FORM 10–Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
For the quarterly period ended March 31, 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.
Yes x No o
The number of Units representing assignments of beneficial ownership of limited partnership interests* outstanding as of March 31, 2001 was 73,875,097.
* includes 100,000 units of general partnership interest having economic interests equivalent to the economic interests of the units representing assignments of beneficial ownership of limited partnership interests.
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
Index to Form 10–Q
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements
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 StatementsMarch 31, 2001
(unaudited)
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 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 March 31, 2000, Alliance Holding owned approximately 73.9 million, or 30%, of the issued and outstanding Alliance Capital Units. ACMC owns 100,000 general partnership Units in Alliance Holding and a 1% general partnership interest in the Operating Partnership. At March 31, 2001, AXA Financial was the beneficial owner of approximately 2% of the outstanding Alliance Holding Units and approximately 53% 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 53% in the Operating Partnership. At March 31, 2001, SCB Partners Inc., a wholly owned subsidiary of SCB Inc., was the beneficial owner of approximately 16% of the outstanding Alliance Capital Units.
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 Alliance Holding. The Operating Partnership’s consolidated financial statements and notes and management’s discussion and analysis of financial condition and results of operations are included as an exhibit to this quarterly report on Form 10-Q for the quarterly period ended March 31, 2001.
(1) Net operating earnings per Unit: Diluted net income per Unit excluding Alliance Holding’s proportionate share of Alliance Capital’s amortization of intangible assets and non-recurring items.
Net income for the three months ended March 31, 2001 decreased $26.7 million or $0.36 diluted net income per Alliance Holding Unit to $39.2 million or $0.52 diluted net income per Alliance Holding Unit from net income of $65.9 million or $0.88 diluted net income per Alliance Holding Unit for the three months ended March 31, 2000. The decrease reflects equity in lower earnings of the Operating Partnership due principally to higher operating expenses and amortization of intangible assets by the Operating Partnership in connection with the Bernstein Acquisition and a non-recurring gain related to the settlement of litigation recorded by the Operating Partnership in first quarter 2000.
CAPITAL RESOURCES AND LIQUIDITY
Alliance Holding’s partners’ capital was $1,250.3 million at March 31, 2001, a decrease of $10.3 million or 0.8% from $1,260.6 million at December 31,2000. The decrease is 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 paid in the first quarter of 2001.
At March 31, 2001, Alliance Holding owned approximately 73.9 million, or 30%, of the issued and outstanding Alliance Capital Units. 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-terms loans discussed above, will provide Alliance Holding with the financial resources to meet its capital requirements.
COMMITMENTS AND CONTINGENCIES
Alliance Capital and Alliance Holding are involved in various 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 lawsuit or claim 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.
CASH DISTRIBUTIONS
Alliance Holding’s principal sources of income and cash flow are attributable to its ownership of approximately 30% 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 ended March 31, 2001 and 2000, were as follows:
SUBSEQUENT EVENT
On April 25, 2001, an amended class action complaint (“amended complaint”) entitled Miller v. Mitchell Hutchins Assets Management, Inc., No. 01-192-DRH, 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 complaint concern six mutual funds with which Alliance Capital has investment advisory agreements, including the 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 plaintiff’s allegations are without merit and intend to vigorously defend against these allegations.
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.
Part II
OTHER INFORMATION
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.