SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 Number 1-09772
PIMCO ADVISORS L.P.
(Exact name of registrant as specified in its charter)
Delaware 06-1349805
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
800 Newport Center Drive
Newport Beach, CA 92660
(Address of principal executive offices)
(Zip Code)
(714) 717-7022
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes No
----- -----
As of March 31, 1996, 13,588,764 publicly traded Class A units of limited
partner interest and 26,532,391 privately-held Class A units of limited partner
interest were issued and outstanding. There were 800,000 units of general
partner interest issued and outstanding at March 31, 1996. In addition, there
were 32,960,826 privately-held Class B units of limited partner interests issued
and outstanding at March 31, 1996.
PIMCO ADVISORS L.P.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
PIMCO Advisors L.P. and Subsidiaries
Consolidated Statements of Financial Condition
(Unaudited)
March 31, 1996 December 31, 1995
-------------- -----------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 42,017,070 $ 34,915,170
Fees receivable 56,965,420 57,351,994
Short term investments 10,818,056 11,531,226
Notes receivable 1,572,702 1,230,168
Other assets - current 2,822,142 2,620,639
------------ ------------
Total current assets 114,195,390 107,649,197
Investments in limited partnerships 3,562,854 3,384,237
Fixed assets, net of accumulated depreciation 10,506,357 10,743,184
Intangible assets, net of accumulated amortization 234,829,536 243,831,819
Other non current assets 5,945,740 3,983,358
------------ ------------
Total assets $369,039,877 $369,591,795
============ ============
Liabilities and Partners' Capital
- ---------------------------------
Current liabilities:
Accounts payable, accrued expenses and
other current liabilities $ 18,703,024 $ 16,040,212
Accrued compensation 31,290,476 21,246,685
------------ ------------
Total current liabilities 49,993,500 37,286,897
Other non current liabilities 729,517 748,265
------------ ------------
Total liabilities 50,723,017 38,035,162
------------ ------------
Partners' Capital
General Partner (800,000 units issued
and outstanding) 3,326,005 3,456,973
Class A Limited Partners (40,121,155
units issued and outstanding) 221,897,156 228,465,440
Class B Limited Partners (32,960,826
units issued and outstanding) 107,001,351 114,806,204
Unamortized compensation (13,907,652) (15,171,984)
------------ ------------
Total Partners' Capital 318,316,860 331,556,633
------------ ------------
Total liabilities and partners' capital $369,039,877 $369,591,795
============ ============
See accompanying notes.
3
PIMCO Advisors L.P. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the three months ended
--------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
Revenues:
Investment advisory fees:
Private accounts $48,794,710 $44,577,961
Proprietary Funds 31,109,699 17,700,252
Distribution and servicing fees 11,015,507 8,476,101
Other 300,136 363,949
----------- -----------
Total revenues 91,220,052 71,118,263
----------- -----------
Expenses:
Compensation and benefits 41,297,732 35,094,262
Amortization of intangibles, Restricted Unit and Option Plans 10,266,615 10,178,220
Commissions 8,874,258 6,242,478
General and administrative 4,691,795 2,309,389
Occupancy and equipment 2,311,971 1,906,719
Other 4,569,672 3,010,410
----------- -----------
Total expenses 72,012,043 58,741,478
----------- -----------
Operating income 19,208,009 12,376,785
Equity in income of limited partnership 35,350 48,287
Other income 509,056 758,592
----------- -----------
Income before taxes 19,752,415 13,183,664
Provision for taxes 388,971 43,650
----------- -----------
Net income $19,363,444 $13,140,014
=========== ===========
Net income allocated to:
General Partner $ 245,035 $ 207,988
Class A Limited Partner Units 12,288,834 10,404,144
Class B Limited Partner Units 6,829,575 2,527,882
----------- -----------
Total $19,363,444 $13,140,014
=========== ===========
Net income per unit:
General Partner and Class A Limited Partner unit $ 0.31 $ 0.26
=========== ===========
Class B Limited Partner unit $ 0.19 $ 0.07
=========== ===========
Cash distributions paid per unit:
General Partner and Class A Limited Partner unit $ 0.470 $ 0.239
=========== ===========
Class B Limited Partner unit $ 0.444 $ 0.077
----------- -----------
See accompanying notes.
4
PIMCO Advisors L.P. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the three months ended
--------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
Cash flows from operating activities:
Net income $ 19,363,444 $ 13,140,014
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization, Restricted Unit and Option Plans 11,020,214 10,788,408
Equity in income of limited partnerships (35,350) (48,287)
Unrealized loss on investments 164,569 -
Change in operating assets and liabilities:
Fees receivable 386,574 (13,691,714)
Other assets (2,163,884) (1,594,422)
Accounts payable, accrued expenses and other current liabilities 2,662,811 (86,773)
Accrued compensation 10,043,791 12,674,420
Other liabilities (18,748) (784,903)
Other (15,932) 523
------------ ------------
Net cash provided by operating activities 41,407,489 20,397,266
------------ ------------
Cash flows from investing activities:
Purchases of fixed assets (619,560) (2,124,793)
Proceeds from sale of fixed assets 128,650 13,200
Notes receivable advances (359,357) (106,156)
Sale of securities 783,570 -
Investments in limited partnerships and other (371,344) (300,000)
------------ ------------
Net cash used in investing activities (438,041) (2,517,749)
------------ ------------
Cash flows from financing activities:
Cash distributions paid (33,867,549) (12,293,523)
------------ ------------
Net cash used in financing activities (33,867,549) (12,293,523)
------------ ------------
Net increase in cash and cash equivalents 7,101,899 5,585,994
Cash and cash equivalents, beginning of period 34,915,170 55,003,751
------------ ------------
Cash and cash equivalents, end of period $ 42,017,069 $ 60,589,745
============ ============
Supplemental disclosures:
Taxes paid $ 321,957 $ 61,200
============ ============
See accompanying notes.
5
PIMCO Advisors L.P.
Notes to Consolidated Financial Statements
(Unaudited)
1) The condensed consolidated financial statements included herein have
been prepared without audit in accordance with the instructions to Form 10-Q
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of PIMCO Partners, G.P., the General Partner, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of (a) the financial condition at March 31, 1996 and December 31, 1995, (b) the
results of operations for three-month periods ended March 31, 1996 and 1995, and
(c) the cash flows for the three-month periods ended March 31, 1996 and 1995,
for PIMCO Advisors L.P. ("PA") have been made. It is suggested that these
unaudited condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and notes included in PA's Annual
Report on Form 10-K for the year ended December 31, 1995. Certain
reclassifications have been made to conform the prior period presentation to the
current period presentation. These interim results may not be indicative of the
results which may occur in the future. (See Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations).
2) Earnings per unit are computed under the two-class method and are based
on the weighted average number of units outstanding, assuming the exercise of
dilutive unit options. See Exhibit 11 for the computation of the weighted
average number of units outstanding during the periods.
Distributions, on the units outstanding, are paid quarterly in arrears to
unitholders of record as of the thirtieth day of the first month following each
quarter-end.
3) In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123. "Accounting for Stock-Based
Compensation", which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. PA will continue to apply APB Opinion No. 25 to its unit
based compensation awards to employees and will disclose the required pro forma
effect on net income and earnings per unit in the annual financial statements.
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PIMCO Advisors L.P. and subsidiaries ("PA") are primarily involved in
investment advisory services. The investment advisor subsidiaries are as
follows:
Pacific Investment Management Company ("Pacific Investment
Management") and its wholly owned subsidiary, StocksPLUS Management,
Inc. ("StocksPLUS"), manages primarily fixed income investments, with
approximately $76.9 billion in assets under management;
Columbus Circle Investors ("CCI") and its wholly owned subsidiary,
Columbus Circle Trust Company ("CCTC"), manages primarily equity and
equity related investments, with approximately $13.7 billion in assets
under management;
Cadence Capital Management ("Cadence") manages equity and equity
related investments, with approximately $2.6 billion in assets under
management;
Parametric Portfolio Associates ("Parametric"), manages equity and
equity related investments, with approximately $1.6 billion in assets
under management;
NFJ Investment Group ("NFJ"), manages equity and equity related
investments, with approximately $1.5 billion in assets under
management; and
Blairlogie Capital Management ("Blairlogie"), manages equity and
equity related investments, with approximately $673 million in assets
under management.
The subsidiaries are each a registered investment advisor and collectively they
provide a broad array of investment management and advisory services for
clients, using separate and distinct investment management styles.
In addition to the investment management subsidiaries, PA sponsors two mutual
fund families: PIMCO Funds (funds for institutional and 401 (k)/defined
contribution investors) and PIMCO Advisors Funds (retail funds and the Cash
Accumulation Trust).
RESULTS OF OPERATIONS FOR 1996 COMPARED TO 1995
PA derives substantially all its revenues and net income from advisory fees for
investment management services provided to its institutional and individual
clients and advisory, distribution and servicing fees for services provided to
its two proprietary families of mutual funds ("Proprietary Funds").
Generally, such fees are determined based upon a percentage of client assets
under management and are billed quarterly to institutional clients, either in
advance or arrears, depending on the agreement with the client, and monthly in
arrears to Proprietary Funds. Revenues are determined in large part based upon
the level of assets under management; which itself is dependent upon factors
including market conditions, client decisions to add or withdraw assets from
PA's management and from PA's ability to attract new clients. In addition, PA
has certain accounts which are subject to performance based fee schedules
wherein performance relative to the S&P 500 Index or other benchmarks over a
particular time period can result in additional fees. Such performance based
fees can have a significant effect on revenues, and provide an opportunity to
earn higher fees (as well as lower) than could be obtained under fee
arrangements based solely on a percentage of assets under management.
PA's consolidated 1996 first quarter revenues, including those of its wholly
owned distributor PIMCO Advisors Distribution Company ("PADCO"), were $91.2
million compared to $71.1 million in the first quarter of 1995, up $20.1
million. Advisory revenues were $79.9 million in the first quarter of 1996
compared to $62.3 million for the same period in 1995, up $17.6 million.
Advisory revenue increases resulted from both the commitment of new assets by
institutional clients and from market appreciation. These increases were further
enhanced by an increase in performance based fees, which amounted to $3.5
million during the first quarter of 1996 as compared to $2.5 million during the
same period in 1995. The increase in performance based fees occurred principally
in a product line that seeks to outperform the S&P 500 Index.
7
Revenues by operating entity were as follows:
Three Months Ended
March 31,
1996 1995
-------- --------
(In millions)
Pacific Investment Management $51.1 $39.5
CCI 15.5 11.9
Cadence 4.0 3.1
Parametric 0.8 0.9
NFJ 1.7 1.4
PADCo 12.7 8.8
Other(1) 5.4 5.5
----- -----
$91.2 $71.1
===== =====
(1) Includes PA's Institutional Services (formerly PFAMCo) and Mutual Funds
divisions and Blairlogie.
Compensation and benefits in the first quarter of 1996 of $41.3 million were
$6.2 million higher than the same period in 1995. These increases reflect
additional staffing, at both Pacific Investment Management and CCI, as well as
higher profit sharing expenses which are based on profits of each of the
investment advisor subsidiaries.
Commission expenses, incurred by PADCO related to sales and servicing of retail
mutual funds, increased $2.6 million to $8.9 million in the three months of 1996
compared to the same period a year ago, reflecting higher trail commissions due
to an increased level of qualifying assets, as well as increased "up front"
commissions on higher current sales levels.
General and administrative expenses amounted to $4.6 million during the first
quarter 1996, an increase of $2.4 million over the same period a year ago. This
increase can be primarily attributed to the conversion of Pacific Investment
Management's institutional fund family to a fixed administrative fee basis
resulting in increases to this cost category for expenses previously borne
directly by the funds. There is a corresponding increase in revenues related to
this conversion. These incremental costs account for substantially all of this
increase.
Occupancy and equipment has increased by $405,000 to $2.3 million in the first
quarter of 1996 from the same period a year ago, primarily due to additional
office space and equipment as a result of the additional staffing discussed
above.
Other expenses in the first quarter of 1996 increased by $1.6 million from 1995
due principally to increases in marketing and promotional costs and professional
fees as well as reductions in reimbursement agreements with Pacific Mutual
related to operating losses of certain subsidiaries, as those subsidiaries have
approached or surpassed profitability.
Net income per unit is computed under the two-class method which allocates net
income to Class A and Class B Limited Partner units in proportion to the
Operating Profit Available for Distribution for each class. Operating Profit
Available for Distribution is defined by PA's partnership agreement and is
computed as the sum of net income plus non-cash charges from the amortization of
intangible assets, non-cash compensation expenses arising from option and
restricted unit plans and losses of any subsidiary which is not a flow-through
entity for tax purposes. Class A Limited Partner and General Partner units are
entitled to a priority distribution of $1.88 per unit per year until December
31, 1997. Because of this, the amount of Operating Profit Available for
Distribution allocated to such units is currently greater than the amount
allocated to Class B Limited Partner units. As a result, the net income
allocated per Class A Limited Partner and General Partner units is currently
greater than the net income allocated per Class B Limited Partner unit. Due to
the priority distribution, any dilution to net income per unit from the assumed
exercise of unit options is currently applied entirely to Class B Limited
Partner units.
8
CAPITAL RESOURCES AND LIQUIDITY
PA's and its predecessor entities' combined business has not historically been
capital intensive. In general, working capital requirements had been satisfied
out of operating cash flow or short-term borrowings. PA will make quarterly
profit-sharing payments and distributions to its unitholders. PA may need to
finance profit-sharing payments using short-term borrowings.
PA had approximately $52.8 million of cash and cash equivalents and short-term
investments at March 31, 1996 compared to approximately $46.5 million at
December 31, 1995. PA's liquidity not otherwise used for quarterly distributions
will be used for general purposes including profit-sharing payments and for
brokers' commissions on sales of mutual fund shares distributed without a front-
end sales load. PA believes that the level of such commissions may increase in
the future due to the introduction of new products and mutual fund pricing
structures which may require an alternate financing source.
The Partnership distributes substantially all of its "Operating Profit Available
for Distribution", after appropriate reserves, to its partners. Distributions
are paid quarterly, in arrears, on the units outstanding to unitholders of
record on the thirtieth day of the first month following each quarter-end.
During the first three months of 1996, the Partnership distributed $0.47 per
Class A Limited Partner and General Partner unit and $0.444 per Class B Limited
Partner unit related to the fourth quarter of 1995's earnings. The Partnership
declared a first quarter distribution of $0.47 per Class A Limited Partner and
General Partner unit payable to holders of record on April 30,1996. The payment
date for this distribution is May 15, 1996. The Partnership declared a first
quarter distribution of $0.318 per Class B Limited Partner unit payable to
holders of record on April 30, 1996. The payment date for this distribution is
May 30, 1996.
PA currently has no long-term debt. In April 1996, the Partnership obtained a
$25 million, four year revolving line of credit for working capital purposes.
ECONOMIC FACTORS
The general economy including interest rates, inflation and client responses to
economic factors will affect, to some degree, the operations of PA. As a
significant portion of assets under management are fixed income funds,
fluctuations in interest rates could have a material impact on the operations of
PA. PA's advisory business is generally not capital intensive and therefore any
effect of inflation, other than on interest rates, is not expected to have a
significant impact on its operations or financial condition. Client responses to
the economy, including decisions as to the amount of assets deposited may also
impact the operations of PA. Any resulting revenue fluctuations may or may not
be recoverable in the pricing of services offered by PA.
9
PART II: OTHER INFORMATION
Item 5. In April 1996, PIMCO Advisors L.P. ("PA") entered into a Credit
Agreement (the "Credit Agreement") with Citicorp USA, Inc. pursuant to which PA
may borrow up to $25 million. Any unpaid balance owing under the Credit
Agreement must be paid on September 30, 1999. Also, during any 365-day period,
there must be a period of 30 consecutive days during which no amount is
outstanding. The Credit Agreement: (i) restricts PA's ability to borrow and to
merge or consolidate; (ii) requires PA to maintain certain financial ratios; and
(iii) provides that a change of control over PA is an event of default. No
amount is currently outstanding under the Credit Agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.23 Credit Agreement dated as of April 12, 1996 between PIMCO Advisors
L.P. as borrower and Citicorp USA, Inc. as lender and agent.
11 Computations of Net Income Per Unit.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of 1996.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PIMCO Advisors L.P.
By /s/ William D. Cvengros
------------------------------------
William D. Cvengros
Chief Executive Officer
By /s/ Robert M. Fitzgerald
------------------------------------
Robert M. Fitzgerald
Principal Accounting Officer
May 14, 1996
11