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 June 30, 2002 Commission File No. 1-11166
- --------------------------------------------------------------------------------
AXA FINANCIAL, INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3623351
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, New York, New York 10104
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 554-1234
---------------------
None
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
No voting or non-voting common equity of the registrant is held by
non-affiliates of the registrant as of August 14, 2002.
At August 14, 2002, 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 (1) (a) and
(b) of Form 10-Q and is therefore filing this form with the Reduced Disclosure
Format.
Page 1 of 26
AXA FINANCIAL, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
Page #
------
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements
o Consolidated Balance Sheets, June 30, 2002 and December 31, 2001..................... 3
o Consolidated Statements of Earnings, Three Months and Six Months Ended
June 30, 2002 and 2001............................................................... 4
o Consolidated Statements of Shareholders' Equity, Six Months Ended
June 30, 2002 and 2001............................................................... 5
o Consolidated Statements of Cash Flows, Six Months Ended
June 30, 2002 and 2001............................................................... 6
o Notes to Consolidated Financial Statements........................................... 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations ("Management Narrative")..................................... 17
Item 3: Quantitative and Qualitative Disclosures About Market Risk*............................ 22
PART II OTHER INFORMATION
Item 1: Legal Proceedings...................................................................... 23
Item 2: Changes in Securities.................................................................. 25
Item 3: Defaults Upon Senior Securities........................................................ 25
Item 4: Submission of Matters to a Vote of Security Holders.................................... 25
Item 5: Other Information...................................................................... 25
Item 6: Exhibits and Reports on Form 8-K....................................................... 25
SIGNATURES............................................................................................. 26
*Omitted pursuant to General Instruction H to Form 10-Q.
-2-
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements.
AXA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
----------------- -----------------
(IN MILLIONS)
ASSETS
Investments:
Fixed maturities available for sale, at estimated fair value.............. $ 24,633.4 $ 23,355.0
Mortgage loans on real estate............................................. 3,777.0 4,333.3
Equity real estate........................................................ 803.8 875.7
Policy loans.............................................................. 4,077.9 4,100.7
Other equity investments.................................................. 792.4 768.4
Other invested assets..................................................... 806.5 687.2
----------------- -----------------
Total investments..................................................... 34,891.0 34,120.3
Cash and cash equivalents................................................... 2,042.6 884.4
Cash and securities segregated, at estimated fair value..................... 1,083.4 1,415.2
Broker-dealer related receivables........................................... 1,876.3 1,950.9
Deferred policy acquisition costs........................................... 5,708.3 5,513.7
Goodwill and other intangible assets, net................................... 3,959.4 3,928.4
Amounts due from reinsurers................................................. 2,286.2 2,237.0
Loans to affiliates......................................................... 400.0 400.0
Other assets................................................................ 3,681.7 3,515.2
Separate Accounts assets.................................................... 40,903.0 46,947.3
----------------- -----------------
TOTAL ASSETS................................................................ $ 96,831.9 $ 100,912.4
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 22,132.9 $ 20,939.1
Future policy benefits and other policyholders liabilities.................. 13,589.2 13,542.7
Broker-dealer related payables.............................................. 1,511.8 1,265.5
Customers related payables.................................................. 1,494.9 1,814.5
Short-term and long-term debt............................................... 3,529.2 2,982.1
Federal income taxes payable................................................ 1,423.8 1,286.5
Other liabilities........................................................... 3,398.3 3,475.2
Separate Accounts liabilities............................................... 40,784.5 46,875.6
Minority interest in equity of consolidated subsidiaries.................... 1,253.6 1,255.2
Minority interest subject to redemption rights.............................. 641.3 651.4
----------------- -----------------
Total liabilities..................................................... 89,759.5 94,087.8
----------------- -----------------
Commitments and contingencies (Note 9)
SHAREHOLDERS' EQUITY
Common stock, at par value.................................................. 3.9 3.9
Capital in excess of par value.............................................. 1,016.2 1,016.7
Retained earnings........................................................... 5,810.9 5,601.9
Accumulated other comprehensive income...................................... 241.4 202.1
----------------- -----------------
Total shareholders' equity............................................ 7,072.4 6,824.6
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $ 96,831.9 $ 100,912.4
================= =================
See Notes to Consolidated Financial Statements.
-3-
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
REVENUES
Universal life and investment-type
product policy fee income.......................... $ 330.3 $ 340.4 $ 671.2 $ 686.1
Premiums............................................. 236.6 245.0 471.9 513.7
Net investment income................................ 593.6 590.7 1,184.9 1,221.5
Investment gains (losses), net....................... 24.6 (51.2) (12.9) (29.2)
Commissions, fees and other income................... 948.4 817.2 1,744.6 1,628.3
--------------- ---------------- --------------- ---------------
Total revenues................................. 2,133.5 1,942.1 4,059.7 4,020.4
--------------- ---------------- --------------- ---------------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits.............................. 467.6 463.2 928.8 932.3
Interest credited to policyholders' account
balances........................................... 247.3 249.1 495.1 497.9
Compensation and benefits............................ 385.2 481.8 783.2 811.7
Commissions.......................................... 144.5 117.5 272.4 244.7
Distribution plan payments........................... 119.0 124.1 237.7 248.2
Amortization of deferred sales commissions........... 60.8 58.2 117.8 116.2
Interest expense..................................... 58.2 56.4 108.4 119.3
Amortization of deferred policy acquisition costs.... 58.6 57.5 141.3 152.7
Capitalization of deferred policy acquisition costs.. (195.0) (194.1) (371.7) (379.6)
Rent expense......................................... 48.6 45.3 96.8 90.5
Amortization of intangible assets, net............... 6.0 51.4 12.1 102.7
Other operating costs and expenses................... 224.5 243.9 466.1 519.9
--------------- ---------------- --------------- ---------------
Total benefits and other deductions............ 1,625.3 1,754.3 3,288.0 3,456.5
--------------- ---------------- --------------- ---------------
Earnings from continuing operations before
Federal income taxes and minority interest......... 508.2 187.8 771.7 563.9
Federal income tax expense........................... (146.3) (39.9) (204.4) (148.5)
Minority interest in net income of
consolidated subsidiaries.......................... (78.0) (75.8) (157.9) (147.4)
--------------- ---------------- --------------- ---------------
Earnings from continuing operations.................. 283.9 72.1 409.4 268.0
(Loss) earnings from discontinued operations, net
of Federal income taxes............................ (1.4) (1.8) (.4) 8.2
Cumulative effect of accounting change, net of
Federal income taxes.............................. - - - (3.5)
--------------- ---------------- --------------- ---------------
Net Earnings......................................... $ 282.5 $ 70.3 $ 409.0 $ 272.7
=============== ================ =============== ===============
See Notes to Consolidated Financial Statements.
-4-
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002 and 2001
(UNAUDITED)
2002 2001
----------------- -----------------
(IN MILLIONS)
SHAREHOLDERS' EQUITY
Series D convertible preferred stock, beginning of year and end of period... $ - $ 219.6
----------------- -----------------
Stock employee compensation trust, beginning of year and end of period...... - (219.6)
----------------- -----------------
Common stock, at par value, beginning of year............................... 3.9 4.6
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 3.9
----------------- -----------------
Capital in excess of par value, beginning of year........................... 1,016.7 4,753.8
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.................. (.5) (107.0)
----------------- -----------------
Capital in excess of par value, end of period............................... 1,016.2 1,017.9
----------------- -----------------
Treasury stock, beginning of year........................................... - (629.6)
Retirement of treasury stock................................................ - 629.6
----------------- -----------------
Treasury stock, end of period............................................... - -
----------------- -----------------
Retained earnings, beginning of year........................................ 5,601.9 5,380.6
Net earnings................................................................ 409.0 272.7
Dividends on common stock................................................... (200.0) -
Decrease in retained earnings in connection with merger of
AXA Merger Corp.......................................................... - (3.5)
----------------- -----------------
Retained earnings, end of period............................................ 5,810.9 5,649.8
----------------- -----------------
Accumulated other comprehensive income (loss), beginning of year............ 202.1 (2.3)
Other comprehensive income.................................................. 39.3 81.3
----------------- -----------------
Accumulated other comprehensive income, end of period....................... 241.4 79.0
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD................................... $ 7,072.4 $ 6,750.6
================= =================
See Notes to Consolidated Financial Statements.
-5-
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 and 2001
(UNAUDITED)
2002 2001
----------------- -----------------
(IN MILLIONS)
Net earnings................................................................ $ 409.0 $ 272.7
Adjustments to reconcile net earnings to net cash provided (used)
by operating activities:
Interest credited to policyholders' account balances.................... 495.1 497.9
Universal life and investment-type product policy fee income............ (671.2) (686.1)
Net change in broker-dealer customer related receivables/payables...... (155.2) (139.0)
Investment losses, net.................................................. 12.9 29.2
Decrease in segregated cash and securities, net......................... 331.7 204.3
Change in deferred policy acquisition costs............................. (230.0) (226.0)
Change in future policy benefits........................................ (6.5) (13.9)
Change in property and equipment........................................ (61.7) (141.2)
Change in Federal income tax payable.................................... 110.9 (1,429.5)
Other, net.............................................................. 41.3 201.8
----------------- -----------------
Net cash provided (used) by operating activities............................ 276.3 (1,429.8)
----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................................. 1,363.4 1,212.3
Sales.................................................................... 4,091.3 4,921.4
Purchases................................................................. (6,081.9) (5,111.7)
(Increase) decrease in short-term investments............................. (150.5) 179.2
Other, net................................................................ 154.4 (269.5)
----------------- -----------------
Net cash (used) provided by investing activities............................ (623.3) 931.7
----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits................................................................ 2,394.9 1,479.5
Withdrawals and transfers to Separate Accounts.......................... (1,065.0) (1,392.9)
Net increase (decrease) in short-term financings.......................... 546.1 (406.2)
Dividends paid on common stock ........................................... (200.0) -
Other, net................................................................ (170.8) (282.1)
----------------- -----------------
Net cash provided (used) by financing activities............................ 1,505.2 (601.7)
----------------- -----------------
Change in cash and cash equivalents......................................... 1,158.2 (1,099.8)
Cash and cash equivalents, beginning of year................................ 884.4 2,479.5
----------------- -----------------
Cash and Cash Equivalents, End of Period.................................... $ 2,042.6 $ 1,379.7
================= =================
Supplemental cash flow information
Interest Paid............................................................. $ 99.4 $ 115.0
================= =================
Income Taxes Paid......................................................... $ 86.3 $ 1,569.9
================= =================
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.
Actual results could differ from those estimates. The accompanying
unaudited interim consolidated financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary in
the opinion of management to present fairly the consolidated financial
position of AXA Financial and its consolidated results of operations and
cash flows for the periods presented. All significant intercompany
transactions and balances except those with Other Discontinued Operations
(See Note 5) have been eliminated in consolidation. These statements
should be read in conjunction with the consolidated financial statements
of AXA Financial for the year ended December 31, 2001. The results of
operations for the six months ended June 30, 2002 are not necessarily
indicative of the results to be expected for the full year.
The terms "second quarter 2002" and "second quarter 2001" refer to the
three months ended June 30, 2002 and 2001, respectively. The terms "first
half of 2002" and "first half of 2001" refer to the six months ended June
30, 2002 and 2001, respectively.
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, AXA Merger's obligation to repay
a $3.0 billion loan 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 were exchanged for the common shares
of AXA Merger held by AXA 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, 2002, AXA Financial adopted SFAS No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived
Assets". Upon adoption of SFAS No. 142, amortization of goodwill ceased.
Amortization of goodwill and other intangible assets for second quarter
and first half of 2001, respectively, was approximately $30.9 million and
$61.7 million, net of minority interest of $20.6 million and $41.1
million, of which $3.4 million and $6.8 million, net of minority interest
of $2.7 million and $5.4 million, related to intangibles. Net income,
excluding goodwill amortization expense, for second quarter and first half
of 2001, respectively, would have been $97.8 million and $327.6 million.
Amortization of other intangible assets for second quarter and first half
of 2002 was $3.6 million and $7.2 million, net of minority interest of
$2.4 million and $4.9 million, and is not expected to vary significantly
from that amount in each of the five succeeding periods. The gross
carrying amount and accumulated amortization of other intangible assets
was $614.6 million and $135.5 million, respectively, at June 30, 2002 and
$610.4 million and $123.5 million, respectively, at December 31, 2001. The
carrying amount of goodwill was $3,480.4 million and $3,441.5 million,
respectively, at June 30, 2002 and at December 31, 2001 and relates solely
to the Investment Management segment. No losses resulted from completion
in first half of 2002 of transitional impairment testing of
indefinite-lived intangible assets and goodwill. SFAS No. 141 and No. 144
had no material impact on the results of operations or financial position
of AXA Financial upon their adoption on January 1, 2002.
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 annuity 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
-7-
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.
AXA Financial adopted the AICPA's SOP 00-3, which established new
accounting and reporting standards for demutualizations, prospectively as
of January 1, 2001 with no financial impact upon initial implementation.
3) INVESTMENTS
Investment valuation allowances for mortgage loans and equity real estate
and changes thereto follow:
SIX MONTHS ENDED
JUNE 30,
-----------------------------------
2002 2001
--------------- ---------------
(IN MILLIONS)
Balances, beginning of year............................................... $ 87.6 $ 126.2
Additions charged to income............................................... 13.5 15.8
Deductions for writedowns and asset dispositions.......................... (6.7) (25.7)
--------------- ---------------
Balances, End of Period................................................... $ 94.4 $ 116.3
=============== ===============
Balances, end of period comprise:
Mortgage loans on real estate........................................... $ 19.9 $ 41.1
Equity real estate...................................................... 74.5 75.2
--------------- ---------------
Total..................................................................... $ 94.4 $ 116.3
=============== ===============
For the second quarters and first half of 2002 and of 2001, investment
income is shown net of investment expenses of $52.6 million, $54.3
million, $103.1 million and $116.5 million, respectively.
As of June 30, 2002 and December 31, 2001, fixed maturities classified as
available for sale had amortized costs of $24,015.9 million and $22,874.1
million. Other equity investments included trading securities having
carrying values of $1.3 million and $2.4 million and costs of $4.0 million
and $4.9 million at June 30, 2002 and December 31, 2001, respectively, and
other equity securities with carrying values of $107.6 million and $64.1
million and costs of $115.2 million and $59.9 million as of June 30, 2002
and December 31, 2001, respectively.
In the second quarters and first half of 2002 and of 2001, respectively,
net unrealized and realized holding (losses) gains on trading account
equity securities of $(.2) million, $(.2) million, $.6 million and $26.5
million were included in net investment income in the consolidated
statements of earnings.
For the first half of 2002 and of 2001, proceeds received on sales of
fixed maturities classified as available for sale amounted to $3,356.7
million and $3,276.0 million, respectively. Gross gains of $56.1 million
and $103.7 million and gross losses of $100.7 million and $56.0 million
were realized on these sales for the first half of 2002 and of 2001,
respectively. Unrealized net investment gains related to fixed maturities
classified as available for sale increased by $136.6 million during the
first half of 2002, resulting in a balance of $617.4 million at June 30,
2002.
-8-
Impaired mortgage loans along with the related investment valuation
allowances for losses follows:
JUNE 30, DECEMBER 31,
2002 2001
--------------- -----------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances............ $ 111.0 $ 114.2
Impaired mortgage loans without investment valuation allowances......... 26.9 30.6
--------------- -----------------
Recorded investment in impaired mortgage loans.......................... 137.9 144.8
Investment valuation allowances......................................... (19.9) (19.2)
--------------- -----------------
Net Impaired Mortgage Loans............................................. $ 118.0 $ 125.6
=============== =================
During the first half of 2002 and of 2001, respectively, AXA Financial's
average recorded investment in impaired mortgage loans was $137.0 million
and $137.3 million. Interest income recognized on these impaired mortgage
loans totaled $5.2 million and $2.9 million for the first half of 2002 and
of 2001, 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) 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. As of January 1, 2001, AXA Financial has
developed an actuarial calculation of the expected timing of the Closed
Block earnings.
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, net revenues of the Closed Block do 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:
JUNE 30, DECEMBER 31,
2002 2001
----------------- -----------------
(IN MILLIONS)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances and other...... $ 9,071.0 $ 9,049.9
Other liabilities...................................................... 79.9 53.6
----------------- -----------------
Total Closed Block liabilities......................................... 9,150.9 9,103.5
----------------- -----------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities available for sale, at estimated fair value
(amortized cost $4,688.9 and $4,600.4)............................... 4,844.2 4,705.7
Mortgage loans on real estate.......................................... 1,491.5 1,514.4
Policy loans........................................................... 1,476.6 1,504.4
Cash and other invested assets......................................... 123.3 141.0
Other assets........................................................... 221.2 214.7
----------------- -----------------
Total assets designated to the Closed Block............................ 8,156.8 8,080.2
----------------- -----------------
Excess of Closed Block liabilities over assets designated to
the Closed Block..................................................... 994.1 1,023.3
Amounts included in accumulated other comprehensive income:
Net unrealized investment gains, net of deferred Federal
income tax of $39.6 and $20.4...................................... 42.8 37.8
----------------- -----------------
Maximum Future Earnings To Be Recognized From Closed Block Assets
and Liabilities...................................................... $ 1,036.9 $ 1,061.1
================= =================
Closed Block revenues and expenses were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
REVENUES:
Premiums and other income............... $ 138.2 $ 143.6 $ 277.4 $ 291.5
Investment income (net of investment
expenses of $2.4, $1.8, $3.7
and $2.5)............................ 148.3 143.0 292.0 290.7
Investment losses, net.................. (23.0) (14.4) (19.8) (12.6)
--------------- ---------------- --------------- ---------------
Total revenues.......................... 263.5 272.2 549.6 569.6
--------------- ---------------- --------------- ---------------
BENEFITS AND
OTHER DEDUCTIONS:
Policyholders' benefits and dividends... 243.7 253.3 499.3 486.8
Other operating costs and expenses...... 4.7 5.0 9.5 9.6
--------------- ---------------- --------------- ---------------
Total benefits and other deductions..... 248.4 258.3 508.8 496.4
--------------- ---------------- --------------- ---------------
Net revenues before Federal income
taxes................................ 15.1 13.9 40.8 73.2
Federal income taxes.................... (6.5) (5.3) (16.6) (26.6)
--------------- ---------------- --------------- ---------------
Net Revenues............................ $ 8.6 $ 8.6 $ 24.2 $ 46.6
=============== ================ =============== ===============
-10-
5) OTHER DISCONTINUED OPERATIONS
Summarized financial information for Other Discontinued Operations
follows:
JUNE 30, DECEMBER 31,
2002 2001
----------------- -------------------
(IN MILLIONS)
BALANCE SHEETS
Fixed maturities, available for sale, at estimated fair value
(amortized cost $538.1 and $542.9).................................. $ 554.6 $ 559.6
Equity real estate..................................................... 212.7 252.0
Mortgage loans on real estate.......................................... 96.5 160.3
Other equity investments............................................... 18.5 22.3
Other invested assets.................................................. .8 .4
----------------- -------------------
Total investments................................................. 883.1 994.6
Cash and cash equivalents.............................................. 164.5 41.1
Other assets........................................................... 151.8 152.6
----------------- -------------------
Total Assets........................................................... $ 1,199.4 $ 1,188.3
================= ===================
Policyholders liabilities.............................................. $ 919.6 $ 932.9
Allowance for future losses............................................ 171.8 139.9
Other liabilities...................................................... 108.0 115.5
----------------- -------------------
Total Liabilities...................................................... $ 1,199.4 $ 1,188.3
================= ===================
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
(IN MILLIONS)
STATEMENTS OF EARNINGS
Investment income (net of investment
expenses of $4.8, $6.3, $9.5
and $12.5)............................. $ 19.3 $ 17.6 $ 40.6 $ 51.8
Investment gains, net.................... 37.0 10.5 38.6 12.0
Policy fees, premiums and
other income.......................... .2 (.1) .2 (.1)
--------------- --------------- --------------- ---------------
Total revenues........................... 56.5 28.0 79.4 63.7
Benefits and other deductions............ 23.2 27.3 47.8 51.8
Earnings credited to allowance for
future losses.......................... 33.3 .7 31.6 11.9
--------------- --------------- --------------- ---------------
Pre-tax results from operations.......... - - - -
Pre-tax (loss) earnings from
(strengthening) releasing the allowance
for future losses...................... (2.2) (2.7) (.7) 12.7
Federal income tax benefit (expense)..... .8 .9 .3 (4.5)
--------------- --------------- --------------- ---------------
(Loss) Income from Other Discontinued
Operations............................ $ (1.4) $ (1.8) $ (.4) $ 8.2
=============== =============== =============== ===============
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. These updated assumptions and estimates
resulted in a strengthening or release of allowance in each of the periods
presented above.
-11-
Management believes the allowance for future losses at June 30, 2002 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.
Valuation allowances of $4.9 million and $4.8 million on mortgage loans on
real estate and $.4 million and $5.0 million on equity real estate were
held at June 30, 2002 and December 31, 2001, respectively.
6) VARIABLE ANNUITY CONTRACTS - GUARANTEED MINIMUM INCOME AND DEATH BENEFITS
Equitable Life issues certain variable annuity products that contain a
guaranteed minimum income benefit ("GMIB") feature which, if elected by
the policyholder after a stipulated waiting period from contract issuance,
guarantees a minimum lifetime annuity based on predetermined annuity
purchase rates that may be in excess of what the contract account value
can purchase at then-current annuity purchase rates. Equitable Life bears
the risk that protracted under-performance of the financial markets could
result in GMIB benefits being higher than what accumulated policyholder
account balances would support. Equitable Life reinsures, subject to
certain maximum amounts or caps in any one period, approximately 70.0% of
its current liability exposure resulting from the GMIB feature.
The GMIB reinsurance contracts are considered derivatives under SFAS No.
133 and, therefore, are required to be reported in the balance sheet at
their fair value. The estimated fair values of the GMIB reinsurance
contracts at March 31, 2002 and December 31, 2001 were approximately zero
based on management's estimates of future contract cash flows and
experience. Due primarily to significant further equity market declines
during the second quarter 2002, the estimated fair value of the GMIB
reinsurance contracts (reported in the consolidated balance sheets in
Other assets) increased to $138.0 million at June 30, 2002. This increase
in estimated fair value of $138.0 million is reflected in Commissions,
fees and other income in the consolidated statements of earnings for the
three and six months ended June 30, 2002.
Although SFAS No. 133 requires Equitable Life to record the GMIB
reinsurance contracts at fair value, it does not allow reporting of
Equitable Life's GMIB obligation to contractholders as an embedded
derivative at fair value. Further, SFAS No. 97, "Accounting and Reporting
by Insurance Enterprises for Certain Long-Duration Contracts and for
Realized Gains and Losses from the Sale of Investments," prohibits the
recording of a liability for the GMIB feature. The unrecorded estimated
fair values of Equitable Life's GMIB feature, determined using the same
estimation methodologies applied in the determination of the related
reinsurance assets, were $191.0 million and approximately zero at June 30,
2002 and December 31, 2001, respectively. Therefore, the net fair values
of the GMIB feature and related reinsurance were $(53.0) million and
approximately zero as of June 30, 2002 and December 31, 2001,
respectively. Since there is no readily available market for the GMIB
feature or GMIB reinsurance contracts, the determination of their fair
values is based on models which involve numerous estimates and subjective
judgments including those regarding expected market rates of return and
volatility, GMIB election rates, contract surrender rates and mortality
experience. There can be no assurance that ultimate actual experience will
not differ from management's estimates.
Equitable Life also issues certain variable annuity products with a
guaranteed minimum death benefit ("GMDB") feature. As with GMIB, Equitable
Life bears the risk that protracted under-performance of the financial
markets could result in GMDB benefits being higher than what accumulated
policyholder account balances would support. At June 30, 2002, Equitable
Life had reinsured in the aggregate approximately 15.0% of its current
exposure to the GMDB obligation on annuity contracts in-force. GMDB
related policyholder benefits incurred, net of related reinsurance, were
$19.4 million and $4.5 million for the six months ended June 30, 2002 and
2001, respectively. SFAS No. 133 does not permit reporting of Equitable
Life's GMDB obligation to contractholders or GMDB reinsurance contracts at
fair value, and SFAS No. 97 prohibits the recording of a liability for the
GMDB feature. A proposed AICPA SOP, "Accounting and Reporting by Insurance
Enterprises for Certain Nontraditional Long-Duration Contracts and for
Separate Accounts" (the "Proposed SOP"), however, would allow recording of
a GMDB liability under certain circumstances. Based
-12-
on management's understanding of the yet-to-be-adopted Proposed SOP, the
unrecorded GMDB liabilities, net of reinsurance, were estimated to be
$73.0 million and $28.0 million at June 30, 2002 and December 31, 2001,
respectively. The determination of this estimated liability is based on
proposed accounting guidance which is subject to change prior to release
of a final document and is expected to be effective January 1, 2004 at the
earliest. The determination of this liability is also based on models
which involve numerous estimates and subjective judgments, including those
regarding expected market rates of return and volatility, contract
surrender rates and mortality experience. There can be no assurance that
ultimate actual experience will not differ from management's estimates.
The scope of coverage of a portion of Equitable Life's reinsurance for its
exposure from its GMIB and GMDB features is currently the subject of a
dispute between Equitable Life and one of its reinsurers representing
approximately 20.0% of its June 30, 2002 liability exposure related to the
GMIB feature and approximately 5.0% of its June 30, 2002 exposure to the
GMDB obligation on annuity contracts in-force. That dispute is scheduled
for arbitration in early 2003. Although the outcome cannot be predicted
with certainty, AXA Financial's management does not believe that the
outcome of such arbitration will reduce its reinsurance coverage to an
extent that would have a material effect on AXA Financial's consolidated
financial position or results of operations.
7) 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.
8) 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 $85.6
million, based upon the underlying price of AXA ADRs at January 2, 2001,
the closing date of the aforementioned merger. AXA Financial recorded a
(reduction) increase in the SARs liability of $(16.4) million and $3.5
million for the second quarters of 2002 and 2001, and of $(9.6) million
and $(39.3) million for the first half of 2002 and 2001, respectively,
reflecting the variable accounting for the SARs, based on the change in
the market value of AXA ADRs for the respective periods ended June 30,
2002 and 2001.
9) 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, 2001, except as described below:
In FRANZE, in July 2002, the Court of Appeals reversed the District
Court's decision certifying the class on the ground that the named
plaintiffs lacked standing to assert claims against Equitable Life because
their claims were time-barred. The case has been remanded to the District
Court.
In McEACHERN, in March 2002, plaintiff filed a motion to alter or amend
the court's judgment and requested an additional 30 days to amend the
complaint.
In PATENAUDE, in May 2002, the United States Court of Appeals for the
Ninth Circuit affirmed the judgment of the District Court which dismissed
the complaint.
In MALHOLTRA, in March 2002, defendants filed a motion to dismiss
plaintiffs' amended complaint.
In the Mississippi Actions, two additional lawsuits were filed in April
and May 2002 respectively, one by 79 additional plaintiffs and the second,
by four additional plaintiffs. In April 2002, Equitable Life filed a
notice of removal of the case involving 79 plaintiffs from Mississippi
State Court to the United States District Court for the Northern District
of Mississippi. Plaintiffs' motion to remand was denied by the Federal
District Court in June 2002. Plaintiffs' motion for reconsideration is
pending before the District Court. In June 2002, an additional lawsuit was
filed by 25 additional plaintiffs.
In THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES V. AMERICAN
NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS TRUSTEE F/B/O EMERALD
INVESTMENTS LP AND EMERALD INVESTMENTS LP, in May 2002, the District
-13-
Court granted in part and denied in part Equitable Life's motion to
dismiss defendants' counterclaims, dismissing defendants' Illinois
Securities Act and New York Consumer Fraud Act claims. Equitable Life has
answered defendants' remaining counterclaims.
In FISCHEL, in May 2002, the District Court issued an order granting
plaintiffs' motion for partial summary judgment, granting Equitable Life's
motion for summary judgment on plaintiffs' claim for breach of fiduciary
duty and otherwise denying Equitable Life's motion for summary judgment.
The court ruled that Equitable Life is liable to plaintiffs on their
contract claims for benefits under ERISA. The court directed the parties
to file briefs in September 2002 addressing the relief to which plaintiffs
are entitled in light of the May 2002 order.
In HIRT, in April 2002, plaintiffs filed a motion seeking to certify a
class of "all Plan participants, whether active or retired, their
beneficiaries and Estates, whose accrued benefits or pension benefits are
based on the Plan's Cash Balance Formula." Defendants responded to that
motion in May 2002. Also, in April 2002, plaintiffs agreed to dismiss with
prejudice their claim that the change to the cash balance formula violates
ERISA by improperly applying the formula to retroactively reduce accrued
benefits. That claim has been dismissed.
In IN RE AXA FINANCIAL, INC. SHAREHOLDERS LITIGATION, a hearing with
respect to approval of the proposed settlement was held in March 2002. In
May 2002, the court approved the settlement and in June 2002, one
shareholder appealed.
In UHRIK, a hearing with respect to approval of the proposed settlement
was held in June 2002 and the court entered an Order and Final Judgment
approving the settlement and dismissing the case. The deadline to appeal
the Order and Final Judgment has passed.
In MILLER, in April 2002, plaintiffs filed a second amended complaint. The
allegations and relief sought in the second amended complaint are
virtually identical to the amended class action complaint. In May 2002,
defendants filed a motion to dismiss the second amended complaint.
Plaintiffs in the BENAK, ROY, ROFFE, TATEM and GISSEN cases have moved to
consolidate the complaints and in May 2002, those cases were consolidated
in the Federal District Court in the District of New Jersey. In July 2002,
a complaint entitled PFEIFFER V. ALLIANCE CAPITAL MANAGEMENT L.P. AND
ALLIANCE PREMIER GROWTH FUND ("Pfeiffer Complaint") was filed in Federal
District Court in the District of New Jersey against Alliance and Premier
Growth Fund. The allegations and relief sought in the Pfeiffer Complaint
are virtually identical to the Benak Complaint. Alliance believes the
plaintiff's allegations in the Pfeiffer Complaint are without merit and
intends 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 April 2002, a consolidated complaint entitled IN RE ENRON CORPORATION
SECURITIES LITIGATION was filed in Federal District Court in the Southern
District of Texas, Houston Division, against numerous defendants,
including Alliance. The principal allegations of the complaint, as they
pertain to Alliance, are that Alliance violated Sections 11 and 15 of the
Securities Act of 1933, with respect to a registration statement filed by
Enron and effective with the SEC on July 18, 2001, which was used to sell
$1.9 billion Enron Corporation Zero Coupon Convertible Senior Notes due
2021. Plaintiffs allege that Frank Savage, who was at that time an
employee of Alliance and who was and remains a director of the general
partner of Alliance, signed the registration statement at issue.
Plaintiffs allege that the registration statement was materially
misleading. Plaintiffs further allege that Alliance was a controlling
person of Frank Savage. Plaintiffs therefore assert that Alliance is
itself liable for the allegedly misleading registration statement.
Plaintiffs seek recission or a recissionary measure of damages. The
complaint specifically states that "[n]o allegations of fraud are made
against or directed at" Alliance. Alliance believes the allegations of the
complaint as to it are without merit and intends to vigorously defend
against these allegations. In June 2002, Alliance moved to dismiss the
complaint as the allegations therein pertain to it. At the present time,
management of Alliance is unable to estimate the impact, if any, that the
outcome of this action may have on Alliance's results of operations or
-14-
financial condition and AXA Financial's management is unable to estimate
the impact, if any, that the outcome of this action may have on its
consolidated results of operations or financial condition.
In May, 2002, a complaint entitled THE FLORIDA STATE BOARD OF
ADMINISTRATION V. ALLIANCE CAPITAL MANAGEMENT L.P. (the "SBA Complaint")
was filed in the Circuit Court of the Second Judicial Circuit, in and for
Leon County, Florida against Alliance. The SBA Complaint alleges breach of
contract relating to the Investment Management Agreement between The
Florida State Board of Administration ("SBA") and Alliance, breach of the
covenant of good faith and fair dealing contained in the Investment
Management Agreement, breach of fiduciary duty, negligence, gross
negligence and violation of the Florida Securities and Investor Protection
Act, in connection with purchases and sales of Enron common stock for the
SBA investment account. The SBA seeks more than $300 million in
compensatory damages and an unspecified amount of punitive damages.
Alliance believes the SBA's allegations in the SBA Complaint are without
merit and intends to vigorously defend against these allegations. In June
2002, Alliance moved to dismiss the SBA Complaint. At the present time,
Alliance's management is unable to estimate the impact, if any, that the
outcome of this action may have on Alliance's results of operations or
financial condition and AXA Financial's management is unable to estimate
the impact, if any, that the outcome of this action may have on its
consolidated results of operations or financial condition.
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. However, it should be noted that the frequency of
large damage awards, including large punitive damage awards that bear
little or no relation to actual economic damages incurred by plaintiffs in
some jurisdictions, continues to create the potential for an unpredictable
judgment in any given matter. Accordingly, AXA Financial's management
cannot make an estimate of loss, if any, or predict whether or not any
given matter will have a material adverse effect on AXA Financial's
consolidated results of operations in any particular period.
10) BUSINESS SEGMENT INFORMATION
The following tables reconcile segment revenues and earnings from
continuing operations before Federal income taxes and minority interest 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ----------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ----------------
(IN MILLIONS)
SEGMENT REVENUES:
Financial Advisory/Insurance............ $ 1,429.5 $ 1,204.0 $ 2,652.1 $ 2,559.4
Investment Management................... 722.9 761.3 1,446.3 1,508.7
Consolidation/elimination............... (18.9) (23.2) (38.7) (47.7)
--------------- --------------- --------------- ----------------
Total Revenues.......................... $ 2,133.5 $ 1,942.1 $ 4,059.7 $ 4,020.4
=============== =============== =============== ================
SEGMENT EARNINGS FROM CONTINUING
OPERATIONS BEFORE FEDERAL INCOME
TAXES AND MINORITY INTEREST:
Financial Advisory/Insurance............ $ 365.3 $ 60.8 $ 480.9 $ 312.0
Investment Management................... 142.9 127.0 290.8 251.9
--------------- --------------- --------------- ----------------
Total Earnings from Continuing
Operations before Federal Income
Taxes and Minority Interest.......... $ 508.2 $ 187.8 $ 771.7 $ 563.9
=============== =============== =============== ================
-15-
JUNE 30, DECEMBER 31,
2002 2001
---------------- ------------------
(IN MILLIONS)
ASSETS:
Financial Advisory/Insurance............................................ $ 81,927.8 $ 84,955.2
Investment Management................................................... 14,965.8 16,031.3
Consolidation/elimination............................................... (61.7) (74.1)
---------------- ------------------
Total Assets............................................................ $ 96,831.9 $ 100,912.4
================ ==================
11) RELATED PARTY TRANSACTIONS
In May 2002, the Holding Company paid a cash shareholder dividend of
$200.0 million.
In March 2001, the Holding Company borrowed $1.10 billion from AXA. 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.
12) COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for second quarters 2002 and
2001 and the first half of 2002 and of 2001 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
(IN MILLIONS)
Net earnings............................. $ 282.5 $ 70.3 $ 409.0 $ 272.7
--------------- --------------- --------------- ---------------
Change in unrealized gains (losses),
net of reclassification adjustment..... 183.3 (90.6) 39.3 81.3
--------------- --------------- --------------- ---------------
Other comprehensive income (loss)........ 183.3 (90.6) 39.3 81.3
--------------- --------------- --------------- ---------------
Comprehensive Income (Loss).............. $ 465.8 $ (20.3) $ 448.3 $ 354.0
=============== =============== =============== ===============
-16-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is omitted pursuant to General Instruction
H of Form 10-Q. The management narrative for AXA Financial that follows should
be read in conjunction with the Consolidated Financial Statements, the related
Notes to Consolidated Financial Statements and the information discussed under
Forward-Looking Statements included in this Form 10-Q, 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, 2001 ("2001 Form 10-K").
CONSOLIDATED RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
Earnings from continuing operations before Federal income taxes and minority
interest were $771.7 million for the first six months of 2002, an increase of
$207.8 million or 36.9% from the year earlier period, with $168.9 million higher
earnings reported by the Financial Advisory/Insurance segment and $38.9 million
higher earnings for the Investment Management segment. Net earnings for AXA
Financial totaled $409.0 million for the first six months of 2002, up $136.3
million from $272.7 million for the 2001 period. Net earnings for the 2001
period included a $3.5 million cumulative effect adjustment related to the
January 1, 2001 adoption of SFAS No 133.
REVENUES. Total revenues for the first half of 2002 increased $39.3 million as
revenues for the Financial Advisory/Insurance segment increased $92.7 million
while Investment Management segment revenues declined 4.1% compared to the first
six months of 2001.
Premiums declined $41.8 million, reflecting lower premiums on reinsurance
assumed related to Equitable Life's withdrawal from certain accident and health
and aviation and space reinsurance pools and the Financial Advisory/Insurance
segment's focus on sales of variable and interest-sensitive investment and
annuity products whose revenues are not reported as premiums. Policy fee income
was $14.9 million lower, largely due to the effect of market depreciation on
Separate Account balances.
Net investment income decreased $36.6 million, primarily due to the absence of
short-term investment income that was generated in the first half of 2001 on the
proceeds from the sale of DLJ and lower investment yields due to declining
interest rates partially offset by a higher level of fixed income assets in the
General Account due to higher sales of General Account products and transfers
from the Separate Accounts. During the first half of 2001, short-term investment
portfolios for both the General Account and the Holding Company Group included
proceeds from the sale of DLJ which were subsequently used to pay taxes on that
transaction and to pay dividends, with the remaining funds being reinvested
principally in fixed maturities. These net decreases in investment income were
partially offset by lower losses on equity investments of $3.7 million compared
to $52.8 million in the first six months of 2001. Income on equity investments
in first six months of 2001 included $27.1 million of income on CSG trading
securities sold in that period. The lower losses primarily reflected the impact
of significant market declines in the first six months of 2001 on limited
partnerships invested in technology and communications issues.
Investment losses, net totaled $12.9 million in the 2002 period compared to
$29.2 million in the first six months of 2001. The investment losses in the
first half of 2002 included writedowns of $77.8 million on fixed maturities and
$62.5 million of losses incurred on sales of telecommunications and cable
industry fixed maturities that were substantially offset by a $96.8 million gain
on the sale of one real estate property. Investment losses in the first six
months of 2001 were principally related to writedowns primarily of high yield
fixed maturities partially offset by gains on sales of fixed maturities.
The $116.3 million increase in commissions, fees and other income was primarily
due to the $138.0 million increase in the fair value of the GMIB reinsurance
contracts, disclosed in Note 6 of Notes to Consolidated Financial Statements
included elsewhere herein, and by $11.7 million higher fees in the Financial
Advisory/Insurance segment partially offset by $44.2 million lower fees in the
Investment Management segment. The fee increase in the Financial
Advisory/Insurance segment was principally driven by higher fees on higher sales
of third party brokerage insurance products and mutual funds. The $32.2 million
decrease in Alliance's investment advisory and services fees principally
resulted from lower average assets under management and lower performance fees
reflecting lower investment returns. The $24.1 million lower distribution
revenues at Alliance were primarily due to lower average daily mutual fund
assets under management attributable to market depreciation. The declines were
-17-
partially offset by a $14.3 million increase in revenues from institutional
research services due to higher NYSE volume and increased market share.
BENEFITS AND OTHER DEDUCTIONS. Total benefits and other deductions decreased
$168.5 million, primarily due to the cessation of goodwill amortization upon the
adoption of SFAS No. 142 on January 1, 2002, lower compensation and benefits and
lower other operating expenses.
Policyholders' benefits decreased by $3.5 million as the impacts of favorable
life mortality were partially offset by GMDB claims and higher claims experience
in reinsurance assumed product lines.
Interest credited to policyholders' account balances decreased $2.8 million in
the 2002 period as the impact of lower crediting rates was partially offset by
higher General Account balances.
When compared to the first half of 2001, there was a $28.5 million decrease in
compensation and benefits in the first six months of 2002 as $56.7 million lower
expenses in the Financial Advisory/Insurance segment were partially offset by a
$28.2 million increase in the Investment Management segment. The Financial
Advisory/Insurance segment totals included $9.6 million of credits resulting
from changes in the SARs liability in the 2002 period as compared to $39.3
million in the comparable 2001 period. The SARs impact was more than offset by
lower employee salary expenses due to reduced headcounts partially offset by
higher pension plan costs, including the impact of reducing the expected
long-range return on assets for the qualified pension plan from 10.25% as of
January 1, 2001 to 9.0% as of January 1, 2002. Compensation and benefits for the
first six months of 2001 for the Financial Advisory/Insurance segment included
payments to certain former AXA Financial executive officers under continuity
agreements related to AXA's minority interest buyout. The increase in
compensation and benefits in the Investment Management segment was due to higher
commissions and incentive compensation primarily attributable to agreements put
into place at the time of the Bernstein acquisition offset by lower base
compensation at Alliance.
Commissions increased $27.7 million due to higher sales of annuity contracts and
mutual funds.
Distribution plan payments totaled $237.7 million for the first six months of
2002, down $10.5 million from the prior year's total due to lower payments by
Alliance to financial intermediaries for distribution of sponsored mutual funds
and cash management services' products.
Interest expense decreased $10.9 million to $108.4 million principally due to
the absence of interest on the short-term loan from AXA that was repaid in April
2001.
DAC amortization declined $11.4 million to $141.3 million for the first six
months of 2002. As required by SFAS No. 97, "Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of Investments," and SFAS No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts," estimates and assumptions
underlying the DAC amortization rates are reassessed and updated at the end of
each reporting period ("DAC unlocking"). In second quarter 2002, among the
assumptions modified to reflect emerging experience were projected future
Separate Account performance, annuity surrenders and life mortality that
resulted in a net decrease in DAC amortization. This net decrease due to
unlocking was partially offset by higher amortization due to changes in current
period margins on DAC reactive products.
Capitalization of DAC decreased $7.9 million from $379.6 million in the first
half of 2001 due to lower deferrable expenses partially offset by higher
commissions.
The $90.6 million decline in the amortization of intangible assets was the
result of the cessation of goodwill amortization upon adopting SFAS No. 142.
Other operating costs and expenses declined $53.8 million primarily due to lower
consulting fees, lower premium taxes and state and local income taxes and the
impact of other cost saving measures on travel, printing and other general
expenses, partially offset by an increased accrual for legal settlements.
PREMIUMS AND DEPOSITS. Total premiums and deposits for insurance and annuity
products for the first six months of 2002 increased from prior year levels by
$755.2 million to $4.15 billion. This increase was primarily due to higher
premiums from annuities in both the retail and wholesale channels, including
$551.0 million in sales of a new single premium deferred annuity product
introduced in third quarter 2001, and $1.13 billion in sales of the new line of
variable annuity products, introduced in April 2002. Total sales of mutual funds
and fee based assets gathered increased $268.9 million to $1.97 billion in the
first half of 2002, up from $1.70 billion in the comparable 2001 period.
-18-
SURRENDERS AND WITHDRAWALS. When totals for the first six months of 2002 are
compared to the comparable 2001 period, surrenders and withdrawals increased
from $2.51 billion to $2.64 billion primarily as the result of a single large
pension plan contract surrender of $123.8 million in second quarter 2002 that
caused the annualized annuities surrender rate to increase to 10.0% for the
first half of 2002. When this surrender is excluded, the annualized annuities
surrender rate increased slightly to 9.4% in the 2002 period from 9.1% in the
same period in 2001, while the individual life surrender rates showed a decrease
to 3.8% from 4.0%. The trends in surrender and withdrawal rates described above
continue to fall within the range of expected experience.
ASSETS UNDER MANAGEMENT. An analysis of assets under management follows:
ASSETS UNDER MANAGEMENT
(IN MILLIONS)
JUNE 30,
---------------------------------
2002 2001
--------------- ---------------
Third party (1)........................... $ 361,864 $ 403,955
General Account and other................. 37,925 35,916
Separate Accounts......................... 40,904 49,724
--------------- ---------------
Total Assets Under Management............. $ 440,693 $ 489,595
=============== ===============
(1) 2001 amounts have been restated to conform with 2002 presentation.
Third party assets under management at June 30, 2002 decreased $40.09 billion
primarily due to decreases at Alliance. General Account and other assets under
management increased $2.01 billion from the amounts reported at June 30, 2001
due to higher sales of General Account based products and policyholder initiated
transfers from the Separate Account. The $8.82 billion 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 six months of 2002 totaled
$412.50 billion as compared to $462.17 billion at June 30, 2001. Decreases of
$17.9 billion, $20.0 billion and $1.3 billion, respectively, in retail,
institutional and private client assets under management were principally due to
market depreciation. Net asset outflows of $4.0 billion in the retail channel
more than offset net asset inflows in both the institutional investment
management and private client distribution channels of $1.0 billion and $2.5
billion, respectively. Non-US clients accounted for 14.1% of Alliance's June 30,
2002 assets under management total.
LIQUIDITY AND CAPITAL RESOURCES
HOLDING COMPANY. The Holding Company paid a cash shareholder dividend of $200.0
million in May 2002.
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 $1.10 billion from AXA under a renewable financing
agreement and used the proceeds to partially fund second quarter 2001 tax
payments related to the gain on the sale of DLJ. The borrowings were repaid in
April 2001.
EQUITABLE LIFE. In the first six months of 2002, Equitable Life paid shareholder
dividends of $250.0 million as compared to $1.50 billion in the comparable 2001
period.
At June 30, 2002, Equitable Life's short-term debt totaled $701.4 million,
primarily mortgage-backed repurchase agreements. In June 2002, Equitable Life
renewed its $250.0 million 364-day credit facility. At June 30, 2002, no amounts
were outstanding under Equitable Life's commercial paper program or its
revolving credit facility.
During first quarter 2001, Equitable Life sold its remaining holdings of CSG
stock received upon the sale of DLJ.
ALLIANCE. At June 30, 2002, Alliance had $74.8 million of short-term debt
outstanding, principally under its commercial paper program, compared to $613.4
million outstanding at June 30, 2001. In August 2001, Alliance issued $400.0
million 5.625% notes due 2006 under its July 11, 2001 shelf registration
statement. The net proceeds were used to reduce short-term debt and for general
partnership purposes.
-19-
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 risk and other factors that could cause such differences and/or,
if realized, could have a material adverse effect on AXA Financial's
consolidated financial position and/or results of operations.
MARKET RISK. AXA Financial's businesses are subject to market risks arising from
its insurance asset/liability management, investment management and trading
activities. The primary market risk exposures 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 15 of Notes to
Consolidated Financial Statements, both contained in the 2001 Form 10-K.
Increased volatility of equity markets can impact profitability of the Financial
Advisory/Insurance and Investment Management segments. For the Insurance Group,
in addition to impacts on equity securities held in the General Account,
significant changes in equity markets impact asset-based policy fees charged on
variable life and annuity products. Moreover, for variable life and annuity
products with guaranteed minimum death or income benefits, sustained periods
with declines in the value of underlying Separate Account investments would
increase the Insurance Group's net exposure to guaranteed benefits under those
contracts (increasing claims, net of any reinsurance) at a time when fee income
for these benefits is also reduced from prior period levels.
Equity market volatility also may impact DAC amortization on variable and
universal life insurance contracts, variable annuities and participating
traditional life contracts. To the extent that actual market trends, and
reasonable expectations as to future performance drawn from those trends, lead
to reductions in the investment return and/or other related estimates underlying
the DAC amortization rates, DAC amortization could be accelerated. Volatile
equity markets can also impact the level of contractholder surrender activity,
which, in turn, can impact future profitability.
The effects of significant equity market fluctuations on the Insurance Group's
operating results can be complex and subject to a variety of estimates and
assumptions, such as assumed rates of long-term equity market performance,
making it difficult to reliably predict effects on operating earnings over a
broad range of equity markets performance alternatives. Further, these effects
may not always be proportional for market increases and market decreases.
Margins on interest-sensitive annuities and universal life insurance can be
affected by interest rate fluctuations. In a declining interest rate
environment, credited rates can generally be adjusted more quickly than the
related invested asset portfolio is affected by declining reinvestment rates,
tending to result in higher net interest margins on interest-sensitive products
in the short term. However, under scenarios in which interest rates fall and
remain at significantly lower levels, minimum guarantees on interest-sensitive
annuities and universal life insurance (generally 2.5% to 4.5%) could cause
the spread between the yield on the portfolio and the interest rate credited
to policyholders to deteriorate.
For both interest-sensitive annuities and universal life insurance, a rapid and
sustained rise in interest rates poses risks of deteriorating spreads and high
surrenders. In this environment, there is pressure to increase credited rates on
interest-sensitive products to match competitors' new money rates. However, such
changes in credited rates generally occur more quickly than the earned rates on
the related invested asset portfolios reflect changes in market yields. The
greater and faster the rise in interest rates, the more the earned rates will
tend to lag behind market rates.
-20-
For the Investment Management segment, significant changes in equity markets can
impact revenues and the recoverability of deferred costs. See "Other Risks of
the Investment Management Segment" below.
OTHER RISKS OF THE FINANCIAL ADVISORY/INSURANCE SEGMENT. 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 strategy; 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 2001 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 and software capitalization; successful implementation of
expense-reduction initiatives; secular trends; AXA Financial's mortality,
morbidity, persistency and claims experience; margins between investment results
from General Account Investment Assets and interest credited on individual
insurance and annuity products, which are subject to contractual minimum
guarantees; the account balances against which policy fees are assessed on
universal and variable life insurance and variable annuity products; the pattern
of DAC amortization which is based on models involving numerous estimates and
subjective judgments including those regarding investment, mortality and expense
margins, expected market rates of return, lapse rates and anticipated surrender
charges; the adequacy of reserves and the extent to which subsequent experience
differs from management's estimates and assumptions, including future
reinvestment rates, used in determining those reserves; and the effects of the
September 2001 and any future terrorist attacks and the results of war on
terrorism. Recoverability of DAC is dependent on future contract cash flows
(including premiums and deposits, contract charges, benefits, surrenders,
withdrawals, and expenses), which can be affected by equity market and interest
rate trends as well as changes in contract persistency levels. 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.
OTHER RISKS OF THE INVESTMENT MANAGEMENT SEGMENT. Alliance's revenues are
largely dependent on the total value and composition of assets under its
management and are, therefore, affected by the performance of financial markets,
the investment performance of sponsored investment products and separately
managed accounts, additions and withdrawals of assets, purchases and redemptions
of mutual funds and shifts of assets between accounts or products with different
fee structures, as well as general economic conditions, future acquisitions,
competitive conditions and government regulations, including tax rates. See
"Combined Operating Results by Segment - Investment Management" contained in the
2001 Form 10-K.
Payments made by Alliance to financial intermediaries in connection with the
sale of back-end load mutual funds are capitalized as deferred sales commissions
and amortized over periods not exceeding five and one-half years, the periods of
time during which deferred sales commissions are expected to be recovered from
distribution fees received from those funds and from the contingent deferred
sales charge ("CDSC") received from shareholders of those funds upon redemption
of their shares. Management of Alliance believes that Alliance will recover
fully the amounts paid to financial intermediaries from distribution fees it
expects to receive from its mutual funds in respect of assets under management
related to back-end load shares and the CDSC it expects to receive from back-end
load fund shareholders upon the redemption of their shares. Nevertheless,
continued declines in financial markets from June 30, 2002 levels or a
continuation of unfavorable back-end load share redemption levels compared to
historical average levels, or both, may result in the impairment in the future
of the deferred sales commission asset that totaled $591.8 million at June 30,
2002. Due to the uncertainty surrounding the extent and timing of the receipt by
Alliance of future cash flows required to recover the deferred sales commission
asset, Alliance's management is unable to predict the timing of any impairment
that may occur, but, should an impairment occur in the future, it would reduce
materially the recorded amount of the asset with a corresponding non-cash charge
to expense. Impairment of the deferred sales commission asset is evaluated
quarterly, or when a significant decrease in the estimated fair value of
deferred sales commissions occurs, by comparing the undiscounted future cash
flows estimated by Alliance's management to be realized from this asset to its
recorded amount. If the estimated undiscounted future cash flows are less than
the recorded amount and if Alliance's management estimates that the recorded
amount is not fully recoverable, an impairment loss is recognized for the
difference between the recorded amount and the estimated fair value of the
asset. Cash flows consist of ongoing distribution fees and CDSC. Distribution
fees are calculated as a percentage of average assets under management related
to back-end load shares. CDSC is based on the values of back-end load shares
redeemed and, generally, the length of time the shares have been held. Average
-21-
assets under management related to back-end load shares and the value of
back-end load shares redeemed increase or decrease based on market appreciation
or depreciation and the sale and redemption of back-end load shares.
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. The frequency of large damage awards, including large punitive
damage awards that bear little or no relation to actual economic damages
incurred by plaintiffs in some jurisdictions, continues to create the potential
for an unpredictable judgment in any given matter. 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
2001 Form 10-K, and "Legal Proceedings," contained in the 2001 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 2001 Form 10-K for pronouncements issued but not
effective at December 31, 2001.
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, investment advisors
and anti-money laundering compliance programs. 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 2001 Form 10-K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H to Form 10-Q.
-22-
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, 2001, except as described below:
In FRANZE, in July 2002, the Court of Appeals reversed the District Court's
decision certifying the class on the ground that the named plaintiffs lacked
standing to assert claims against Equitable Life because their claims were
time-barred. The case has been remanded to the District Court.
In McEACHERN, in March 2002, plaintiff filed a motion to alter or amend the
court's judgment and requested an additional 30 days to amend the complaint.
In PATENAUDE, in May 2002, the United States Court of Appeals for the Ninth
Circuit affirmed the judgment of the District Court which dismissed the
complaint.
In MALHOLTRA, in March 2002, defendants filed a motion to dismiss plaintiffs'
amended complaint.
In the Mississippi Actions, two additional lawsuits were filed in April and May
2002 respectively, one by 79 additional plaintiffs and the second, by four
additional plaintiffs. In April 2002, Equitable Life filed a notice of removal
of the case involving 79 plaintiffs from Mississippi State Court to the United
States District Court for the Northern District of Mississippi. Plaintiffs'
motion to remand was denied by the Federal District Court in June 2002.
Plaintiffs' motion for reconsideration is pending before the District Court. In
June 2002, an additional lawsuit was filed by 25 additional plaintiffs.
In THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES V. AMERICAN
NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS TRUSTEE F/B/O EMERALD INVESTMENTS
LP AND EMERALD INVESTMENTS LP, in May 2002, the District Court granted in part
and denied in part Equitable Life's motion to dismiss defendants' counterclaims,
dismissing defendants' Illinois Securities Act and New York Consumer Fraud Act
claims. Equitable Life has answered defendants' remaining counterclaims.
In FISCHEL, in May 2002, the District Court issued an order granting plaintiffs'
motion for partial summary judgment, granting Equitable Life's motion for
summary judgment on plaintiffs' claim for breach of fiduciary duty and otherwise
denying Equitable Life's motion for summary judgment. The court ruled that
Equitable Life is liable to plaintiffs on their contract claims for benefits
under ERISA. The court directed the parties to file briefs in September 2002
addressing the relief to which plaintiffs are entitled in light of the May 2002
order.
In HIRT, in April 2002, plaintiffs filed a motion seeking to certify a class of
"all Plan participants, whether active or retired, their beneficiaries and
Estates, whose accrued benefits or pension benefits are based on the Plan's Cash
Balance Formula." Defendants responded to that motion in May 2002. Also, in
April 2002, plaintiffs agreed to dismiss with prejudice their claim that the
change to the cash balance formula violates ERISA by improperly applying the
formula to retroactively reduce accrued benefits. That claim has been dismissed.
In IN RE AXA FINANCIAL, INC. SHAREHOLDERS LITIGATION, a hearing with respect to
approval of the proposed settlement was held in March 2002. In May 2002, the
court approved the settlement and in June 2002, one shareholder appealed.
In UHRIK, a hearing with respect to approval of the proposed settlement was held
in June 2002 and the court entered an Order and Final Judgment approving the
settlement and dismissing the case. The deadline to appeal the Order and Final
Judgment has passed.
In MILLER, in April 2002, plaintiffs filed a second amended complaint. The
allegations and relief sought in the second amended complaint are virtually
identical to the amended class action complaint. In May 2002, defendants filed a
motion to dismiss the second amended complaint.
Plaintiffs in the BENAK, ROY, ROFFE, TATEM and GISSEN cases have moved to
consolidate the complaints and in May 2002, those cases were consolidated in the
Federal District Court in the District of New Jersey. In July 2002, a complaint
entitled PFEIFFER V. ALLIANCE CAPITAL MANAGEMENT L.P. AND ALLIANCE PREMIER
-23-
GROWTH FUND ("Pfeiffer Complaint") was filed in Federal District Court in the
District of New Jersey against Alliance and Premier Growth Fund. The allegations
and relief sought in the Pfeiffer Complaint are virtually identical to the Benak
Complaint. Alliance believes the plaintiff's allegations in the Pfeiffer
Complaint are without merit and intends 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 April 2002, a consolidated complaint entitled IN RE ENRON CORPORATION
SECURITIES LITIGATION was filed in Federal District Court in the Southern
District of Texas, Houston Division, against numerous defendants, including
Alliance. The principal allegations of the complaint, as they pertain to
Alliance, are that Alliance violated Sections 11 and 15 of the Securities Act of
1933, with respect to a registration statement filed by Enron and effective with
the SEC on July 18, 2001, which was used to sell $1.9 billion Enron Corporation
Zero Coupon Convertible Senior Notes due 2021. Plaintiffs allege that Frank
Savage, who was at that time an employee of Alliance and who was and remains a
director of the general partner of Alliance, signed the registration statement
at issue. Plaintiffs allege that the registration statement was materially
misleading. Plaintiffs further allege that Alliance was a controlling person of
Frank Savage. Plaintiffs therefore assert that Alliance is itself liable for the
allegedly misleading registration statement. Plaintiffs seek recission or a
recissionary measure of damages. The complaint specifically states that "[n]o
allegations of fraud are made against or directed at" Alliance. Alliance
believes the allegations of the complaint as to it are without merit and intends
to vigorously defend against these allegations. In June 2002, Alliance moved to
dismiss the complaint as the allegations therein pertain to it. At the present
time, management of Alliance is unable to estimate the impact, if any, that the
outcome of this action may have on Alliance's results of operations or financial
condition and AXA Financial's management is unable to estimate the impact, if
any, that the outcome of this action may have on its consolidated results of
operations or financial condition.
In May, 2002, a complaint entitled THE FLORIDA STATE BOARD OF ADMINISTRATION V.
ALLIANCE CAPITAL MANAGEMENT L.P. (the "SBA Complaint") was filed in the Circuit
Court of the Second Judicial Circuit, in and for Leon County, Florida against
Alliance. The SBA Complaint alleges breach of contract relating to the
Investment Management Agreement between The Florida State Board of
Administration ("SBA") and Alliance, breach of the covenant of good faith and
fair dealing contained in the Investment Management Agreement, breach of
fiduciary duty, negligence, gross negligence and violation of the Florida
Securities and Investor Protection Act, in connection with purchases and sales
of Enron common stock for the SBA investment account. The SBA seeks more than
$300 million in compensatory damages and an unspecified amount of punitive
damages. Alliance believes the SBA's allegations in the SBA Complaint are
without merit and intends to vigorously defend against these allegations. In
June 2002, Alliance moved to dismiss the SBA Complaint. At the present time,
Alliance's management is unable to estimate the impact, if any, that the outcome
of this action may have on Alliance's results of operations or financial
condition and AXA Financial's management is unable to estimate the impact, if
any, that the outcome of this action may have on its consolidated results of
operations or financial condition.
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. However, it should be noted
that the frequency of large damage awards, including large punitive damage
awards that bear little or no relation to actual economic damages incurred by
plaintiffs in some jurisdictions, continues to create the potential for an
unpredictable judgment in any given matter. Accordingly, AXA Financial's
management cannot make an estimate of loss, if any, or predict whether or not
any given matter will have a material adverse effect on AXA Financial's
consolidated results of operations in any particular period.
-24-
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
None.
-25-
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: August 14, 2002 AXA FINANCIAL, INC.
By: /s/ Stanley B. Tulin
--------------------------------------------
Name: Stanley B. Tulin
Title: Vice Chairman of the Board and
Chief Financial Officer
Date: August 14, 2002 /s/ Alvin H. Fenichel
--------------------------------------------
Name: Alvin H. Fenichel
Title: Senior Vice President and Controller
-26-