SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10–Q
(Mark One)
For the quarterly period ended June 30, 2001
OR
For the transition period from ____________to ____________
Commission File No. 1–9818
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.
The number of units representing assignments of beneficial ownership of limited partnership interests* outstanding as of June 30, 2001 was 74,104,805.
* includes 100,000 units of general partnership interest having economic interests equivalent to the economic interests of the units representing assignments of beneficial ownership of limited partnership interests.
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
Index to Form 10–Q
Part I
FINANCIAL INFORMATION
Part II
OTHER INFORMATION
Item 1. Financial Statements
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.Condensed Statements of Financial Condition
(in thousands)
See accompanying notes to condensed financial statements.
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.Condensed Statements of Income
(unaudited)(in thousands, except per Unit amounts)
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.Condensed Statements ofChanges in Partners' Capitaland Comprehensive Income
(unaudited)(in thousands)
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.Condensed Statements of Cash Flows
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.Notes to Condensed Financial StatementsJune 30, 2001
(unaudited)
1. Organization and Bernstein Acquisition
Alliance Capital Management Corporation (“ACMC”), an indirect wholly-owned subsidiary of AXA Financial, Inc. (“AXA Financial”), is the general partner of both Alliance Capital Management Holding L.P. (“Alliance Holding”) and Alliance Capital Management L.P. (“Alliance Capital” or the “Operating Partnership”). AXA Financial is an indirect wholly-owned subsidiary of AXA, a French company, that is a holding company for an international group of insurance and related financial services companies. 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.
On October 2, 2000, the Operating Partnership acquired the business and assets of SCB Inc., an investment research and management company formerly known as Sanford C. Bernstein Inc. (“Bernstein”), and assumed the liabilities of Bernstein (“Bernstein Acquisition”). The purchase price consisted of a cash payment of $1.4754 billion and 40.8 million newly issued Alliance Capital Units. AXA Financial purchased approximately 32.6 million newly issued Alliance Capital Units for $1.6 billion on June 21, 2000 to fund the cash portion of the purchase price.
At June 30, 2001, Alliance Holding owned approximately 74.1 million, or 29.9%, of the issued and outstanding Alliance Capital Units. ACMC owns 100,000 general partnership Units in Alliance Holding and a 1% general partnership interest in the Operating Partnership. At June 30, 2001, AXA Financial was the beneficial owner of approximately 2.1% of the outstanding Alliance Holding Units and approximately 51.8% of the outstanding Alliance Capital Units which, including the general partnership interests in the Operating Partnership and Alliance Holding, represents an economic interest of approximately 52.9% in the Operating Partnership. At June 30, 2001, SCB Partners Inc., a wholly-owned subsidiary of SCB Inc., was the beneficial owner of approximately 16.5% of the outstanding Alliance Capital Units.
2. Business Description
Alliance Holding’s principal sources of income and cash flow are attributable to its ownership interest in the Operating Partnership.
The Operating Partnership provides diversified investment management and related services globally to a broad range of clients including (a) institutional investors, consisting of unaffiliated entities such as corporate and public employee pension funds, endowment funds, domestic and foreign institutions and government and affiliates such as AXA and its insurance company subsidiaries, by means of separate accounts, sub-advisory relationships resulting from the efforts of the institutional marketing department, structured products, group trusts and mutual funds and classes of mutual fund shares sold exclusively to institutional investors and high net worth individuals, (b) private clients, consisting of high net worth individuals, trusts and estates, charitable foundations, partnerships, private and family corporations and other entities, by means of separate accounts, hedge funds and certain other vehicles, (c) individual investors by means of publicly distributed mutual funds sponsored by the Operating Partnership, its subsidiaries and affiliated joint venture companies including cash management products such as money market funds and deposit accounts and sub-advisory relationships in respect of mutual funds sponsored by third parties resulting from the efforts of the mutual fund marketing department (“Alliance Mutual Funds”) and “wrap” products, and (d) institutional investors by means of in-depth research, portfolio strategy, trading and brokerage-related services. The Operating Partnership and its subsidiaries provide investment management, distribution and shareholder and administrative services to the Alliance Mutual Funds.
The Alliance Holding financial statements and notes should be read in conjunction with the consolidated financial statements and notes of the Operating Partnership. The Operating Partnership’s consolidated financial statements and notes and management’s discussion and analysis of financial condition and results of operations are included as an exhibit to this quarterly report on Form 10-Q for the quarterly period ended June 30, 2001.
3. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited interim condensed 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) Alliance Holding’s financial position at June 30, 2001, (b) Alliance Holding’s results of operations for the three months and six months ended June 30, 2001 and 2000 and (c) Alliance Holding’s cash flows for the six months ended June 30, 2001 and 2000, have been made.
Investment in Operating Partnership
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 capital transactions of the Operating Partnership.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
4. Net Income Per Alliance Holding Unit
Basic net income per Alliance Holding Unit is derived by dividing net income by the weighted average number of Alliance Holding Units outstanding for each period. Diluted net income per Alliance Holding Unit is derived by dividing diluted net income by the total of the weighted average number of Alliance Holding Units outstanding for each period and the dilutive Alliance Holding Unit equivalents resulting from outstanding employee options. (In thousands, except per Alliance Holding Unit amounts):
5. Investment in Operating Partnership
Alliance Holding’s investment in the Operating Partnership for the six month period ended June 30, 2001 was as follows (in thousands):
6. Commitments and Contingencies
On April 25, 2001, an amended class action complaint (“amended Miller Complaint”) entitled Miller, et al. v. Mitchell Hutchins Asset Management, Inc., et al., was filed in federal district court in the Southern District of Illinois against Alliance Capital, Alliance Fund Distributors, Inc. (“AFD”), and other defendants alleging violations of the federal Investment Company Act of 1940, as amended (“ICA”) and breaches of common law fiduciary duty.
The allegations in the amended Miller Complaint concern six mutual funds with which Alliance Capital has investment advisory agreements, including Alliance Premier Growth Fund, Alliance Health Care Fund, Alliance Growth Fund, Alliance Quasar Fund, Alliance Fund, and Alliance Disciplined Value Fund. The principal allegations of the amended complaint are that (i) certain advisory agreements concerning these funds were negotiated, approved, and executed in violation of the ICA, in particular because certain directors of these funds should be deemed interested under the ICA; (ii) the distribution plans for these funds were negotiated, approved, and executed in violation of the ICA; and (iii) the advisory fees and distribution fees paid to Alliance Capital and AFD, respectively, are excessive and, therefore, constitute a breach of fiduciary duty.
Alliance Capital and AFD believe that plaintiffs’ allegations are without merit and intend to vigorously defend against these allegations. At the present time, management of Alliance Capital and AFD are unable to estimate the impact, if any, that the outcome of this action may have on Alliance Capital’s or Alliance Holding’s results of operations or financial condition.
On June 22, 2001, an amended class action complaint (“amended Nelson Complaint”) entitled Nelson, et al. v. AIM Advisors, Inc., et al., was filed in federal district court in the Southern District of Illinois against Alliance Capital, AFD, and numerous other defendants in the mutual fund industry alleging violations of the ICA and breaches of common law fiduciary duty.
The allegations in the amended Nelson Complaint concern three mutual funds with which Alliance Capital has investment advisory agreements, including Alliance Premier Growth Fund, Alliance Growth Fund and Alliance Quasar Fund. The principal allegations of the amended complaint are that (i) certain advisory agreements concerning these funds were negotiated, approved, and executed in violation of the ICA, in particular because certain directors of these funds should be deemed interested under the ICA; (ii) the distribution plans for these funds were negotiated, approved, and executed in violation of the ICA; and (iii) the advisory and distribution fees paid to Alliance Capital and AFD, respectively, are excessive and, therefore, constitute a breach of fiduciary duty.
Alliance Capital and AFD believe that plaintiffs’ allegations are without merit and intend to vigorously defend against these allegations. At the present time, management of Alliance Capital and AFD are unable to estimate the impact, if any, that the outcome of this action my have on Alliance Capital’s or Alliance Holding’s results of operations or financial condition.
Alliance Capital and Alliance Holding are involved in various other inquiries, administrative proceedings and litigation, some of which allege substantial damages. While any proceeding or litigation has the element of uncertainty, Alliance Capital and Alliance Holding believe that the outcome of any one of the other lawsuits or claims that is pending or threatened, or all of them combined, will not have a material adverse effect on Alliance Capital’s or Alliance Holding’s results of operations or financial condition.
7. Income Taxes
Alliance Holding is a publicly traded partnership for federal tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, Alliance Holding is subject to the New York City unincorporated business tax and, effective January 1, 1998, to a 3.5% federal tax on partnership gross income from the active conduct of a trade or business.
8. Supplemental Cash Flow And Noncash Investing And Financing Activities Information
9. Cash Distribution
On July 26, 2001, the General Partner declared a distribution of $52,614,000 or $0.71 per Alliance Holding Unit representing a distribution from Available Cash Flow (as defined in the Alliance Holding Partnership Agreement) of Alliance Holding for the three months ended June 30, 2001. The distribution is payable on August 16, 2001 to holders of record on August 6, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Organization and Bernstein Acquisition
Alliance Capital Management Corporation (“ACMC”), an indirect wholly-owned subsidiary of AXA Financial, Inc. (“AXA Financial”), is the general partner of both Alliance Capital Management Holding L.P. (“Alliance Holding”) and Alliance Capital Management L.P. (“Alliance Capital” or the “Operating Partnership”). AXA Financial is an indirect whollyowned subsidiary of AXA, a French company, that is a holding company for an international group of insurance and related financial services companies. 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.
Results of Operations
Net income for the three months ended June 30, 2001 decreased $15.3 million or $0.20 diluted net income per Alliance Holding Unit from net income of $57.4 million or $0.76 diluted net income per Alliance Holding Unit for the three months ended June 30, 2000. The decrease reflects higher earnings of the Operating Partnership offset by a decrease in Alliance Holding’s percentage ownership of the Operating Partnership’s issued and outstanding units as a result of the Bernstein Acquisition.
Net income for the six months ended June 30, 2001 decreased $42.0 million or $0.57 diluted net income per Alliance Holding Unit from net income of $123.3 million or $1.64 per Alliance Holding Units for the six months ended June 30, 2000. The decreases reflect lower earnings of the Operating Partnership and a decrease in Alliance Holding’s percentage ownership of the Operating Partnership’s issued and outstanding units as a result of the Bernstein Acquisition.
CAPITAL RESOURCES AND LIQUIDITY
Alliance Holding’s partners’ capital was $1,244.8 million at June 30, 2001, a decrease of $5.5 million or 0.4% from March 31, 2001 and a decrease of $15.8 million or 1.3% from $1,260.6 million at December 31, 2000. The decreases are primarily due to cash distributions to Unitholders in respect of Alliance Holding’s Available Cash Flow (as defined in the Alliance Holding Partnership Agreement) for the fourth quarter of 2000 and first quarter of 2001 paid in first and second quarter of 2001, respectively.
At June 30, 2001, Alliance Holding owned approximately 74.1 million, or 29.9% of the issued and outstanding Alliance Capital Units. Alliance Holding is required to distribute all of its Available Cash Flow, as defined in the Alliance Holding Partnership Agreement, to its Partners and Alliance Holding Unitholders. 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.
COMMITMENTS AND CONTINGENCIES
Alliance Capital and AFD believe that plaintiffs’ allegations are without merit and intend to vigorously defend against these allegations. At the present time, management of Alliance Capital and AFD are unable to estimate the impact, if any, that the outcome of this action may have on the Alliance Capital’s or Alliance Holding’s results of operations or financial condition.
CASH DISTRIBUTIONS
Alliance Holding’s principal sources of income and cash flow are attributable to its ownership of approximately 29.9% of the issued and outstanding Alliance Capital Units. Alliance Holding is required to distribute all of its Available Cash Flow to its Partners and Alliance Holding Unitholders. Alliance Holding’s Available Cash Flow and distributions per Alliance Holding Unit for the three months and six months ended June 30, 2001 and 2000, were as follows:
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.
Item 1. Legal Proceedings
On April 25, 2001, an amended class action complaint (“amended Miller Complaint”) entitled Miller, et al. v. Mitchell Hutchins Asset Management, Inc., et al.was filed in federal district court in the Southern District of Illinois against Alliance Capital Management L.P. (“Alliance Capital”), Alliance Fund Distributors, Inc. (“AFD”), and other defendants alleging violations of the federal Investment Company Act of 1940, as amended (“ICA”) and breaches of common law fiduciary duty.
Alliance Capital and AFD believe that plaintiffs’ allegations are without merit and intend to vigorously defend against these allegations.
Alliance Capital and Alliance Capital Management Holding L.P. (“Alliance Holding”) are involved in various other inquiries, administrative proceedings and litigation, some of which allege substantial damages. While any proceeding or litigation has the element of uncertainty, Alliance Capital and Alliance Holding believe that the outcome of any one of the other lawsuits or claims that is pending or threatened, or all of them combined, will not have a material adverse effect on Alliance Capital’s or Alliance Holding’s results of operations or financial condition.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8–K
On June 27, 2001, Each of Alliance Holding and Alliance Capital filed a Current Report on Form 8-K with respect to a presentation entitled “Expanded Opportunities” dated June 26, 2001.
On July 27, 2001, each of Alliance Capital and Alliance Holding filed a Current Report on Form 8-K with respect to their Second Quarter 2001 Review dated July 26, 2001.
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.