Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2001, for Alliance Capital Management Holding L.P. (Alliance Holding). Alliance Holding is a publicly traded partnership and registered investment adviser, with its principal income derived from a 29.9% ownership interest in the Operating Partnership (Alliance Capital Management L.P.). The Operating Partnership provides global investment management services to institutional investors, private clients, and individual investors. A significant recent event was the October 2000 acquisition of Sanford C. Bernstein Inc. (Bernstein), which diluted Alliance Holding's ownership percentage in the Operating Partnership.
Key Financial Metrics
| Metric | Three Months Ended 6/30/01 | Six Months Ended 6/30/01 | Six Months Ended 6/30/00 |
|---|---|---|---|
| Net Income | $42.1 million | $81.3 million | $123.3 million |
| Diluted Net Income per Unit | $0.56 | $1.07 | $1.64 |
| Equity in Earnings of Operating Partnership | $47.5 million | $92.4 million | $133.6 million |
| Income Taxes | $5.4 million | $11.1 million | $10.3 million |
| Total Assets (as of 6/30/01) | $1,253.8 million | ||
| Partners' Capital (as of 6/30/01) | $1,244.8 million | ||
| Total Liabilities (as of 6/30/01) | $9.0 million | ||
| Cash Distributions per Unit (Six Months) | $1.39 |
Liquidity and Debt: The company reported no cash and cash equivalents at the end of the period, as cash flows from operations were fully offset by distributions to partners. Total liabilities were minimal at $9.0 million, consisting primarily of payables to the Operating Partnership and accrued expenses. The company relies on distributions from the Operating Partnership and short-term loans from the Operating Partnership to meet capital requirements.
Material Changes vs. Prior Period
- Revenue and Earnings Decline: Net income for the six months ended June 30, 2001, decreased by 34.1% ($42.0 million) compared to the same period in 2000. Diluted net income per unit fell 34.8% to $1.07.
- Drivers of Decline: Management attributes the decrease to lower earnings from the Operating Partnership and a reduction in Alliance Holding's percentage ownership of the Operating Partnership's units following the Bernstein Acquisition.
- Amortization Impact: Amortization of intangible assets per unit increased significantly to $0.34 for the six months ended June 30, 2001, compared to $0.01 in the prior year, due to the Bernstein acquisition.
- Balance Sheet: Total assets decreased slightly to $1,253.8 million from $1,268.8 million at year-end 2000, primarily due to cash distributions exceeding net income.
Guidance, Outlook, Risks, and Contingencies
Outlook and Commentary: Management stated that cash flow from the Operating Partnership, supplemented by short-term loans, is sufficient to meet capital requirements. A distribution of $0.71 per unit for the quarter ended June 30, 2001, was declared on July 26, 2001.
Legal Proceedings and Contingencies:
- Miller Complaint: An amended class action complaint filed April 25, 2001, alleges violations of the Investment Company Act and breach of fiduciary duty regarding six mutual funds. Allegations include excessive fees and improper director interests.
- Nelson Complaint: An amended class action complaint filed June 22, 2001, alleges similar violations regarding three mutual funds.
- Management Position: Alliance Capital and Alliance Fund Distributors, Inc. believe the allegations are without merit and intend to defend vigorously. Management currently cannot estimate the financial impact of these actions but does not expect a material adverse effect on results of operations.
Risks: Forward-looking statements are subject to risks including financial market performance, investment product performance, general economic conditions, and government regulations.
Investor Verification Checklist
- Ownership Dilution: Verify the impact of the Bernstein Acquisition on Alliance Holding's proportional share of Operating Partnership earnings.
- Legal Exposure: Monitor the status of the Miller and Nelson class action lawsuits regarding mutual fund fees and fiduciary duties.
- Intangible Amortization: Assess the long-term impact of increased amortization charges on reported net income versus operating cash flow.
- Distribution Sustainability: Confirm that Available Cash Flow from the Operating Partnership remains sufficient to support the declared distribution rate of $0.71 per unit.
- AXA Financial Interest: Note that AXA Financial holds a controlling economic interest (approx. 52.9%) in the Operating Partnership, which may influence strategic decisions.