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 SEPTEMBER 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 -----------------------
Commission File No. 000-29961
-------------------------------------------------------------
ALLIANCE CAPITAL MANAGEMENT L.P.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-4064930
-------------------------------- -----------------------------------
(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
------ ------
205,866,317 Units of limited partnership interest in Alliance Capital Management
L.P. were outstanding as of September 30, 2000.
<PAGE>
ALLIANCE CAPITAL MANAGEMENT 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 10-21
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 22
Item 2. CHANGES IN SECURITIES 22
Item 3. DEFAULTS UPON SENIOR SECURITIES 22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 22
Item 5. OTHER INFORMATION 22
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 22
<PAGE>
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
<TABLE>
<CAPTION>
ASSETS 9/30/00 12/31/99
------------ ------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents....................................................... $ 156,131 $ 80,185
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds........................................... 174,273 218,569
Fees receivable:
Alliance mutual funds........................................................ 140,076 189,866
Separately managed accounts:
Affiliated clients......................................................... 5,358 7,136
Third-party clients........................................................ 124,816 112,847
Investments, available-for-sale................................................. 1,868,900 98,620
Furniture, equipment and leasehold improvements, net............................ 160,045 140,045
Intangible assets, net.......................................................... 96,638 98,068
Deferred sales commissions, net................................................. 726,614 604,723
Other investments............................................................... 59,523 57,786
Other assets.................................................................... 63,641 53,216
------------ -----------
Total assets................................................................. $ 3,576,015 $ 1,661,061
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to Alliance mutual funds for share purchases......................... $ 272,183 $ 254,151
Accounts payable and accrued expenses........................................ 276,071 225,922
Accrued compensation and benefits............................................ 398,998 235,120
Debt......................................................................... 522,927 390,079
Minority interests in consolidated subsidiaries.............................. 3,525 3,122
------------ ------------
Total liabilities.......................................................... 1,473,704 1,108,394
Partners' capital............................................................ 2,102,311 552,667
------------ ------------
Total liabilities and partners' capital.................................... $ 3,576,015 $ 1,661,061
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.*
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per Unit amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -------------------------
Alliance Alliance Alliance Alliance
Capital Holding Capital Holding
9/30/00 9/30/99 9/30/00 9/30/99
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Revenues:
Investment advisory and services fees:
Alliance mutual funds............................................. $ 278,555 $ 207,329 $ 794,400 $ 588,156
Separately managed accounts:
Affiliated clients.............................................. 12,634 12,222 39,633 39,116
Third-party clients............................................. 102,989 87,414 311,976 276,386
Distribution revenues............................................... 167,023 115,483 469,701 314,313
Shareholder servicing fees.......................................... 21,462 16,272 62,442 45,069
Other revenues...................................................... 32,923 6,442 50,777 20,806
---------- ---------- ----------- -----------
615,586 445,162 1,728,929 1,283,846
---------- ---------- ----------- -----------
Expenses:
Employee compensation and benefits.................................. 138,771 113,521 398,860 334,493
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated...................................................... 30,804 26,983 95,073 77,858
Third-party..................................................... 88,040 56,604 253,875 166,473
Amortization of deferred sales commissions........................ 56,726 42,990 160,612 117,688
Other............................................................. 36,559 30,164 110,402 85,060
General and administrative.......................................... 48,691 47,825 147,720 135,564
Interest............................................................ 8,131 6,519 32,521 14,499
Amortization of intangible assets................................... 981 963 2,937 2,890
Litigation adjustment, net.......................................... - - (23,853) -
---------- ---------- ----------- -----------
408,703 325,569 1,178,147 934,525
---------- ---------- ----------- -----------
Income before income taxes............................................. 206,883 119,593 550,782 349,321
Income taxes........................................................ 11,377 17,939 30,291 52,399
---------- ---------- ----------- -----------
Net income............................................................. $ 195,506 $ 101,654 $ 520,491 $ 296,922
========== =========== ============= ============
Net income per Unit:
Basic............................................................. $ 0.95 $ 0.59 $ 2.81 $ 1.72
========== =========== ============= ============
Diluted........................................................... $ 0.91 $ 0.57 $ 2.69 $ 1.67
========== =========== ============= ============
</TABLE>
* As discussed in Notes 1 and 3, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital Management
L.P. thereafter.
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.*
Condensed Consolidated Statements of
Changes in Partners' Capital
and Comprehensive Income
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
Alliance Alliance Alliance Alliance
Capital Holding Capital Holding
9/30/00 9/30/99 9/30/00 9/30/99
------------ -------------- ---------- ----------
<S> <C> <C> <C> <C>
Partners' capital - beginning of period................................ $ 2,148,158 $ 467,062 $ 552,667 $ 430,273
Comprehensive income:
Net income........................................................ 195,506 101,654 520,491 296,922
Unrealized gain (loss) on investments, net........................ (488) (781) (261) 370
Foreign currency translation adjustment, net...................... (1,339) 1,032 (1,946) 1,035
------------- ---------- ------------- ----------
Comprehensive income.............................................. 193,679 101,905 518,284 298,327
------------ ---------- ------------ ----------
Capital contribution received from Alliance Capital
Management Corporation.............................................. 96 90 273 1,156
Cash distributions to partners......................................... (146,294) (93,381) (446,672) (260,745)
Purchase of Alliance Holding Units to fund
deferred compensation plans......................................... (98,991) - (146,626) -
Amortization of deferred compensation expense.......................... 2,248 - 8,619 -
Proceeds from issuance of Alliance Capital Units
to ELAS and AXA Financial........................................... - - 1,629,525 -
Purchase of Alliance Capital Units from Alliance Holding............... - - (28,042) -
Proceeds from options for Alliance Holding Units exercised............. 3,415 1,178 14,283 7,843
------------ ---------- ------------ ----------
Partners' capital - end of period...................................... $ 2,102,311 $ 476,854 $ 2,102,311 $ 476,854
============ ========== ============ ==========
</TABLE>
* As discussed in Notes 1 and 3, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital Management
L.P. thereafter.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.*
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
Alliance Alliance
Capital Holding
9/30/00 9/30/99
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................ $ 520,491 $ 296,922
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation....................................................... 189,121 135,392
Other, net.......................................................................... 29,118 16,247
Changes in assets and liabilities:
Decrease (increase) in receivable from brokers and
dealers for sale of shares of Alliance mutual funds............................. 44,275 (36)
Decrease (increase) in fees receivable from Alliance
mutual funds, affiliated clients and third-party clients........................ 38,797 (20,426)
(Increase) in deferred sales commissions.......................................... (282,503) (302,511)
(Increase) in other investments................................................... (2,049) (17,665)
(Increase) in other assets........................................................ (11,089) (5,864)
Increase in payable to Alliance mutual funds for share
purchases....................................................................... 18,038 12,045
Increase (decrease) in accounts payable and accrued
expenses........................................................................ 51,170 (2,141)
Increase in accrued compensation and benefits, less
deferred compensation........................................................... 159,699 149,052
------------ -----------
Net cash provided from operating activities................................... 755,068 261,015
------------ -----------
Cash flows from investing activities:
Purchase of investments............................................................... (3,128,440) (877,790)
Proceeds from sale of investments..................................................... 1,357,845 723,130
Additions to furniture, equipment and leasehold
improvements, net................................................................... (44,934) (47,585)
Other................................................................................. - (142)
------------ ------------
Net cash used in investing activities......................................... (1,815,529) (202,387)
------------- ------------
Cash flows from financing activities:
Proceeds from borrowings.............................................................. 5,058,639 1,766,728
Repayment of debt..................................................................... (4,942,982) (1,562,375)
Cash distributions to partners........................................................ (446,672) (260,744)
Purchase of Alliance Holding Units to fund deferred
compensation plans.................................................................. (146,626) -
Proceeds from issuance of Alliance Capital Units to ELAS and
AXA Financial....................................................................... 1,629,525 -
Purchase of Alliance Capital Units from Alliance Holding.............................. (28,042) -
Capital contribution received from Alliance Capital
Management Corporation.............................................................. 273 656
Proceeds from options for Alliance Holding Units exercised............................ 14,283 7,842
------------ -----------
Net cash provided by (used in) financing activities........................... 1,138,398 (47,893)
------------ ------------
Effect of exchange rate changes on cash and cash equivalents ............................ (1,991) 217
------------- -----------
Net increase in cash and cash equivalents................................................ 75,946 10,952
Cash and cash equivalents at beginning of period......................................... 80,185 75,186
------------ -----------
Cash and cash equivalents at end of period............................................... $ 156,131 $ 86,138
============ ==========
</TABLE>
* As discussed in Notes 1 and 3, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital Management
L.P. thereafter.
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
September 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 Capital 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 September 30, 2000, Alliance Holding owned approximately 72.9 million, or
35.4%, 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 September 30, 2000,
AXA Financial was the beneficial owner of approximately 2.1% of Alliance
Holding's outstanding Units and approximately 62.4% of the Operating
Partnership's outstanding Units which, including the general partnership
interests, represents an economic interest of approximately 63.5% 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 and its
subsidiaries provide 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").
5
<PAGE>
2. BERNSTEIN ACQUISITION
On October 2, 2000 Alliance Capital acquired the business of Sanford C.
Bernstein Inc. ("Bernstein") pursuant to an acquisition agreement dated as
of June 20, 2000 among Alliance Capital, Alliance Holding, Bernstein and
Bernstein Technologies Inc., a wholly owned subsidiary of Bernstein, for
$1.4754 billion in cash and 40.8 million Alliance Capital units. 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 used the
proceeds primarily to finance the cash portion of the acquisition price.
At October 2, 2000, Alliance Holding owned approximately 30% of the issued
and outstanding Alliance Capital Units. AXA Financial was the beneficial
owner of approximately 2% of Alliance Holding's outstanding Units and
approximately 52% of the Operating Partnership's outstanding Units which,
including the general partnership interests, represents an economic interest
of approximately 53% in the Operating Partnership.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of the
Operating Partnership 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) the Operating Partnership's financial position at
September 30, 2000, (b) the Operating Partnership's results of operations
for the three months and nine months ended September 30, 2000 and Alliance
Holding's results of operations for the three months and nine months ended
September 30, 1999, and (c) the Operating Partnership's cash flows for the
nine months ended September 30, 2000 and Alliance Holding's cash flows for
the nine months ended September 30, 1999, have been made.
The consolidated financial statements' dollar and per Unit amounts and
disclosures reflect the operations of Alliance Holding prior to the
Reorganization effective October 29, 1999 and of Alliance Capital
thereafter. The accounting policies summarized below are followed by the
Operating Partnership subsequent to the Reorganization and were followed by
Alliance Holding prior to the Reorganization. All information prior to the
Reorganization is that of Alliance Holding.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
4. DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the
sale of shares of open-end Alliance mutual funds sold without a front-end
sales charge are capitalized and amortized over periods not exceeding five
and one-half years, the period of time during which deferred sales
commissions are expected to be recovered from distribution plan payments
received from those funds and from contingent deferred sales charges
received from shareholders of those funds upon the redemption of their
shares. Contingent deferred sales charges reduce unamortized deferred sales
commissions when received.
5. QUARTERLY FINANCIAL INFORMATION
The following table summarizes the actual and pro forma unaudited condensed
results of operations of the Operating Partnership for the three months and
nine months ended September 30, 2000 and 1999, respectively, as if the
Reorganization (See Note 1) had occurred on January 1, 1999. The pro forma
6
<PAGE>
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.
The pro forma financial information 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. (In thousands, except per Unit amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ----------------------------
Actual Pro Forma Actual Pro Forma
9/30/00 9/30/99 9/30/00 9/30/99
---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 615,586 $ 445,162 $ 1,728,929 $ 1,283,846
Expenses............................................... 408,703 325,569 1,178,147 934,525
---------- ---------- ------------ ------------
Income before income taxes............................. 206,883 119,593 550,782 349,321
Income taxes........................................... 11,377 7,877 30,291 22,733
---------- ---------- ------------ ------------
Net income............................................. $ 195,506 $ 111,716 $ 520,491 $ 326,588
========== ========== ============ =============
Basic net income per Alliance Capital Unit............. $ 0.95 $ 0.65 $ 2.81 $ 1.89
========== ========== ============ =============
Diluted net income per Alliance Capital Unit........... $ 0.91 $ 0.63 $ 2.69 $ 1.84
========== ========== ============ =============
</TABLE>
6. NET INCOME PER UNIT
Basic net income per Unit is derived by reducing net income for the 1%
general partnership interest and dividing the remaining 99% by the weighted
average number of Units outstanding. Diluted net income per Unit is derived
by reducing net income for the 1% general partnership interest and dividing
the remaining 99% by the total of the weighted average number of Units
outstanding and the dilutive Unit equivalents resulting from outstanding
employee options and unvested units. All information prior to the
Reorganization is that of Alliance Holding. (In thousands, except per Unit
amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
Alliance Alliance Alliance Alliance
Capital Holding Capital Holding
9/30/00 9/30/99 9/30/00 9/30/99
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income............................................. $ 195,506 $ 101,654 $ 520,491 $ 296,922
========== ========== =========== ==========
Weighted average Units outstanding-Basic............... 204,341 171,228 183,687 170,947
Dilutive effect of employee options and
unvested units....................................... 8,243 5,242 7,884 5,194
----------- ---------- ---------- ----------
Weighted average Units outstanding-Diluted............. 212,584 176,470 191,571 176,141
=========== ========== ========== ==========
Basic net income per Unit.............................. $ 0.95 $ 0.59 $ 2.81 $ 1.72
=========== ========== ========== ==========
Diluted net income per Unit............................ $ 0.91 $ 0.57 $ 2.69 $ 1.67
=========== ========== ========== ==========
</TABLE>
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
7
<PAGE>
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.
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. The order became final on September 6, 2000.
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 Capital recorded a non-cash gain of $22.5 million
($23.9 million pre-tax) during the three months ended March 31, 2000.
Management does not expect that the settlement will have a material adverse
effect on Alliance Capital's or Alliance Holding's results of operations or
financial condition.
8. INCOME TAXES
The Operating Partnership is a private partnership for federal income tax
purposes and, accordingly, is not subject to federal or state corporate
income taxes. However, the Operating Partnership is subject to the New York
City unincorporated business tax. Domestic corporate subsidiaries of the
Operating Partnership, which are subject to federal, state and local income
taxes, are generally included in the filing of a consolidated federal income
tax return. Separate state and local income tax returns are filed for
domestic corporate subsidiaries. Foreign corporate subsidiaries are
generally subject to taxes in the foreign jurisdictions where they are
located.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- -----------------------
Alliance Alliance Alliance Alliance
Capital Holding Capital Holding
9/30/00 9/30/99 9/30/00 9/30/99
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Interest............................................... $ 5,144 $ 3,655 $ 17,519 $ 7,763
Income taxes........................................... 12,354 16,030 33,773 80,304
</TABLE>
8
<PAGE>
10. ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133")"ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES". Under this Statement, an
entity is required to recognize derivative instruments as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. In addition, any entity that elects to apply
hedge accounting is required to establish at the inception of the hedge the
method it will use for assessing effectiveness of the hedging derivative and
the measurement approach for determining the ineffective aspect of the
hedge. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137 ("SFAS 137"), which
deferred the effective date of SFAS 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. Management intends to adopt this
Statement on January 1, 2001 and does not believe that the adoption of the
Statement will have a material effect on the Operating Partnership's
financial condition, results of operations, liquidity or capital resources.
In December 1999, the Securities and Exchange Commission ("SEC") issued SEC
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS ("SAB 101"). SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The provisions of SAB 101 are effective no later than
the fourth fiscal quarter of fiscal years beginning after December 15, 1999.
Management intends to adopt SAB 101 in the fourth quarter 2000 and does not
believe that its adoption will have a material effect on the Operating
Partnership's financial condition, results of operations, liquidity or
capital resources.
11. CASH DISTRIBUTION
On October 27, 2000, the General Partner declared a distribution of
$186,363,000 or $0.905 per Alliance Capital Unit representing a distribution
from Available Cash Flow (as defined in the Alliance Capital Partnership
Agreement) of the Operating Partnership for the three months ended September
30, 2000. The distribution is payable on November 22, 2000 to holders of
record on November 13, 2000.
12. PURCHASE OF ALLIANCE HOLDING UNITS
A wholly-owned subsidiary of the Operating Partnership purchased 2,000,000
Alliance Holding units for $98,991,300 in private transactions. The Alliance
Holding units will be used to fund awards to be granted under a new deferred
compensation plan established in connection with the Operating Partnership's
acquisition of the business of Bernstein and under the Operating
Partnership's existing deferred compensation plan, known as the Alliance
Partners Compensation Plan.
9
<PAGE>
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 Capital 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 September 30, 2000, Alliance Holding owned approximately 72.9 million, or
35.4%, 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 September 30, 2000, AXA Financial was
the beneficial owner of approximately 2.1% of Alliance Holding's outstanding
Units and approximately 62.4% of the Operating Partnership's outstanding Units
which, including the general partnership interests, represents an economic
interest of approximately 63.5% 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 and its
subsidiaries provide 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").
10
<PAGE>
BERNSTEIN ACQUISITION
On October 2, 2000 Alliance Capital acquired the business of Sanford C.
Bernstein Inc. ("Bernstein") pursuant to an acquisition agreement dated as of
June 20, 2000 among Alliance Capital, Alliance Holding, Bernstein and Bernstein
Technologies Inc., a wholly owned subsidiary of Bernstein, for $1.4754 billion
in cash and 40.8 million Alliance Capital units. 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 used the proceeds primarily to finance
the cash portion of the acquisition price.
At October 2, 2000, Alliance Holding owned approximately 30% of the issued and
outstanding Alliance Capital Units. AXA Financial was the beneficial owner of
approximately 2% of Alliance Holding's outstanding Units and approximately 52%
of the Operating Partnership's outstanding Units which, including the general
partnership interests, represents an economic interest of approximately 53% in
the Operating Partnership.
GENERAL
The Operating Partnership's revenues are largely dependent on the total value
and composition of assets under management. Assets under management were $388.4
billion as of September 30, 2000, an increase of 22.4% from September 30, 1999
primarily as a result of market appreciation and net sales of Alliance mutual
funds. Active equity and balanced account assets under management, which
comprise approximately 61% of total assets under management, grew 35.0%. Active
fixed income account assets under management, which comprise approximately 29%
of total assets under management, increased by 3.1%.
In the third quarter of 2000, sales of mutual funds and variable products,
excluding cash management products, were $18.4 billion, an increase of $6.1
billion, compared to sales of $12.3 billion in the third quarter of 1999. In
addition, redemptions increased $7.2 billion to $14.0 billion from $6.8 billion
during the same period. Net mutual fund and variable products sales were $4.4
billion in the third quarter 2000, a decrease of 20.0% from $5.5 billion in the
third quarter 1999.
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT (1):
(Dollars in billions) 9/30/00 9/30/99 $ Change % Change
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance mutual funds:
Mutual funds $ 110.0 $ 79.6 $ 30.4 38.2%
Variable products 45.0 34.5 10.5 30.4
Cash management products 35.8 29.0 6.8 23.4
-------------------------------------------------------------------------------------------------------------
190.8 143.1 47.7 33.3
-------------------------------------------------------------------------------------------------------------
Separately managed accounts:
Affiliated clients 28.1 29.5 (1.4) (4.7)
Third-party clients 169.5 144.7 24.8 17.1
-------------------------------------------------------------------------------------------------------------
197.6 174.2 23.4 13.4
-------------------------------------------------------------------------------------------------------------
Total $ 388.4 $317.3 $ 71.1 22.4%
-------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT BY INVESTMENT ORIENTATION (1):
(Dollars in billions) 9/30/00 9/30/99 $ Change % Change
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Active equity & balanced
Domestic $207.6 $155.3 $52.3 33.7%
Global & international 30.1 20.8 9.3 44.7
Active fixed income
Domestic 99.4 94.7 4.7 5.0
Global & international 14.5 15.8 (1.3) (8.2)
Index
Domestic 30.9 25.7 5.2 20.2
Global & international 5.9 5.0 0.9 18.0
---------------------------------------------------------------------------------------------------------------------
Total $388.4 $317.3 $71.1 22.4%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ASSETS UNDER MANAGEMENT (1):
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
(Dollars in billions) 9/30/00 9/30/99 % Change 9/30/00 9/30/99 % Change
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds $190.2 $142.2 33.8% $183.4 $132.7 38.2%
Separately managed accounts:
Affiliated clients 28.6 30.0 (4.7) 28.8 29.8 (3.4)
Third-party clients 174.0 147.1 18.3 170.9 144.4 18.4
---------------------------------------------------------------------------------------------------------------------
Total $392.8 $319.3 23.0% $383.1 $306.9 24.8%
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
ANALYSIS OF ASSETS UNDER MANAGEMENT (1):
(Dollars in billions) 2000 1999
---------------------------------------------------------------------------------------------------------------------
Separately Separately
Managed Mutual Managed Mutual
Accounts Funds Total Accounts Funds Total
---------------------------------------------------------------------------------------------------------------------
Balance at January 1, $198.9 $169.4 $368.3 $168.1 $118.6 $286.7
---------------------------------------------------------------------------------------------------------------------
New accounts/sales 9.8 59.1 68.9 10.3 37.8 48.1
Terminations/redemptions (4.8) (39.8) (44.6) (4.1) (18.8) (22.9)
Net cash management sales - 3.6 3.6 - 2.5 2.5
Cash flow (5.5) (0.7) (6.2) (6.2) (0.8) (7.0)
Transfers - - - (0.5) 0.5 -
Net market appreciation (depreciation) (0.8) (0.8) (1.6) 6.6 3.3 9.9
--------------------------------------------------------------------------------------------------------------------
Net change (1.3) 21.4 20.1 6.1 24.5 30.6
--------------------------------------------------------------------------------------------------------------------
Balance at September 30, $197.6 $190.8 $388.4 $174.2 $143.1 $317.3
====================================================================================================================
</TABLE>
(1) Excludes certain non-discretionary relationships. Includes 100% of assets
under management by unconsolidated affiliates as follows: $2.9 billion
mutual fund assets and $1.1 billion separately managed account assets at
September 30, 2000 and $2.0 billion mutual fund assets and $0.5 billion
separately managed account assets at September 30, 1999. Certain amounts in
the 1999 presentation have been reclassified to conform to the 2000
presentation.
Assets under management at September 30, 2000 were $388.4 billion, an increase
of $0.6 billion or 0.2% from June 30, 2000 and an increase of $20.1 billion or
5.5% from December 31, 1999. The increase from June 30, 2000 was primarily due
to net asset inflows in cash management services products and net sales of
mutual funds and variable products, offset by net market depreciation and net
asset outflows from separately managed accounts. The increase from December 31,
1999 was primarily due to net sales of mutual funds and variable products and
net asset inflows in cash management services products, offset by net market
depreciation and net asset outflows from separately managed accounts.
Alliance mutual fund assets under management at September 30, 2000 were $190.8
billion, an increase of $5.9 billion or 3.2% from June 30, 2000 and an increase
of $21.4 billion or 12.6% from December 31, 1999. The increase for the third
quarter was due principally to net asset inflows in cash management services
products of $5.0 billion and net sales of mutual funds and variable products of
$4.0 billion and $0.4 billion, respectively, offset by net market depreciation
of $3.4 billion. The increase for the nine months ended September 30, 2000 was
due principally to net sales of mutual funds and variable products of $15.3
billion and $4.0 billion, respectively, and net asset inflows in cash management
services products of $3.6 billion, offset by net market depreciation of $0.8
billion.
Separately managed account assets under management at September 30, 2000 for
third-party clients and affiliated clients were $197.6 billion, a decrease of
$5.3 billion or 2.6% from June 30, 2000 and a decrease of $1.3 billion or 0.7%
from December 31, 1999. The decrease for the third quarter was primarily due to
net market depreciation of $4.3 billion, asset withdrawals from affiliated
12
<PAGE>
client accounts, primarily the General Accounts of ELAS, of $0.8 billion and
third-party client account terminations and net asset withdrawals of $3.6
billion, offset by net new third-party client accounts of $3.5 billion. The
decrease for the nine months ended September 30, 2000 was primarily due to asset
withdrawals from affiliated client accounts, primarily the General Accounts of
ELAS, of $2.0 billion, third-party client account terminations and net asset
withdrawals of $8.3 billion and net market depreciation of $0.8 billion, offset
by new third-party client accounts of $9.8 billion.
Assets under management at September 30, 1999 were $317.3 billion, a decrease of
$3.7 billion or 1.2% from June 30, 1999 and an increase of $30.6 billion or
10.7% from December 31, 1998.
Alliance mutual fund assets under management at September 30, 1999 were $143.1
billion, an increase of $2.2 billion or 1.6% from June 30, 1999 and an increase
of $24.5 billion or 20.7% from December 31, 1998. The increase for third quarter
1999 was principally due to net sales of mutual funds and cash management
products of $5.5 billion and $1.7 billion, respectively, reduced by market
depreciation of $4.8 billion. The increase for the nine months ended September
30, 1999 was due principally to net sales of mutual funds and variable products
of $17.4 billion and $1.6 billion, respectively, and market appreciation of
$3.3 billion.
Separately managed account assets under management at September 30, 1999 for
third-party clients and affiliated clients were $174.2 billion, a decrease of
$5.9 billion or 3.3% from June 30, 1999 and an increase of $6.1 billion or 3.6%
from December 31, 1998. The decrease from June 30, 1999 was primarily due to
market depreciation of $6.5 billion, net asset outflows from affiliated client
accounts of $0.1 billion, and third-party client account terminations and net
asset withdrawals of $2.8 billion, partially offset by new third-party client
accounts of $3.5 billion. The increase from December 31, 1998 was primarily due
to market appreciation of $6.6 billion, new third-party client accounts of
$10.3 billion and net asset additions to affiliated client accounts of $1.1
billion, partially offset by net third-party client account terminations and net
asset withdrawals of $11.4 billion and transfers out of affiliated client
accounts of $0.5 billion into mutual funds.
BASIS OF PRESENTATION
Actual results of operations of the Operating Partnership are presented for the
three months and nine months ended September 30, 2000. The pro forma financial
information of the Operating Partnership for the three months and nine months
ended September 30, 1999 assumes the Reorganization occurred on January 1,
1999 and 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. The pro forma financial information for the
three months and nine months ended September 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.
13
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
Actual Pro Forma Actual Pro Forma
(Dollars in millions) 9/30/00 9/30/99(1) % Change 9/30/00 9/30/99(1) % Change
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $615.6 $445.2 38.3% $1,728.9 $1,283.8 34.7%
Expenses 408.7 325.6 25.5 1,178.1 934.5 26.1
------ ------- ------- -------
Income before income taxes 206.9 119.6 73.0 550.8 349.3 57.7
Income taxes 11.4 7.9 44.3 30.3 22.7 33.5
------- ------- ------- -------
Net income $195.5 $111.7 75.0 $ 520.5 $ 326.6 59.4
====== ====== ======== ========
Net income per Unit(4):
Basic $ 0.95 $ 0.65 46.2 $ 2.81 $ 1.89 48.7
===== ===== ===== =====
Diluted $ 0.91 $0.63 44.4 $ 2.69 $ 1.84 46.2
===== ===== ===== =====
Weighted average number of Alliance
Capital Units outstanding(4):
Basic 204.3 171.2 19.3 183.7 170.9 7.5
Diluted 212.6 176.5 20.5% 191.6 176.1 8.8%
Operating margin(2): 46.3% 36.6% - 42.1% 36.3% -
Diluted net income per Unit $ 0.91 $ 0.63 44.4% $2.69 $ 1.84 46.2%
===== ===== ===== =====
Amortization of intangibles per Unit 0.01 - N/A 0.02 0.01 100.0
Non-recurring items per Unit - - N/A (0.13) - N/A
----- ----- ------ ------
Net operating earnings per Unit(3) $ 0.92 $ 0.63 46.0% $ 2.58 $ 1.85 39.5%
===== ===== ===== =====
Base fee earnings per Unit $ 0.90 $ 0.60 50.0% $ 2.50 $ 1.70 47.1%
Performance fee earnings per Unit 0.02 0.03 (33.3) 0.08 0.15 (46.7)
----- ----- ----- -----
Net operating earnings per Unit(3) $ 0.92 $ 0.63 46.0% $ 2.58 $ 1.85 39.5%
===== ===== ===== =====
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pro forma amounts assume the Alliance Holding Reorganization 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.
(2) Calculated after netting distribution revenues against total expenses;
expenses exclude amortization of intangibles and non-recurring items.
(3) Net operating earnings per Unit: Diluted net income per Unit excluding
amortization of intangibles and non-recurring items.
(4) See Note 6 for calculation of net income per Unit amounts.
Net income for the three months and nine months ended September 30, 2000
increased $83.8 million or 75.0% and $193.9 million or 59.4%, respectively, from
pro forma net income for the three months and nine months ended September 30,
1999. The increases were principally due to increases in investment advisory and
services fees resulting primarily from higher average assets under management
for both periods. The increase for the nine months ended September 30, 2000 was
also due to the $22.5 million ($23.9 million pre-tax) impact of a non-cash gain
related to the settlement of litigation concerning the Alliance North American
Government Income Trust, Inc. ("NAGIT"). These increases were partially offset
by higher operating expenses, principally promotion and servicing and employee
compensation and benefits, and higher income taxes. Actual income taxes
increased from pro forma income taxes, which assume the Alliance Holding
Reorganization occurred on January 1, 1999, primarily as a result of higher
pre-tax income.
BASIS OF PRESENTATION - ACTUAL RESULTS
The following is a discussion of the results of operations of the Operating
Partnership for the three months and nine months ended September 30, 2000 and of
Alliance Holding, prior to the Reorganization, for the three months and nine
months ended September 30, 1999. The presentation is considered meaningful in
understanding the diversified investment management business operated by
Alliance Holding prior to the Reorganization and by the Operating Partnership
thereafter.
14
<PAGE>
REVENUES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
Operating Alliance Operating Alliance
Partnership Holding Partnership Holding
(Dollars in millions) 9/30/00 9/30/99 % Change 9/30/00 9/30/99 % Change
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment advisory and services fees:
Alliance mutual funds $278.6 $207.3 34.4% $ 794.4 $ 588.2 35.1%
Separately managed accounts:
Affiliated clients 12.6 12.2 3.3 39.6 39.1 1.3
Third-party clients 103.0 87.4 17.8 312.0 276.3 12.9
Distribution revenues 167.0 115.5 44.6 469.7 314.3 49.4
Shareholder servicing fees 21.5 16.3 31.9 62.4 45.1 38.4
Other revenues 32.9 6.5 406.2 50.8 20.8 144.2
---------------------------------------------------------------------------------------------------------------------
Total $615.6 $445.2 38.3% $1,728.9 $1,283.8 34.7%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ADVISORY AND SERVICES FEES
Investment advisory and services fees are generally calculated as a small
percentage of the value of assets under management and vary with the type of
account managed. Fee income is therefore affected by changes in the amount of
assets under management, including market appreciation or depreciation, the
addition of new client accounts or client contributions of additional assets to
existing accounts, withdrawals of assets from and termination of client
accounts, purchases and redemptions of mutual fund shares, and shifts of assets
between accounts or products with different fee structures. Investment advisory
and services fees for the three months and nine months ended September 30, 2000
increased $87.3 million or 28.4% and $242.4 million or 26.8% , respectively,
from the three months and nine months ended September 30, 1999.
Certain investment advisory contracts provide for a performance fee, in addition
to or in lieu of a base fee, that is calculated as a percentage of the related
investment results over a specified period of time. Performance fees are
recorded as revenue at the end of the measurement period and will generally be
higher in favorable markets and lower in unfavorable markets, which may increase
the volatility of the Operating Partnership's revenues and earnings. Performance
fees earned on certain separately managed accounts and mutual funds aggregated
$6.9 million and $23.0 million for the three months and nine months ended
September 30, 2000. Performance fees for the three months ended September 30,
2000 decreased $2.3 million compared to the third quarter of 1999. Performance
fees for the nine months ended September 30, 2000 decreased $36.8 million or
61.5% from the nine months ended September 30, 1999 primarily as the result of a
refinement, in the fourth quarter of 1999, of the procedures for estimating such
fees. Currently, a substantial amount of the accounts that may earn performance
fees have calendar year measurement periods. As a result, for 1999 and
subsequent years, the majority of such fees, if any, will be recognized in the
fourth quarter of that year.
15
<PAGE>
Investment advisory and services fees from Alliance mutual funds for the three
months ended September 30, 2000 increased $71.3 million or 34.4% from the three
months ended September 30, 1999 primarily as a result of a 33.8% increase in
average assets under management. Investment advisory and services fees from
Alliance mutual funds for the nine months ended September 30, 2000 increased
$206.2 million or 35.1% from the nine months ended September 30, 1999 primarily
as a result of a 38.2% increase in average assets under management, partially
offset by a $31.8 million decrease in performance fees.
Investment advisory and services fees from affiliated clients, primarily the
General Accounts of ELAS, for the three months and nine months ended September
30, 2000 increased $0.4 million, or 3.3%, and $0.5 million, or 1.3%,
respectively, from the three months and nine months ended September 30, 1999.
The increase for the nine months ended September 30, 2000 was primarily due to
an increase in performance fees.
Investment advisory and services fees from third party clients for the three
months and nine months ended September 30, 2000 increased $15.6 million or 17.8%
and $35.7 million or 12.9%, respectively, from the three months and nine months
ended September 30, 1999 primarily due to an increase in average assets under
management of 18.3% and 18.4%, respectively, partially offset for the nine
months ended September 30, 2000 by a $6.1 million decrease in performance fees.
DISTRIBUTION REVENUES
The Operating Partnership's subsidiary, Alliance Fund Distributors, Inc.
("AFD"), acts as distributor of the Alliance mutual funds and receives
distribution plan fees from those funds in reimbursement of distribution
expenses it incurs. Distribution revenues for the three months and nine months
ended September 30, 2000 increased 44.6% and 49.4%, respectively, from the three
months and nine months ended September 30, 1999 principally due to higher
average equity mutual fund assets under management attributable to sales of
Back-End Load Shares under the Operating Partnership's mutual fund distribution
system (the "System") described under "Capital Resources and Liquidity", and
market appreciation.
SHAREHOLDER SERVICING FEES
The Operating Partnership's subsidiaries, Alliance Fund Services, Inc. and ACM
Global Investor Services S.A., provide transfer agency services to the Alliance
mutual funds. Shareholder servicing fees for the three months and nine months
ended September 30, 2000 increased 31.9% and 38.4%, respectively, from the three
months and nine months ended September 30, 1999 as a result of increases in the
number of mutual fund shareholder accounts serviced. The number of shareholder
accounts serviced increased to approximately 6.3 million as of September 30,
2000 compared to approximately 4.8 million as of September 30, 1999.
OTHER REVENUES
Other revenues consist principally of investment income and changes in value of
other investments. Administration and recordkeeping services provided to the
Alliance mutual funds and the General Accounts of ELAS and its insurance
subsidiary are also included in other revenues. Other revenues for the three
months and nine months ended September 30, 2000 increased from the three and
nine months ended September 30, 1999 principally as a result of interest earned
on the proceeds from AXA Financial's purchase of 32,619,775 newly issued
Operating Partnership Units on June 21, 2000.
16
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
Operating Alliance Operating Alliance
Partnership Holding Partnership Holding
(Dollars in millions) 9/30/00 9/30/99 % Change 9/30/00 9/30/99 % Change
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee compensation and benefits $138.8 $113.5 22.3% $ 398.9 $334.5 19.3%
Promotion and servicing 212.1 156.8 35.3 620.0 447.1 38.7
General and administrative 48.7 47.8 1.9 147.7 135.5 9.0
Interest 8.1 6.5 24.6 32.5 14.5 124.1
Amortization of intangible assets 1.0 1.0 - 2.9 2.9 -
Litigation adjustment, net - - N/A (23.9) - N/A
---------------------------------------------------------------------------------------------------------------------
Total $408.7 $325.6 25.5% $1,178.1 $934.5 26.1%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYEE COMPENSATION AND BENEFITS
Employee compensation and benefits include salaries, commissions, fringe
benefits and incentive compensation based on profitability. Provisions for
future payments to be made under certain deferred compensation arrangements are
also included in employee compensation and benefits expense.
Employee compensation and benefits for the three months and nine months ended
September 30, 2000 increased 22.3% and 19.3%, respectively, from the three
months and nine months ended September 30, 1999 primarily as a result of
increased incentive and base compensation and commissions. Compensation
increased principally due to higher pre-tax income, an increase in the number of
employees, primarily in mutual fund areas, combined with salary increases. The
Operating Partnership had 2,582 employees at September 30, 2000 compared to
2,299 at September 30, 1999. Commissions increased primarily due to higher
mutual fund and institutional sales.
PROMOTION AND SERVICING
Promotion and servicing expenses include distribution plan payments to financial
intermediaries for distribution of sponsored mutual funds and cash management
services' products and amortization of deferred sales commissions paid to
financial intermediaries for the sale of Back-End Load Shares under the System.
See "Capital Resources and Liquidity". Also included in this expense category
are travel and entertainment, advertising, promotional materials, and investment
meetings and seminars for financial intermediaries that distribute the Operating
Partnership's mutual fund products.
17
<PAGE>
Promotion and servicing expenses for the three months and nine months ended
September 30, 2000 increased 35.3% and 38.7%, respectively, from the three
months and nine months ended September 30, 1999 primarily due to increased
distribution plan payments resulting from higher average domestic, offshore and
cash management assets under management. An increase for the three months and
nine months ended September 30, 2000 of $13.7 million and $42.9 million,
respectively, in amortization of deferred sales commissions from the three
months and nine months ended September 30, 1999, resulting from higher sales of
Back-End Load Shares, also contributed to the increase in promotion and
servicing expense. Other promotion and servicing expenses increased primarily as
a result of higher travel and entertainment costs and higher promotional
expenditures incurred in connection with mutual fund sales initiatives.
GENERAL AND ADMINISTRATIVE
General and administrative expenses are costs related to operations, including
technology, professional fees, occupancy, communications, equipment and similar
expenses. General and administrative expenses for the three months and nine
months ended September 30, 2000 increased 1.9% and 9.0%, respectively, for the
three and nine months ended September 30, 1999 due principally to higher
occupancy related expenses offset by lower technology expenses.
INTEREST
Interest expense is incurred on borrowings and on deferred compensation owed to
employees. Interest expense for the three months and nine months ended September
30, 2000 increased from the three months and nine months ended September 30,
1999 primarily as a result of an increase in deferred compensation liabilities
and higher debt.
TAXES ON INCOME
The Operating Partnership, a private limited partnership, is not subject to
federal or state corporate income taxes. However, the Operating Partnership is
subject to the New York City unincorporated business tax. Domestic corporate
subsidiaries of the Operating Partnership are subject to federal, state and
local income taxes, and are generally included in the filing of a consolidated
federal income tax return. Separate state and local income tax returns are filed
for the domestic corporate subsidiaries. Foreign corporate subsidiaries are
generally subject to taxes in the foreign jurisdictions where they are located.
Income tax expense for the three months and nine months ended September 30, 2000
decreased $6.6 million and $22.1 million, respectively, from the three months
and nine months ended September 30, 1999 primarily as a result of a lower
effective tax rate. The Operating Partnership, a private partnership, is not
subject to a federal tax of 3.5% on partnership gross income from the active
conduct of a trade or business which results in a lower effective tax rate
compared to Alliance Holding, a public partnership, which is subject to the 3.5%
federal tax.
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital of the Operating Partnership was $2,102.3 million at September
30, 2000, a decrease of $45.9 million or 2.1% from $2,148.2 million at June 30,
2000 and an increase of $1,549.6 million or 280.4% from $552.7 million at
December 31, 1999. On June 21, 2000 AXA Financial purchased from the Operating
Partnership 32,619,775 newly issued Operating Partnership Units for $1.6 billion
and the Operating Partnership used the proceeds primarily to finance the cash
portion of the acquisition price of Bernstein.
Cash flow from operations and proceeds from borrowings have been the Operating
Partnership's, and prior to the Reorganization, Alliance Holding's principal
sources of working capital.
The Operating Partnership's cash and cash equivalents increased $75.9 million
for the nine months ended September 30, 2000. Cash inflows included
$755.1 million from operations and $1,138.4 million from financing activities,
principally AXA Financial's purchase from the Operating Partnership of
32,619,775 newly issued Operating Partnership Units offset by cash distributions
to partners and the Operating Partnership's purchase of 2,000,000 Alliance
18
<PAGE>
Holding Units for $99 million in private transactions to fund deferred
compensation plans. Cash inflows were offset by cash outflows from investing
activities of $1,815.5 million, principally net purchases of investments.
The Operating Partnership's mutual fund distribution system includes a
multi-class share structure. The System permits the Operating Partnership's
open-end mutual funds to offer investors various options for the purchase of
mutual fund shares, including the purchase of Front-End Load Shares and Back-End
Load Shares. The Front-End Load Shares are subject to a conventional front-end
sales charge paid by investors to AFD at the time of sale. AFD in turn
compensates the financial intermediaries distributing the funds from the
front-end sales charge paid by investors. For Back-End Load Shares, investors do
not pay a front-end sales charge although, if there are redemptions before the
expiration of the minimum holding period (which ranges from one year to four
years), investors pay a contingent deferred sales charge ("CDSC") to AFD. While
AFD is obligated to compensate the financial intermediaries at the time of the
purchase of Back-End Load Shares, it receives higher ongoing distribution fees
from the funds. Payments made to financial intermediaries in connection with the
sale of Back-End Load Shares under the System, net of CDSC received, reduced
cash flow from operations by approximately $282.5 million for the nine months
ended September 30, 2000. Management believes AFD will recover the payments made
to financial intermediaries for the sale of Back-End Load Shares from the higher
distribution fees and CDSC it receives over periods not exceeding 5 1/2 years.
During 1998, Alliance Holding increased its commercial paper program to
$425 million and entered into a $425 million five-year revolving credit facility
with a group of commercial banks and a $425 million commercial paper program.
Under the credit facility, the interest rate, at the option of the borrower, is
a floating rate generally based upon a defined prime rate, a rate related to the
London Interbank Offered Rate (LIBOR) or the Federal Funds rate. A facility fee
is payable on the total facility. Borrowings under the credit facility and the
commercial paper program may not exceed $425 million in the aggregate. In
connection with the Reorganization, the Operating Partnership assumed Alliance
Holding's rights and obligations under the five-year revolving credit facility
and the commercial paper program.
During July 1999, Alliance Holding entered into a $200 million three-year
revolving credit facility with a group of commercial banks. In connection with
the Reorganization, the Operating Partnership assumed Alliance Holding's rights
and obligations under the three-year revolving credit facility.
In December 1999, the Operating Partnership established a $100 million
Extendible Commercial Notes ("ECN") Program as a supplement to its $425 million
commercial paper program. ECNs are short-term uncommitted debt instruments that
do not require back-up liquidity support.
During October 2000, the Operating Partnership entered into a $250 million
two-year revolving credit facility the terms of which are substantially similar
to the $425 million and $200 million revolving credit facilities.
The revolving credit facilities will be used to provide back-up liquidity for
the Operating Partnership's commercial paper program, to fund commission
payments to financial intermediaries for the sale of Back-End Load Shares under
the Operating Partnership's mutual fund distribution system, for capital
expenditures and for general working capital purposes. The revolving credit
facilities contain covenants which, among other things, require the Operating
Partnership to meet certain financial ratios.
At September 30, 2000, the Operating Partnership had $471.8 million of
commercial paper and ECNs outstanding, borrowings under the revolving credit
facilities of $48.0 million, and a $3.1 million note related to an acquisition
in 1998.
The Operating Partnership's substantial equity base and access to public and
private debt, at competitive terms, should provide adequate liquidity for its
general business needs. Management believes that cash flow from operations and
the issuance of debt and Alliance Capital or Alliance Holding Units will provide
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the Operating Partnership with the financial resources to meet its capital
requirements for mutual fund sales and its other working capital requirements.
COMMITMENTS AND CONTINGENCIES
The Operating Partnership's capital commitments, which consist primarily of
operating leases for office space, are generally funded from future operating
cash flows.
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.
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.The order became final on September 6, 2000.
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 Capital recorded a non-cash gain of $22.5 million ($23.9
million pre-tax) during the three months ended March 31, 2000. Management does
not expect that the settlement will have a material adverse effect on Alliance
Capital's or Alliance Holding's results of operations or financial condition.
CHANGES IN ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES". Under this Statement, an entity is required
to recognize derivative instruments as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value. In
addition, any entity that elects to apply hedge accounting is required to
establish at the inception of the hedge the method it will use for assessing
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137 ("SFAS 137"), which deferred the effective date of SFAS 133 to all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
intends to adopt this Statement on January 1, 2001 and does not believe that the
adoption of the Statement will have a material effect on the Operating
Partnership's financial condition, results of operations, liquidity or capital
resources.
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In December 1999, the Securities and Exchange Commission ("SEC") issued SEC
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The provisions of SAB 101 are effective no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. Management
intends to adopt SAB 101 in the fourth quarter 2000 and does not believe that
its adoption will have a material effect on the Operating Partnership's
financial condition, results of operations, liquidity or capital resources.
CASH DISTRIBUTIONS
The Operating Partnership is required to distribute all of its Available Cash
Flow (as defined in the Alliance Capital Partnership Agreement) to the General
Partner and Alliance Capital Unitholders. Alliance Holding is also required to
distribute all of its Available Cash Flow (as defined in the Alliance Holding
Partnership Agreement). The Available Cash Flow of the Operating Partnership and
Alliance Holding for the three months and nine months ended September 30, 2000
and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- -----------------------
Operating Alliance Operating Alliance
Partnership Holding Partnership Holding
9/30/00 9/30/99 9/30/00 9/30/99
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available Cash Flow (in thousands) $186,363 $97,112 $474,830 $283,808
Distributions Per Unit $ 0.905 $ 0.56 $ 2.54 $ 1.64
-----------------------------------------------------------------------------------------------------------------
</TABLE>
FORWARD-LOOKING STATEMENTS
Certain statements provided by Alliance Capital and Alliance Holding 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
Capital and Alliance Holding 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 Capital and Alliance Holding undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date of such statements.
21
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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 L.P. ("Alliance Capital") Annual Report on
Form 10-K for the year ended December 31, 1999. The order became final
on September 6, 2000.
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
15 Independent Accountants' Review Report
27 Financial Data Schedule
(b) Reports on Form 8-K
Alliance Capital filed a report on Form 8-K dated
September 21, 2000 reporting the purchase by a wholly-owned
subsidiary of Alliance Capital of 1,000,000 Alliance Capital
Management Holding L.P. ("Alliance Holding") units for
$51,431,300 in a private transaction. The Alliance Holding
units will be used to fund awards to be granted under a new
deferred compensation plan established in connection with
Alliance Capital's acquisition of the business of Sanford C.
Bernstein Inc. ("Bernstein") and under Alliance Capital's
existing deferred compensation plan, known as the Alliance
Partners Compensation Plan.
Alliance Capital filed a report on Form 8-K dated
October 2, 2000 reporting (i) the completion of its
acquisition of the business of Bernstein for $1.4754 billion
in cash and 40.8 million newly issued Alliance Capital units,
and (ii) the purchase by a wholly-owned subsidiary of Alliance
Capital of 1,000,000 Alliance Holding units for $47,560,000 in
a private transaction. The Alliance Holding units will be used
to fund awards to be granted under a new deferred compensation
plan established in connection with Alliance Capital's
acquisition of the business of Bernstein and under Alliance
Capital's existing deferred compensation plan, known as the
Alliance Partners Compensation Plan.
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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 L.P.
Dated: November 7, 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
23
