FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File No. 1-9818
--------------------------------------------------------
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3434400
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1345 AVENUE OF THE AMERICAS, NEW YORK, NY 10105
- ---------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 969-1000
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
---------- ----------
The number of Units representing assignments of beneficial ownership of limited
partnership interests* outstanding as of March 31, 2000 was 72,095,066.
* includes 100,000 units of general partnership interest having economic
interests equivalent to the economic interests of the units representing
assignments of beneficial ownership of limited partnership interests.
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Statements of Financial Condition 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Changes in
Partners' Capital and Comprehensive Income 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-13
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 14
Item 2. CHANGES IN SECURITIES 14
Item 3. DEFAULTS UPON SENIOR SECURITIES 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 14
Item 5. OTHER INFORMATION 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
ASSETS 3/31/00 12/31/99
------------ ------------
(unaudited)
Fees receivable:
Alliance mutual funds........................................................ $ 613 $ 662
Separately managed third-party clients....................................... 1,659 1,221
Investment in Operating Partnership............................................. 254,446 270,177
------------ ------------
Total assets................................................................. $ 256,718 $ 272,060
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to Operating Partnership............................................. $ 1,823 $ 5,843
Accounts payable and accrued expenses........................................ 5,892 609
------------ ------------
Total liabilities.......................................................... 7,715 6,452
Partners' capital............................................................ 249,003 265,608
------------ ------------
Total liabilities and partners' capital.................................... $ 256,718 $ 272,060
============ ============
See accompanying notes to condensed consolidated financial statements.
1
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.*
Condensed Consolidated Statements of Income
(unaudited)
(in thousands)
THREE MONTHS ENDED
------------------------------
3/31/00 3/31/99
---------- -----------
Revenues:
Equity in earnings of Operating Partnership.................................. $ 71,151 $ -
Investment advisory and services fees:
Alliance mutual funds...................................................... - 194,899
Separately managed accounts:
Affiliated clients....................................................... - 12,723
Third-party clients...................................................... - 97,796
Distribution revenues........................................................ - 93,612
Shareholder servicing fees................................................... - 13,297
Other revenues............................................................... - 7,416
---------- -----------
71,151 419,743
---------- -----------
Expenses:
Employee compensation and benefits........................................... - 118,279
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated............................................................... - 25,684
Third-party.............................................................. - 52,141
Amortization of deferred sales commissions................................. - 34,681
Other...................................................................... - 26,803
General and administrative................................................... - 42,336
Interest..................................................................... - 3,501
Amortization of intangible assets............................................ - 963
---------- -----------
- 304,388
---------- -----------
Income before income taxes...................................................... 71,151 115,355
Income taxes................................................................. 5,225 17,301
---------- -----------
Net income...................................................................... $ 65,926 $ 98,054
========== ===========
Net income per Alliance Holding Unit:
Basic........................................................................ $ 0.92 $ 0.57
========== ==========
Diluted...................................................................... $ 0.88 $ 0.55
========== ===========
* As discussed in Notes 1 and 2, the financial information above reflects the
consolidated operations of Alliance Capital Management Holding L.P. prior to
the Reorganization effective October 29, 1999 and the use of the equity
method of reporting thereafter.
See accompanying notes to condensed consolidated financial statements.
2
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.*
Condensed Consolidated Statements of
Changes in Partners' Capital
and Comprehensive Income
(unaudited)
(in thousands)
THREE MONTHS ENDED
------------------------------
3/31/00 3/31/99
---------- -----------
Partners' capital - beginning of period......................................... $ 265,608 $ 430,273
Comprehensive income:
Net income............................................................... 65,926 98,054
Unrealized gain on investments, net...................................... - 824
Foreign currency translation adjustment, net............................. - 3
---------- -----------
Comprehensive income..................................................... 65,926 98,881
---------- -----------
Capital contribution received from Alliance Capital
Management Corporation..................................................... - 976
Cash distributions to partners............................................... (61,635) (74,048)
Purchase of Alliance Holding Units........................................... (28,042) -
Proceeds from options for Alliance Holding Units exercised................... 7,146 2,867
---------- -----------
Partners' capital - end of period............................................... $ 249,003 $ 458,949
========== ===========
* As discussed in Notes 1 and 2, the financial information above reflects the
consolidated operations of Alliance Capital Management Holding L.P. prior to
the Reorganization effective October 29, 1999 and the use of the equity
method of reporting thereafter.
See accompanying notes to condensed consolidated financial statements.
3
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.*
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
THREE MONTHS ENDED
-------------------------------
3/31/00 3/31/99
----------- -----------
Cash flows from operating activities:
Net income................................................................... $ 65,926 $ 98,054
Adjustments to reconcile net income to net cash provided
from (used in) operating activities:
Equity in earnings of Operating Partnership................................ (71,151) -
Amortization and depreciation.............................................. - 40,352
Other, net................................................................. - 4,114
Changes in assets and liabilities:
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds..................................... - (56,316)
(Increase) in fees receivable from Alliance mutual funds,
affiliated clients and third-party clients............................. (389) (18,252)
(Increase) in deferred sales commissions................................. - (109,794)
Decrease in other investments............................................ - 2,117
(Increase) in other assets............................................... - (12,565)
Increase in payable to Alliance mutual funds for share purchases......... - 102,202
(Decrease) in payable to Operating Partnership........................... (4,020) -
Increase in accounts payable and accrued expenses........................ 5,283 25,826
Increase in accrued compensation and benefits, less
deferred compensation................................................. - 49,450
----------- -----------
Net cash provided from (used in) operating activities............... (4,351) 125,188
----------- -----------
Cash flows from investing activities:
Operating Partnership distributions received................................. 65,986 -
Investment in Operating Partnership from exercises of options................ (7,146) -
Purchase of investments...................................................... - (243,731)
Proceeds from sale of investments............................................ - 145,003
Additions to furniture, equipment and leasehold
improvements, net.......................................................... - (15,594)
Other........................................................................ - (142)
----------- -----------
Net cash provided from (used in) in investing activities............ 58,840 (114,464)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings..................................................... - 397,967
Repayment of debt............................................................ - (297,375)
Cash distributions to partners............................................... (61,635) (74,048)
Capital contribution received from Alliance Capital Management
Corporation................................................................ - 476
Proceeds from options for Alliance Holding Units exercised................... 7,146 2,867
----------- -----------
Net cash provided from (used in) financing activities............... (54,489) 29,887
----------- -----------
Net increase in cash and cash equivalents....................................... - 40,611
Cash and cash equivalents at beginning of period................................ - 75,186
----------- -----------
Cash and cash equivalents at end of period...................................... $ - $ 115,797
=========== ===========
* As discussed in Notes 1 and 2, the financial information above reflects the
consolidated operations of Alliance Capital Management Holding L.P. prior to
the Reorganization effective October 29, 1999 and the use of the equity
method of reporting thereafter.
See accompanying notes to condensed consolidated financial statements.
4
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
1. REORGANIZATION
Effective October 29, 1999, Alliance Capital Management Holding L.P.,
formerly known as Alliance Capital Management L.P. ("Alliance Holding"),
reorganized by transferring its business to Alliance Capital Management
L.P., a newly formed private partnership ("Alliance Capital" or the
"Operating Partnership"), in exchange for all of the Units of Alliance
Capital (the "Reorganization"). The Operating Partnership recorded the
transferred assets and assumption of liabilities at the amounts reflected
in Alliance Holding's books and records on the date of transfer. Since the
Reorganization, the Operating Partnership has conducted the diversified
investment management services business formerly conducted by Alliance
Holding, and Alliance Holding's business has consisted of holding Alliance
Capital Units and engaging in related activities. Alliance Capital
Management Corporation ("ACMC"), an indirect wholly-owned subsidiary of AXA
Financial, Inc. ("AXA Financial"), is the general partner of both Alliance
Holding and the Operating Partnership. Alliance Holding is a registered
investment adviser under the Investment Advisers Act of 1940. Alliance
Holding Units are publicly traded on the New York Stock Exchange while
Alliance Capital Units do not trade publicly and are subject to significant
restrictions on transfer.
As part of the Reorganization, Alliance Holding offered each Alliance
Holding Unitholder the opportunity to exchange Alliance Holding Units for
Alliance Capital Units on a one-for-one basis. In the exchange offer,
approximately 99.6 million Alliance Holding Units were exchanged for
Alliance Capital Units. This number includes the approximately 95.1 million
Alliance Holding Units exchanged by affiliates of AXA Financial.
At March 31, 2000, Alliance Holding owned approximately 72.1 million, or
42%, of the issued and outstanding Alliance Capital Units. ACMC owns
100,000 general partnership Units in Alliance Holding and a 1% general
partnership interest in the Operating Partnership. At March 31, 2000, AXA
Financial was the beneficial owner of approximately 2% of Alliance
Holding's outstanding Units and approximately 56% of the Operating
Partnership's outstanding Units which, including the general partnership
interests, equates to an economic interest of approximately 57% in the
Operating Partnership.
The Operating Partnership provides diversified investment management and
related services to a broad range of clients including unaffiliated
separately managed accounts, The Equitable Life Assurance Society of the
United States ("ELAS"), a wholly-owned subsidiary of AXA Financial, and its
insurance company subsidiary and to individual investors through mutual
funds and various other investment vehicles. Separately managed accounts
consist primarily of the active management of equity and fixed income
portfolios for institutional investors including corporate and public
employee pension funds, the general and separate accounts of ELAS and its
insurance company subsidiary, endowment funds, and the assets of other
domestic and foreign institutions. The Operating Partnership provides
investment management, distribution, and shareholder and administrative
services to its sponsored mutual funds and cash management products,
including money market funds and deposit accounts ("Alliance mutual
funds").
Alliance Holding's consolidated financial statements and notes should be
read in conjunction with the consolidated financial statements and notes of
the Operating Partnership. The Operating Partnership's consolidated
financial statements and notes and management's discussion and analysis of
financial condition and results of operations are included as an exhibit to
this quarterly report on Form 10-Q for the quarterly period ended March 31,
2000 in order to provide a meaningful presentation of Alliance Holding's
financial information.
5
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Alliance Holding included herein have been prepared in accordance with the
instructions to Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of (a) financial position at March 31, 2000, (b)
results of operations for the three months ended March 31, 2000 and 1999
and (c) cash flows for the three months ended March 31, 2000 and 1999, have
been made.
PRINCIPLES OF CONSOLIDATION
For all periods prior to the Reorganization, the consolidated financial
statements include Alliance Holding and its majority-owned subsidiaries.
All significant intercompany transactions and balances among the
consolidated entities have been eliminated. Alliance Holding records its
investment in the Operating Partnership using the equity method of
accounting. Alliance Holding's investment will be increased to reflect its
proportionate share of income of the Operating Partnership and decreased to
reflect its proportionate share of losses of the Operating Partnership or
distributions made by the Operating Partnership.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. QUARTERLY FINANCIAL INFORMATION
The following table summarizes the unaudited condensed results of
operations of Alliance Holding for the three months ended March 31, 2000
and 1999, respectively, as if the Reorganization (See Note 1) had occurred
on January 1, 1999. The pro forma financial information reflects the
Operating Partnership as a private partnership that is not subject to a
federal tax of 3.5% on partnership gross income from the active conduct of
a trade or business and Alliance Holding as a publicly traded partnership
that is subject to the 3.5% federal tax, effective January 1, 1998, on its
partnership gross business income (which is primarily derived from its
interest in the Operating Partnership).
The pro forma financial information does not necessarily reflect the
results of operations for the three months ended March 31, 1999 that would
have been obtained had the Reorganization occurred on January 1, 1999, nor
is the pro forma financial information necessarily indicative of the
results of operations that may be achieved for any future period. (In
thousands except per Alliance Holding Unit amounts):
THREE MONTHS ENDED
---------------------------
Actual Pro Forma
3/31/00 3/31/99
--------- ---------
Equity in earnings of Operating Partnership..................................... $ 71,151 $ 44,418
Income taxes.................................................................... 5,225 4,139
--------- ---------
Net income ..................................................................... $ 65,926 $ 40,279
========= =========
Basic net income per Alliance Holding Unit...................................... $ 0.92 $ 0.57
========= =========
Diluted net income per Alliance Holding Unit.................................... $ 0.88 $ 0.55
========= =========
6
The following table presents a reconciliation of the condensed results of
operations for the three months ended March 31, 2000 for Alliance Holding and
the unaudited pro forma financial information of Alliance Holding for the three
months ended March 31, 1999. (In thousands):
THREE MONTHS ENDED
------------------------------
Actual Pro Forma
3/31/00 3/31/99
----------- ------------
Operating Partnership income before income taxes................................ $ 181,112 $ 115,355
Income taxes.................................................................... 9,962 7,226
----------- -----------
Net income...................................................................... $ 171,150 $ 108,129
=========== ===========
Alliance Holding ownership percentage of the
Operating Partnership Units.................................................. 42.0% 41.5%
=========== ===========
Alliance Holding equity in earnings of
the Operating Partnership.................................................... $ 71,151 $ 44,418
=========== ===========
4. NET INCOME PER ALLIANCE HOLDING UNIT
For all periods prior to the Reorganization, basic net income per Alliance
Holding Unit is derived by reducing net income for the 1% General Partner
interest and dividing the remaining 99% by the weighted average number of
Alliance Holding Units outstanding for each period. For all periods prior
to the Reorganization, diluted net income per Alliance Holding Unit is
derived by reducing net income for the 1% General Partner interest and
dividing the remaining 99% by the total of the weighted average number of
Alliance Holding Units outstanding for each period and the dilutive
Alliance Holding Unit equivalents resulting from outstanding employee
options. (In thousands, except per Alliance Holding Unit amounts):
THREE MONTHS ENDED
-----------------------------
3/31/00 3/31/99
----------- -----------
Net income - Basic.............................................................. $ 65,926 $ 98,054
Additional allocation of equity in earnings of the Operating
Partnership resulting from assumed dilutive effect of
employee options............................................................. 3,408 -
----------- -----------
Net income - Diluted............................................................ $ 69,334 $ 98,054
=========== ===========
Weighted average Alliance Holding Units outstanding - Basic..................... 71,599 170,561
Dilutive effect of employee options and restricted units........................ 7,391 5,030
----------- -----------
Weighted average Alliance Holding Units outstanding - Diluted................... 78,990 175,591
=========== ===========
Basic net income per Alliance Holding Unit...................................... $ 0.92 $ 0.57
=========== ===========
Diluted net income per Alliance Holding Unit.................................... $ 0.88 $ 0.55
=========== ===========
7
5. INVESTMENT IN OPERATING PARTNERSHIP
Alliance Holding's investment in the Operating Partnership for the
three month period ended March 31, 2000 was as follows (in thousands):
Investment in Operating Partnership at December 31, 1999........................ $ 270,177
Equity in earnings of Operating Partnership..................................... 71,151
Additional investment resulting from exercises of employee options.............. 7,146
Distribution received from Operating Partnership................................ (65,986)
Satisfaction of payable to Operating Partnership................................ (28,042)
-----------
Investment in Operating Partnership at March 31, 2000........................... $ 254,446
===========
6. COMMITMENTS AND CONTINGENCIES
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
(the "Original Complaint") was filed against Alliance North American
Government Income Trust, Inc. (the "Fund"), Alliance Holding and certain
other defendants affiliated with Alliance Holding alleging violations of
federal securities laws, fraud and breach of fiduciary duty in connection
with the Fund's investments in Mexican and Argentine securities. On
September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts
of the Original Complaint. On October 29, 1997, the United States Court of
Appeals for the Second Circuit affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are
that (i) the Fund failed to hedge against currency risk despite
representations that it would do so, (ii) the Fund did not properly
disclose that it planned to invest in mortgage-backed derivative
securities, and (iii) two advertisements used by the Fund misrepresented
the risks of investing in the Fund. On October 15, 1998, the United States
Court of Appeals for the Second Circuit issued an order granting
plaintiffs' motion to file an amended complaint alleging that the Fund
misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint alleging that the Fund did
not properly disclose that it planned to invest in mortgage-backed
derivative securities and that certain advertisements used by the Fund
misrepresented the risks of investing in the Fund. On December 1, 1999, the
United States District Court for the Southern District of New York granted
the defendants' motion for summary judgment on all claims against all
defendants. On December 14 and 15, 1999, the plaintiffs filed motions for
reconsideration of the Court's ruling. These motions are currently pending
with the Court.
A Stipulation and Agreement of Settlement has been signed with the lawyers
for the plaintiffs settling this action. Under the Stipulation and
Agreement of Settlement the Operating Partnership will permit Fund
shareholders to invest up to $250 million in Alliance mutual funds free of
initial sales charges. Like all class action settlements, the Stipulation
and Agreement of Settlement is subject to court approval.
The Operating Partnership assumed all of Alliance Holding's liabilities in
respect of this litigation in connection with the Reorganization. As a
result of the settlement, Alliance Holding recorded a non-cash gain of
approximately $0.13 per Alliance Holding Unit for the three months ended
March 31, 2000. While the ultimate outcome of this matter cannot be
determined at this time, management does not expect that it will have a
material adverse effect on Alliance Holding's results of operations or
financial condition.
8
7. INCOME TAXES
Alliance Holding is a publicly traded partnership for federal tax purposes
and, accordingly, is not subject to federal or state corporate income
taxes. However, Alliance Holding is subject to the New York City
unincorporated business tax and, effective January 1, 1998, to a 3.5%
federal tax on partnership gross income from the active conduct of a trade
or business. Subsequent to the Reorganization, Alliance Holding's
partnership gross business income is primarily derived from its interest in
the Operating Partnership. Prior to the Reorganization, domestic corporate
subsidiaries of Alliance Holding, which were subject to federal, state and
local income taxes, filed a consolidated federal income tax return and
separate state and local tax returns. Foreign corporate subsidiaries are
generally subject to taxes in the foreign jurisdictions where they are
located. All domestic and foreign corporate subsidiaries were transferred
to the Operating Partnership in connection with the Reorganization.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
THREE MONTHS ENDED
------------------------------
3/31/00 3/31/99
------------ ----------
Interest............................................................... $ - $ 2,361
Income taxes........................................................... - 7,399
9. CASH DISTRIBUTION
On April 27, 2000, the General Partner declared a distribution of
$53,350,000 or $0.74 per Alliance Holding Unit representing a distribution
from Available Cash Flow (as defined in the Alliance Holding Partnership
Agreement) of Alliance Holding for the three months ended March 31, 2000.
The distribution is payable on May 18, 2000 to holders of record on May 8,
2000.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
REORGANIZATION
Effective October 29, 1999, Alliance Capital Management Holding L.P., formerly
known as Alliance Capital Management L.P. ("Alliance Holding"), reorganized by
transferring its business to Alliance Capital Management L.P., a newly formed
private partnership ("Alliance Capital" or the "Operating Partnership"), in
exchange for all of the Units of Alliance Capital (the "Reorganization"). The
Operating Partnership recorded the transferred assets and assumption of
liabilities at the amounts reflected in Alliance Holding's books and records on
the date of transfer. Since the Reorganization, the Operating Partnership has
conducted the diversified investment management services business formerly
conducted by Alliance Holding, and Alliance Holding's business has consisted of
holding Alliance Capital Units and engaging in related activities. Alliance
Capital Management Corporation ("ACMC"), an indirect wholly-owned subsidiary of
AXA Financial, Inc. ("AXA Financial"), is the general partner of both Alliance
Holding and the Operating Partnership. Alliance Holding is a registered
investment adviser under the Investment Advisers Act of 1940. Alliance Holding
Units are publicly traded on the New York Stock Exchange while Alliance Capital
Units do not trade publicly and are subject to significant restrictions on
transfer.
As part of the Reorganization, Alliance Holding offered each Alliance Holding
Unitholder the opportunity to exchange Alliance Holding Units for Alliance
Capital Units on a one-for-one basis. In the exchange offer, approximately 99.6
million Alliance Holding Units were exchanged for Alliance Capital Units. This
number includes the approximately 95.1 million Alliance Holding Units exchanged
by affiliates of AXA Financial.
At March 31, 2000, Alliance Holding owned approximately 72.1 million, or 42%, of
the issued and outstanding Alliance Capital Units. ACMC owns 100,000 general
partnership Units in Alliance Holding and a 1% general partnership interest in
the Operating Partnership. At March 31, 2000, AXA Financial was the beneficial
owner of approximately 2% of Alliance Holding's outstanding Units and
approximately 56% of the Operating Partnership's outstanding Units which,
including the general partnership interests, equates to an economic interest of
approximately 57% in the Operating Partnership.
The Operating Partnership provides diversified investment management and related
services to a broad range of clients including unaffiliated separately managed
accounts, The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of AXA Financial, and its insurance company subsidiary
and to individual investors through mutual funds and various other investment
vehicles. Separately managed accounts consist primarily of the active management
of equity and fixed income portfolios for institutional investors including
corporate and public employee pension funds, the general and separate accounts
of ELAS and its insurance company subsidiary, endowment funds, and the assets of
other domestic and foreign institutions. The Operating Partnership provides
investment management, distribution, and shareholder and administrative services
to its sponsored mutual funds and cash management products, including money
market funds and deposit accounts ("Alliance mutual funds").
Alliance Holding's consolidated financial statements and notes should be read in
conjunction with the consolidated financial statements and notes of the
Operating Partnership. The Operating Partnership's consolidated financial
statements and notes and management's discussion and analysis of financial
condition and results of operations are included as an exhibit to this quarterly
report on Form 10-Q for the quarterly period ended March 31, 2000 in order to
provide a meaningful presentation of Alliance Holding's financial information.
10
BASIS OF PRESENTATION - PRO FORMA RESULTS
The pro forma financial information of Alliance Holding for the three months
ended March 31, 1999 assumes the Reorganization occurred on January 1, 1999, and
reflects Alliance Holding as a publicly traded partnership subject to the 3.5%
federal tax on its partnership gross income from the active conduct of a trade
or business. Subsequent to the Reorganization, Alliance Holding's principal
sources of income and cash flow are attributable to its ownership of 42% of the
issued and outstanding Units of the Operating Partnership. The pro forma
financial information for the three months ended March 31, 1999 does not
necessarily reflect the results of operations that would have been obtained had
the Reorganization occurred on January 1, 1999, nor is the pro forma financial
information necessarily indicative of the results of operations that may be
achieved for any future period.
RESULTS OF OPERATIONS - PRO FORMA RESULTS
(Dollars and Alliance Holding Units in millions, THREE MONTHS ENDED
except per Alliance Holding Unit amounts) --------------------------------------------------
Actual Pro Forma
3/31/00 3/31/99 (1) % Change
- ------------------------------------------------------------------------------------------------------
Equity in earnings of Operating Partnership $ 71.1 $ 44.4 60.1%
Income taxes 5.2 4.1 26.8
-------- --------
Net income $ 65.9 $ 40.3 63.5
======== ========
Net income per Alliance Holding Unit:
Basic $ 0.92 $ 0.57 61.4
======== ========
Diluted $ 0.88 $ 0.55 60.0
======== ========
Impact of NAGIT litigation adjustment per
Alliance Holding Unit 0.13 - N/A
-------- -------
Net income per Alliance Holding Unit excluding
impact of NAGIT litigation adjustment - diluted 0.75 0.55 36.4
Impact of performance fees per
Alliance Holding Unit 0.03 0.08 (62.5)
-------- --------
Net income per Alliance Holding Unit excluding
impact of NAGIT litigation adjustment and
performance fees - diluted $ 0.72 $ 0.47 53.2
======== ========
Weighted average number of Alliance Holding
Units outstanding:
Basic 71.6 70.8 1.1
Diluted 79.0 75.8 4.2%
- ---------------------------------
(1) Pro forma amounts assume the Alliance Holding Reorganization occurred
January 1, 1999.
Net income for the three months ended March 31, 2000 increased $25.6 million or
$0.33 diluted net income per Alliance Holding Unit to $65.9 million or $0.88
diluted net income per Alliance Holding Unit from pro forma net income of $40.3
million or $0.55 diluted net income per Alliance Holding Unit for the three
months ended March 31, 1999. The increase reflects higher equity in earnings of
the Operating Partnership, partially offset by a corresponding increase in
income taxes. The increase in equity in earnings of the Operating Partnership
was principally due to higher average assets under management and Alliance
Holding's share of the non-cash gain related to the settlement of litigation
concerning the Alliance North American Government Income Trust, Inc. ("NAGIT").
BASIS OF PRESENTATION - ACTUAL RESULTS
Alliance Holding's investment in the Operating Partnership, which is accounted
for under the equity method of accounting, will be increased by its pro rata
share of the Operating Partnership's income and will be decreased by its pro
rata share of the Operating Partnership's losses or distributions made by the
Operating Partnership. A discussion of the results of Alliance Holding for the
three months ended March 31, 2000 compared to the three months ended March 31,
1999 is not considered meaningful due to the Reorganization (equity method of
accounting as compared to consolidated operating results) and therefore has not
been included.
11
CAPITAL RESOURCES AND LIQUIDITY
Alliance Holding's partners' capital was $249.0 million at March 31, 2000, a
decrease of $16.6 million or 6.3% from $265.6 million at December 31, 1999. The
decrease is primarily due to cash distributions.
At March 31, 2000, Alliance Holding owned approximately 72.1 million Alliance
Capital Units, or approximately 42% of the issued and outstanding Alliance
Capital Units. Subsequent to the Reorganization, Alliance Holding's principal
sources of income and cash flow are attributable to its ownership interest.
Alliance Holding is required to distribute all of its Available Cash Flow, as
defined in the Alliance Holding Partnership Agreement, to its Partners and
Alliance Holding Unitholders. To the extent there are temporary cash shortfalls
due to the timing of tax payments and the receipt of quarterly distributions,
short-term loans will be extended to Alliance Holding by the Operating
Partnership.
Management believes that the cash flow from its ownership of Units of the
Operating Partnership, together with the short-terms loans discussed above, will
provide Alliance Holding with the financial resources to meet its capital
requirements.
CASH DISTRIBUTIONS
Subsequent to the Reorganization, Alliance Holding's principal sources of income
and cash flow are attributable to its ownership of 42% of the issued and
outstanding Alliance Capital Units. Alliance Holding is required to distribute
all of its Available Cash Flow, as defined in the Alliance Holding Partnership
Agreement, to its Partners and Alliance Holding Unitholders. Alliance Holding's
Available Cash Flow and distributions per Alliance Holding Unit for the three
months ended March 31, 2000 and 1999, were as follows:
THREE MONTHS ENDED
----------------------------
3/31/00 3/31/99
- ----------------------------------------------------------------------------------------
Available Cash Flow (in thousands) $ 53,350 $ 93,316
Distributions per Alliance Holding Unit $ 0.74 $ 0.54
- ----------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint (the
"Original Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance Holding and certain other defendants
affiliated with Alliance Holding alleging violations of federal securities laws,
fraud and breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. On September 26, 1996, the United States
District Court for the Southern District of New York granted the defendants'
motion to dismiss all counts of the Original Complaint. On October 29, 1997, the
United States Court of Appeals for the Second Circuit affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
(i) the Fund failed to hedge against currency risk despite representations that
it would do so, (ii) the Fund did not properly disclose that it planned to
invest in mortgage-backed derivative securities, and (iii) two advertisements
used by the Fund misrepresented the risks of investing in the Fund. On October
15, 1998, the United States Court of Appeals for the Second Circuit issued an
order granting plaintiffs' motion to file an amended complaint alleging that the
Fund misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint alleging that the Fund did not
properly disclose that it planned to invest in mortgage-backed derivative
securities and that certain advertisements used by the Fund misrepresented the
risks of investing in the Fund.
12
On December 1, 1999, the United States District Court for the Southern District
of New York granted the defendants' motion for summary judgment on all claims
against all defendants. On December 14 and 15, 1999, the plaintiffs filed
motions for reconsideration of the Court's ruling. These motions are currently
pending with the Court.
A Stipulation and Agreement of Settlement has been signed with the lawyers for
the plaintiffs settling this action. Under the Stipulation and Agreement of
Settlement the Operating Partnership will permit Fund shareholders to invest up
to $250 million in Alliance mutual funds free of initial sales charges. Like all
class action settlements, the Stipulation and Agreement of Settlement is subject
to court approval.
The Operating Partnership assumed all of Alliance Holding's liabilities in
respect of this litigation in connection with the Reorganization. As a result of
the settlment, Alliance Holding recorded a non-cash gain of approximately $0.13
per Alliance Holding Unit for the three months ended March 31, 2000. While the
ultimate outcome of this matter cannot be determined at this time, management
does not expect that it will have a material adverse effect on Alliance
Holding's results of operations or financial condition.
FORWARD-LOOKING STATEMENTS
Certain statements provided by Alliance Holding and Alliance Capital in this
report are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. The most significant of such factors include, but
are not limited to, the following: the performance of financial markets, the
investment performance of sponsored investment products and separately managed
accounts, general economic conditions, future acquisitions, competitive
conditions and government regulations, including changes in tax rates. Alliance
Holding and Alliance Capital caution readers to carefully consider such factors.
Further, such forward-looking statements speak only as of the date on which such
statements are made; Alliance Holding and Alliance Capital undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date of such statements.
13
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
A Stipulation and Agreement of Settlement has been signed with
the lawyers for plaintiffs in the legal proceeding reported in
the Alliance Capital Management Holding L.P. Annual Report on
Form 10-K for the year ended December 31, 1999. Under the
Stipulation and Agreement of Settlement Alliance Capital
Management L.P. ("Alliance Capital") will permit shareholders
of Alliance North American Government Income Trust, Inc. to
invest up to $250 million in mutual funds sponsored by
Alliance Capital free of sales charges. Like all class action
settlements, the Stipulation and Agreement of Settlement is
subject to court approval.
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
13.2 Pages 1 through 17 of the Alliance Capital
Management L.P. quarterly report on Form 10-Q
for the quarterly period ended March 31, 2000.
(b) Reports on Form 8-K
None.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
Dated: May 15, 2000 By: Alliance Capital Management
Corporation, its General Partner
By: /s/ Robert H. Joseph, Jr.
--------------------------------
Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer
15