some of the Company's most important
advantages include its innovative product offerings and strong
relationships with independent, well-known fund managers. Its
principal annuity series, The BEST of AMERICA(R), allows the
customer to choose from up to 48 investment options managed by
premier mutual fund managers. In the aggregate, the Company's
group variable annuity products offer over 100 underlying
investment options.
3
4
The Company markets its individual annuity products through a
broad spectrum of distribution channels, including independent
broker/dealers, brokerage firms, financial institutions, pension
plan administrators, Nationwide Retirement Solutions and
Nationwide agents. The Company seeks to capture a growing share of
individual annuity sales in these channels by working closely with
its investment managers and product distributors to adapt the
Company's products and services to changes in the retail and
institutional marketplace in order to enhance its leading position
in the market for variable annuities. The Company is following a
strategy of extending The BEST of AMERICA brand name to more of
its products and distribution channels in an effort to build upon
its brand name recognition.
The Company believes that the variable annuity business is
attractive because it generates fee income. In addition, because
the investment risk on variable annuities is borne principally by
the customer and not the Company, the variable annuity business
requires significantly less capital support than fixed annuity and
traditional life insurance products. The Company receives income
from variable annuity contracts primarily in the form of asset and
administration fees. In addition, most of the Company's variable
annuity products provide for a contingent deferred sales charge,
also known as a "surrender charge" or "back-end load," that is
assessed against premium withdrawals in excess of specified
amounts made during a specified period, usually the first seven
years of the contract. Surrender charges are intended to protect
the Company from withdrawals early in the contract period, before
the Company has had the opportunity to recover its sales expenses.
Generally, surrender charges on individual variable annuity
products are 7% of premiums withdrawn during the first year,
scaling ratably to 0% for the eighth year and beyond.
The Company's variable annuity products consist almost entirely of
flexible premium deferred variable annuity (FPVA) contracts. Such
contracts are savings vehicles in which the customer makes a
single deposit or series of deposits. The customer has the
flexibility to invest in mutual funds managed by independent
investment managers and the Company. Deposits may be at regular or
irregular intervals and in regular or irregular amounts. The value
of the annuity fluctuates in accordance with the investment
experience of the mutual funds chosen by the customer. The
customer is permitted to withdraw all or part of the accumulated
value of the annuity, less any applicable surrender charges. As
specified in the FPVA contract, the customer generally can elect
from a number of payment options that provide either fixed or
variable benefit payments.
Fixed options are available to customers who purchase certain of
the Company's variable annuities by designation of some or all of
their deposits to such options. A fixed option offers the customer
a guarantee of principal and a guaranteed interest rate for a
specified period of time. Such contracts have no maturity date and
remain in force until the customer elects to take the proceeds of
the annuity as a single payment or as a specified income for life
or for a fixed number of years.
Fixed annuity products are marketed to individuals who choose to
allocate long-term savings to products that provide a guarantee of
principal, a stable net asset value and a guarantee of the
interest rate to be credited to the principal amount for some
period of time. The Company's individual fixed annuity products
are distributed through its unaffiliated and affiliated channels
and include single premium deferred annuity contracts, flexible
premium deferred annuity contracts and single premium immediate
annuity contracts. The Company invests fixed annuity customer
deposits in its general account investment portfolio, while
variable annuity customer deposits are invested in mutual funds as
directed by the customer and are held in the Company's separate
account. Unlike variable annuity assets that are held in the
Company's separate account, the Company bears the investment risk
on assets held in its general account. The Company attempts to
earn a spread by investing a customer's deposits for higher yields
than the interest rate it credits to the customer's fixed annuity
contract.
During 2000, the average crediting rate on contracts (including
the fixed option under the Company's variable contracts) in the
Individual Annuity segment was 5.73%. Approximately 78% of the
Company's crediting rates on its individual fixed annuity
contracts are guaranteed for a period not exceeding 15 months.
The Company offers individual variable annuities under The BEST of
AMERICA brand name. The Company also markets individual variable
annuities as "private label" products.
4
5
The BEST of AMERICA Products. The Company's principal individual
FPVA contracts are sold under the brand names The BEST of
AMERICA-America's Vision(R), The BEST of AMERICA IV(R) and The
BEST oF AMERICA-America's FUTURE Annuity(R). The BEST of AMERICA
brand name individual variable annuities, which includes the fixed
option of individual variable annuities, accounted for $5.59
billion (76%) of the Company's individual annuity sales in 2000
and $34.61 billion (79%) of the Company's individual annuity
account balances as of year-end. The Company's The BEST of
AMERICA-America's Vision and The BEST of AMERICA-America's FUTURE
Annuity products are intended to appeal to distributors in the
market for large initial deposits. The contracts require initial
minimum deposits of $15,000. The Company's The BEST of AMERICA IV
product is intended primarily for the tax-qualified, payroll
deduction market, where initial deposits are often smaller. The
BEST of AMERICA IV generally pays a lower up-front commission to
distributors but requires only $1,500 as an initial deposit. All
three products generate an annual asset fee and may also generate
annual administration fees for the Company.
Private Label Variable Annuities. These products accounted for
$998.7 million (14%) of the Company's individual annuity sales in
2000 and $5.14 billion (12%) of the Company's individual annuity
account balances as of year-end. The Company has developed several
private label variable annuity products in conjunction with other
financial intermediaries. The products allow financial
intermediaries to market products with substantially the same
features as the Company's brand name products to their own
customer bases under their own brand names. The Company believes
these private label products strengthen the Company's ties to
certain significant distributors of the Company's products. These
contracts generate an annual asset fee and may also generate
annual administration fees for the Company.
Deferred Fixed Annuity Contracts. Deferred annuities consist of
single premium deferred annuity (SPDA) contracts and flexible
premium deferred annuity (FPDA) contracts. Total deferred fixed
annuities accounted for $534.8 million (8%) of the Company's
individual annuity sales in 2000 and $2.42 billion (6%) of the
Company's individual annuity account balances as of year-end. SPDA
and FPDA contracts are distributed through broker/dealers,
financial planners, banks and Nationwide agents. SPDA contracts
are savings vehicles in which the customer makes a single deposit
with the Company. The Company guarantees the customer's principal
and credits the customer's account with earnings at an interest
rate that is stated and fixed for an initial period, typically at
least one year. Thereafter, the Company resets, typically
annually, the interest rate credited to the contract based upon
market and other conditions. SPDA contracts have no maturity date
and remain in force until the customer elects to take the proceeds
of the annuity as a single payment or as a specified income for
life or for a fixed number of years. FPDA contracts are typically
marketed to teachers and employees of tax-exempt organizations as
tax-qualified retirement programs. Under these contracts, the
Company accepts a single deposit or a series of deposits. Deposits
may be paid at intervals that are either regular or irregular.
FPDA contracts contain substantially the same guarantee of
principal and interest rate terms included in the Company's SPDA
contracts. No front-end sales charges are imposed on SPDA and FPDA
contracts. However, all such contracts provide for the imposition
of certain surrender charges, which are assessed against premium
withdrawals in excess of specified amounts and which occur during
the surrender charge period. The surrender charges are usually set
within the range of 0% and 7% and typically decline from year to
year, disappearing after seven contract years.
Single Premium Immediate Annuity (SPIA) Contracts. SPIA contracts
accounted for $127.7 million (2%) of the Company's individual
annuity sales for 2000 and $1.52 billion (3%) of the Company's
individual annuity account balances as of year-end. The Company's
SPIA contracts are offered through its affiliated and unaffiliated
distribution channels and are offered as either direct purchases
or as fixed annuity options under the Company's various individual
and group annuity contracts. SPIAs are annuities that require a
one-time deposit in exchange for guaranteed, periodic annuity
benefit payments, often for the contract holder's lifetime. SPIA
contracts are often purchased by persons at or near retirement age
who desire a steady stream of future income.
5
6
Institutional Products
The Institutional Products segment is comprised of the Company's
group pension and payroll deduction business, both public and
private sectors, and medium-term note program. The public sector
includes the 457 business in the form of fixed and variable
annuities as well as administration only business. The private
sector includes the 401(k) business generated through fixed and
variable annuities, Nationwide Trust Company and The 401(k)
Company.
Institutional Products segment revenues, operating income before
federal income tax expense and account balances are summarized in
the following table.
(in millions) 2000 1999 1998
==========================================================================================================
Total revenues $ 1,150.9 $ 1,042.1 $ 991.3
Operating income before federal income tax expense 224.6 201.5 164.8
Account balances as of year end 47,154.0 48,321.7 38,582.0
----------------------------------------------------------------------------------------------------------
Institutional products are generally offered as variable and fixed
group annuities to employers for use in employee benefit programs
and are distributed through unaffiliated and affiliated channels.
The Company's variable group annuity contracts provide the
individual participants the ability to invest in mutual funds
managed by independent investment managers and the Company.
Deposits may be at regular or irregular intervals and in regular
or irregular amounts. The value of the annuity fluctuates in
accordance with the investment experience of the mutual funds
chosen by the participant. The participant is permitted to
withdraw all or part of the accumulated value of the annuity only
in accordance with IRS regulations or be subject to a tax penalty.
As specified in the FPVA contract, the participant generally can
elect from a number of payment options that provide either fixed
or variable benefit payments. The Company receives income from
variable group annuity contracts primarily in the form of asset
and administration fees. In addition, most of the Company's
variable annuity products provide for a contingent deferred sales
charge, also known as a "surrender charge" or "back-end load,"
that is assessed against premium withdrawals in excess of
specified amounts made during a specified period, usually the
first seven years of the contract. Surrender charges are intended
to protect the Company from withdrawals early in the contract
period, before the Company has had the opportunity to recover its
sales expenses.
The Company's fixed group annuity contracts provide the individual
participants a guarantee of principal and a guaranteed interest
rate for a specified period of time. The Company attempts to earn
a spread by investing a participant's deposits for higher yields
than the interest rate credited to the participant's account
balance.
During 2000, the average crediting rate on fixed annuity contracts
(including the fixed option under the Company's variable
contracts) in the Institutional Products segment was 5.98%.
Approximately 64% of the Company's crediting rates on
institutional fixed annuity contracts are guaranteed for one
quarter then reset by the Company.
The Company markets employer-sponsored group annuities to both
public sector employees for use in connection with plans described
under Sections 457 of the Internal Revenue Code (IRC) and to
private sector employees for use in connection with IRC Section
401(k) plans. These private sector employer-sponsored group
annuities are marketed under several brand names, including The
BEST of AMERICA Group Pension Series.
The BEST of AMERICA Group Pension Series. These group annuity
products accounted for $3.93 billion (53%) of the Company's
institutional products sales in 2000 and $12.62 billion (27%) of
the Company's institutional products account balances as of
year-end. The BEST of AMERICA group products are typically offered
only on a tax-qualified basis. These products may be structured
with a variety of features that may be arranged in over 600
combinations of front-end loads, back-end loads and asset-based
fees.
Section 457 Contracts. These products accounted for $2.15 billion
(29%) of the Company's institutional products sales in 2000 and
$17.29 billion (37%) of the Company's institutional products
account balances as of year-end. The Company offers a variety of
group variable annuity contracts that are designed primarily for
use in conjunction with plans described under IRC Section 457.
Section 457 permits employees of state and local governments to
defer a certain portion of their yearly income and invest such
income on a tax-deferred basis.
6
7
These contracts typically generate an annual asset fee and may
also generate annual administration fees for the Company.
Administration Only Contracts. The Company offers administration
and record-keeping services to Section 457 and 401(k) plans
outside of a group annuity contract. The Company generally
collects a fee calculated as a percentage of plan assets.
Medium-Term Note Program. The Company's $2 billion medium-term
note program represents sales of funding agreements that secure
notes issued to foreign investors through a third party trust.
This program was launched in July 1999 as a means to expand
spread-based product offerings. Sales of funding agreements
totaled $1.07 billion in 2000 and accounted for $1.63 billion (3%)
of the Company's institutional products account balances as of
year-end. Sales under the Company's medium-term note program are
not included in reported sales as they do not produce steady
production flow that lends itself to meaningful comparisons.
Life Insurance
The Company's Life Insurance segment consists of insurance
products, including universal life insurance, corporate-owned life
insurance (COLI) and bank-owned life insurance (BOLI), which
provide a death benefit and also allow the customer to build cash
value on a tax-advantaged basis. In recent years, the Company has
placed particular emphasis within this segment on the sale of
variable life insurance products that offer multiple investment
options. The Company distributes its variable universal life
insurance products through its unaffiliated distribution channels.
The Company's target markets for its life insurance products
include the holders of personal automobile and homeowners'
insurance policies issued by members of Nationwide and select
customers to whom the accumulation of cash values is important.
Life Insurance segment revenues, operating income before federal
income tax expense, policy reserves and life insurance in force
are summarized in the following table.
(in millions) 2000 1999 1998
================================================================================================
Total revenues $ 751.3 $ 648.0 $ 544.1
Operating income before federal income tax expense 161.1 122.7 88.8
Life insurance policy reserves as of year end 7,225.5 5,913.8 4,613.4
Life insurance in force as of year end 64,390.0 58,563.7 45,830.5
------------------------------------------------------------------------------------------------
Universal Life and Variable Universal Life Insurance Products. The
Company offers universal life insurance and variable universal
life insurance products including both flexible premium and single
premium designs. These products provide life insurance under which
the benefits payable upon death or surrender depend upon the
policyholder's account value. Universal life insurance provides
whole life insurance with flexible premiums and adjustable death
benefits. For universal life insurance, the policyholder's account
value is credited based on an adjustable rate of return set by the
Company relating to current interest rates. For variable universal
life insurance, the policyholder's account value is credited with
the investment experience of the mutual funds chosen by the
customer. The variable universal life insurance products also
typically include a general account guaranteed interest investment
option. All of the Company's variable universal life insurance
products are marketed under the Company's The BEST of AMERICA
brand name and have the same wide range of investment options as
the Company's variable annuity products. These products are
distributed on an unaffiliated basis by independent
broker/dealers, brokerage firms, financial institutions and
Nationwide agents.
Traditional Life Insurance Products. The Company offers whole life
and term life insurance. Whole life insurance combines a death
benefit with a savings plan that increases gradually in amount
over a period of years. The customer generally pays a level
premium over the customer's expected lifetime. The customer may
borrow against the savings and also has the option of surrendering
the policy and receiving the accumulated cash value rather than
the death benefit. Term life insurance provides only a death
benefit without any savings component. Nationwide agents
distribute these traditional life insurance products on an
unaffiliated basis.
7
8
COLI and BOLI Products. Corporations purchase COLI, while banks
purchase BOLI to provide protection against the death of selected
employees and to fund non-qualified benefit plans. Corporations or
banks may make a single premium payment or a series of premium
payments. Premium payments made are credited with a guaranteed
interest rate that is fixed for a specified period of time. For
variable COLI and BOLI products, the contractholder's account
value is credited with the investment experience of the mutual
funds selected by the contractholder. Sales of BOLI are not
included in reported sales as they do not produce steady
production flow that lends itself to meaningful comparisons.
Asset Management
The Asset Management segment consists primarily of the Company's
investment advisor subsidiary, Villanova Capital, Inc. (Villanova
Capital).
Asset Management segment revenues, operating income before federal
income tax expense and assets under management are summarized in
the following table.
(in millions) 2000 1999 1998
=================================================================================================
Total revenues $ 119.4 $ 108.6 $ 73.9
Operating income before federal income tax expense 4.5 22.9 14.0
Assets under management as of year end 22,953.4 22,866.7 19,825.5
-------------------------------------------------------------------------------------------------
The Company manages mutual funds that are offered as investment
options for the Company's variable annuities and variable
universal life insurance products. Mutual funds are also
distributed on a retail basis. In addition to mutual funds, the
Company offers stable value funds sold primarily to pension and
other retirement plans.
MARKETING AND DISTRIBUTION
The Company sells its products through a broad distribution
network. Unaffiliated entities that sell the Company's products to
their own customer base include independent broker/dealers,
national and regional brokerage firms, pension plan
administrators, financial institutions, life insurance specialists
and Nationwide agents. Representatives, or affiliated entities, of
the Company who market products directly to a customer base
identified by the Company include Nationwide Retirement Solutions
and The 401(k) Company. The Company provides, through both its
affiliated and unaffiliated channels, the means for employers
sponsoring tax-favored retirement plans (such as those described
in IRC Sections 401(k) and 457) to allow their employees to make
contributions to such plans through payroll deductions. Typically,
the Company receives the right from an employer to market products
to employees and arrange to deduct periodic deposits from the
employees' regular paychecks. The Company believes that the
payroll deduction market is characterized by more predictable
levels of sales than other markets because these customers are
less likely, even in times of market volatility, to stop making
annuity deposits than customers in other markets are. In addition,
the Company believes that payroll deduction access to customers
provides significant insulation from competition by providing the
customer with a convenient, planned method of periodic saving. In
both the Pension Market, where the Company's products are
distributed primarily through unaffiliated entities, and in the
Public Sector Market, where the Company's products are distributed
primarily by affiliated entities, payroll deduction is the primary
method used for collecting premiums and deposits.
A table showing sales by distribution channel for each of the last
three years is presented in Management's Discussion and Analysis
of Financial Condition and Results of Operations (MD&A) on page 27
of the Company's 2000 Annual Report to Shareholders.
8
9
Unaffiliated Entities
Independent Broker/Dealer and Brokerage Firms. The Company sells
individual and group variable annuities, fixed annuities and
variable life insurance through independent broker/dealers in all
50 states and the District of Columbia. The Company also utilizes
a number of brokerage firms in this channel. The Company believes
that it has developed strong broker/dealer relationships based on
its diverse product mix, large selection of fund options and
administrative technology. In addition to such relationships, the
Company believes its financial strength and The BEST of AMERICA
brand name are competitive advantages in these distribution
channels. The Company regularly seeks to add new broker/dealers
and brokerage firms to its distribution network.
Pension Plan Administrators. The Company markets group variable
annuities, group fixed annuities and record-keeping services to
plans organized pursuant to Section 401 of the IRC sponsored by
employers as part of employee retirement programs primarily
through regional pension plan administrators. The Company has also
linked pension plan administrators with the financial planning
community to sell group pension products. The Company targets
employers having between 25 and 2,000 employees because it
believes that these plan sponsors tend to require more extensive
record-keeping services from pension plan administrators and
therefore tend to become long-term customers.
Financial Institutions. The Company markets individual variable
and fixed annuities (under its brand names and on a private-label
basis) and variable universal life insurance through financial
institutions, consisting primarily of banks and their
subsidiaries. The Company believes that its expertise in training
financial institution personnel to sell annuities and pension
products, its breadth of product offerings, its financial
strength, the Nationwide and The BEST of AMERICA brand names and
the ability to offer private label products are competitive
advantages in this distribution channel.
Life Insurance Specialists. The Company markets COLI and BOLI
through life insurance specialists, which are firms that
specialize in the design, implementation and administration of
executive benefit plans.
Nationwide Agents. The Company sells traditional life insurance,
universal life insurance, variable universal life insurance
products and individual annuities through licensed Nationwide
agents who primarily target the holders of personal automobile and
homeowners' insurance policies issued by Nationwide. The
Nationwide agents sell exclusively Nationwide products and may not
offer products that compete with those of the Company.
Affiliated Entities
Nationwide Retirement Solutions. The Company markets various
products and services, primarily on a retail basis through several
subsidiary sales organizations to the Public Sector Market. The
Company markets group variable annuities and fixed annuities as
well as administration and record-keeping services to state and
local governments for use in their IRC Section 457 retirement
programs. The Company believes that its existing relationships
with state and local government entities and the Company's
sponsorship by such entities as the National Association of
Counties (NACO) and The United States Conference of Mayors (USCM)
provide it with distinct competitive advantages in this market.
NACO sponsorship, which began in 1980 and has been renewed three
times, expires December 31, 2005 and USCM sponsorship, which began
in 1979 and has been renewed twice, expires on December 31, 2004.
The 401(k) Company. The Company provides administration and
record-keeping services to employers in the Private Sector Market
for use in their IRC Section 401(k) retirement programs.
9
10
CORPORATE SEGMENT
Revenues in the Corporate segment consist primarily of net
investment income on invested assets not allocated to the four
product segments. Expenses include interest expense on debt,
goodwill amortization and unallocated expenses.
Corporate segment operating revenues and operating loss before
federal income tax expense (which excludes realized gains and
losses on investments) are summarized in the following table.
(in millions) 2000 1999 1998
==========================================================================================================
Total operating revenues $ 60.7 $ 45.1 $ 40.1
Operating loss before federal income tax expense (17.7) (17.7) (10.2)
----------------------------------------------------------------------------------------------------------
REINSURANCE
The Company follows the customary industry practice of reinsuring
a portion of its life insurance and annuity risks with other
companies in order to reduce net liability on individual risks, to
provide protection against large losses and to obtain greater
diversification of risks. The maximum amount of individual
ordinary life insurance retained by the Company on any one life is
$1.0 million. The Company cedes insurance primarily on an
automatic basis, under which risks are ceded to a reinsurer on
specific blocks of business where the underlying risks meet
certain predetermined criteria and on a facultative basis, under
which the reinsurer's prior approval is required for each risk
reinsured. The Company also cedes insurance on a case-by-case
basis particularly where the Company may be writing new risks or
is unwilling to retain the full costs associated with new lines of
business. The ceding of risk does not discharge the original
insurer from its primary obligation to the policyholder. The
Company has entered into reinsurance contracts to cede a portion
of its individual annuity business to The Franklin Life Insurance
Company (Franklin) and beginning in 2000 with Security Benefit
Life Insurance Company (SBL). Total recoveries due from Franklin
were $97.7 million and $143.6 million as of December 31, 2000 and
1999, respectively, while amounts due from SBL totaled $45.4
million as of December 31, 2000. Under the terms of the contract,
Franklin and SBL have each established a trust as collateral for
the recoveries. The trust assets are invested in investment grade
securities, the market value of which must at all times be greater
than or equal to 102% and 100% of the reinsured reserves for
Franklin and SBL, respectively. The Company has no other material
reinsurance arrangements with unaffiliated reinsurers. The only
material reinsurance agreements the Company has with affiliates
are the modified coinsurance agreements pursuant to which NLIC
reinsured all of its accident and health and group life insurance
business to other members of Nationwide as described in note 16 to
the Company's consolidated financial statements.
RATINGS
Ratings with respect to claims-paying ability and financial
strength have become an increasingly important factor in
establishing the competitive position of insurance companies.
Ratings are important to maintaining public confidence in the
Company and its ability to market its annuity and life insurance
products. Rating organizations continually review the financial
performance and condition of insurers, including the Company. Any
lowering of the Company's ratings could have a material adverse
effect on the Company's ability to market its products and could
increase the surrender of the Company's annuity products. Both of
these consequences could, depending upon the extent thereof, have
a material adverse effect on the Company's liquidity and, under
certain circumstances, net income. NLIC is rated "A+" (Superior)
by A.M. Best Company, Inc. and its claims-paying ability/financial
strength is rated "Aa3" (Excellent) by Moody's Investors Service,
Inc. (Moody's), "AA" (Very Strong) by Standard & Poor's, a
Division of The McGraw-Hill Companies, Inc. (S&P) and "AA+" (Very
Strong) by Fitch.
The foregoing ratings reflect each rating agency's opinion of
NLIC's financial strength, operating performance and ability to
meet its obligations to policyholders and are not evaluations
directed toward the protection of investors. Such factors are of
concern to policyholders, agents and intermediaries.
The Company's financial strength is also reflected in the ratings
of the senior notes, capital and preferred securities of
subsidiary trusts and commercial paper. The senior notes are rated
"A" by S&P and "A2" by Moody's. The capital and preferred
securities issued by subsidiary trusts are rated "BBB+" by S&P and
"a2" by Moody's. The commercial paper is rated "A-1+" by S&P and
"P-1" by Moody's.
10
11
COMPETITION
The Company competes with a large number of other insurers as well
as non-insurance financial services companies, such as banks,
broker/dealers and mutual funds, some of whom have greater
financial resources, offer alternative products and, with respect
to other insurers, have higher ratings than the Company. The
Company believes that competition in the Company's lines of
business is based on price, product features, commission
structure, perceived financial strength, claims-paying ratings,
service and name recognition.
On November 12, 1999, the Gramm-Leach-Bliley Act (the Act), was
signed into law. The Act modernizes the regulatory framework for
financial services in the United States which allows banks,
securities firms and insurance companies to affiliate more
directly than they have been permitted to do in the past. While
the Act facilitates these affiliations, to date no significant
competitors of the Company have acquired, or been acquired by, a
banking entity under authority of the Act. Nevertheless, it is not
possible to anticipate whether such affiliations might occur in
the future.
REGULATION
General Regulation at State Level
As an insurance holding company, the Company is subject to
regulation by the states in which its insurance subsidiaries are
domiciled and/or transact business. Most states have enacted
legislation that requires each insurance holding company and each
insurance company in an insurance holding company system to
register with the insurance regulatory authority of the insurance
company's state of domicile and annually furnish financial and
other information concerning the operations of companies within
the holding company system that materially affect the operations,
management or financial condition of the insurers within such
system. The Company is subject to the insurance holding company
laws in Ohio. Under such laws, all transactions within an
insurance holding company system affecting insurers must be fair
and equitable and each insurer's policyholder surplus following
any such transaction must be both reasonable in relation to its
outstanding liabilities and adequate for its needs. The Ohio
insurance holding company laws also require prior notice or
regulatory approval of the change of control of an insurer or its
holding company and of material intercorporate transfers of assets
within the holding company structure. Generally, under such laws,
a state insurance authority must approve in advance the direct or
indirect acquisition of 10% or more of the voting securities of an
insurance company domiciled in its state.
In addition, the laws of the various states establish regulatory
agencies with broad administrative powers to approve policy forms,
grant and revoke licenses to transact business, regulate trade
practices, license agents, require statutory financial statements
and prescribe the type and amount of investments permitted. In
recent years, a number of life and annuity insurers have been the
subject of regulatory proceedings and litigation relating to
alleged improper life insurance pricing and sales practices. Some
of these insurers have incurred or paid substantial amounts in
connection with the resolution of such matters. In addition, state
insurance regulatory authorities regularly make inquiries, hold
investigations and administer market conduct examinations with
respect to insurers' compliance with applicable insurance laws and
regulations. None of the Company's insurance subsidiaries is the
subject of any such investigation by any regulatory authority or
any such market conduct examination in any state at this time. The
Company's subsidiaries continuously monitor sales, marketing and
advertising practices and related activities of their agents and
personnel and provide continuing education and training in an
effort to ensure compliance with applicable insurance laws and
regulations. There can be no assurance that any non-compliance
with such applicable laws and regulations would not have a
material adverse effect on the Company.
Insurance companies are required to file detailed annual and
quarterly financial statements with state insurance regulators in
each of the states in which they do business and their business
and accounts are subject to examination by such agencies at any
time. In addition, insurance regulators periodically examine an
insurer's financial condition, adherence to statutory accounting
practices and compliance with insurance department rules and
regulations. Applicable state insurance laws, rather than federal
bankruptcy laws, apply to the liquidation or the restructuring of
insurance companies.
11
12
As part of their routine regulatory oversight process, state
insurance departments conduct detailed examinations periodically
(generally once every three to four years) of the books, records
and accounts of insurance companies domiciled in their states.
Such examinations are generally conducted in cooperation with the
insurance departments of two or three other states under
guidelines promulgated by the National Association of Insurance
Commissioners (NAIC). The most recently completed examination of
the Company's insurance subsidiaries was conducted by the Ohio and
Delaware insurance departments for the four-year period ended
December 31, 1996. The final reports of these examinations did not
result in any significant issues or adjustments.
Regulation of Dividends and Other Payments from Insurance
Subsidiaries
As an insurance holding company, the Company's ability to meet
debt service obligations and pay operating expenses and dividends
depends primarily on the receipt of sufficient funds from its
primary operating subsidiary, NLIC. The inability of NLIC to pay
dividends to the Company in an amount sufficient to meet debt
service obligations and pay operating expenses and dividends would
have a material adverse effect on the Company. The payment of
dividends by NLIC is subject to restrictions set forth in the
insurance laws and regulations of Ohio, its domiciliary state. The
Ohio insurance laws require Ohio-domiciled life insurance
companies to seek prior regulatory approval to pay a dividend or
distribution of cash or other property if the fair market value
thereof, together with that of other dividends or distributions
made in the preceding 12 months, exceeds the greater of (i) 10% of
statutory-basis policyholders' surplus as of the prior December 31
or (ii) the statutory-basis net income of the insurer for the
12-month period ending as of the prior December 31. The Ohio
insurance laws also require insurers to seek prior regulatory
approval for any dividend paid from other than earned surplus.
Earned surplus is defined under the Ohio insurance laws as the
amount equal to the Company's unassigned funds as set forth in its
most recent statutory financial statements, including net
unrealized capital gains and losses or revaluation of assets.
Additionally, following any dividend, an insurer's policyholder
surplus must be reasonable in relation to the insurer's
outstanding liabilities and adequate for its financial needs. The
payment of dividends by NLIC may also be subject to restrictions
set forth in the insurance laws of New York that limit the amount
of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit
of the Company and its stockholders. The Company currently does
not expect such regulatory requirements to impair its ability to
pay operating expenses and dividends in the future.
Risk-Based Capital Requirements
In order to enhance the regulation of insurer solvency, the NAIC
has adopted a model law to implement risk-based capital (RBC)
requirements for life insurance companies. The requirements are
designed to monitor capital adequacy and to raise the level of
protection that statutory surplus provides for policyholders. The
model law measures four major areas of risk facing life insurers:
(i) the risk of loss from asset defaults and asset value
fluctuation; (ii) the risk of loss from adverse mortality and
morbidity experience; (iii) the risk of loss from mismatching of
asset and liability cash flow due to changing interest rates and
(iv) business risks. Insurers having less statutory surplus than
required by the RBC model formula will be subject to varying
degrees of regulatory action depending on the level of capital
inadequacy.
Based on the formula adopted by the NAIC, NLIC's adjusted capital
exceeded the level at which the Company would be required to take
corrective action by a substantial amount as of December 31, 2000.
Assessments Against Insurers
Insurance guaranty association laws exist in all states, the
District of Columbia and Puerto Rico. Insurers doing business in
any of these jurisdictions can be assessed for policyholder losses
incurred by insolvent insurance companies. The amount and timing
of any future assessment on the Company's insurance subsidiaries
under these laws cannot be reasonably estimated and are beyond the
control of the Company and its insurance subsidiaries. A large
part of the assessments paid by the Company's insurance
subsidiaries pursuant to these laws may be used as credits for a
portion of the Company's insurance subsidiaries' premium taxes.
For the years ended December 31, 2000, 1999 and 1998, the Company
paid $0.6 million, $1.0 million and $2.4 million, respectively, in
assessments pursuant to state insurance guaranty association laws.
12
13
Securities Laws
Certain of the Company's insurance subsidiaries and certain
policies and contracts offered by them are subject to regulation
under the federal securities laws administered by the Securities
and Exchange Commission (the Commission) and under certain state
securities laws. Certain separate accounts of the Company's
insurance subsidiaries are registered as investment companies
under the Investment Company Act of 1940, as amended (Investment
Company Act). Separate account interests under certain variable
annuity contracts and variable insurance policies issued by the
Company's insurance subsidiaries are also registered under the
Securities Act of 1933, as amended. Certain other subsidiaries of
the Company are registered as broker/dealers under the Securities
Exchange Act of 1934, as amended and are members of, and subject
to regulation by, the National Association of Securities Dealers.
Certain of the Company's subsidiaries are investment advisors
registered under the Investment Advisors Act of 1940, as amended.
The investment companies managed by such subsidiaries are
registered with the Commission under the Investment Company Act
and the shares of certain of these entities are qualified for sale
in certain states in the U.S. and the District of Columbia. A
subsidiary of the Company is registered with the Commission as a
transfer agent. Certain subsidiaries of the Company are also
subject to the Commission's net capital rules.
All aspects of the Company's subsidiaries' investment advisory
activities are subject to various federal and state laws and
regulations in jurisdictions in which they conduct business. These
laws and regulations are primarily intended to benefit investment
advisory clients and investment company shareholders and generally
grant supervisory agencies broad administrative powers, including
the power to limit or restrict the carrying on of business for
failure to comply with such laws and regulations. In such event,
the possible sanctions which may be imposed include the suspension
of individual employees, limitations on the activities in which
the investment advisor may engage, suspension or revocation of the
investment advisor's registration as an advisor, censure and
fines.
Unitary Savings and Loan Holding Company Status
Nationwide Trust Company, FSB (Nationwide Trust Company), a wholly
owned subsidiary of the Company, is a limited-purpose federal
savings bank chartered by the Office of Thrift Supervision of the
U.S. Department of the Treasury (the OTS). Nationwide Trust
Company is subject to comprehensive regulation and periodic
examination by the OTS. As a result of the Company's ownership of
Nationwide Trust Company, the Company is a unitary savings and
loan holding company subject to regulation by the OTS and to the
provisions of the Savings and Loan Holding Company Act. As a
unitary savings and loan holding company, the Company generally is
not restricted as to the types of business activities in which it
may engage so long as the Nationwide Trust Company continues to
meet the qualified thrift lender test (the QTL Test). Under the
Act, existing unitary savings and loan holding companies such as
the Company are grandfathered with full powers to continue and
expand their current activities. However, if the Company should
fail to qualify as a unitary savings and loan holding company (as
a result of failure of the QTL test or otherwise), then the types
of activities in which the Company and its non-savings association
subsidiaries would be able to engage would generally be limited to
those eligible for bank holding companies (subject, however, to
the Company's ability to elect status as a financial holding
company under the Act).
13
14
ERISA Considerations
On December 13, 1993, the United States Supreme Court issued its
opinion in John Hancock Mutual Life Insurance Company v. Harris
Trust and Savings Bank holding that certain assets in excess of
amounts necessary to satisfy guaranteed obligations held by John
Hancock in its general account under a participating group annuity
contract are "plan assets" and therefore subject to certain
fiduciary obligations under the Employee Retirement Income
Security Act of 1974, as amended (ERISA). ERISA requires that
fiduciaries perform their duties solely in the interest of ERISA
plan participants and beneficiaries, and with the care, skill,
prudence and diligence that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct
of an enterprise of a like character and with like aims. The Court
imposed ERISA fiduciary obligations to the extent that the
insurer's general account is not reserved to pay benefits under
guaranteed benefit policies (i.e. benefits whose value would not
fluctuate in accordance with the insurer's investment experience).
The Secretary of Labor issued final regulations on January 5,
2000, providing guidance for the purpose of determining, in cases
where an insurer issues one or more policies backed by the
insurer's general account to or for the benefit of an employee
benefit plan, which assets of the insurer constitute plan assets
for purposes of ERISA and the IRC. The regulations apply only with
respect to a policy issued by an insurer to an ERISA plan on or
before December 31, 1998. In the case of such a policy, most
provisions of the regulations are applicable on July 5, 2001.
Generally, where the basis of a claim is that insurance company
general account assets constitute plan assets, no person will be
liable under ERISA or the IRC for conduct occurring prior to July
5, 2001. However, certain provisions under the final regulations
are applicable as follows: (1) certain contract termination
features become applicable on January 5, 2000 if the insurer
engages in certain unilateral actions; and (2) the initial and
separate account disclosure provisions become applicable July 5,
2000. New policies issued after December 31, 1998, which are not
guaranteed benefit policies will subject the issuer to ERISA
fiduciary obligations.
Potential Tax Legislation
Congress has, from time to time, considered possible legislation
that would eliminate many of the tax benefits currently afforded
to annuity products.
EMPLOYEES
As of December 31, 2000, the Company had approximately 4,800
employees. None of the employees of the Company are covered by a
collective bargaining agreement and the Company believes that its
employee relations are satisfactory.
ITEM 2 PROPERTIES
Pursuant to an arrangement between NMIC and certain of its
subsidiaries, during 2000 the Company leased on average
approximately 758,000 square feet of office space primarily in the
four building home office complex in Columbus, Ohio. The Company
believes that its present facilities are adequate for the
anticipated needs of the Company.
ITEM 3 LEGAL PROCEEDINGS
The Company is a party to litigation and arbitration proceedings
in the ordinary course of its business, none of which is expected
to have a material adverse effect on the Company.
In recent years, life insurance companies have been named as
defendants in lawsuits, including class action lawsuits relating
to life insurance and annuity pricing and sales practices. A
number of these lawsuits have resulted in substantial jury awards
or settlements.
As was previously disclosed in the Company's Form 10-Q for the
quarterly period ended March 31, 2000, the Robert Young and David
D. Distad v. Nationwide Life Insurance Company et al lawsuit was
dismissed by the court with prejudice on February 9, 2000.
14
15
On October 29, 1998, the Company was named in a lawsuit filed in
Ohio state court related to the sale of deferred annuity products
for use as investments in tax-deferred contributory retirement
plans (Mercedes Castillo v. Nationwide Financial Services, Inc.,
Nationwide Life Insurance Company and Nationwide Life and Annuity
Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The
amended complaint is brought as a class action on behalf of all
persons who purchased individual deferred annuity contracts or
participated in group annuity contracts sold by the Company and
the other named Company affiliates which were used to fund certain
tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. No class has been
certified. On June 11, 1999, the Company and the other named
defendants filed a motion to dismiss the amended complaint. On
March 8, 2000, the court denied the motion to dismiss the amended
complaint filed by the Company and other named defendants. The
Company intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing
or sales practices will not have a material adverse effect on the
Company in the future.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2000 no matters were submitted to a
vote of security holders, through the solicitation of proxies or
otherwise.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Class A Common Stock of NFS is traded on the New York Stock
Exchange under the symbol "NFS". As of March 2, 2001, NFS had
2,454 registered shareholders of Class A Common Stock.
There is no established public trading market for the Company's
Class B Common Stock. All 104,745,000 shares of Class B Common
Stock are owned by Nationwide Corp.
Information regarding the high and low sales prices of NFS Class A
Common Stock and cash dividends declared on such shares, as
required by this item, is set forth in the following table:
Quarter
Quarter Ended High Low Close Dividends
========================================================================================
March 31, 2000 $29.94 $19.50 $29.25 $ 0.10
June 30, 2000 $34.75 $25.63 $32.88 $ 0.12
September 30, 2000 $40.75 $32.75 $37.38 $ 0.12
December 31, 2000 $51.44 $36.94 $47.50 $ 0.12
March 31, 1999 $54.13 $39.94 $42.00 $ 0.08
June 30, 1999 $49.38 $39.75 $45.25 $ 0.10
September 30, 1999 $46.75 $34.56 $35.38 $ 0.10
December 31, 1999 $42.00 $26.75 $27.94 $ 0.10
----------------------------------------------------------------------------------------
Information regarding restrictions on the ability of NFS's
insurance subsidiaries to pay dividends to NFS, as required by
this item, is set forth under "Item 1:
Business-Regulation-Regulation of Dividends and Other Payments
from Insurance Subsidiaries" above and in note 15 of the
consolidated financial statements on page 78 of the 2000 Annual
Report to Shareholders and is incorporated herein by reference.
ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA
Information required by this item is set forth in the table titled
"Five Year Summary" on pages 49 and 50 of the Company's 2000
Annual Report to Shareholders and is incorporated herein by
reference.
15
16
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this item is set forth on pages 23 through
48 of the Company's 2000 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is set forth on pages 43 through
48 of the Company's 2000 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is set forth on pages 51 through
87 of the Company's 2000 Annual Report to Shareholders and is
incorporated herein by reference. Reference is made to the index
to consolidated financial statements included in Item 14.
Financial statement schedules are included on pages 24 through 31
herein. Reference is made to the index to financial statement
schedules included on page 19 herein.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of
Directors" on pages 4 through 6 of the Company's 2000 Proxy
Statement is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position with the Company
-------------------------------- ---------- ------------------------------------------------------------------
Dimon Richard McFerson 64 Chairman (retired December 30, 2000)
William G. Jurgensen 49 Chairman of the Board and Chief Executive Officer
Joseph J. Gasper 57 President and Chief Operating Officer
Galen R. Barnes 54 Executive Vice President
Richard D. Headley 52 Executive Vice President
Michael S. Helfer 55 Executive Vice President--Corporate Strategy
Donna A. James 43 Executive Vice President--Chief Administrative Officer
Robert A. Oakley 54 Executive Vice President--Chief Financial Officer
Robert J. Woodward, Jr. 59 Executive Vice President--Chief Investment Officer
John R. Cook, Jr. 57 Senior Vice President--Chief Communications Officer
David A. Diamond 46 Senior Vice President--Corporate Controller
Philip C. Gath 53 Senior Vice President--Chief Actuary--Nationwide Financial
Patricia R. Hatler 46 Senior Vice President, General Counsel and Secretary
Richard A. Karas 58 Senior Vice President--Sales--Financial Services
Gregory S. Lashutka 57 Senior Vice President--Corporate Relations
Mark R. Thresher 44 Senior Vice President--Finance (Chief Accounting Officer)
Susan A. Wolken 50 Senior Vice President--Product Management and Nationwide
Financial Marketing
Business experience for each of the individuals listed in the above table is set forth below.
16
17
DIMON R. MCFERSON, until his retirement in December 2000, was
Chief Executive Officer of Nationwide since December 1992. He was
Chairman and Chief Executive Officer of the Company since December
1996 and a director of the Company since November 1996. Mr.
McFerson was also a director of Nationwide Life Insurance Company
and Nationwide Mutual Insurance Company since April 1988 and
Chairman and Chief Executive Officer of Nationwide Life Insurance
Company and Nationwide Mutual Insurance Company since April 1996.
He was elected Chief Executive Officer of Nationwide Life
Insurance Company in December 1992, and President and Chief
Executive Officer of Nationwide Life Insurance Company in December
1993. He was President and General Manager of Nationwide Mutual
Insurance Company from April 1988 to April 1991; President and
Chief Operating Officer of Nationwide Mutual Insurance Company
from April 1991 to December 1992; and President and Chief
Executive Officer of Nationwide Mutual Insurance Company from
December 1992 to April 1996. Mr. McFerson was with Nationwide for
21 years.
W. G. JURGENSEN has been Chairman of the Board and Chief Executive
Officer of the Company since January 2001, Chief Executive Officer
from August 2000, Chief Executive Officer--Elect from May to July
2000 and a director of the Company since May 2000. He has also
been Chief Executive Officer of Nationwide Mutual Insurance
Company and Nationwide Life Insurance Company since August 2000,
Chief Executive Officer--Elect from May to August 2000 and a
director of Nationwide Mutual and Nationwide Life since May 2000.
Previously, he was Executive Vice President of Bank One
Corporation from 1998 to 2000. Mr. Jurgensen was Executive Vice
President of First Chicago NBD Corporation and Chairman of FCC
National Bank from 1996 to 1998.
JOSEPH J. GASPER has been President and Chief Operating Officer of
the Company since December 1996 and a Director of the company
since November 1996. Mr. Gasper has been President and Chief
Operating Officer and Director of Nationwide Life Insurance
Company since April 1996. Previously, he was Executive Vice
President--Property and Casualty Operations of Nationwide Mutual
Insurance Company and Nationwide Life Insurance Company from April
1995 to April 1996. He was Senior Vice President--Property and
Casualty Operations of Nationwide Mutual Insurance Company and
Nationwide Life Insurance Company from September 1993 to April
1995. Prior to that time, Mr. Gasper held numerous positions with
Nationwide. Mr. Gasper has been with Nationwide for 34 years.
GALEN R. BARNES has been Executive Vice President of the Company
since December 1996. Mr. Barnes has been Director, President and
Chief Operating Officer of Nationwide Mutual Insurance Company,
Nationwide Mutual Fire Insurance Company, Nationwide Property and
Casualty Insurance Company and Nationwide General Insurance
Company since April 1999. He served as President of Nationwide
Insurance Enterprise from April 1996 to April 1999. He was
Director and Vice Chairman of the Wausau Insurance Companies, a
Nationwide affiliate, from September 1996 to December 1998; and
Director, President and Chief Operating Officer from May 1993 to
September 1996. Mr. Barnes was Senior Vice President of Nationwide
from May 1993 to April 1996. Prior to that time, Mr. Barnes held
several positions within Nationwide. Mr. Barnes has been with
Nationwide for 24 years.
RICHARD D. HEADLEY has been Executive Vice President of the
Company since August 2000. Previously he was Executive Vice
President--Chief Information Technology Officer of the Company
from August 1999 to August 2000. He was Senior Vice
President--Chief Information Technology Officer of the Company
from October 1997 to August 1999. Mr. Headley has been Executive
Vice President of Nationwide since July 2000. Previously he was
Executive Vice President--Chief Information Technology Officer of
Nationwide from August 1999 to August 2000. He was Senior Vice
President--Chief Information Technology Officer of Nationwide from
October 1997, to May 1999. Previously, Mr. Headley was Chairman
and Chief Executive Officer of Banc One Services Corporation from
1992 to October 1997.
MICHAEL S. HELFER has been Executive Vice President--Corporate
Strategy of the Company and Nationwide since August 2000. Mr.
Helfer was a Partner with Wilmer, Cutler and Pickering from 1978
to October 2000.
17
18
DONNA A. JAMES has been Executive Vice President--Chief
Administrative Officer of the Company and Nationwide since August
2000. She was Senior Vice President--Chief Human Resources Officer
of the Company from August 1999 to August 2000. She was Senior
Vice President--Human Resources of the Company from December 1997
to August 1999. Ms. James was Senior Vice President--Chief Human
Resources Officer from May 1999 to July 2000 and Senior Vice
President--Human Resources of Nationwide from December 1997 to May
1999. Previously she was Vice President--Human Resources of
Nationwide from July 1996 to December 1997. Prior to that time Ms.
James was Vice President--Assistant to the CEO of Nationwide from
March 1996 to July 1996. From May 1994 to March 1996 she was
Associate Vice President--Assistant to the CEO for Nationwide.
Prior to that time, Ms. James held several positions within
Nationwide. Ms. James has been with Nationwide for 19 years.
ROBERT A. OAKLEY has been Executive Vice President--Chief
Financial Officer of the Company since December 1996. Mr. Oakley
has been Executive Vice President--Chief Financial Officer of
Nationwide since April 1995. Previously, he was Senior Vice
President--Chief Financial Officer of Nationwide from October 1993
to April 1995. Prior to that time, Mr. Oakley held several
positions within Nationwide. Mr. Oakley has been with Nationwide
for 25 years.
ROBERT J. WOODWARD, JR. has been Executive Vice President--Chief
Investment Officer of the Company since December 1996. Mr.
Woodward has been Executive Vice President--Chief Investment
Officer of Nationwide since August 1995. Previously, he was Senior
Vice President--Fixed Income Investments of Nationwide from March
1991 to August 1995. Prior to that time, Mr. Woodward held several
positions within Nationwide. Mr. Woodward has been with Nationwide
for 36 years.
JOHN R. COOK, JR. has been Senior Vice President--Chief
Communications Officer of the Company since October 1997. Mr. Cook
has been Senior Vice President--Chief Communications Officer of
Nationwide since May 1997. Previously, Mr. Cook was Senior Vice
President--Chief Communications Officer of USAA from July 1989 to
May 1997.
DAVID A. DIAMOND has been Senior Vice President--Corporate
Controller of the Company since August 1999. He was Vice
President--Controller of the Company from December 1996 to August
1999. Mr. Diamond has been Senior Vice President--Corporate
Controller of Nationwide since August 1999. He was Vice
President--Controller of Nationwide from August 1996 to August
1999. Previously, he was Vice President--Controller of Nationwide
Life Insurance Company from October 1993 to August 1996. Prior to
that time, Mr. Diamond held several positions within Nationwide.
Mr. Diamond has been with Nationwide for 12 years.
PHILIP C. GATH has been Senior Vice President--Chief
Actuary--Nationwide Financial of the Company since June 1998. Mr.
Gath has been Senior Vice President--Chief Actuary--Nationwide
Financial of Nationwide since May 1998. Previously, Mr. Gath was
Vice President--Product Manager--Individual Variable Annuity of
the Company from July 1997 to May 1998. Mr. Gath was Vice
President--Individual Life Actuary from August 1989 to July 1997.
Prior to that time, Mr. Gath held several positions within
Nationwide. Mr. Gath has been with Nationwide for 32 years.
PATRICIA R. HATLER has been Senior Vice President, General Counsel
and Secretary of the Company since May 2000. Ms Hatler was Senior
Vice President and General Counsel from August 1999 to May 2000.
She has been Senior Vice President, General Counsel and Secretary
of Nationwide since April 2000, and was Senior Vice President and
General Counsel from July 1999 to April 2000. Prior to that time,
she was General Counsel and Corporate Secretary of Independence
Blue Cross from 1983 to July 1999.
RICHARD A. KARAS has been Senior Vice President--Sales--Financial
Services of the Company since December 1996. Mr. Karas has been
Senior Vice President--Sales--Financial Services of Nationwide
since March 1993. Previously, he was Vice
President--Sales--Financial Services of Nationwide from February
1989 to March 1993. Prior to that time, Mr. Karas held several
positions within Nationwide. Mr. Karas has been with Nationwide
for 36 years.
GREGORY S. LASHUTKA has been Senior Vice President--Corporate
Relations of the Company since January 2000. Mr. Lashutka has been
Senior Vice President--Corporate Relations of Nationwide since
January 2000. Previously, he was Mayor of the City of Columbus
(Ohio) from January 1992 to December 1999.
18
19
MARK R. THRESHER has been Senior Vice President--Finance of the
Company since May 1999. He was Vice President--Finance and
Treasurer of the Company from February 1997 to May 1999.
Mr. Thresher has been Senior Vice President--Finance--Nationwide
Financial of Nationwide Life Insurance Company since May 1999. He
was Vice President--Controller of Nationwide Life Insurance
Company from August 1996 to May 1999. He was Vice President and
Treasurer of the Company from December 1996 to February 1997 and
Vice President and Treasurer of Nationwide from June 1996 to
August 1996. Previously, Mr. Thresher served as a partner with
KPMG LLP from July 1988 to May 1996.
SUSAN A. WOLKEN has been Senior Vice President--Product Management
and Nationwide Financial Marketing of the Company since May 1999.
She was Senior Vice President--Life Company Operations of the
Company from June 1997 to May 1999. Ms. Wolken has been Senior
Vice President--Product Management and Nationwide Financial
Marketing of Nationwide since May 1999. Previously, she was Senior
Vice President--Life Company Operations of Nationwide from June
1997 to May 1999. She was Senior Vice President--Enterprise
Administration of Nationwide from July 1996 to June 1997. Prior to
that time, she was Senior Vice President--Human Resources of
Nationwide from April 1995 to July 1996. From September 1993 to
April 1995 Ms. Wolken was Vice President--Human Resources of
Nationwide. From October 1989 to September 1993 she was Vice
President--Individual Life and Health Operations of Nationwide.
Ms. Wolken has been with Nationwide for 26 years.
ITEM 11 EXECUTIVE COMPENSATION
Information required by this item is set forth from the heading
"Executive Compensation and Other Information" on pages 8 through
21 of the Company's 2000 Proxy Statement and is incorporated
herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is set forth under the caption
"Beneficial Ownership of Common Stock" on pages 2 through 4 of the
Company's 2000 Proxy Statement and is incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth under the caption
"CERTAIN TRANSACTIONS" on pages 25 through 28 of the Company's
2000 Proxy Statement and is incorporated herein by reference.
19
20
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Annual
Report
Page
----------
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 51
Consolidated Balance Sheets as of December 31, 2000 and 1999 52
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000,
1999 and 1998 53
Consolidated Statements of Cash Flows for the years ended December 31, 2000,
1999 and 1998 54
Notes to Consolidated Financial Statements 55-86
Independent Auditors' Report 87
Form
10-K
Page
----------
INDEX TO FINANCIAL STATEMENT SCHEDULES 22
EXHIBIT INDEX 32
REPORTS ON FORM 8-K:
On February 2, 2001, NFS filed a Current Report on Form 8-K in
connection with the release of quarterly earnings results.
20
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NATIONWIDE FINANCIAL SERVICES, INC. (Registrant)
By /s/ W. G. Jurgensen
----------------------
W. G. Jurgensen, Chief Executive
Officer and Chairman of the Board
Date: February 7, 2001
21
22
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ W. G. Jurgensen February 7, 2001 /s/ Joseph J. Gasper March 5, 2001
- --------------------------------------------- ------------------- -------------------------------------------- -------------------
W. G. Jurgensen, Chief Executive Officer Date Joseph J. Gasper, President, Chief Date
and Chairman of the Board Operating Officer and Director
/s/ James G. Brocksmith, Jr. February 7, 2001 /s/ Charles L. Fuellgraf, Jr. February 7, 2001
- --------------------------------------------- ------------------- -------------------------------------------- -------------------
James G. Brocksmith, Jr., Director Date Charles L. Fuellgraf, Jr., Director Date
/s/ Henry S. Holloway February 7, 2001 /s/ Lydia Micheaux Marshall February 7, 2001
- --------------------------------------------- ------------------- -------------------------------------------- -------------------
Henry S. Holloway, Director Date Lydia Micheaux Marshall, Director Date
/s/ Donald L. McWhorter February 7, 2001 /s/ David O. Miller February 7, 2001
- --------------------------------------------- ------------------- -------------------------------------------- -------------------
Donald L. McWhorter, Director Date David O. Miller, Director Date
/s/ James F. Patterson February 7, 2001 /s/ Gerald D. Prothro February 7, 2001
- --------------------------------------------- ------------------- -------------------------------------------- -------------------
James F. Patterson, Director Date Gerald D. Prothro, Director Date
/s/ Arden L. Shisler February 7, 2001 /s/ Robert A. Oakley February 7, 2001
- --------------------------------------------- ------------------- -------------------------------------------- -------------------
Arden L. Shisler, Director Date Robert A. Oakley, Executive Vice Date
President - Chief Financial Officer
/s/ Mark R. Thresher February 7, 2001
- --------------------------------------------- -------------------
Mark R. Thresher, Senior Vice President - Date
Finance (Chief Accounting Officer)
22
23
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
---------
Independent Auditors' Report on Financial Statement Schedules 23
Schedule I Consolidated Summary of Investments - Other Than Investments in Related Parties
as of December 31, 2000 24
Schedule II Condensed Financial Information of Registrant 25
Schedule III Supplementary Insurance Information as of December 31, 2000, 1999 and 1998
and for each of the years then ended 29
Schedule IV Reinsurance as of December 31, 2000, 1999 and 1998 and for each of the years then ended 30
Schedule V Valuation and Qualifying Accounts for the years ended December 31, 2000, 1999 and 1998 31
All other schedules are omitted because they are not applicable or not
required, or because the required information has been included in the audited
consolidated financial statements or notes thereto.
23
24
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors
Nationwide Financial Services, Inc.:
Under date of January 26, 2001, we reported on the consolidated balance sheets
of Nationwide Financial Services, Inc. and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2000, as contained in the 2000 annual report to shareholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 2000. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedules as listed in the accompanying
index. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG LLP
Columbus, Ohio
January 26, 2001
24
25
SCHEDULE I
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
(in millions)
As of December 31, 2000
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Column A Column B Column C Column D
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Amount at
which shown
in the
Market consolidated
Type of Investment Cost value balance sheet
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Fixed maturity securities available-for-sale:
Bonds:
U.S. Government and government agencies and authorities $ 3,005.8 $ 3,081.4 $ 3,081.4
States, municipalities and political subdivisions 8.6 8.8 8.8
Foreign governments 94.1 95.6 95.6
Public utilities 1,186.6 1,195.9 1,195.9
All other corporate 11,002.8 11,115.5 11,115.5
------------- -------------- ---------------
Total fixed maturity securities available-for-sale 15,297.9 15,497.2 15,497.2
------------- -------------- ---------------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 149.1 150.2 150.2
Non-redeemable preferred stock - - -
------------- -------------- ---------------
Total equity securities available-for-sale 149.1 150.2 150.2
------------- -------------- ---------------
Mortgage loans on real estate, net 6,214.4 6,168.3(1)
Real estate, net:
Investment properties 255.0 270.1(2)
Acquired in satisfaction of debt 42.1 40.6(2)
Policy loans 562.6 562.6
Other long-term investments 110.1 111.8(3)
Short-term investments 558.4 558.4
------------- ---------------
Total investments $ 23,189.6 $ 23,359.2
============= ===============
- ----------
(1) Difference from Column B is primarily due to valuation allowances due
to impairments on mortgage loans on real estate. See note 3 to the
consolidated financial statements.
(2) Difference from Column B primarily results from undistributed earnings
from an unconsolidated real estate subsidiary that is carried on the
equity method, offset in part by valuation allowances for accumulated
depreciation or valuation allowances due to imparements on real estate.
See note 3 to the consolidated financial statements.
(3) Difference from Column B is primarily due to operating gains and/or
losses of investments in limited partnerships.
See accompanying independent auditors' report.
25
26
SCHEDULE II
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in thousands)
Condensed Balance Sheets
December 31,
-------------------------------
Assets 2000 1999
------
--------------- ---------------
Investment in subsidiaries $ 3,409,753 $ 2,958,751
Short-term investments 69,048 34,287
Long-term investments 10,000 -
Cash 11,777 1,368
Accrued investment income 105 105
Other assets 144,367 132,865
--------------- ---------------
$ 3,645,050 $ 3,127,376
=============== ===============
Liabilities and Shareholders' Equity
------------------------------------
Long-term debt $ 607,703 $ 607,685
Other liabilities 39,892 32,548
--------------- ---------------
647,595 640,233
--------------- ---------------
Shareholders' equity 2,997,455 2,487,143
--------------- ---------------
$ 3,645,050 $ 3,127,376
=============== ===============
Condensed Statements of Income
Years Ended December 31,
-----------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Revenues:
Dividends received from subsidiaries $ 176,000 $ 243,500 $ 103,000
Investment income 4,630 5,062 4,467
Realized losses on investments (5,000) - (10,589)
Other - - 79
--------------- --------------- ---------------
175,630 248,562 96,957
--------------- --------------- ---------------
Expenses:
Interest expense on long-term debt 48,318 47,900 35,587
Other operating expenses 9,494 3,515 3,175
--------------- --------------- ---------------
57,812 51,415 38,762
--------------- --------------- ---------------
Income before federal income tax benefit 117,818 197,147 58,195
Federal income tax benefit 21,144 16,951 15,459
--------------- --------------- ---------------
Income before equity in net income of subsidiaries 138,962 214,098 73,654
Equity in undistributed net income of subsidiaries 296,014 167,197 258,716
--------------- --------------- ---------------
Net income $ 434,976 $ 381,295 $ 332,370
=============== =============== ===============
See accompanying notes to condensed financial statements and independent
auditors' report.
26
27
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT, Continued
(in thousands)
Condensed Statements of Cash Flows
Years ended December 31,
--------------------------------------------
2000 1999 1998
------------ --------------- ---------------
Cash flows from operating activities:
Net income $ 434,976 $ 381,295 $ 332,370
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net income of subsidiaries (296,014) (167,197) (258,716)
Amortization 8,979 2,737 1,281
Realized losses on investments 5,000 - 10,589
Other, net 57,353 (59,188) (27,349)
------------ --------------- ---------------
Net cash provided by operating activities 210,294 157,647 58,175
------------ --------------- ---------------
Cash flows from investing activities:
Cash paid to acquire companies and capital contributed to subsidiaries (22,575) (221,607) (105,970)
Other, net (122,721) 111,259 (115,286)
------------ --------------- ---------------
Net cash used in investing activities (145,296) (110,348) (221,256)
------------ --------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt - - 199,901
Cash dividends paid (56,720) (46,269) (35,990)
Other, net 2,131 (508) 16
------------ --------------- ---------------
Net cash (used in) provided by financing activities (54,589) (46,777) 163,927
------------ --------------- ---------------
Net increase in cash 10,409 522 846
Cash, beginning of year 1,368 846 -
------------ --------------- ---------------
Cash, end of year $ 11,777 $ 1,368 $ 846
============ =============== ===============
See accompanying notes to condensed financial statements and independent auditors' report.
27
28
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT, Continued
(in thousands)
Notes to Condensed Financial Statements
(1) ORGANIZATION AND PRESENTATION
Nationwide Financial Services, Inc. (NFS) is the holding company for
Nationwide Life Insurance Company (NLIC) and other companies that
comprise the retirement savings operations of the Nationwide Group of
Companies. On March 6, 1997, NFS sold, in an initial public offering,
23.6 million shares of its newly-issued Class A common stock for net
proceeds of $524,191 (the Equity Offering). In March 1997, NFS also
sold, in companion public offerings, $300,000 of 8% Senior Notes (the
Notes) and, Nationwide Financial Services Capital Trust (NFSCT), a
wholly owned subsidiary of NFS, issued $100,000 of 7.899% Capital
Securities (the Capital Securities). Concurrent with the sale of the
Capital Securities by NFSCT, NFS sold to NFSCT $103,093 in principal
amount of its 7.899% Junior Subordinated Deferrable Interest Debentures
(Junior Subordinated Debentures). Aggregate net proceeds from the
Equity Offering, the offering of the Notes and the sale of the 7.899%
Junior Subordinated Debentures totaled $920,053. NFS contributed
$836,780 and $3,093 of the proceeds to the capital of NLIC and NFSCT,
respectively, and retained $80,180 of the proceeds for general
corporate purposes.
Prior to the initial public offering, NFS was a wholly owned subsidiary
of Nationwide Corporation (Nationwide Corp.). Nationwide Corp.
continues to own all of the outstanding shares of Class B common stock,
which represents approximately 97.8% of the combined voting power of
the shareholders of NFS.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. On January 27, 1997,
Nationwide Corp. contributed the common stock of NLIC and three
marketing and distribution companies to NFS. Additionally, NFS received
a dividend from NLIC on February 24, 1997 and immediately thereafter
paid a dividend to Nationwide Corp. consisting of securities with a
fair value of $850,000.
(2) LONG-TERM DEBT AND GUARANTEES
Long-term debt outstanding as of December 31, 2000 and 1999 consists of
the following:
2000 1999
-------------- --------------
8% Senior Notes due March 1, 2027 (net of unamortized discount of
$1,576 in 2000 and $1,594 in 1999) $ 298,424 $ 298,406
7.899% Junior Subordinated Deferrable Interest Debentures due March 1, 2037 103,093 103,093
7.10% Junior Subordinated Deferrable Interest Debentures due October 31, 2028 206,186 206,186
-------------- --------------
$ 607,703 $ 607,685
============== ==============
The Notes are redeemable in whole or in part, at the option of NFS, at
any time on or after March 1, 2007 at scheduled redemption premiums
through March 1, 2016, and thereafter, at 100% of the principal amount
thereof plus, in each case, accrued and unpaid interest. The Notes are
not subject to any sinking fund payments. The terms of the Notes
contain various restrictive covenants including limitations on the
disposition of subsidiaries. As of December 31, 2000, NFS was in
compliance with all such covenants. NFS made interest payments on the
Notes of $24,000 in 2000 and 1999.
See accompanying independent auditors' report.
28
29
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT, Continued
(in thousands)
Notes to Condensed Financial Statements, Continued
The 7.899% Junior Subordinated Debentures are redeemable by NFS in
whole at any time or in part from time to time at par plus an
applicable make-whole premium. The 7.899% Junior Subordinated
Debentures will mature or be called simultaneously with the Capital
Securities. The Capital Securities, through obligations of NFS under
the 7.899% Junior Subordinated Debentures, the Capital Securities
Guarantee Agreement and the related Declaration of Trust and Indenture,
are fully and unconditionally guaranteed by NFS. NFS made interest
payments on the 7.899% Junior Subordinated Debentures of $8,143 in
2000, 1999 and 1998
On October 19, 1998, Nationwide Financial Services Capital Trust II
(NFSCTII) sold, in a public offering, $200,000 of 7.10% Trust Preferred
Securities representing preferred undivided beneficial interests in the
assets of NFSCTII generating net proceeds of $193,700. Concurrent with
the sale of the Preferred Securities, NFS sold to NFSCTII $206,186 of
7.10% Junior Subordinated Debentures due October 31, 2028. The 7.10%
Junior Subordinated Debentures are the sole assets of NFSCTII and are
redeemable, in whole or in part, on or after October 19, 2003 at a
redemption price equal to the principal amount to be redeemed plus any
accrued and unpaid interest. The Preferred Securities have a
liquidation amount of $25 per security and must be redeemed by NFSCTII
when the 7.10% Junior Subordinated Debentures mature or are redeemed by
NFS.
The Preferred Securities, through obligations of NFS under the 7.10%
Junior Subordinated Debentures, the Preferred Securities Guarantee
Agreement and the related Amended and Restated Declaration of Trust,
are fully and unconditionally guaranteed by NFS. Distributions on the
Preferred Securities are cumulative and payable quarterly beginning
January 31, 1999. NFS made interest payments on the 7.10% Junior
Subordinated Debentures of $14,639 in 2000 and 1999.
See accompanying independent auditors' report.
29
30
SCHEDULE III
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in millions)
As of December 31, 2000, 1999 and 1998 and for each of the years then ended
- ---------------------------------------- --------------- -------------------- ------------------ ------------------- --------------
Column A Column B Column C Column D Column E Column F
Deferred Future policy Other policy
policy benefits, losses, Unearned claims and
acquisition claims and premiums benefits payable Premium
Segment costs loss expenses (1) (1) revenue
- ---------------------------------------- --------------- -------------------- ------------------ ------------------- --------------
2000: Individual Annuity $ 1,718.7 $ 7,068.5 $ 52.7
Institutional Products 293.7 10,944.0 -
Life Insurance 877.8 3,995.6 187.3
Asset Management - - -
Corporate (17.5) 235.2 -
--------------- -------------------- ---------------
Total $ 2,872.7 $ 22,243.3 $ 240.0
=============== ==================== ===============
1999: Individual Annuity $ 1,526.8 $ 7,344.5 $ 26.8
Institutional Products 275.2 10,833.4 -
Life Insurance 702.9 3,519.9 194.0
Asset Management - - -
Corporate 50.9 170.5 -
--------------- -------------------- ---------------
Total $ 2,555.8 $ 21,868.3 $ 220.8
=============== ==================== ===============
1998: Individual Annuity $ 1,316.5 $ 6,584.1 $ 23.1
Institutional Products 248.2 9,792.8 -
Life Insurance 574.2 3,225.5 176.9
Asset Management - - -
Corporate (116.6) 169.8 -
--------------- -------------------- ---------------
Total $ 2,022.3 $ 19,772.2 $ 200.0
=============== ====================
===============
- ---------------------------------------- --------------- -------------------- ------------------ ------------------- --------------
Column A Column G Column H Column I Column J Column K
- ---------------------------------------- --------------- -------------------- ------------------ ------------------- --------------
Net investment Benefits, claims, Amortization Other
income losses and of deferred policy operating expenses Premiums
Segment (2) settlement expenses acquisition costs (2) written
- ---------------------------------------- --------------- -------------------- ------------------ ------------------- --------------
2000: Individual Annuity $ 486.2 $ 451.9 $ 238.2 $ 146.5
Institutional Products 828.8 628.8 49.2 248.3
Life Insurance 289.2 344.8 64.2 136.7
Asset Management 6.5 - - 114.9
Corporate 57.7 - - 29.9
--------------- -------------------- ------------------ -------------------
Total $ 1,668.4 $ 1,425.5 $ 351.6 $ 676.3
=============== ==================== ================== ===================
1999: Individual Annuity $ 459.0 $ 408.8 $ 171.0 $ 136.3
Institutional Products 771.9 580.9 41.6 218.1
Life Insurance 253.1 317.1 60.1 105.7
Asset Management 4.9 - - 85.7
Corporate 41.6 - - 15.6
--------------- -------------------- ------------------ -------------------
Total $ 1,530.5 $ 1,306.8 $ 272.7 $ 561.4
=============== ==================== ================== ===================
1998: Individual Annuity $ 431.8 $ 380.4 $ 129.3 $ 104.5
Institutional Products 785.6 595.7 38.9 191.9
Life Insurance 225.6 268.7 46.4 100.6
Asset Management 1.5 - - 59.9
Corporate 42.3 - - 15.2
--------------- -------------------- ------------------ -------------------
Total $ 1,486.8 $ 1,244.8 $ 214.6 $ 472.1
=============== ==================== ================== ===================
- ----------
(1) Unearned premiums and other policy claims and benefits payable are included
in Column C amounts.
(2) Allocations of net investment income and certain operating expenses are
based on a number of assumptions and estimates, and reported operating
results change by segment if different methods were applied.
See accompanying independent auditors' report.
30
31
SCHEDULE IV
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
REINSURANCE
(in millions)
As of December 31, 2000, 1999 and 1998 and for each of the years then ended
- ------------------------------------ ----------- ----------- ---------- ----------- -------
Column A Column B Column C Column D Column E Column F
- ------------------------------------ ----------- ----------- ---------- ----------- -------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
amount companies companies amount to net
----------- ----------- ---------- ----------- -------
2000:
Life insurance in force $ 95,475.2 $ 31,101.6 $ 16.4 $ 64,390.0 0.0%
=========== =========== ======= =========== =====
Premiums:
Life insurance $ 254.6 $ 14.8 $ 0.2 $ 240.0 0.1%
Accident and health insurance 150.8 156.8 6.0 - N/A
----------- ----------- ------- ----------- -----
Total $ 405.4 $ 171.6 $ 6.2 $ 240.0 2.6%
=========== =========== ======= =========== =====
1999:
Life insurance in force $ 84,845.3 $ 26,296.5 $ 14.9 $ 58,563.7 0.0%
=========== =========== ======= =========== =====
Premiums:
Life insurance $ 242.2 $ 22.6 $ 1.2 $ 220.8 0.6%
Accident and health insurance 134.9 142.8 7.9 - N/A
----------- ----------- ------- ----------- -----
Total $ 377.1 $ 165.4 $ 9.1 $ 220.8 4.2%
=========== =========== ======= =========== =====
1998:
Life insurance in force $ 63,215.9 $ 17,413.4 $ 28.0 $ 45,830.5 0.1%
=========== =========== ======= =========== =====
Premiums:
Life insurance $ 225.4 $ 27.4 $ 2.0 $ 200.0 1.0%
Accident and health insurance 169.7 179.4 9.7 - N/A
----------- ----------- ------- ----------- -----
Total $ 395.1 $ 206.8 $ 11.7 $ 200.0 5.8%
=========== =========== ======= =========== =====
- ----------
Note: The life insurance caption represents principally premiums from
traditional life insurance and life-contingent immediate annuities and
excludes deposits on investment products and universal life insurance
products.
See accompanying independent auditors' report.
31
32
SCHEDULE V
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Years ended December 31, 2000, 1999 and 1998
- -------------------------------------------------------- ------------ ---------------------------- ------------ --------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------- ------------ ---------------------------- ------------ --------------
Balance at Charged to Charged to Balance at
beginning costs and other Deductions end of
Description of period expenses accounts (1) period
- -------------------------------------------------------- ------------ ---------------------------- ------------ --------------
2000:
Valuation allowances - fixed maturity securities $ - $ - $ - $ - $ -
Valuation allowances - mortgage loans on real estate 44.4 4.1 - 3.2 45.3
Valuation allowances - real estate 5.5 0.4 - 0.7 5.2
------------ -------------- ------------- ------------ --------------
Total $ 49.9 $ 4.5 $ - $ 3.9 $ 50.5
============ ============== ============= ============ ==============
1999:
Valuation allowances - fixed maturity securities $ 7.5 $ - $ - $ 7.5 $ -
Valuation allowances - mortgage loans on real estate 42.4 0.7 1.3 2 - 44.4
Valuation allowances - real estate 5.4 0.9 - 0.8 5.5
------------ -------------- ------------- ------------ --------------
Total $ 55.3 $ 1.6 $ 1.3 $ 8.3 $ 49.9
============ ============== ============= ============ ==============
1998:
Valuation allowances - fixed maturity securities $ - $ 7.5 $ - $ - $ 7.5
Valuation allowances - mortgage loans on real estate 42.5 (0.1) - - 42.4
Valuation allowances - real estate 11.1 (5.7) - - 5.4
------------ -------------- ------------- ------------ --------------
Total $ 53.6 $ 1.7 $ - $ - $ 55.3
============ ============== ============= ============ ==============
- ----------
(1) Amounts represent direct write-downs charged against the valuation
allowance.
(2) Allowance on acquired mortgage loans.
See accompanying independent auditors' report.
32
33
EXHIBIT INDEX
Exhibit
-------
3.1 Form of Restated Certificate of Incorporation of Nationwide
Financial Services, Inc. (previously filed as Exhibit 3.1 to Form
S-1, Registration Number 333-18527, filed March 5, 1997, and
incorporated herein by reference)
3.2 Form of Restated Bylaws of Nationwide Financial Services, Inc.
(previously filed as Exhibit 3.2 to Form S-1, Registration Number
333-18527, filed March 5, 1997, and incorporated herein by
reference)
4.1 Form of Indenture relating to the Notes, including the form of
Global Note and the form of Definitive Note (previously filed as
Exhibit 4.1 to Form S-1, Registration Number 333-18527, filed
March 5, 1997, and incorporated herein by reference)
4.2 Form of Indenture relating to the Junior Subordinated Deferrable
Interest Debentures due 2037 of Nationwide Financial Services,
Inc. (previously filed as Exhibit 4.1 to Form S-1, Registration
Number 333-18533, filed March 5, 1997, and incorporated herein by
reference)
4.3 Subordinated Indenture relating to the Junior Subordinated
Debentures due 2028 of Nationwide Financial Services, Inc.
(previously filed as Exhibit 4.2 to Form 8-K, Commission File No.
1-12785, filed October 23, 1998, and incorporated herein by
reference)
4.4 First Supplemental Indenture relating to the Junior Subordinated
Debentures due 2028 of Nationwide Financial Services, Inc.
(previously filed as Exhibit 4.3 to Form 8-K, Commission File No.
1-12785, filed October 23, 1998, and incorporated herein by
reference)
10.1 Form of Intercompany Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and Nationwide Financial
Services, Inc. (previously filed as Exhibit 10.1 to Form S-1,
Registration Number 333-18527, filed March 5, 1997, and
incorporated herein by reference)
10.2 Form of Tax Sharing Agreement among Nationwide Mutual Insurance
Company and any corporation that may hereafter be a subsidiary of
Nationwide Mutual Insurance Company (previously filed as Exhibit
10.2 to Form S-1, Registration Number 333-18527, filed March 5,
1997, and incorporated herein by reference)
10.2.1 First Amendment to the Tax Sharing Agreement among Nationwide
Mutual Insurance Company and any corporation that may hereafter
be a subsidiary of Nationwide Mutual Insurance Company
(previously filed as Exhibit 10.2.1 to Form 10-K, Commission File
No. 1-12785, filed March 31, 1998,and incorporated herein by
reference)
10.2.2 Second Amendment to the Tax Sharing Agreement among Nationwide
Mutual Insurance Company and any corporation that may hereafter
be a subsidiary of Nationwide Mutual Insurance Company
10.2.3 Third Amendment to the Tax Sharing Agreement among Nationwide
Mutual Insurance Company and any corporation that may hereafter
be a subsidiary of Nationwide Mutual Insurance Company
10.3 Form of First Amendment to Cost Sharing Agreement among parties
named therein (previously filed as Exhibit 10.3 to Form S-1,
Registration Number 333-18527, filed March 5, 1997, and
incorporated herein by reference)
10.4 Modified Coinsurance Agreement between Nationwide Life Insurance
Company and Nationwide Mutual Insurance Company (previously filed
as Exhibit 10.4 to Form S-1, Registration Number 333-18527, filed
March 5, 1997, and incorporated herein by reference)
10.5 Five Year Credit Agreement, dated May 25, 2000, among Nationwide
Financial Services, Inc., Nationwide Life Insurance Company,
Nationwide Mutual Insurance Company, the banks named therein and
Bank One, NA, as agent
10.5.1 Amendment dated as of September 29, 2000 to the Five Year Credit
Agreement dated as of May 25, 2000 among Nationwide Financial
Services, Inc., Nationwide Life Insurance Company, Nationwide
Mutual Insurance Company, the banks party thereto and Bank One,
NA, as agent
10.6 364-Day Credit Agreement, dated May 25, 2000, among Nationwide
Financial Services, Inc., Nationwide Life Insurance Company,
Nationwide Mutual Insurance Company, the banks named therein and
Bank One, NA, as agent
10.6.1 Amendment dated as of September 29, 2000 to the 364-Day Credit
Agreement dated as of May 25, 2000 among Nationwide Financial
Services, Inc., Nationwide Life Insurance Company, Nationwide
Mutual Insurance Company, the banks party thereto and Bank One,
NA, as agent
10.7 Form of Lease Agreement between Nationwide Mutual Insurance
Company, Nationwide Life Insurance Company, Nationwide Life and
Annuity Insurance Company and Nationwide Financial Services, Inc.
(previously filed as Exhibit 10.7 to Form S-1, Registration
Number 333-18527, filed March 5, 1997, and incorporated herein by
reference)
33
34
Exhibit
-------
10.8 Form of Amended and Restated Nationwide Financial Services, Inc.
1996 Long-Term Equity Compensation Plan
10.9 General Description of Nationwide Performance Incentive Plan
10.10 General Description of Nationwide Office of Investments Incentive
Plan
10.11 Nationwide Insurance Excess Benefit Plan effective as of
December 31, 1996 (previously filed as Exhibit 10.11 to Form S-1,
Registration Number 333-18527, filed March 5, 1997, and
incorporated herein by reference)
10.12 Nationwide Insurance Supplemental Retirement Plan effective as
of December 31, 1996 (previously filed as Exhibit 10.12 to Form
S-1, Registration Number 333-18527, filed March 5, 1997,and
incorporated herein by reference)
10.13 Nationwide Salaried Employees Severance Pay Plan (previously
filed as Exhibit 10.13 to Form S-1, Registration Number
333-18527, filed March 5, 1997, and incorporated herein by
reference)
10.14 Nationwide Insurance Supplemental Defined Contribution Plan
effective as of January 1, 1996 (previously filed as Exhibit
10.14 to Form S-1, Registration Number 333-18527, filed March 5,
1997, and incorporated herein by reference)
10.15 General Description of Nationwide Insurance Individual Deferred
Compensation Program (previously filed as Exhibit 10.15 to Form
S-1, Registration Number 333-18527, filed March 5, 1997, and
incorporated herein by reference)
10.16 General Description of Nationwide Mutual Insurance Company
Directors Deferred Compensation Program (previously filed as
Exhibit 10.16 to Form S-1, Registration Number 333-18527, filed
March 5, 1997, and incorporated herein by reference)
10.17 Deferred Compensation Agreement, dated as of September 3, 1979,
between Nationwide Mutual Insurance Company and D. Richard
McFerson (previously filed as Exhibit 10.17 to Form S-1,
Registration Number 333-18527, filed March 5, 1997, and
incorporated herein by reference)
10.18 Nationwide Financial Services, Inc. Stock Retainer Plan for
Non-Employee Directors (previously filed as Exhibit 10.18 to Form
S-1, Registration Number 333-18527, filed March 5, 1997, and
incorporated herein by reference)
10.19 Investment Agency Agreement between Nationwide Cash Management
Company and Nationwide Financial Services, Inc. and certain
subsidiaries of Nationwide Financial Services, Inc. (previously
filed as Exhibit 10.19 to Form 10-K, Commission File No. 1-12785,
filed March 29, 2000, and incorporated herein by reference)
10.20 Master Repurchase Agreement between Nationwide Life Insurance
Company, Nationwide Life and Annuity Insurance Company, and
Nationwide Mutual Insurance Company and certain of its
Subsidiaries and affiliates (previously filed as Exhibit 10.20 to
Form 10-K, Commission File No. 1-12785, filed March 29, 2000, and
incorporated herein by reference)
10.21 Stock Purchase and Sale Agreement between Nationwide Corporation
and Nationwide Financial Services, Inc. (previously filed as
Exhibit 10.21 to Form 10-K, Commission File No. 1-12785, filed
March 29, 2000, and incorporated herein by reference)
10.22 Stock Purchase and Sale Agreement between Nationwide Financial
Services, Inc. and Nationwide Mutual Insurance Company
(previously filed as Exhibit 10.22 to Form 10-K, Commission File
No. 1-12785, filed March 29, 2000, and incorporated herein by
reference)
10.23 Form of Option Agreement between Villanova Global Asset Management
Trust and Villanova Capital, Inc. (previously filed as Exhibit
10.23 to Form 10-Q, Commission File Number 1-12785, filed August
14, 2000, and incorporated herein by reference)
10.24 Form of Employment Agreement, dated January 1, 2000, between
Nationwide Mutual Insurance Company and John Cook (previously
filed as Exhibit 10.24 to Form 10-Q, Commission File Number
1-12785, filed August 14, 2000, and incorporated herein by
reference)
10.25 Form of Employment Agreement, dated January 1, 2000, between
Nationwide Mutual Insurance Company and Patricia Hatler
(previously filed as Exhibit 10.25 to Form 10-Q, Commission File
Number 1-12785, filed August 14, 2000, and incorporated herein by
reference)
10.26 Form of Employment Agreement, dated January 1, 2000, between
Nationwide Mutual Insurance Company and Richard Headley
(previously filed as Exhibit 10.26 to Form 10-Q, Commission File
Number 1-12785, filed August 14, 2000, and incorporated herein by
reference)
34
35
Exhibit
-------
10.27 Form of Employment Agreement, dated January 1, 2000, between
Nationwide Mutual Insurance Company and Donna James (previously
filed as Exhibit 10.27 to Form 10-Q, Commission File Number
1-12785, filed August 14, 2000, and incorporated herein by
reference)
10.28 Form of Employment Agreement, dated January 1, 2000, between
Nationwide Mutual Insurance Company and Greg Lashutka (previously
filed as Exhibit 10.28 to Form 10-Q, Commission File Number
1-12785, filed August 14, 2000, and incorporated herein by
reference)
10.29 Form of Employment Agreement, dated January 1, 2000, between
Nationwide Mutual Insurance Company and Robert Oakley (previously
filed as Exhibit 10.29 to Form 10-Q, Commission File Number
1-12785, filed August 14, 2000, and incorporated herein by
reference)
10.30 Form of Employment Agreement, dated January 1, 2000, between
Nationwide Mutual Insurance Company and Robert Woodward
(previously filed as Exhibit 10.30 to Form 10-Q, Commission File
Number 1-12785, filed August 14, 2000, and incorporated herein by
reference)
10.31 Form of Employment Agreement, dated January 1, 2000, between
Nationwide Mutual Insurance Company and Michael Helfer
(previously filed as Exhibit 10.31 to Form 10-Q, Commission File
Number 1-12785, filed August 14, 2000, and incorporated herein by
reference)
10.32 Form of Employment Agreement, dated May 26, 2000, between
Nationwide Mutual Insurance Company and W.G. Jurgensen
(previously filed as Exhibit 10.32 to Form 10-Q, Commission File
Number 1-12785, filed November 13, 2000, and incorporated herein
by reference)
10.33 Form of Employment Agreement, dated July 1, 2000, between
Nationwide Financial Services Inc. and Joseph Gasper (previously
filed as Exhibit 10.33 to Form 10-Q, Commission File Number
1-12785, filed November 13, 2000, and incorporated herein by
reference)
10.34 Form of Retention Agreement, dated July 1, 2000, between
Nationwide Financial Services, Inc. and Joseph Gasper (previously
filed as Exhibit 10.34 to Form 10-Q, Commission File Number
1-12785, filed November 13, 2000, and incorporated herein by
reference)
12 Computation of Ratio of Earnings to Fixed Charges
13 Pages 23-87 of the Company's 2000 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of KPMG LLP, Independent Auditors
27 Financial Data Schedule (electronic filing only)
- ----------
All other exhibits referenced by Item 601 of Regulation S-K are not required
under the related instructions or are inapplicable and therefore have been
omitted.
35