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. 1-9818
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ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
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(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
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(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
-------- --------
The number of Units representing assignments of beneficial ownership of limited
partnership interest* outstanding as of September 30, 2000 was 72,857,932.
* 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.
<PAGE>
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 5-10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-15
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 16
Item 2. CHANGES IN SECURITIES 16
Item 3. DEFAULTS UPON SENIOR SECURITIES 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
Item 5. OTHER INFORMATION 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16-17
<PAGE>
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
<TABLE>
<CAPTION>
ASSETS 9/30/00 12/31/99
------------ ----------
(unaudited)
<S> <C> <C>
Fees receivable:
Alliance mutual funds........................................................ $ 1,182 $ 662
Separately managed third-party clients....................................... 2,088 1,221
Investment in Operating Partnership............................................. 703,296 270,177
Other assets.................................................................... 403 -
----------- -----------
Total assets................................................................. $ 706,969 $ 272,060
=========== ===========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Payable to Operating Partnership............................................. $ 5,504 $ 5,843
Accounts payable and accrued expenses........................................ 2,668 609
----------- -----------
Total liabilities.......................................................... 8,172 6,452
Partners' capital............................................................ 698,797 265,608
----------- -----------
Total liabilities and partners' capital.................................... $ 706,969 $ 272,060
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.*
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per Unit amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- -----------------------
9/30/00 9/30/99 9/30/00 9/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Equity in earnings of Operating Partnership ............. $ 68,315 $ -- $ 201,895 $ --
Investment advisory and services fees:
Alliance mutual funds ................................. -- 207,329 -- 588,156
Separately managed accounts:
Affiliated clients .................................. -- 12,222 -- 39,116
Third-party clients ................................. -- 87,414 -- 276,386
Distribution revenues ................................... -- 115,483 -- 314,313
Shareholder servicing fees .............................. -- 16,272 -- 45,069
Other revenues .......................................... -- 6,442 -- 20,806
---------- ---------- ---------- ----------
68,315 445,162 201,895 1,283,846
---------- ---------- ---------- ----------
Expenses:
Employee compensation and benefits ...................... -- 113,521 -- 334,493
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated .......................................... -- 26,983 -- 77,858
Third-party ......................................... -- 56,604 -- 166,473
Amortization of deferred sales commissions ............ -- 42,990 -- 117,688
Other ................................................. -- 30,164 -- 85,060
General and administrative .............................. -- 47,825 -- 135,564
Interest ................................................ -- 6,519 -- 14,499
Amortization of intangible assets ....................... -- 963 -- 2,890
---------- ---------- ---------- ----------
-- 325,569 -- 934,525
---------- ---------- ---------- ----------
Income before income taxes ................................. 68,315 119,593 201,895 349,321
Income taxes ............................................ 4,537 17,939 14,793 52,399
---------- ---------- ---------- ----------
Net income ................................................. $ 63,778 $ 101,654 $ 187,102 $ 296,922
========== ========== ========== ==========
Net income per Alliance Holding Unit:
Basic ................................................... $ 0.89 $ 0.59 $ 2.62 $ 1.72
========== ========== ========== ==========
Diluted ................................................. $ 0.85 $ 0.57 $ 2.49 $ 1.67
========== ========== ========== ==========
</TABLE>
* As discussed in Notes 1 and 3, 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
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.*
Condensed Consolidated Statements of
Changes in Partners' Capital
and Comprehensive Income
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- -----------------------
9/30/00 9/30/99 9/30/00 9/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Partners' capital - beginning of period .................... $ 779,616 $ 467,062 $ 265,608 $ 430,273
Comprehensive income:
Net income .......................................... 63,778 101,654 187,102 296,922
Unrealized gain (loss) on investments, net .......... -- (781) -- 370
Foreign currency translation adjustment, net ........ -- 1,032 -- 1,035
---------- ---------- ---------- ----------
Comprehensive income ................................ 63,778 101,905 187,102 298,327
---------- ---------- ---------- ----------
Change in proportionate share of the Operating
Partnership's partners' capital ....................... 5,463 -- 528,467 --
Capital contribution received from Alliance Capital
Management Corporation ................................ -- 90 -- 1,156
Cash distributions to partners .......................... (54,484) (93,381) (169,630) (260,745)
Purchase of Alliance Holding Units ...................... -- -- (28,042) --
Purchase of Alliance Holding Units by Operating Partnership
to fund deferred compensation plans ................... (98,991) -- (98,991) --
Proceeds from options for Alliance Holding Units exercised 3,415 1,178 14,283 7,843
---------- ---------- ---------- ----------
Partners' capital - end of period .......................... $ 698,797 $ 476,854 $ 698,797 $ 476,854
========== ========== ========== ==========
</TABLE>
* As discussed in Notes 1 and 3, 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
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.*
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
9/30/00 9/30/99
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 187,102 $ 296,922
Adjustments to reconcile net income to net cash provided
from (used in) operating activities:
Equity in earnings of Operating Partnership ...................... (201,895) --
Amortization and depreciation .................................... -- 135,392
Other, net ....................................................... -- 16,247
Changes in assets and liabilities:
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds ........................... -- (36)
(Increase) in fees receivable from Alliance mutual funds,
affiliated clients and third-party clients ................... (1,388) (20,426)
(Increase) in deferred sales commissions ....................... -- (302,511)
(Increase) in other investments ................................ -- (17,665)
(Increase) in other assets ..................................... (403) (5,864)
Increase in payable to Alliance mutual funds for share purchases -- 12,045
(Decrease) in payable to Operating Partnership ................. (339) --
Increase (decrease) in accounts payable and accrued expenses ... 2,060 (2,141)
Increase in accrued compensation and benefits, less
deferred compensation ........................................ -- 149,052
----------- -----------
Net cash provided from (used in) operating activities ...... (14,863) 261,015
----------- -----------
Cash flows from investing activities:
Operating Partnership distributions received ....................... 184,493 --
Investment in Operating Partnership from exercises of options ...... (14,283) --
Purchase of investments ............................................ -- (877,790)
Proceeds from sale of investments .................................. -- 723,130
Additions to furniture, equipment and leasehold improvements, net .. -- (47,585)
Other .............................................................. -- (142)
----------- -----------
Net cash provided from (used in) investing activities ...... 170,210 (202,387)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ........................................... 28,042 1,766,728
Repayment of debt .................................................. -- (1,562,375)
Purchase of Alliance Holding Units ................................. (28,042) --
Cash distributions to partners ..................................... (169,630) (260,744)
Capital contribution received from Alliance Capital Management
Corporation ...................................................... -- 656
Proceeds from options for Alliance Holding Units exercised ......... 14,283 7,842
----------- -----------
Net cash used in financing activities ...................... (155,347) (47,893)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents .......... -- 217
----------- -----------
Net increase in cash and cash equivalents ............................. -- 10,952
Cash and cash equivalents at beginning of period ...................... -- 75,186
----------- -----------
Cash and cash equivalents at end of period ............................ $ -- $ 86,138
=========== ===========
</TABLE>
* As discussed in Notes 1 and 3, 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
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING 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 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 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").
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 September
30, 2000 in order to provide a meaningful presentation of Alliance
Holding's financial information.
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
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 September 30, 2000, (b)
results of operations for the three months and nine months ended September
30, 2000 and 1999 and (c) cash flows for the nine months ended September
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 of 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 nine months ended
September 30, 2000 and the pro forma unaudited condensed results of
operations of Alliance Holding for the three months and nine months ended
September 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 on its partnership gross business income
(which is primarily derived from its interest in the Operating
Partnership).
6
<PAGE>
The pro forma financial information does not necessarily reflect the
results of operations for the three months and nine months ended September
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):
<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>
Equity in earnings of Operating Partnership................... $ 68,315 $ 46,135 $ 201,895 $ 134,570
Income taxes.................................................. 4,537 4,155 14,793 12,223
---------- ---------- ---------- ----------
Net income ................................................... $ 63,778 $ 41,980 $ 187,102 $ 122,347
========== ========== ========== ==========
Basic net income per Alliance Holding Unit.................... $ 0.89 $ 0.59 $ 2.62 $ 1.72
========== ========== ========== ==========
Diluted net income per Alliance Holding Unit.................. $ 0.85 $ 0.57 $ 2.49 $ 1.67
========== ========== ========== ==========
</TABLE>
The following table presents a reconciliation of the condensed results of
operations for the three months and nine months ended September 30, 2000
for Alliance Holding and the unaudited pro forma financial information of
Alliance Holding for the three months and nine months ended September 30,
1999. (In thousands):
<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>
Operating Partnership 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
========== ========== ============ ==========
Alliance Holding ownership percentage of the
Operating Partnership Units................................ 35.3% 41.7% 39.2% 41.6%
========== ========== ============ ==========
Alliance Holding equity in earnings of
the Operating Partnership.................................. $ 68,315 $ 46,135 $ 201,895 $ 134,570
========== ========== ============ ==========
</TABLE>
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
partnership 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
partnership 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 and unvested units. (In thousands, except
per Alliance Holding Unit amounts):
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
9/30/00 9/30/99 9/30/00 9/30/99
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income - Basic............................................ $ 63,778 $ 101,654 $ 187,102 $ 296,922
Additional allocation of equity in earnings of the
Operating Partnership resulting from assumed
dilutive effect of employee options and unvested units..... 3,862 - 10,349 -
---------- ---------- ---------- ----------
Net income - Diluted.......................................... $ 67,640 $ 101,654 $ 197,451 $ 296,922
========== ========== ========== ==========
Weighted average Alliance Holding Units
outstanding - Basic........................................ 71,333 171,228 71,327 170,947
Dilutive effect of employee options and unvested units........ 8,243 5,242 7,884 5,194
---------- ---------- ---------- ----------
Weighted average Alliance Holding Units
outstanding - Diluted...................................... 79,576 176,470 79,211 176,141
========== ========== ========== ==========
Basic net income per Alliance Holding Unit.................... $ 0.89 $ 0.59 $ 2.62 $ 1.72
====== ====== ======= =======
Diluted net income per Alliance Holding Unit.................. $ 0.85 $ 0.57 $ 2.49 $ 1.67
====== ====== ======= =======
</TABLE>
6. INVESTMENT IN OPERATING PARTNERSHIP
Alliance Holding's investment in the Operating Partnership for the nine
month period ended September 30, 2000 was as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Investment in Operating Partnership at December 31, 1999........................................... $ 270,177
Equity in earnings of Operating Partnership........................................................ 201,895
Additional investment resulting from exercises of employee options................................. 14,283
Change in proportionate share of the Operating Partnership's partners' capital..................... 528,467
Distribution received from Operating Partnership................................................... (184,493)
Purchase of Alliance Holding Units by Operating Partnership........................................ (98,991)
Payment of amount owed to Operating Partnership.................................................... (28,042)
-----------
Investment in Operating Partnership at September 30, 2000.......................................... $ 703,296
===========
</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
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.
8
<PAGE>
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 Holding recorded a non-cash gain of approximately
$0.13 per Alliance Holding Unit during the three months ended March 31,
2000. Management does not expect that the settlement will have a material
adverse effect on Alliance Holding's results of operations or financial
condition.
9
<PAGE>
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
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ------------------------
9/30/00 9/30/99 9/30/00 9/30/99
----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Cash payments for interest and income taxes were as follows:
Interest............................................. $ - $ 3,655 $ - $ 7,763
Income taxes......................................... 4,173 16,030 14,888 80,304
</TABLE>
Noncash investing and financing activities were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Change in proportionate share of the Operating
Partnership's partners' capital
Investment in Operating Partnership....................... $ 5,463 $ -- $ 528,467 $ --
Partners' Capital......................................... 5,463 -- 528,467 --
Purchase of Alliance Holding Units by the Operating Partnership
Investment in Operating Partnership ...................... $ (98,991) $ -- $ (98,991) $ --
Partners' Capital......................................... (98,991) -- (98,991) --
Total
Investment in Operating Partnership....................... $ (93,528) $ -- $ 429,476 $ --
========= ========= ========== ========
Partners' Capital......................................... $ (93,528) $ -- $ 429,476 $ --
========= ========= ========== ========
</TABLE>
10. CASH DISTRIBUTION
On October 27, 2000, the General Partner declared a distribution of
$59,521,000 or $0.84 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 September 30,
2000. The distribution is payable on November 22, 2000 to holders of record
on November 13, 2000.
10
<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 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 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").
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 September 30, 2000 in order
to provide a meaningful presentation of Alliance Holding's financial
information.
11
<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.
BASIS OF PRESENTATION
Actual results of operations of Alliance Holding are presented for the three
months and nine months ended September 30, 2000. The pro forma financial
information of Alliance Holding for the three months and nine months ended
September 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 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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars and Alliance Holding Units in millions, THREE MONTHS ENDED NINE MONTHS ENDED
except per Alliance Holding Unit amounts) ----------------------------- --------------------------
Actual Pro Forma Actual Pro Forma
9/30/00 9/30/99(1) % Change 9/30/00 9/30/99(1) % Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity in earnings of Operating Partnership $68.3 $46.1 48.2% $201.9 $134.5 50.1%
Income taxes 4.5 4.1 9.8 14.8 12.2 21.3
----- ----- ------ ------
Net income $63.8 $42.0 51.9 $187.1 $122.3 53.0
===== ===== ====== ======
Net income per Alliance Holding Unit(3):
Basic $0.89 $0.59 50.8 $2.62 $1.72 52.3
===== ===== ===== =====
Diluted $0.85 $0.57 49.1 $2.49 $1.67 49.1
===== ===== ===== =====
Weighted average number of Alliance Holding
Units outstanding(3):
Basic 71.3 71.4 (0.1) 71.3 71.1 0.3
Diluted 79.6 76.3 4.3% 79.2 76.0 4.2%
Diluted net income per Unit $0.85 $0.57 49.1% $2.49 $1.67 49.1%
===== ===== ===== =====
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(2) $0.86 $0.57 50.9% $2.38 $1.68 41.7%
===== ===== ===== =====
Base fee earnings per Unit $0.84 $0.55 52.7% $2.30 $1.55 48.4%
Performance fee earnings per Unit 0.02 0.02 - 0.08 0.13 38.5
----- ----- ----- -----
Net operating earnings per Unit(2) $0.86 $0.57 50.9% $2.38 $1.68 41.7%
===== ===== ===== =====
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pro forma amounts assume the Alliance Holding Reorganization occurred
January 1, 1999.
(2) Net operating earnings per Unit:diluted net income per Unit excluding
Alliance Holding's proportionate share of the Operating Partnership's
amortization of intangibles and non-recurring items.
(3) See Note 5 for calculation of net income per Unit amounts.
12
<PAGE>
Net income for the three months and nine months ended September 30, 2000
increased $21.8 million or $0.28 diluted net income per Alliance Holding Unit
and $64.8 million or $0.82 diluted net income per Alliance Holding Unit,
respectively, from pro forma net income for the three months and nine months
ended September 30, 1999, respectively. The increases reflect equity in higher
earnings of the Operating Partnership, partially offset by corresponding
increases in income taxes. The increases in equity in earnings of the Operating
Partnership were principally due to higher average assets under management and,
for the nine months ended September 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 nine months ended September 30, 2000
compared to the three months and nine months ended September 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 $698.8 million at September 30, 2000,
an increase of $433.2 million or 163.1% 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 certain partners' capital transactions of the Operating
Partnership and net income, partially offset by cash distributions.
At October 2, 2000, Alliance Holding owned approximately 72.9 million Operating
Partnership Units, or approximately 30% 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.
13
<PAGE>
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 nine months
ended September 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -----------------------
9/30/00 9/30/99 9/30/00 9/30/99
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available Cash Flow (in thousands) $59,521 $97,112 $167,516 $283,808
Distributions per Alliance Holding Unit $0.84 $0.56 $2.33 $1.64
---------------------------------------------------------------------------------------------
</TABLE>
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.
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 Holding recorded a non-cash gain of approximately $0.13 per
Alliance Holding Unit during the three months ended March 31, 2000. Management
does not expect that the settlement will have a material adverse effect on
Alliance Holding's results of operations or financial condition.
14
<PAGE>
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.
15
<PAGE>
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. 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
During the third quarter of 2000, a Special Meeting of Limited
Partners and Unitholders of Alliance Holding was held on September 27,
2000 at 1345 Avenue of the Americas, New York, New York. The Special
Meeting was held to consider (i) a proposal to approve the possible
issuance of up to 40.8 million units (subject to adjustment as
described in the Proxy Statement) of Alliance Holding from time to
time in exchange for units of limited partnership interest in Alliance
Capital Management L.P. ("Alliance Capital") issued to Sanford C.
Bernstein Inc. ("Bernstein") and its subsidiaries in connection with
the acquisition by Alliance Capital of the business of Bernstein, and
(ii) a proposal to approve amendments to Alliance Holding's 1997 Long
Term Incentive Plan providing for the increase by 25 million (subject
to adjustment as described in the Proxy Statement) of the Alliance
Holding units authorized for issuance thereunder and the extension of
the term of the 1997 Long term Incentive Plan during which awards may
be made to July 26, 2010.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
13.2 Pages 1 through 21 of the Alliance Capital quarterly report on
Form 10-Q for the quarterly period ended September 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 September 21,
2000 reporting the purchase by a wholly-owned subsidiary of
Alliance Capital of 1,000,000 Alliance Holding units for
16
<PAGE>
$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 Bernstein and under
Alliance Capital's existing deferred compensation plan, known as
the Alliance Partners Compensation Plan.
Alliance Holding filed a report on Form 8-K dated October 2, 2000
reporting (i) the completion by Alliance Capital 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.
17
<PAGE>
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: 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
18
