UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001 Commission File No. 1-11166
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AXA Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3623351
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, New York, New York 10104
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area (212) 554-1234
------------------------------
None
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(Former name, former address, and former fiscal
year if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days.
Yes X No
No voting or non-voting common equity of the registrant is held by
non-affiliates of the registrant as of May 10, 2001.
At May 9, 2001, 436,192,949 shares of the registrant's Common Stock were
outstanding.
REDUCED DISCLOSURE FORMAT:
Registrant meets the conditions set forth in General Instruction H to Form 10-Q
and is therefore filing this form with the Reduced Disclosure Format.
Page 1 of 21
AXA FINANCIAL, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2001
TABLE OF CONTENTS
Page #
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000.................................................... 3
Consolidated Statements of Earnings for the Three Months Ended
March 31, 2001 and 2000.............................................. 4
Consolidated Statements of Shareholders' Equity and Comprehensive
Income (Loss) for the Three Months Ended March 31, 2001 and 2000..... 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000.............................................. 6
Notes to Consolidated Financial Statements............................. 7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations ("Management Narrative")......................... 15
Item 3: Quantitative and Qualitative Disclosures About Market Risk*............ 18
PART II OTHER INFORMATION
Item 1: Legal Proceedings...................................................... 19
Item 6: Exhibits and Reports on Form 8-K....................................... 20
SIGNATURES.......................................................................... 21
<FN>
*Omitted pursuant to General Instruction H to Form 10-Q.
</FN>
2
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements.
AXA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2001 2000
----------------- -----------------
(In Millions)
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 22,049.1 $ 20,715.8
Held to maturity, at amortized cost..................................... - 256.7
Mortgage loans on real estate............................................. 4,687.8 4,712.6
Equity real estate........................................................ 1,015.9 1,017.8
Policy loans.............................................................. 4,053.1 4,034.6
Other equity investments.................................................. 825.4 2,430.9
Other invested assets..................................................... 778.6 788.8
----------------- -----------------
Total investments..................................................... 33,409.9 33,957.2
Cash and cash equivalents................................................... 3,309.7 2,479.5
Cash and securities segregated, at estimated fair value..................... 935.4 1,306.3
Broker-dealer related receivables........................................... 1,463.0 1,900.3
Deferred policy acquisition costs........................................... 5,084.6 5,128.8
Intangible assets, net...................................................... 4,023.2 4,066.2
Amounts due from reinsurers................................................. 2,138.4 2,033.2
Loans to affiliates......................................................... - 3,000.0
Other assets................................................................ 3,751.2 3,618.7
Separate Accounts assets.................................................... 46,864.3 51,705.9
----------------- -----------------
Total Assets................................................................ $ 100,979.7 $ 109,196.1
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,503.1 $ 20,445.8
Future policy benefits and other policyholders liabilities.................. 13,439.6 13,367.4
Broker-dealer related payables.............................................. 1,570.8 1,283.0
Customers related payables.................................................. 1,218.3 1,636.9
Short-term and long-term debt............................................... 3,322.4 3,432.3
Loan from affiliates........................................................ 1,100.0 -
Federal income taxes payable................................................ 1,056.7 2,421.4
Other liabilities........................................................... 3,257.6 3,513.2
Separate Accounts liabilities............................................... 46,794.1 51,632.1
Minority interest in equity of consolidated subsidiaries.................... 1,251.1 1,275.8
Minority interest subject to redemption rights.............................. 680.6 681.1
----------------- -----------------
Total liabilities..................................................... 94,194.3 99,689.0
----------------- -----------------
Commitments and contingencies (Note 8)
SHAREHOLDERS' EQUITY
Series D convertible preferred stock........................................ 219.6 219.6
Stock employee compensation trust........................................... (219.6) (219.6)
Common stock, at par value.................................................. 3.9 4.6
Capital in excess of par value.............................................. 1,032.4 4,753.8
Treasury stock.............................................................. - (629.6)
Retained earnings........................................................... 5,579.5 5,380.6
Accumulated other comprehensive income (loss)............................... 169.6 (2.3)
----------------- -----------------
Total shareholders' equity............................................ 6,785.4 9,507.1
----------------- -----------------
Total Liabilities and Shareholders' Equity.................................. $ 100,979.7 $ 109,196.1
================= =================
See Notes to Consolidated Financial Statements.
3
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2001 and 2000
(UNAUDITED)
2001 2000
----------------- -----------------
(In Millions)
REVENUES
Universal life and investment-type product policy fee income................ $ 345.7 $ 340.4
Premiums.................................................................... 268.7 286.0
Net investment income....................................................... 646.7 751.0
Investment gains (losses), net.............................................. 22.0 (130.9)
Commissions, fees and other income.......................................... 795.2 607.6
----------------- -----------------
Total revenues........................................................ 2,078.3 1,854.1
----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances........................ 248.8 265.5
Policyholders' benefits..................................................... 469.1 539.3
Compensation and benefits................................................... 334.5 271.9
Commissions................................................................. 127.2 140.6
Distribution plan payments.................................................. 124.1 116.5
Amortization of deferred sales commissions.................................. 58.3 50.7
Interest expense............................................................ 62.9 37.9
Amortization of deferred policy acquisition costs........................... 95.2 95.6
Capitalization of deferred policy acquisition costs......................... (185.5) (195.6)
Rent expense................................................................ 45.2 31.4
Other operating costs and expenses.......................................... 322.4 208.1
----------------- -----------------
Total benefits and other deductions................................... 1,702.2 1,561.9
----------------- -----------------
Earnings from continuing operations before Federal income taxes
and minority interest..................................................... 376.1 292.2
Federal income tax expense.................................................. (108.6) (83.3)
Minority interest in net income of consolidated subsidiaries................ (71.6) (74.2)
----------------- -----------------
Earnings from continuing operations......................................... 195.9 134.7
Earnings (loss) from discontinued operations, net of Federal income taxes:
Investment Banking and Brokerage segment................................. - 168.8
Other.................................................................... 10.0 (4.9)
Cumulative effect of accounting change, net of Federal income taxes......... (3.5) -
----------------- -----------------
Net Earnings................................................................ $ 202.4 $ 298.6
================= =================
4
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2001 and 2000
(UNAUDITED)
2001 2000
----------------- -----------------
(In Millions)
SHAREHOLDERS' EQUITY
Series D convertible preferred stock, beginning of year and end of period... $ 219.6 $ 239.7
----------------- -----------------
Stock employee compensation trust, beginning of year and end of period...... (219.6) (239.7)
----------------- -----------------
Common stock, at par value, beginning of year............................... 4.6 4.5
Shares cancelled in connection with merger of AXA Merger Corp............... (.5) -
Treasury stock retired, at par value........................................ (.2) -
----------------- -----------------
Common stock, at par value, end of period................................... 3.9 4.5
----------------- -----------------
Capital in excess of par value, beginning of year........................... 4,753.8 3,739.1
Decrease related to the merger of AXA Merger Corp........................... (2,999.5) -
Decrease from retirement of treasury stock.................................. (629.4) -
Other changes in additional capital in excess of par value.................. (92.5) 6.8
----------------- -----------------
Capital in excess of par value, end of period............................... 1,032.4 3,745.9
----------------- -----------------
Treasury stock, beginning of year........................................... (629.6) (490.8)
Purchase of shares for treasury............................................. - (57.5)
Retirement of treasury stock................................................ 629.6 -
----------------- -----------------
Treasury stock, end of period............................................... - (548.3)
----------------- -----------------
Retained earnings, beginning of year........................................ 5,380.6 3,008.6
Net earnings................................................................ 202.4 298.6
Dividends on common stock................................................... - (11.0)
Decrease in retained earnings in connection with merger of
AXA Merger Corp.......................................................... (3.5) -
----------------- -----------------
Retained earnings, end of period............................................ 5,579.5 3,296.2
----------------- -----------------
Accumulated other comprehensive loss, beginning of year..................... (2.3) (422.5)
Other comprehensive income.................................................. 171.9 4.4
----------------- -----------------
Accumulated other comprehensive income (loss), end of period................ 169.6 (418.1)
----------------- -----------------
Total Shareholders' Equity, End of Period................................... $ 6,785.4 $ 6,080.2
================= =================
COMPREHENSIVE INCOME
Net earnings................................................................ $ 202.4 $ 298.6
----------------- -----------------
Change in unrealized gains, net of reclassification adjustment.............. 171.9 4.4
----------------- -----------------
Other comprehensive income.................................................. 171.9 4.4
----------------- -----------------
Comprehensive Income........................................................ $ 374.3 $ 303.0
================= =================
See Notes to Consolidated Financial Statements.
5
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 and 2000
(UNAUDITED)
2001 2000
------------------ -----------------
(In Millions)
Net earnings................................................................ $ 202.4 $ 298.6
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Interest credited to policyholders' account balances.................... 248.8 265.5
Universal life and investment-type product policy fee income............ (345.7) (340.4)
Net change in broker-dealer customer related receivables/payables....... (251.5) 86.5
Investment (gains) losses, net.......................................... (22.0) 123.0
Decrease in segregated cash and securities, net......................... 370.9 -
Change in deferred policy acquisition costs............................. (89.9) (99.1)
Change in future policy benefits........................................ (1.2) 30.7
Change in property and equipment........................................ (67.3) (57.2)
Change in Federal income tax payable.................................... (1,459.4) 140.2
Other, net.............................................................. (11.8) (254.6)
------------------ ------------------
Net cash (used) provided by operating activities............................ (1,426.7) 193.2
------------------ ------------------
Cash flows from investing activities:
Maturities and repayments................................................. 446.0 552.3
Sales..................................................................... 3,554.8 1,245.7
Purchases................................................................. (2,724.0) (1,601.0)
Decrease (increase) in short-term investments............................. 148.4 (75.9)
Other, net................................................................ (116.7) 42.6
------------------ ------------------
Net cash provided by investing activities................................... 1,308.5 163.7
------------------ ------------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits................................................................ 777.4 641.5
Withdrawals and transfers to Separate Accounts.......................... (647.8) (1,271.6)
Net (decrease) increase in short-term financings.......................... (88.3) 9.8
Purchase of treasury stock................................................ - (57.5)
Loans from affiliates..................................................... 1,100.0 -
Other, net................................................................ (192.9) (60.5)
------------------ ------------------
Net cash provided (used) by financing activities.......................... 948.4 (738.3)
------------------ ------------------
Change in cash and cash equivalents....................................... 830.2 (381.4)
Cash and cash equivalents, beginning of year.............................. 2,479.5 863.7
------------------ ------------------
Cash and Cash Equivalents, End of Period.................................. $ 3,309.7 $ 482.3
================== ==================
Supplemental cash flow information
Interest Paid............................................................. $ 21.6 $ 12.2
================== ==================
Income Taxes Paid (Refunded).............................................. $ 1,545.3 $ (46.6)
================== ==================
See Notes to Consolidated Financial Statements.
6
AXA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
The preparation of the accompanying unaudited consolidated financial
statements in conformity with GAAP requires management to make estimates
and assumptions (including normal, recurring accruals) that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
These statements should be read in conjunction with the consolidated
financial statements of AXA Financial for the year ended December 31,
2000. The results of operations for the three months ended March 31, 2001
are not necessarily indicative of the results to be expected for the full
year.
The terms "first quarter 2001" and "first quarter 2000" refer to the three
months ended March 31, 2001 and 2000, respectively.
AXA, a French holding company for an international group of insurance and
related financial services companies, has been the Holding Company's
largest shareholder since 1992. In October 2000, the Board of Directors of
the Holding Company, acting upon a unanimous recommendation of a special
committee of independent directors, approved an agreement with AXA for the
acquisition of the approximately 40% of outstanding Holding Company Common
Stock it did not already own. Under terms of the agreement, the minority
shareholders of the Holding Company received $35.75 in cash and 0.295 of
an AXA ADS for each Holding Company share. On January 2, 2001, AXA Merger
Corp., a wholly-owned subsidiary of AXA, was merged with and into the
Holding Company, resulting in AXA Financial becoming a wholly owned
subsidiary of AXA. As a result of AXA Merger Corp's merger into the
Holding Company, the obligation to repay the $3.0 billion loan from AXA
Merger Corp. to the Holding Company was extinguished resulting in a
decrease in consolidated shareholders' equity of $3.0 billion. In
conjunction with the minority interest buyout, 53.4 million shares of
Common Stock purchased by AXA Merger Corp. were cancelled and 20.7 million
treasury shares held by the Holding Company were retired.
Certain reclassifications have been made in the amounts presented for
prior periods to conform those periods with the current presentation.
2) ACCOUNTING CHANGES
On January 1, 2001, AXA Financial adopted SFAS No. 133, as amended, that
established new accounting and reporting standards for all derivative
instruments, including certain derivatives embedded in other contracts,
and for hedging activities. Free-standing derivative instruments
maintained by AXA Financial at January 1, 2001 include interest rate caps,
floors and collars intended to hedge crediting rates on interest-sensitive
individual annuities contracts and certain reinsurance contracts. Based
upon guidance from the FASB and the Derivatives Implementation Group
("DIG"), the caps, floors and collars could not be designated in a
qualifying hedging relationship under SFAS No. 133 and, consequently,
require mark-to-market accounting through earnings for changes in their
fair values beginning January 1, 2001. In accordance with the transition
provision of SFAS No. 133, AXA Financial recorded a cumulative-effect-type
charge to earnings of $3.5 million to recognize the difference between the
carrying values and fair values of free standing derivative instruments at
January 1, 2001. With respect to adoption of the requirements on embedded
derivatives, AXA Financial elected a January 1, 1999 transition date,
thereby effectively "grandfathering" existing accounting for derivatives
embedded in hybrid instruments acquired, issued, or substantively modified
before that date. As a consequence of this election, coupled with recent
interpretive guidance from the FASB and the DIG with respect to issues
specifically related to insurance contracts and features, adoption of the
new requirements for embedded derivatives had no material impact on AXA
Financial's results of operation or its financial position. Upon its
adoption of SFAS No. 133, AXA Financial reclassified $256.7 million of
held-to-maturity securities as available-for-sale. This reclassification
resulted in an after-tax cumulative-effect-type adjustment of $8.9 million
in other comprehensive income, representing the after-tax unrealized gain
on these securities at January 1, 2001. Under the transition provision of
SFAS No. 133, this reclassification does not call into question AXA
Financial's intent to hold current or future debt securities to their
maturity.
7
AXA Financial adopted SOP 00-3 prospectively as of January 1, 2001 with no
financial impact upon initial implementation. Prior period
reclassifications have been made to include Closed Block assets,
liabilities, revenues and expenses on a line-by-line basis as required by
SOP 00-3.
3) INVESTMENTS
Investment valuation allowances and changes thereto are shown below:
Three Months Ended
March 31,
-----------------------------------
2001 2000
--------------- ---------------
(In Millions)
Balances, beginning of year............................................... $ 126.2 $ 177.9
Additions charged to income............................................... 2.4 10.6
Deductions for writedowns and asset dispositions.......................... (.2) (2.2)
--------------- ---------------
Balances, End of Period................................................... $ 128.4 $ 186.3
=============== ===============
Balances, end of period:
Mortgage loans on real estate........................................... $ 52.5 $ 34.3
Equity real estate...................................................... 75.9 152.0
--------------- ---------------
Total..................................................................... $ 128.4 $ 186.3
=============== ===============
For the first quarters of 2001 and 2000, investment income is shown net of
investment expenses of $46.3 million and $60.7 million, respectively.
As of March 31, 2001 and December 31, 2000, fixed maturities classified as
available for sale had amortized costs of $21,589.2 million and $20,667.2
million and fixed maturities in the held to maturity portfolio had
estimated fair values of $266.9 million at December 31, 2000. Other equity
investments included trading securities having carrying values of $5.5
million and $1,561.9 million and costs of $49.2 million and $1,606.3
million at March 31, 2001 and December 31, 2000, respectively, and other
equity securities with carrying values of $26.7 million and $32.7 million
and costs of $37.1 million and $36.5 million as of March 31, 2001 and
December 31, 2000, respectively.
In the first quarter of 2001 and 2000, net unrealized and realized holding
gains on trading account equity securities of $26.7 million and $3.4
million were included in net investment income in the consolidated
statements of earnings.
For the first quarters of 2001 and 2000, proceeds received on sales of
fixed maturities classified as available for sale amounted to $1,969.5
million and $1,205.8 million, respectively. Gross gains of $62.2 million
and $24.9 million and gross losses of $24.3 million and $90.8 million were
realized on these sales for the first quarters of 2001 and 2000,
respectively. Unrealized investment gains related to fixed maturities
classified as available for sale increased by $409.9 million during the
first three months of 2001, resulting in a balance of $459.8 million at
March 31, 2001.
8
Impaired mortgage loans along with the related provision for losses were as
follows:
March 31, December 31,
2001 2000
--------------- -----------------
(In Millions)
Impaired mortgage loans with provision for losses....................... $ 170.0 $ 170.9
Impaired mortgage loans without provision for losses.................... 2.9 5.8
--------------- -----------------
Recorded investment in impaired mortgage loans.......................... 172.9 176.7
Provision for losses.................................................... (47.7) (45.7)
--------------- -----------------
Net Impaired Mortgage Loans............................................. $ 125.2 $ 131.0
=============== =================
During the first quarters of 2001 and 2000, respectively, AXA Financial's
average recorded investment in impaired mortgage loans was $175.7 million
and $169.8 million. Interest income recognized on these impaired mortgage
loans totaled $1.8 million and $3.5 million for the first quarters of 2001
and 2000, respectively.
4) CLOSED BLOCK
The excess of Closed Block liabilities over Closed Block assets (adjusted
to exclude the impact of related amounts in accumulated other
comprehensive income and DAC) represents the expected maximum future
post-tax earnings from the Closed Block which would be recognized in
income from continuing operations over the period the policies and
contracts in the Closed Block remain in force.
If the actual cumulative earnings from the Closed Block are greater than
the expected cumulative earnings, only the expected earnings will be
recognized in net income. Actual cumulative earnings in excess of expected
cumulative earnings at any point in time are recorded as a policyholder
dividend obligation because they will ultimately be paid to Closed Block
policyholders as an additional policyholder dividend unless offset by
future performance that is less favorable than originally expected. If a
policyholder dividend obligation has been previously established and the
actual Closed Block earnings in a subsequent period are less than the
expected earnings for that period, the policyholder dividend obligation
would be reduced (but not below zero). If, over the period the policies
and contracts in the Closed Block remain in force, the actual cumulative
earnings of the Closed Block are less than the expected cumulative
earnings, only actual earnings would be recognized in income from
continuing operations. If the Closed Block has insufficient funds to make
guaranteed policy benefit payments, such payments will be made from assets
outside the Closed Block.
Many expenses related to Closed Block operations, including amortization
of DAC, are charged to operations outside of the Closed Block;
accordingly, the contribution from the Closed Block does not represent the
actual profitability of the Closed Block operations. Operating costs and
expenses outside of the Closed Block are, therefore, disproportionate to
the business outside of the Closed Block.
9
Summarized financial information for the Closed Block is as follows:
March 31, December 31,
2001 2000
----------------- -------------------
(In Millions)
CLOSED BLOCK LIABILITIES
Future policy benefits and other policyholders' account balances....... $ 8,984.2 $ 9,026.4
Other liabilities...................................................... 76.2 33.8
----------------- -------------------
Total Closed Block liabilities......................................... 9,060.4 9,060.2
----------------- -------------------
ASSETS DESIGNATED TO THE CLOSED BLOCK
Fixed maturities:
Available for sale, at fair value (amortized cost:
$4,394.8 and $4,373.5).......................................... 4,521.7 4,408.0
Mortgage loans on real estate.......................................... 1,566.3 1,581.8
Policy loans........................................................... 1,548.7 1,557.7
Cash and other invested assets......................................... 216.1 174.7
Other assets........................................................... 202.1 237.1
----------------- -------------------
Total assets designated to the Closed Block................... 8,054.9 7,959.3
----------------- -------------------
Excess of Closed Block liabilities over assets designated to
the Closed Block.................................................... 1,005.5 1,100.9
Amounts included in accumulated other comprehensive income:
Net unrealized investment gains, net of deferred Federal
income tax of $43.2 and $12.2................................... 80.1 22.7
----------------- -------------------
Maximum Future Earnings To Be Recognized From Closed Block
Assets and Liabilities.............................................. $ 1,085.6 $ 1,123.6
================= ===================
Closed Block revenues and expenses were as follows:
Three Months Ended
March 31,
---------------------------------------
2001 2000
------------------ -------------------
(In Millions)
REVENUES:
Premiums and other income.............................................. $ 147.9 $ 153.0
Investment income (net of investment expenses of $.7 and $3.4)......... 147.7 143.0
Investment gains (losses), net......................................... 1.8 (3.0)
------------------ -------------------
Total revenues................................................ 297.4 293.0
------------------ -------------------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits and dividends.................................. 233.5 257.3
Other operating costs and expenses..................................... 4.6 4.9
------------------ -------------------
Total benefits and other deductions.................................... 238.1 262.2
------------------ -------------------
Net revenues before Federal income taxes............................... 59.3 30.8
Federal income taxes................................................... 21.3 11.3
------------------ -------------------
Net Revenues........................................................... $ 38.0 $ 19.5
================== ===================
10
5) OTHER DISCONTINUED OPERATIONS
Summarized financial information for Other Discontinued Operations follows:
March 31, December 31,
2001 2000
----------------- -------------------
(In Millions)
BALANCE SHEETS
Mortgage loans on real estate.......................................... $ 284.6 $ 330.9
Equity real estate..................................................... 351.0 350.9
Fixed maturities, available for sale, at estimated fair value
(amortized cost $358.4 and $321.5).................................. 379.0 336.5
Other equity investments............................................... 37.2 43.1
Other invested assets.................................................. 2.0 1.9
----------------- -------------------
Total investments................................................. 1,053.8 1,063.3
Cash and cash equivalents.............................................. 79.0 84.3
Other assets........................................................... 163.2 148.8
----------------- -------------------
Total Assets........................................................... $ 1,296.0 $ 1,296.4
================= ===================
Policyholders liabilities.............................................. $ 959.5 $ 966.8
Allowance for future losses............................................ 161.2 159.8
Other liabilities...................................................... 175.3 169.8
----------------- -------------------
Total Liabilities...................................................... $ 1,296.0 $ 1,296.4
================= ===================
Three Months Ended
March 31,
-------------------------------------
2001 2000
----------------- -----------------
(In Millions)
STATEMENTS OF EARNINGS
Investment income (net of investment expenses of $6.2 and $10.4).......... $ 34.2 $ 29.0
Investment gains (losses), net............................................ 1.5 (2.3)
----------------- -----------------
Total revenues............................................................ 35.7 26.7
Benefits and other deductions............................................. 24.5 26.7
Earnings credited to allowance for future losses.......................... 11.2 -
----------------- -----------------
Pre-tax results from operations........................................... - -
Pre-tax earnings (loss) from releasing (strengthening) the allowance
for future losses...................................................... 15.4 (7.6)
Federal income tax (expense) benefit...................................... (5.4) 2.7
----------------- -----------------
Income (Loss) from Other Discontinued Operations.......................... $ 10.0 $ (4.9)
================= =================
AXA Financial's quarterly process for evaluating the allowance for future
losses applies the current period's results of Other Discontinued
Operations against the allowance, re-estimates future losses, and adjusts
the allowance, if appropriate. The evaluations performed in the first
quarters of 2001 and 2000 resulted in management's decision to release the
allowance by $15.4 million for the first quarter of 2001 and strengthen the
allowance by $7.6 million for the first quarter of 2000. This resulted in
after-tax income of $10.0 million for first quarter 2001 and after-tax
losses of $4.9 million for first quarter 2000.
Management believes the allowance for future losses at March 31, 2001 is
adequate to provide for all future losses; however, the determination of
the allowance involves numerous estimates and subjective judgments
regarding the expected performance of Discontinued Operations Investment
Assets. There can be no assurance the losses provided for will not differ
from the losses ultimately realized. To the extent actual results or future
projections of Other Discontinued Operations differ from management's
current estimates and assumptions underlying the allowance for future
losses, the difference would be reflected in the consolidated statements of
earnings in Other Discontinued Operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate differ
from management's previous assumptions, periodic adjustments to the loss
allowance are likely to result.
11
Investment valuation allowances amounted to $2.9 million and $2.9 million
on mortgage loans and $11.7 million and $11.4 million on equity real estate
at March 31, 2001 and December 31, 2000, respectively.
6) FEDERAL INCOME TAXES
Federal income taxes for interim periods have been computed using an
estimated annual effective tax rate. This rate is revised, if necessary,
at the end of each successive interim period to reflect the current
estimate of the annual effective tax rate.
7) STOCK APPRECIATION RIGHTS
Following completion of the merger of AXA Merger Corp. with and into the
Holding Company, certain employees exchanged AXA ADR options for tandem
Stock Appreciation Rights ("SARs") and at-the-money AXA ADR options of
equivalent intrinsic value. The maximum obligation for the SARs is $84.7
million, based upon the underlying price of AXA ADRs at January 2, 2001,
the closing date of the aforementioned merger transaction. For first
quarter 2001, AXA Financial recorded a reduction in the SARs liability of
$42.8 million, reflecting the variable accounting for the SARs, based on
the market value of AXA ADRs at March 31, 2001.
8) LITIGATION
There have been no new material legal proceedings and no material
developments in specific litigations previously reported in AXA
Financial's Notes to Consolidated Financial Statements for the year ended
December 31, 2000, except as described below:
Annuity Contract Case
In this litigation, in April 2001, defendants moved to dismiss the amended
complaint.
Alliance Reorganization Case
In this litigation, in April 2001, the court issued a decision granting in
part and denying in part defendants' motion to dismiss; the claim alleging
that the Alliance Holding Partnership Agreement was not validly amended
was one of the claims dismissed.
Prime Property Fund Case
In this litigation, in April 2001, the court decided four motions for
summary adjudication made by Equitable Life against plaintiff's
contract-based claims, granting two and denying two. Equitable Life's
motion to dismiss the amended supplemental complaint was denied in May
2001. The trial has been adjourned and a new date has not yet been set.
Disposal of DLJ
A putative class action was recently filed in Delaware Chancery Court on
behalf of the holders of CSFBdirect tracking stock. Named defendants
include AXA Financial, Credit Suisse First Boston (USA), Inc., the former
directors of DLJ and the directors of Credit Suisse First Boston (USA),
Inc. The complaint challenges the sale of DLJ common stock as well as the
March 2001 offer by Credit Suisse to purchase the publicly owned
CSFBdirect tracking stock for $4 per share and asserts claims for breaches
of fiduciary duties and breach of contract. Plaintiffs seek injunctive
relief, an unspecified amount of compensatory damages, and costs and
expenses, including attorneys' fees. This new action, along with the
actions previously reported, have been consolidated. In May 2001, the
Delaware Chancery Court ordered that this new complaint be the operative
complaint in the consolidated actions. The parties have agreed to extend
the time for defendants to respond to the complaint.
12
Alliance Investment Company Act Case
In April 2001, an amended class action complaint was filed in Federal
District Court in the Southern District of Illinois against Alliance,
Alliance Fund Distributors, Inc., ("AFD"), a wholly owned subsidiary of
Alliance, and others alleging violations of the Federal Investment Company
Act of 1940, as amended ("ICA"), and breaches of common law fiduciary
duty. The allegations in the amended complaint concern six mutual funds
with which Alliance has investment advisory agreements, including the
Alliance Premier Growth Fund, Alliance Health Care Fund, Alliance Growth
Fund, Alliance Quasar Fund, Alliance Fund, and Alliance Disciplined Value
Fund. The amended complaint alleges principally that (i) certain advisory
agreements concerning these funds were negotiated, approved, and executed
in violation of the ICA, in particular because certain directors of these
funds should be deemed interested under the ICA; (ii) the distribution
plans for these funds were negotiated, approved, and executed in violation
of the ICA; and (iii) the advisory fees and distribution fees paid to
Alliance and AFD, respectively, are excessive and, therefore, constitute a
breach of fiduciary duty. Alliance and AFD believe that plaintiff's
allegations are without merit and intend to vigorously defend against
these allegations.
Although the outcome of litigation cannot be predicted with certainty, AXA
Financial's management believes that the ultimate resolution of the
matters described above should not have a material adverse effect on the
consolidated financial position of AXA Financial. AXA Financial's
management cannot make an estimate of loss, if any, or predict whether or
not such litigations will have a material adverse effect on AXA
Financial's consolidated results of operations in any particular period.
13
9) BUSINESS SEGMENT INFORMATION
The following tables reconcile segment revenues and earnings from
continuing operations before Federal income taxes to total revenues and
earnings as reported on the consolidated statements of earnings and
segment assets to total assets on the consolidated balance sheets,
respectively.
Three Months Ended
March 31,
------------------------------------
2001 2000
---------------- ------------------
(In Millions)
Segment revenues:
Financial Advisory/Insurance............................................ $ 1,355.4 $ 1,333.2
Investment Management................................................... 747.4 552.3
Consolidation/elimination............................................... (24.5) (31.4)
---------------- ------------------
Total Revenues.......................................................... $ 2,078.3 $ 1,854.1
================ ==================
Segment earnings from continuing operations before
Federal income taxes and minority interest:
Financial Advisory/Insurance............................................ $ 251.2 $ 127.2
Investment Management................................................... 124.9 165.0
---------------- ------------------
Total Earnings from Continuing Operations before Federal Income
Taxes and Minority Interest.......................................... $ 376.1 $ 292.2
================ ==================
March 31, December 31,
2001 2000
---------------- ------------------
(In Millions)
Assets:
Financial Advisory/Insurance............................................ $ 85,486.0 $ 91,620.3
Investment Management................................................... 15,532.7 17,672.3
Consolidation/elimination............................................... (39.0) (96.5)
---------------- ------------------
Total Assets............................................................ $ 100,979.7 $ 109,196.1
================ ==================
10) RELATED PARTY TRANSACTIONS
In March 2001, the Holding Company borrowed from AXA $1.10 billion. This
short-term borrowing had an interest rate of LIBOR plus 0.15% per annum.
In April 2001, the Holding Company repaid all of the short-term borrowing
from AXA.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The management narrative for AXA Financial that follows should be read in
conjunction with the Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements included elsewhere herein, and with the
management narrative found in the Management's Discussion and Analysis ("MD&A")
section included in AXA Financial's Annual Report on Form 10-K for the year
ended December 31, 2000 ("2000 Form 10-K").
CONSOLIDATED RESULTS OF OPERATIONS
First Quarter 2001 Compared to First Quarter 2000
Earnings from continuing operations before Federal income taxes and minority
interest was $376.1 million for first quarter 2001, an increase of 28.7% from
the year earlier quarter, with higher earnings reported by the Financial
Advisory/Insurance segment. Net earnings for AXA Financial totaled $202.4
million for first quarter 2001, down $96.2 million from $298.6 million for the
2000 quarter. The 2001 quarter included a $3.5 million cumulative effect
adjustment from the January 1, 2001 adoption of SFAS No. 133 while the 2000
quarter included net earnings from the discontinued Investment Banking and
Brokerage segment of $168.8 million.
Revenues. Total revenues increased $224.2 million as higher commissions, fees
and other income and investment gains as compared to losses in first quarter
2000 more than offset decreases in net investment income and premiums.
Premiums declined $17.3 million principally due to lower individual DI premiums
due to the indemnity reinsurance agreement entered into in July 2000.
Net investment income decreased $104.3 million primarily due to losses on other
equity investments in the Financial Advisory segment in first quarter 2001 as
compared to earnings in the comparable prior year period partially offset by
lower yields on fixed maturity securities. The fixed maturity portfolio impact
was primarily attributable to a declining interest rate environment and a
smaller asset balance in the General Account.
When compared to the $130.9 million of investment losses in first quarter 2000,
the $22.0 million of investment gains in first quarter 2001 principally resulted
from gains on sales of fixed maturities in the current year period as compared
to losses in first quarter 2000 and from lower fixed maturity writedowns ($21.7
million in the 2001 period as compared to $59.0 million in 2000).
The 30.9% growth in commissions, fees and other income was principally due to an
increase in investment advisory and service fees and institutional research
service fees from Bernstein activities (purchased in fourth quarter 2000),
partially offset by lower distribution revenues at Alliance. The increase in
investment advisory and service fees was primarily due to higher average assets
under management due to the Bernstein acquisition offset by a decline in
performance fees. The lower distribution revenues at Alliance reflected lower
average mutual funds outstanding due to market depreciation, partially offset by
continuing back-end load mutual fund sales.
Benefits and Other Deductions. Total benefits and other deductions increased
$140.3 million primarily due to the inclusion of Bernstein in first quarter
2001.
While interest credited to policyholders' account balances decreased $16.7
million primarily due to lower General Account Investment Asset balances,
policyholders' benefits decreased $70.2 million due primarily to the decline in
DI benefits that were reinsured in July 2000 and the reserve impact of lower
premiums in the first quarter of 2001.
The $62.6 million increase in compensation and benefits was primarily due to the
Bernstein acquisition, partially offset by the $42.8 million credit recognized
in the first quarter resulting from the reduction of the SARs liability. The
reduction of commissions was due to lower sales of insurance and mutual fund
products principally in the Financial Advisory/Insurance segment in 2001. The
increase in rent expense was primarily attributable to the Bernstein
acquisition.
Interest expense increased $25.0 million to $62.9 million principally due to
additional borrowings at the Holding Company level, including the $476.1 million
7.75% Senior Notes.
15
Other operating costs and expenses grew $114.3 million primarily due to higher
amortization of goodwill and intangibles and other general and administrative
expenses principally related to the Bernstein acquisition.
Premiums and Deposits. Total premiums and deposits for insurance and annuity
products for first quarter 2001 decreased from prior year levels by $371.3
million to $2.48 billion primarily due to lower sales of individual annuities.
Individual annuity sales declined in first quarter 2001 due to the weak equity
market and comparisons to a strong first quarter 2000.
Surrenders and Withdrawals. When first quarter 2001 totals are compared to first
quarter 2000, surrenders and withdrawals were down, from $1.52 billion to $1.31
billion. The annualized annuities surrender rate declined to 9.4% in first
quarter 2001 from 10.5% in the same quarter of 2000, while the individual life
surrender rates showed a modest increase to 4.2% from 4.0%. The trends in
surrender and withdrawal rates described above continue to fall within the range
of expected experience.
Assets Under Management. Breakdowns of assets under management follow.
Assets Under Management
(In Millions)
March 31,
-----------------------------------
2001 2000
--------------- ---------------
Third party (1)................................................................. $ 377,744 $ 326,986
General Account and other (1)................................................... 38,297 37,572
Separate Accounts............................................................... 46,864 57,447
--------------- ---------------
Total Assets Under Management................................................... $ 462,905 $ 422,005
=============== ===============
<FN>
1) March 31, 2000 amounts have been restated to exclude DLJ related assets.
</FN>
Third party assets under management at March 31, 2001 increased $50.75 billion
primarily as the addition of approximately $89.0 billion Bernstein related third
party assets was offset by significant market depreciation in first quarter
2001. General Account and other assets under management increased $725 million
as the net proceeds from the sale of DLJ (after taxes and funding used in the
AXA minority buyout) more than offset the asset reductions related to the July
2000 DI indemnity reinsurance transaction. The decline in Separate Account
assets under management resulted from continued market depreciation which more
than offset net new deposits.
Alliance assets under management at the end of first quarter 2001 totaled
$433.22 billion. When the $89 billion of Bernstein related assets under
management in the 2001 quarter are excluded, Alliance's assets under management
declined 12.7% to approximately $344 billion at March 31, 2001 when compared to
$394 billion at March 31, 2000 as stock market related depreciation more than
offset net new asset inflows. Non-US clients accounted for 14.6% of the March
31, 2001 total.
LIQUIDITY AND CAPITAL RESOURCES
Holding Company. In January 2001, upon the merger of AXA Merger Corp. into the
Holding Company, the 53.4 million shares of Holding Company Common Stock held by
AXA Merger Corp. were cancelled and 20.7 million shares of treasury stock were
retired. In addition, the $3.0 billion loan to AXA Merger by the Holding Company
was extinguished. The loan proceeds had been used to fund a portion of the AXA
minority interest buyout in December 2000. Also in first quarter 2001, the
Holding Company borrowed funds from AXA under a renewable financing agreement.
The proceeds were used to partially fund first quarter 2001 tax payments related
to the gain on the sale of DLJ. The borrowings outstanding at March 31, 2001 of
$1.10 billion were repaid in April 2001.
Equitable Life. In April 2001, Equitable Life paid a $1.50 billion shareholder
dividend.
During first quarter 2001, Equitable Life sold its remaining holdings of CSG
stock received upon the sale of DLJ. At March 31, 2001, no amounts were
outstanding under Equitable Life's commercial paper program or its revolving
credit facility.
16
Alliance. At March 31, 2001, Alliance had $671.2 million of short-term debt
outstanding, principally under its commercial paper program.
FORWARD-LOOKING STATEMENTS
AXA Financial's management has made in this report, and from time to time may
make in its public filings and press releases as well as in oral presentations
and discussions, forward-looking statements concerning AXA Financial's
operations, economic performance and financial condition. Forward-looking
statements include, among other things, discussions concerning AXA Financial's
potential exposure to market risks, as well as statements expressing
management's expectations, beliefs, estimates, forecasts, projections and
assumptions, as indicated by words such as "believes," "estimates," "intends,"
"anticipates," "expects," "projects," "should," "probably," "risk," "target,"
"goals," "objectives," or similar expressions. AXA Financial claims the
protection afforded by the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and assumes no duty to
update any forward-looking statement. Forward-looking statements are based on
management's expectations and beliefs concerning future developments and their
potential effects and are subject to risks and uncertainties. Actual results
could differ materially from those anticipated by forward-looking statements due
to a number of important factors including those discussed elsewhere in this
report and in AXA Financial's other public filings, press releases, oral
presentations and discussions. The following discussion highlights some of the
more important factors that could cause such differences.
Market Risk. AXA Financial's businesses are subject to market risks arising from
its insurance asset/liability management, investment management and trading
activities. Primary market risk exposures exist in the Financial
Advisory/Insurance segment and result from interest rate fluctuations, equity
price movements and changes in credit quality. The nature of each of these risks
is discussed under the caption "Quantitative and Qualitative Disclosures About
Market Risk" and in Note 16 of Notes to Consolidated Financial Statements, both
contained in the 2000 Form 10-K.
Financial Advisory/Insurance. The Insurance Group's future sales of life
insurance and annuity products and financial planning services are dependent on
numerous factors including: successful implementation of AXA Financial's
strategic initiatives; the intensity of competition from other insurance
companies, banks and other financial institutions; conditions in the securities
markets; the strength and professionalism of distribution channels; the
continued development of additional channels; the financial and claims paying
ratings of Equitable Life; its reputation and visibility in the market place;
its ability to develop, distribute and administer competitive products and
services in a timely, cost-effective manner; and its investment management
performance. In addition, the nature and extent of competition and the markets
for products sold by the Insurance Group may be materially affected by changes
in laws and regulations, including changes relating to savings, retirement
funding and taxation. See "Business - Regulation" contained in the 2000 Form
10-K. The profitability of the Insurance Group depends on a number of factors,
including levels of gross operating expenses and the amount which can be
deferred as DAC, secular trends, AXA Financial's mortality, morbidity,
persistency and claims experience, and profit margins between investment results
from General Account Investment Assets and interest credited on individual
insurance and annuity products; and the adequacy of reserves and the extent to
which subsequent experience differs from management's estimates and assumptions
used in determining those reserves. The performance of General Account
Investment Assets depends, among other things, on levels of interest rates and
the markets for equity securities and real estate, the need for asset valuation
allowances and writedowns, and the performance of equity investments which have
created, and in the future may create, significant volatility in investment
income. The ability of AXA Financial to continue its accelerated real estate
sales program without incurring net losses will depend on real estate markets
for the remaining properties held for sale and the negotiation of transactions
which confirm management's expectations on property values.
Investment Management. Alliance's revenues are largely dependent on the total
value and composition of assets under its management and are, therefore,
affected by market appreciation and depreciation, additions and withdrawals of
assets, purchases and redemptions of mutual funds and shifts of assets between
accounts or products with different fee structures. See "Combined Operating
Results by Segment - Investment Management" contained in the 2000 Form 10-K.
17
Other Discontinued Operations. The determination of the allowance for future
losses for the discontinued Wind-Up Annuities continues to involve numerous
estimates and subjective judgments including those regarding expected
performance of investment assets, ultimate mortality experience and other
factors which affect investment and benefit projections. There can be no
assurance the losses provided for will not differ from the losses ultimately
realized. To the extent actual results or future projections of Other
Discontinued Operations differ from management's current best estimates
underlying the allowance, the difference would be reflected as earnings or loss
from discontinued operations within the consolidated statements of earnings. In
particular, to the extent income, sales proceeds and holding periods for equity
real estate differ from management's previous assumptions, periodic adjustments
to the allowance are likely to result.
Technology and Information Systems. AXA Financial's information systems are
central to, among other things, designing and pricing products, marketing and
selling products and services, processing policyholder and investor
transactions, client recordkeeping, communicating with retail sales associates,
employees and clients, and recording information for accounting and management
information purposes. Any significant difficulty associated with the operation
of such systems, or any material delay or inability to develop needed system
capabilities, could have a material adverse effect on AXA Financial's results of
operations and, ultimately, its ability to achieve its strategic goals.
Legal Environment. A number of lawsuits have been filed against life and health
insurers involving insurers' sales practices, alleged agent misconduct, failure
to properly supervise agents and other matters. Some of the lawsuits have
resulted in the award of substantial judgments against other insurers, including
material amounts of punitive damages, or in substantial settlements. In some
states, juries have substantial discretion in awarding punitive damages. AXA
Financial's insurance subsidiaries, like other life and health insurers, are
involved in such litigation. While no such lawsuit has resulted in an award or
settlement of any material amount against AXA Financial to date, its results of
operations and financial condition could be affected by defense and settlement
costs and any unexpected material adverse outcomes in such litigations as well
as in other material litigations pending against the Holding Company and its
subsidiaries. In addition, examinations by Federal and state regulators could
result in adverse publicity, sanctions and fines. For further information, see
"Business - Regulation," contained in the 2000 Form 10-K, and "Legal
Proceedings," contained in the 2000 Form 10-K and herein.
Future Accounting Pronouncements. In the future, new accounting pronouncements
may have material effects on AXA Financial's consolidated statements of earnings
and shareholders' equity. See Note 2 of Notes to Consolidated Financial
Statements contained in the 2000 Form 10-K for pronouncements issued but not
effective at December 31, 2000. In addition, the NAIC's Codification guidance
became effective January 1, 2001. Codification addresses areas where statutory
accounting previously was silent and changed certain existing statutory
positions. Equitable Life is subject to Codification to the extent and in the
form adopted in New York State. Equitable Life's application of the codification
rules adopted by New York is not expected to have a significant effect.
Regulation. The businesses conducted by AXA Financial's subsidiaries are subject
to extensive regulation and supervision by state insurance departments and
Federal and state agencies regulating, among other things, insurance and
annuities, securities transactions, investment companies and investment
advisors. Changes in the regulatory environment could have a material impact on
operations and results. The activities of the Insurance Group are subject to the
supervision of the insurance regulators of each of the 50 states. See "Business
- - Regulation" contained in the 2000 Form 10-K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H to Form 10-Q.
18
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no new material legal proceedings and no material developments
in matters which were previously reported in the Registrant's Form 10-K for the
year ended December 31, 2000, except as described below:
In Franze, in March 2001, the United States Court of Appeals for the Eleventh
Circuit granted the petition of Equitable Life and EVLICO for permission to
appeal the order denying summary judgment and granting class certification.
In Wood, in April 2001, EVLICO filed a notice of removal to the United States
District Court for the Southern District of California.
In American National Bank, in April 2001, defendants moved to dismiss the
amended complaint.
In Duncan, the hearing in the District Court has been rescheduled for June 2001.
In R.S.M., in April 2001, the court issued a decision granting in part and
denying in part defendants' motion to dismiss; the claim alleging that the
Alliance Holding Partnership Agreement was not validly amended was one of the
claims dismissed.
In BT-I, in April 2001, the court decided four motions for summary adjudication
made by Equitable Life against plaintiff's contract-based claims, granting two
and denying two. Equitable Life's motion to dismiss the amended supplemental
complaint was denied in May 2001. The trial has been adjourned and a new date
has not yet been set.
A putative class action entitled David Uhrik v. Credit Suisse First Boston
(USA), Inc., et al. was recently filed in Delaware Chancery Court on behalf of
the holders of CSFBdirect tracking stock. Named defendants include AXA
Financial, Credit Suisse First Boston (USA), Inc., the former directors of DLJ
and the directors of Credit Suisse First Boston (USA), Inc. The complaint
challenges the sale of DLJ common stock as well as the March 2001 offer by
Credit Suisse to purchase the publicly owned CSFBdirect tracking stock for $4
per share and asserts claims for breaches of fiduciary duties and breach of
contract. Plaintiffs seek injunctive relief, an unspecified amount of
compensatory damages, and costs and expenses, including attorneys' fees. The
Uhrik action, along with the actions captioned Irvin Woods, et al. v. Joe L.
Roby, et al.; Thomas Rolle v. Joe L. Roby, et al.; Andrew Loguercio v. Joe L.
Roby, et al.; and Robert Holschen v. Joe. L. Roby, et al., are among the actions
that have been consolidated under the caption In re CSFB Direct Tracking Stock
Shareholders Litigation. In May 2001, the Delaware Chancery Court ordered that
the Uhrik complaint be the operative complaint in the consolidated actions. The
parties have agreed to extend the time for defendants to respond to the
complaint.
In April 2001, an amended class action complaint entitled Miller v. Mitchell
Hutchins Asset Management, Inc. was filed in Federal District Court in the
Southern District of Illinois against Alliance, Alliance Fund Distributors,
Inc., ("AFD"), a wholly owned subsidiary of Alliance, and others alleging
violations of the Federal Investment Company Act of 1940, as amended ("ICA"),
and breaches of common law fiduciary duty. The allegations in the amended
complaint concern six mutual funds with which Alliance has investment advisory
agreements, including the Alliance Premier Growth Fund, Alliance Health Care
Fund, Alliance Growth Fund, Alliance Quasar Fund, Alliance Fund, and Alliance
Disciplined Value Fund. The amended complaint alleges principally that (i)
certain advisory agreements concerning these funds were negotiated, approved,
and executed in violation of the ICA, in particular because certain directors of
these funds should be deemed interested under the ICA; (ii) the distribution
plans for these funds were negotiated, approved, and executed in violation of
the ICA; and (iii) the advisory fees and distribution fees paid to Alliance and
AFD, respectively, are excessive and, therefore, constitute a breach of
fiduciary duty. Alliance and AFD believe that plaintiff's allegations are
without merit and intend to vigorously defend against these allegations.
Although the outcome of litigation cannot be predicted with certainty, AXA
Financial's management believes that the ultimate resolution of the matters
described above should not have a material adverse effect on the consolidated
financial position of AXA Financial. AXA Financial's management cannot make an
estimate of loss, if any, or predict whether or not such litigations will have a
material adverse effect on AXA Financial's consolidated results of operations in
any particular period.
In addition to the matters previously reported and those described above, the
Holding Company and its subsidiaries are involved in various legal actions and
proceedings in connection with their businesses. Some of the actions and
proceedings have been brought on behalf of various alleged classes of claimants
and certain of these claimants seek damages of unspecified amounts. While the
ultimate outcome of such matters cannot be predicted with certainty, in the
opinion of management no such matter is likely to have a material adverse effect
on AXA Financial's consolidated financial position or results of operations.
19
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
1. On January 31, 2001, the Holding Company filed a report
on Form 8-K relating to a fourth quarter non-recurring
gain and completion of the sale of shares of Credit
Suisse Group.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, AXA
Financial, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 10, 2001 AXA FINANCIAL, INC.
By: /s/Stanley B. Tulin
---------------------------------------------
Name: Stanley B. Tulin
Title: Vice Chairman of the Board and
Chief Financial Officer
Date: May 10, 2001 /s/Alvin H. Fenichel
---------------------------------------------
Name: Alvin H. Fenichel
Title: Senior Vice President and Controller
21