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 JUNE 30, 2000
---------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-9818
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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
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(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
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The number of Units representing assignments of beneficial ownership of limited
partnership interests* outstanding as of June 30, 2000 was 72,565,133.
* 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 6/30/00 12/31/99
------------ ----------
(unaudited)
Fees receivable:
Alliance mutual funds........................... $ 1,598 $ 662
Separately managed third-party clients.......... 1,073 1,221
Investment in Operating Partnership................ 784,667 270,177
Other assets....................................... 27 -
----------- -----------
Total assets.................................... $ 787,365 $ 272,060
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to Operating Partnership................ $ 7,501 $ 5,843
Accounts payable and accrued expenses........... 248 609
----------- -----------
Total liabilities............................. 7,749 6,452
Partners' capital............................... 779,616 265,608
----------- -----------
Total liabilities and partners' capital....... $ 787,365 $ 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 SIX MONTHS ENDED
----------------------- -----------------------
6/30/00 6/30/99 6/30/00 6/30/99
---------- ---------- ---------- ----------
Revenues:
Equity in earnings of Operating Partnership......................... $ 62,430 $ - $ 133,581 $ -
Investment advisory and services fees:
Alliance mutual funds............................................. - 185,928 - 380,827
Separately managed accounts:
Affiliated clients.............................................. - 14,171 - 26,894
Third-party clients............................................. - 91,176 - 188,972
Distribution revenues............................................... - 105,218 - 198,830
Shareholder servicing fees.......................................... - 15,500 - 28,797
Other revenues...................................................... - 6,948 - 14,364
---------- ---------- ---------- ----------
62,430 418,941 133,581 838,684
---------- ---------- ---------- ----------
Expenses:
Employee compensation and benefits.................................. - 102,693 - 220,972
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated...................................................... - 25,191 - 50,875
Third-party..................................................... - 57,728 - 109,869
Amortization of deferred sales commissions........................ - 40,017 - 74,698
Other............................................................. - 28,093 - 54,896
General and administrative.......................................... - 45,403 - 87,739
Interest............................................................ - 4,479 - 7,980
Amortization of intangible assets................................... - 964 - 1,927
---------- ---------- ---------- ----------
- 304,568 - 608,956
---------- ---------- ---------- ----------
Income before income taxes............................................. 62,430 114,373 133,581 229,728
Income taxes........................................................ 5,031 17,159 10,256 34,460
---------- ---------- ---------- ----------
Net income............................................................. $ 57,399 $ 97,214 $ 123,325 $ 195,268
========== ========== ========== ===========
Net income per Alliance Holding Unit:
Basic............................................................... $ 0.81 $ 0.56 $ 1.73 $ 1.13
========== ========== ========== ===========
Diluted............................................................. $ 0.76 $ 0.55 $ 1.64 $ 1.10
========== ========== ========== ===========
* 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 SIX MONTHS ENDED
----------------------- -----------------------
6/30/00 6/30/99 6/30/00 6/30/99
---------- ---------- ---------- ----------
Partners' capital - beginning of period................................ $ 249,003 $ 458,949 $ 265,608 $ 430,273
Comprehensive income:
Net income...................................................... 57,399 97,214 123,325 195,268
Unrealized gain on investments, net............................. - 327 - 1,151
Foreign currency translation adjustment, net.................... - - - 3
---------- ---------- ---------- ----------
Comprehensive income............................................ 57,399 97,541 123,325 196,422
---------- ---------- ---------- ----------
Change in proportionate share of the Operating Partnership's
partners' capital 523,005 - 523,005 -
Capital contribution received from Alliance Capital
Management Corporation............................................ - 90 - 1,066
Cash distributions to partners...................................... (53,510) (93,316) (115,145) (167,364)
Purchase of Alliance Holding Units.................................. - - (28,042) -
Proceeds from options for Alliance Holding Units exercised.......... 3,719 3,798 10,865 6,665
---------- ---------- ---------- ----------
Partners' capital - end of period...................................... $ 779,616 $ 467,062 $ 779,616 $ 467,062
========== ========== ========== ===========
* 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)
SIX MONTHS ENDED
----------------------------
6/30/00 6/30/99
----------- -----------
Cash flows from operating activities:
Net income................................................................... $ 123,325 $ 195,268
Adjustments to reconcile net income to net cash provided
from (used in) operating activities:
Equity in earnings of Operating Partnership................................ (133,581) -
Amortization and depreciation.............................................. - 86,151
Other, net................................................................. - 9,339
Changes in assets and liabilities:
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds..................................... - (23,790)
(Increase) in fees receivable from Alliance mutual funds,
affiliated clients and third-party clients............................. (788) (24,258)
(Increase) in deferred sales commissions................................. - (213,425)
(Decrease) in other investments.......................................... - (14,411)
(Increase) in other assets............................................... (27) (5,915)
Increase in payable to Alliance mutual funds for share purchases......... - 39,481
Increase in payable to Operating Partnership............................. 1,658 -
(Decrease) in accounts payable and accrued expenses...................... (361) (17,535)
Increase in accrued compensation and benefits, less
deferred compensation.................................................. - 95,607
----------- -----------
Net cash provided from (used in) operating activities................ (9,774) 126,512
------------ -----------
Cash flows from investing activities:
Operating Partnership distributions received................................. 124,919 -
Investment in Operating Partnership from exercises of options................ (10,865) -
Purchase of investments...................................................... - (514,538)
Proceeds from sale of investments............................................ - 426,850
Additions to furniture, equipment and leasehold
improvements, net.......................................................... - (27,290)
Other........................................................................ - (142)
----------- ------------
Net cash provided from (used in) investing activities................ 114,054 (115,120)
----------- ------------
Cash flows from financing activities:
Proceeds from borrowings..................................................... - 905,231
Repayment of debt............................................................ - (743,375)
Cash distributions to partners............................................... (115,145) (167,364)
Capital contribution received from Alliance Capital Management
Corporation................................................................ - 566
Proceeds from options for Alliance Holding Units exercised................... 10,865 6,665
----------- -----------
Net cash provided from (used in) financing activities................ (104,280) 1,723
------------ -----------
Net increase in cash and cash equivalents....................................... - 13,115
Cash and cash equivalents at beginning of period................................ - 75,186
----------- -----------
Cash and cash equivalents at end of period...................................... $ - $ 88,301
=========== ===========
* 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
June 30, 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 June 30, 2000, Alliance Holding owned approximately 72.6 million, or 35%,
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 June 30, 2000, AXA Financial was
the beneficial owner of approximately 2.1% of Alliance Holding's outstanding
Units and approximately 62.5% of the Operating Partnership's outstanding
Units which, including the general partnership interests, equates to an
economic interest of approximately 63.6% 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 June 30, 2000 in
order to provide a meaningful presentation of Alliance Holding's financial
information.
5
2. BERNSTEIN ACQUISITION
Pursuant to an acquisition agreement dated as of June 20, 2000 among Alliance
Capital, Alliance Holding, Sanford C. Bernstein Inc. ("Bernstein") and
Bernstein Technologies Inc., a wholly owned subsidiary of Bernstein, Alliance
Capital has agreed to acquire the Bernstein business for $1.4754 billion in
cash and 40.8 million Alliance Capital units subject to adjustment in certain
circumstances. On June 21, 2000 AXA Financial purchased from Alliance Capital
32,619,775 newly issued Alliance Capital units for $1.6 billion, and Alliance
Capital will use the proceeds primarily to finance the cash portion of the
acquisition price.
The obligations of both Alliance Capital and Bernstein to close the
transactions contemplated by the acquisition agreement depend upon meeting a
number of conditions, including the approval of Alliance Holding unitholders,
Alliance Capital's reasonable satisfaction that Bernstein has maintained at
least 75% of its client revenue base as of May 31, 2000, and receipt of
regulatory approvals and consents from Bernstein's clients and other third
parties. The parties are working to close the acquisition by the fourth
quarter of 2000.
3. 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 June 30, 2000, (b) results of
operations for the three months and six months ended June 30, 2000 and 1999
and (c) cash flows for the six months ended June 30, 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. In addition, Alliance Holding's
investment is adjusted to reflect its proportionate share of certain
partners' capital transactions incurred by the Operating Partnership.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
4. QUARTERLY FINANCIAL INFORMATION
The following table summarizes the actual unaudited condensed results of
operations of Alliance Holding for the three months and six months ended June
30, 2000 and the pro forma unaudited condensed results of operations of
Alliance Holding for the three months and six months ended June 30, 1999 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).
6
The pro forma financial information does not necessarily reflect the results
of operations for the three months and six months ended June 30, 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 SIX MONTHS ENDED
----------------------- ------------------------
Actual Pro Forma Actual Pro Forma
6/30/00 6/30/99 6/30/00 6/30/99
---------- ---------- ---------- ----------
Equity in earnings of Operating Partnership................... $ 62,430 $ 44,017 $ 133,581 $ 88,435
Income taxes.................................................. 5,031 3,929 10,256 8,068
---------- ---------- ---------- ----------
Net income ................................................... $ 57,399 $ 40,088 $ 123,325 $ 80,367
========== ========== ========== ==========
Basic net income per Alliance Holding Unit.................... $ 0.81 $ 0.56 $ 1.73 $ 1.13
========== ========== ========== ==========
Diluted net income per Alliance Holding Unit.................. $ 0.76 $ 0.55 $ 1.64 $ 1.10
========== ========== ========== ==========
The following table presents a reconciliation of the condensed results of
operations for the three months and six months ended June 30, 2000 for Alliance
Holding and the unaudited pro forma financial information of Alliance Holding
for the three months and six months ended June 30, 1999. (In thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ------------------------
Actual Pro Forma Actual Pro Forma
6/30/00 6/30/99 6/30/00 6/30/99
---------- ---------- ---------- ----------
Operating Partnership income before income taxes.............. $ 162,787 $ 114,373 $ 343,899 $ 229,728
Income taxes.................................................. 8,952 7,630 18,914 14,856
---------- ---------- ---------- ----------
Net income.................................................... $ 153,835 $ 106,743 $ 324,985 $ 214,872
========== ========== ========== ==========
Alliance Holding ownership percentage of the
Operating Partnership Units................................ 41.0% 41.7% 41.5% 41.6%
========== ========== ========== ==========
Alliance Holding equity in earnings of
the Operating Partnership.................................. $ 62,430 $ 44,017 $ 133,581 $ 88,435
========== ========== ========== ==========
5. 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 SIX MONTHS ENDED
----------------------- ------------------------
Actual Pro Forma Actual Pro Forma
6/30/00 6/30/99 6/30/00 6/30/99
---------- ---------- ---------- ----------
Net income - Basic............................................ $ 57,399 $ 97,214 $ 123,325 $ 195,268
Additional allocation of equity in earnings of the
Operating Partnership resulting from assumed
dilutive effect of employee options........................ 3,125 - 6,395 -
---------- ---------- ---------- ----------
Net income - Diluted.......................................... $ 60,524 $ 97,214 $ 129,720 $ 195,268
========== ========== ========== ==========
7
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ------------------------
Actual Pro Forma Actual Pro Forma
6/30/00 6/30/99 6/30/00 6/30/99
---------- ---------- ---------- ----------
Weighted average Alliance Holding Units
outstanding - Basic........................................ 71,160 171,043 71,324 170,804
Dilutive effect of employee options and restricted units...... 7,997 5,325 7,697 5,164
---------- ---------- ---------- ----------
Weighted average Alliance Holding Units
outstanding - Diluted...................................... 79,157 176,368 79,021 175,968
========== ========== ========== ==========
Basic net income per Alliance Holding Unit.................... $ 0.81 $ 0.56 $ 1.73 $ 1.13
========== ========== ========== ==========
Diluted net income per Alliance Holding Unit.................. $ 0.76 $ 0.55 $ 1.64 $ 1.10
========== ========== ========== ==========
6. INVESTMENT IN OPERATING PARTNERSHIP
Alliance Holding's investment in the Operating Partnership for the six month
period ended June 30, 2000 was as follows (in thousands):
Investment in Operating Partnership at December 31, 1999..................................... $ 270,177
Equity in earnings of Operating Partnership.................................................. 133,581
Additional investment resulting from exercises of employee options........................... 10,865
Change in proportionate share of the Operating Partnership's
partners' capital.......................................................................... 523,005
Distribution received from Operating Partnership............................................. (124,919)
Satisfaction of payable to Operating Partnership............................................. (28,042)
-----------
Investment in Operating Partnership at June 30, 2000......................................... $ 784,667
===========
7. 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 Alliance Capital will permit Fund shareholders to invest up
to $250 million in Alliance mutual funds free of initial sales charges. On
August 3, 2000 the Court signed an order approving the Stipulation and
Agreement of Settlement. Shareholders of the Fund have thirty days from the
date the order becomes final to appeal the order.
Alliance Capital assumed all of Alliance Holding's liabilities in respect of
this litigation in connection with the Reorganization. As a result of the
8
settlement, Alliance Holding recorded a non-cash gain of approximately
$0.13 per Alliance Holding Unit during 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. 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.
9. SUPPLEMENTAL CASH FLOW AND NONCASH INVESTING AND FINANCING ACTIVITIES
INFORMATION
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- ------------------------
6/30/00 6/30/99 6/30/00 6/30/99
------------- ------------- ---------- -----------
(in thousands)
Cash payments for interest and income taxes were as
follows:
Interest............................................. $ - $ 1,747 $ - $ 4,108
Income taxes......................................... 10,715 56,875 10,715 64,274
Noncash investing and financing activities were as follows:
Investment in Operating Partnership................. $ 523,005 - $ 523,005 -
Partners' capital................................... 523,005 - 523,005 -
10. CASH DISTRIBUTION
On July 26, 2000, the General Partner declared a distribution of $54,424,000
or $0.75 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 June 30, 2000. The distribution
is payable on August 17, 2000 to holders of record on August 7, 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 June 30, 2000, Alliance Holding owned approximately 72.6 million, or 35%, 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 June 30, 2000, AXA Financial was the beneficial
owner of approximately 2.1% of Alliance Holding's outstanding Units and
approximately 62.5% of the Operating Partnership's outstanding Units which,
including the general partnership interests, equates to an economic interest of
approximately 63.6% 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").
The Alliance Holding 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 June 30, 2000 in order to
provide a meaningful presentation of Alliance Holding's financial information.
10
BERNSTEIN ACQUISITION
Pursuant to an acquisition agreement dated as of June 20, 2000 among Alliance
Capital, Alliance Holding, Sanford C. Bernstein Inc. ("Bernstein") and Bernstein
Technologies Inc., a wholly owned subsidiary of Bernstein, Alliance Capital has
agreed to acquire the Bernstein business for $1.4754 billion in cash and 40.8
million Alliance Capital units subject to adjustment in certain circumstances.
On June 21, 2000 AXA Financial purchased from Alliance Capital 32,619,775 newly
issued Alliance Capital units for $1.6 billion, and Alliance Capital will use
the proceeds primarily to finance the cash portion of the acquisition price.
The obligations of both Alliance Capital and Bernstein to close the transactions
contemplated by the acquisition agreement depend upon meeting a number of
conditions, including the approval of Alliance Holding unitholders, Alliance
Capital's reasonable satisfaction that Bernstein has maintained at least 75% of
its client revenue base as of May 31, 2000, and receipt of regulatory approvals
and consents from Bernstein's clients and other third parties. The parties are
working to close the acquisition by the fourth quarter of 2000.
BASIS OF PRESENTATION
Actual results of operations of Alliance Holding are presented for the three
months and six months ended June 30, 2000. The pro forma financial information
of Alliance Holding for the three months and six months ended June 30, 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 Units of the Operating
Partnership. The pro forma financial information for the three months and six
months ended June 30, 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
(Dollars and Alliance Holding Units in millions, THREE MONTHS ENDED SIX MONTHS ENDED
except per Alliance Holding Unit amounts) ------------------------------ ------------------------------
Actual Pro Forma Actual Pro Forma
6/30/00 6/30/99(1) % Change 6/30/00 6/30/99(1) % Change
- -------------------------------------------------------------------------------------------------------------------
Equity in earnings of Operating Partnership $62.4 $44.0 41.8% $133.6 $88.4 51.1%
Income taxes 5.0 3.9 28.2 10.3 8.0 28.8
----- ----- ------ -----
Net income $57.4 $40.1 43.1 $123.3 $80.4 53.4
===== ===== ====== =====
Net income per Alliance Holding Unit:
Basic $0.81 $0.56 44.6 $1.73 $1.13 53.1
===== ===== ===== =====
Diluted $0.76 $0.55 38.2 $1.64 $1.10 49.1
===== ===== ===== =====
Net income per Alliance Holding Unit excluding
impact of performance fees - diluted $0.73 $0.52 40.4 $1.58 $0.99 59.6
===== ===== ===== =====
Net income per Alliance Holding Unit excluding
impact of NAGIT litigation adjustment - diluted $0.76 $0.55 38.2 $1.51 $1.10 37.3
===== ===== ===== =====
Weighted average number of Alliance Holding
Units outstanding:
Basic 71.2 71.2 - 71.3 71.0 0.4
Diluted 79.2 76.0 4.2% 79.0 75.9 4.1%
- -------------------------------------------------------------------------------------------------------------------
(1) Pro forma amounts assume the Alliance Holding Reorganization occurred
January 1, 1999.
Net income for the three months and six months ended June 30, 2000 increased
$17.3 million or $0.21 diluted net income per Alliance Holding Unit and $42.9
million or $0.54 diluted net income per Alliance Holding Unit, respectively,
from pro forma net income for the three months and six months ended June 30,
1999, respectively. The increases reflect equity in higher earnings of the
Operating Partnership, partially offset by corresponding increases in income
11
taxes. The increases in equity in earnings of the Operating Partnership were
principally due to higher average assets under management and, for the six
months ended June 2000, 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") recorded in the first quarter of 2000.
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
proportionate share of the Operating Partnership's income and will be decreased
by its proportionate 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 and six months ended June 30, 2000
compared to the three months and six months ended June 30, 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.
CAPITAL RESOURCES AND LIQUIDITY
Alliance Holding's partners' capital was $779.6 million at June 30, 2000, an
increase of $514.0 million or 193% from $265.6 million at December 31, 1999. The
increase is primarily due to the change in Alliance Holding's proportionate
share of the Operating Partnership's partners' capital, at book value, resulting
from the AXA Financial purchase of newly issued Operating Partnership units in
connection with the Bernstein acquisition and net income, partially offset by
cash distributions.
At June 30, 2000, Alliance Holding owned approximately 72.6 million Operating
Partnership Units, or approximately 35% of the issued and outstanding Operating
Partnership Units. Subsequent to the Reorganization, Alliance Holding's
principal sources of income and cash flow are attributable to its ownership
interest in the Operating Partnership. 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-term 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 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 and six months
ended June 30, 2000 and 1999, were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -------------------
6/30/00 6/30/99 6/30/00 6/30/99
- -----------------------------------------------------------------------------------------------------
Available Cash Flow (in thousands) $54,424 $93,380 $107,935 $186,696
Distributions per Alliance Holding Unit $ 0.75 $ 0.54 $ 1.49 $ 1.08
- -----------------------------------------------------------------------------------------------------
12
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 Alliance Capital will permit Fund shareholders to invest up to $250
million in Alliance mutual funds free of initial sales charges. On August 3,
2000 the Court signed an order approving the Stipulation and Agreement of
Settlement. Shareholders of the Fund have thirty days from the date the order
becomes final to appeal the order.
Alliance Capital 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 during 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
On August 3, 2000 the Court signed an order approving the
Stipulation and Agreement of Settlement in the legal
proceeding reported in the Alliance Capital Management Holding
L.P. ("Alliance Holding") Annual Report on Form 10-K for the
year ended December 31, 1999. Shareholders of Alliance North
American Government Income Trust, Inc. have thirty days from
the date the order becomes final to appeal the order.
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 20 of the Alliance Capital Management
L.P. ("Alliance Capital") quarterly report on Form
10-Q for the quarterly period ended June 30, 2000.
15 Independent Accountants' Review Report
27 Financial Data Schedule
(b) Reports on Form 8-K
Alliance Holding filed a report on Form 8-K dated June
20, 2000 announcing that Alliance Capital had entered
into a definitive agreement with Sanford C. Bernstein,
Inc. ("SCB") pursuant to which Alliance Capital has
agreed, subject to certain terms and conditions, to
acquire substantially all of the assets and assume
substantially all of the liabilities of SCB and its
subsidiaries. Alliance Capital also agreed to issue on
June 20, 2000 approximately 32.6 million units of
limited partnership interest in Alliance Capital to AXA
Financial, Inc. for $1.6 billion.
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: August 14, 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