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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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EXHIBITS
TO
ANNUAL REPORT
ON
FORM 10-K
(For the Fiscal Year Ended December 31, 1993)
UNDER
SECURITIES EXCHANGE ACT OF 1934
PURSUANT TO SECTION
13 OR 15(d)
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ALLIANCE CAPITAL MANAGEMENT L.P.
(Exact name of registrant as specified in its charter)
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EXHIBIT INDEX
10.54 Amended and Restated Transfer Agreement among
Alliance Capital Management L.P., Equitable Capital
Management Corporation and Equitable Investment
Corporation dated as of February 23, 1993 as amended
and restated on May 28, 1993 (1)
10.55 Asset Purchase Agreement among Alliance Capital
Management L.P., Shields Asset Management, Incorporated,
Regent Investor Services Incorporated, Furman Selz
Holding Corporation and Xerox Financial Services, Inc.,
dated November 16, 1993 (2)
10.56 Alliance Capital Management L.P. 1993 Unit Option Plan (3)
10.57 Alliance Capital Management L.P. Unit Bonus Plan (3)
10.58 Alliance Capital Management L.P. Century Club Plan (3)
13.5 Alliance Capital Management L.P. 1993 Annual Report to
Unitholders (pages 43 through 69)
21.0 Subsidiaries of the Registrant
23.0 Consent of KMPG Peat Marwick
24.32 Power of Attorney by James M. Benson
24.33 Power of Attorney by Henri de Castries
24.34 Power of Attorney by Christophe Dupont-Madinier
24.35 Power of Attorney by Jean-Pierre Hellebuyck
24.36 Power of Attorney by Benjamin D. Holloway
24.37 Power of Attorney by Henri Hottinguer
24.38 Power of Attorney by Richard H. Jenrette
24.39 Power of Attorney by Joseph J. Melone
24.40 Power of Attorney by Brian S. O'Neil
24.41 Power of Attorney by Peter G. Smith
24.42 Power of Attorney by Madelon DeVoe Talley
(1) Filed as an Exhibit to the Registrant's Form 8-K
dated August 10, 1993
(2) Filed as an Exhibit to the Registrant's Form 8-K
dated November 17, 1993
(3) Filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (File No. 33-65932) filed with
the Securities and Exchange Commission on
July 12, 1993
EXHIBIT 13.5
Alliance Capital Management L.P. and Subsidiaries
Consolidated Financial Information
Selected Consolidated Financial Data 43
Management's Discussion and Analysis of 40
Financial Condition and Results of
Operations
Consolidated Financial Statements 46
Independent Auditors' Report 69
Alliance Capital Management L.P. (1)
Selected Consolidated Financial Data
For the Years Ended December 31
(in thousands, unless otherwise indicated)
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Income Statement Data:
Revenues:
Investment advisory and services fees:
Alliance mutual funds $167,043 $150,660 $129,071 $ 96,166 $ 72,568
Other affiliated clients 37,212 33,180 41,268 40,253 60,310
Institutional clients 146,509 138,006 133,706 116,362 118,972
Distribution plan fees from Alliance
mutual funds 105,260 92,985 70,013 30,487 14,296
Shareholder servicing and
administration fees 32,932 28,099 25,090 20,175 16,987
Commission income 5,524 4,643 7,222 7,985 5,601
Interest, dividends and other income 5,037 5,698 6,230 5,307 5,838
499,517 453,271 412,600 316,735 294,572
Expenses:
Employee compensation and benefits 148,128 152,397 133,235 118,653 118,135
General and administrative 65,978 80,637 76,884 70,559 68,253
Interest 10,251 9,466 6,864 3,892 1,419
Promotion and servicing:
Distribution payments to financial
intermediaries:
Affiliated 13,722 10,755 8,761 5,690 4,164
Unaffiliated 65,445 55,526 52,024 32,902 22,658
Amortization of deferred sales
commissions 36,237 32,495 20,613 6,609 --
Other 31,813 30,322 24,808 26,032 20,930
Amortization of intangible assets 6,975 6,993 6,893 6,872 7,307
Nonrecurring transaction expenses 40,842 -- -- -- --
419,391 378,591 330,082 271,209 242,866
Income before income taxes (benefit)
and cumulative effect of accounting
change 80,126 74,680 82,518 45,526 51,706
Income taxes (benefit) 11,466 (100) 11,355 6,082 12,547
Income before cumulative effect of
accounting change 68,660 74,780 71,163 39,444 39,159
Cumulative effect of change in
accounting for income taxes 900 -- -- -- --
Net income $ 69,560 $ 74,780 $ 71,163 $ 39,444 $ 39,159
Net income per Unit (4) $0.96 $1.05 $1.01 $0.57 $0.57
Cash distributions per Unit (2) (4) $1.50 $1.285 $1.06 $0.88 $0.80
Weighted average Units outstanding
(4) 72,085 70,244 69,622 68,704 68,500
Balance Sheet Data at Period End:
Total assets $561,287 $415,851 $450,029 $337,518 $283,353
Debt and long-term obligations (3) 134,022 165,334 127,798 92,302 33,568
Total partners' capital 214,045 160,626 156,419 139,865 149,588
Assets under Management at Period End
(in millions) $115,276 $ 98,681 $ 97,956 $ 79,440 $ 81,266
<FN>
(1) The transfer of the business of Equitable Capital Management Corporation
("ECMC") to the Partnership was completed on July 22, 1993 and was accounted
for in a manner similar to the pooling of interests method. Accordingly,
financial data for all periods presented, except as noted, have been restated
to include the results of operations of ECMC.
(2) The Partnership is required to distribute all of its Available Cash Flow,
as defined in the Partnership Agreement, to the General Partner and
Unitholders. Distribution per Unit amounts above do not include Available
Cash Flow resulting from the operations of ECMC prior to July 22, 1993, the
date the transfer was completed.
(3) Includes accrued expenses under employee benefit plans due after one year
and debt.
(4) Unit and per Unit amounts for all periods presented reflect a two-for-one
Unit split effective February 22, 1993.
43
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Revenues
The Partnership derives substantially all of its revenues and net income from
fees for investment advisory, distribution, and other services provided to its
sponsored mutual funds and cash management accounts and from fees for
investment advisory services provided to institutional clients and The
Equitable Life Assurance Society of the United States ("ELAS") and certain of
its subsidiaries. The most significant factors affecting revenue growth during
the three year period ended 1993 have been the expansion of the Partnership's
mutual fund and cash management services business and market appreciation of
assets under management by the Partnership.
The Partnership continues to expand its range of investment products and
markets served. The most significant development during 1993 was the
acquisition of the business and substantially all of the assets of Equitable
Capital Management Corporation ("ECMC"), an indirect wholly-owned subsidiary of
The Equitable Companies Incorporated ("Equitable"), in exchange for 11.8
million newly issued Units and a newly created Class A Limited Partnership
Interest convertible initially into 100,000 Units. The acquisition of ECMC
increased the Partnership's assets under management by $36.6 billion. The
Partnership accounted for the acquisition in a manner similar to the pooling of
interests method and, accordingly, all financial data for the periods presented
have been restated to include the operations of ECMC.
In connection with the acquisition of ECMC, the Partnership entered into
agreements to manage approximately $18.7 billion in assets of the general
accounts of ELAS and its insurance company subsidiaries, The Equitable Variable
Life Insurance Company ("EVLICO") and The Equitable of Colorado, Inc. (the
"General Accounts"). The Partnership also entered into investment advisory
agreements to manage approximately $6.7 billion in mutual fund assets,
including $6.3 billion in The Hudson River Trust ("HRT"), a registered open-end
investment company which is the funding vehicle for the variable annuity and
variable life insurance products offered by ELAS and EVLICO. The remaining
$11.2 billion in assets consisted of third-party assets, including $5.7 billion
in separate accounts maintained by ELAS for nonaffiliated pension plan clients.
The acquisition of ECMC resulted in further diversification of the services
provided by the Partnership. A significant portion (67%) of the increase in
assets under management attributable to the acquisition of ECMC were
investments in fixed income instruments. Included in these fixed income
investments were approximately $9.1 billion of assets invested in traditional
private placements, private mezzanine financings and private investment limited
partnerships. Certain of these below investment grade private placement
portfolios are coupled with a contingent interest component or investment in an
equity participation, which provide the potential for capital appreciation. As
a result of the acquisition, the percentage of fixed income assets under
management increased from 43% to 53%.
44
The following tables provide a summary of the Partnership's assets under
management and associated investment advisory and services fees, restated
to reflect the acquisition of ECMC by the Partnership:
Assets Under Management ($ millions) As of December 31,
--------------------------------------------
1993 1992 1991
-------- -------- --------
Alliance mutual funds $ 37,364 $ 28,167 $ 27,648
Other affiliated clients(1) 20,953 18,858 18,133
Institutional clients 56,959 51,656 52,175
Total $115,276 $ 98,681 $ 97,956
Investment Advisory and Services Fees ($ thousands) Years Ended December 31,
--------------------------------------------
1993 1992 1991
-------- -------- --------
Alliance mutual funds $167,043 $150,660 $129,071
Other affiliated clients(1) 37,212 33,180 41,268
Institutional clients 146,509 138,006 133,706
Total $350,764 $321,846 $304,045
<FN>
(1) Other affiliated clients consist of ELAS and certain of its subsidiaries,
principally EVLICO and The Equitable of Colorado, Inc.
Investment advisory and services fees are generally based on the market value
of assets under management and may vary with the type of account managed. Fee
income is affected by changes in assets under management, including market
appreciation or depreciation, client additions and withdrawals, purchases and
redemptions of mutual fund shares, and shifts of assets between accounts or
products with different fee structures. Investment advisory agreements for
certain accounts provide for performance fees in addition to a base fee.
Performance fees are earned when investment performance exceeds a contractually
agreed upon benchmark and, accordingly, may increase the volatility of both the
Partnership's revenues and earnings.
Growth in the Partnership's investment advisory and services fees resulted
primarily from the significant growth of its mutual fund and cash management
services business due to increased sales and the introduction of new funds and
products, and market appreciation, principally in its institutional accounts.
During the three year period ended 1993, investment advisory fees generated
from new accounts and asset additions in the Partnership's mutual fund and cash
management services business have substantially exceeded fees lost as a result
of redemptions. The
45
Management's Discussion and Analysis of Financial Condition
and Results of Operations
expansion of the Partnership's mutual fund and cash management services
business has resulted in related growth in revenues from distribution plan fees
and shareholder servicing and administration fees.
In contrast, investment advisory fees from new institutional accounts and asset
additions to existing accounts during the three year period were less than fees
lost due to institutional account terminations and asset withdrawals. The net
reduction, however, was more than offset by the effect of significant market
appreciation.
The Partnership's subsidiary, Alliance Fund Distributors, Inc. ("AFD"), acts
as distributor of its sponsored load mutual funds and receives both
distribution plan fees from those funds in reimbursement of distribution
expenses it incurs and a small part of the underwriting commission on the sale
of Class A Shares (see "Capital Resources and Liquidity"). The Partnership's
subsidiary, Alliance Fund Services, Inc. ("AFS"), provides administrative and
transfer agency services to its sponsored load mutual funds and money market
funds. In connection with the investment advisory services it provides to the
General Accounts, the Partnership provides ancillary regulatory accounting and
reporting services. The Partnership also derives income from investments in
its sponsored mutual funds, other investments and cash balances, and receives
fees for securities lending services provided to the General Accounts.
Expenses
The Partnership's largest expense is employee compensation and benefits,
including salaries, commissions, fringe benefits and incentive compensation
based on profitability. Provisions for future payments to be made under
certain deferred compensation arrangements and for noncash compensation expense
resulting from the vesting of Units sold to key employees during 1988 at a
discount from the initial public offering price are also included in employee
compensation and benefits expense. Total salaries over the past several years
have increased as the Partnership has added staff in connection with the
expansion of its mutual fund business and its fixed income and global equity
research capabilities. Incentive compensation, which includes pension, profit
sharing and cash bonuses for employees, is based principally on the
Partnership's operating earnings. Aggregate incentive compensation paid by
ECMC for 1992 and 1991 was supplemented by amounts not otherwise payable under
its incentive compensation plan.
General and administrative expenses are costs related to the operation of the
business, including professional fees, occupancy, communications, equipment and
similar expenses. Prior to the ECMC acquisition, a management fee was paid by
ECMC to ELAS for use of certain personnel, facilities and services provided by
ELAS. The amount of the fee was based on assets managed for ELAS.
46
Interest expense is incurred on the Partnership's borrowings to finance its
mutual fund distribution activities and on deferred compensation owed to
employees.
Promotion and servicing expenses include payments made to financial
intermediaries for distribution of the Partnership's sponsored mutual funds and
cash management services products and amortization of deferred sales
commissions paid to financial intermediaries under its mutual fund distribution
system (the "System") (see "Capital Resources and Liquidity"). Also included
in this expense category are travel and entertainment, advertising, promotional
materials, and investment meetings and seminars for financial intermediaries
that distribute the Partnership's mutual fund products. Consistent with the
growth in the Partnership's mutual fund and cash management products, this
expense category has increased substantially.
Amortization of intangible assets results primarily from the acquisition of
ACMC, Inc., the predecessor of the Partnership, by ELAS during 1985. The
acquisition was accounted for as a purchase, with the purchase price allocated
to the net assets acquired, including client files and goodwill, based on the
estimated fair value of such assets and liabilities at the date of acquisition.
The Partnership generally is not subject to Federal, state and local income
taxes, with the exception of the New York City unincorporated business tax,
which is currently imposed at a rate of 4% of allocable income. Domestic
subsidiaries of the Partnership are subject to Federal, state and local income
taxes. Foreign subsidiaries are generally subject to taxes in the foreign
jurisdictions where they are located. Current law provides that the
Partnership will be taxable as a corporation beginning in 1998.
Results of Operations 1993 Compared to 1992
Assets under management by the Partnership at December 31, 1993 were
approximately $115.3 billion, an increase of $16.6 billion or 16.8% from
December 31, 1992. The increase is due principally to substantial market
appreciation during 1993 of $9.2 billion and net mutual fund sales of $5.9
billion, including closed-end fund sales of $1.8 billion. Excluding market
appreciation, the Partnership's institutional and other affiliated clients'
assets under management decreased by $0.5 billion and increased by $2.0
billion, respectively.
Revenues for 1993 were $499.5 million, an increase of $46.2 million or 10.2%
over 1992 due principally to increases in investment advisory fees of $28.9
million or 9.0% and distribution plan fees of $12.3 million or 13.2%.
Investment advisory and services fees from Alliance mutual funds increased by
$16.4 million or 10.9% due to higher average assets under management resulting
from strong net load mutual fund sales and market appreciation. Investment
advisory and services fees from other affiliated clients, primarily the General
Accounts, increased by $4.0 million or 12.2% due to an increase in performance
fees of
47
Management's Discussion and Analysis of Financial Condition
and Results of Operations
$2.5 million and higher average assets under management. Investment advisory
and services fees from institutional clients increased by $8.5 million or 6.2%
primarily due to market appreciation and an increase of $3.9 million in
performance fees. Aggregate performance fees were $16.7 million in 1993, an
increase of 62.4%, due principally to realized capital gains in certain
leveraged buy out and high yield bond portfolios.
Distribution plan fees increased by $12.3 million or 13.2% due to substantially
higher average load mutual fund and cash management asset levels. Shareholder
servicing and administration fees increased by $4.8 million or 17.2% due
principally to an increase in the number of shareholder accounts serviced by
AFS. Commission income increased by $.9 million or 19.0% as a result of the
launching of Alliance World Dollar Government Fund II, a closed-end mutual
fund, for which the Partnership earned $2.5 million in commissions. Interest,
dividends and other income decreased by $.7 million or 11.6% as a result of a
decrease in securities lending income.
Expenses for 1993 were $419.4 million, an increase of $40.8 million or 10.8%
over 1992. The increase was principally due to nonrecurring transaction
expenses of $40.8 million incurred in connection with the acquisition of ECMC,
including $15.4 million of noncash charges. Employee compensation and
benefits, which represent approximately 39% of total expenses before
nonrecurring transaction expenses, decreased $4.3 million or 2.8% for the year,
principally due to the decrease in base compensation of $9.1 million for the
year as a result of restructuring charges incurred by ECMC in 1992 and ECMC
staff reductions in 1993 made in connection with the acquisition. The decrease
was offset by an increase of $4.1 million in incentive compensation resulting
from increased operating earnings and an increase of $2.9 million in
commissions as a result of higher load mutual fund sales.
General and administrative expenses, which account for approximately 17% of
total expenses before nonrecurring transaction expenses, decreased by $14.7
million or 18.2%. The decrease was primarily the result of an $8.1 million
decrease in professional fees due to a general reduction in consulting and
legal services. Occupancy costs decreased by $2.6 million as a result of the
elimination of certain office space formerly leased by ECMC and a renegotiated
lease agreement. Other general and administrative expenses decreased by $3.9
million principally as a result of the termination of the ELAS management fee
effective with the acquisition of ECMC.
Interest expense increased by $.8 million or 8.3% due to higher average debt
levels in 1993.
Promotion and servicing expense, which includes distribution plan payments to
financial intermediaries for distribution of the Partnership's mutual fund and
cash management services products, amortization of deferred sales commissions
paid to brokers for the sale of Class B Shares under the System, advertising,
promotional materials and travel and entertainment,
48
increased by $18.1 million or 14.0%. Distribution plan payments increased
$12.9 million as a result of higher load mutual fund and cash management asset
levels. Amortization of deferred sales commissions increased by $3.7 million
due to increasing sales of Class B Shares under the System. Promotional
expenditures increased by $1.5 million in support of higher load mutual fund
sales and the expansion of the System.
The 1993 provision for income taxes was $11.5 million compared to a benefit of
$0.1 million in the prior year. These amounts include the income tax expense
(benefit) resulting from ECMC's operations prior to the acquisition at the
historical effective tax rate of approximately 46%. ECMC incurred a $7.4
million loss in 1992 for which an income tax benefit was recorded at 46%. This
benefit offset the income tax provision of the Partnership, which is not
subject to Federal, state or local income taxes except for the New York City
unincorporated business tax.
1992 Compared to 1991
Assets under management by the Partnership at December 31, 1992 were
approximately $98.7 billion, an increase of $.8 billion or .7% from December
31, 1991 due principally to market appreciation of assets during 1992 of $3.7
billion and net cash inflows from other affiliated clients of $.7 billion,
offset partially by net cash outflows from institutional clients of $3.8
billion. The Partnership's load mutual fund assets, excluding market
appreciation, increased only $0.1 million as assets gained from sales to both
new and existing accounts were offset by account redemptions.
Revenues for 1992 were $453.3 million, an increase of $40.7 million or 9.9%
over 1991 primarily as a result of increases in investment advisory fees of
$17.8 million and distribution plan fees of $23.0 million. Investment advisory
and services fees from Alliance mutual funds and from institutional clients
increased by $21.6 million and $4.3 million or 16.7% and 3.2%, respectively.
Growth in investment advisory fees from Alliance mutual funds and from
institutional clients exceeded the growth in assets under management because
the Partnership's fees are determined based on average assets under management.
Consequently, the full impact of the substantial growth in assets under
management that occurred during 1991 was not reflected in investment advisory
fees until 1992. The increase in institutional client fees was offset by a
$5.0 million decline in performance fees from 1991. Investment advisory and
services fees from other affiliated clients decreased by $8.1 million or 19.6%
due primarily to declines in performance fees of $4.6 million and in base fee
revenues from the General Accounts of approximately $3.5 million due to lower
average assets under management and a change in asset mix from higher to lower
base fee type assets.
Distribution plan fees increased by $23.0 million or 32.8% due to substantially
higher average load mutual fund assets under management, primarily Alliance
Short-Term Multi-
49
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Market Trust and other fixed income funds, and higher cash management asset
levels. Shareholder servicing and administration fees increased $3.0 million
or 12.0% as the result of an increase in the number of shareholder accounts
serviced by AFS. Commission income decreased by $2.6 million or 35.7% as a
result of a decrease in the level of sales of load mutual funds and other
products from the prior year. Interest, dividends and other income decreased
by $.5 million or 8.5% due principally to lower average interest rates earned
on investments.
Expenses for 1992 were $378.6 million, an increase of $48.5 million or 14.7%
over 1991. Employee compensation and benefits, which represent approximately
40% of total expenses, increased $19.2 million or 14.4% for the year,
principally due to salary increases, a net increase in employees, severance and
retention pay of $5.0 million in 1992 related to ECMC's cost reduction program
and an increase in incentive compensation of $4.5 million. ECMC's incentive
compensation was supplemented in 1992 and 1991 by approximately $10.2 million
and $1.0 million, respectively, over amounts not otherwise payable under its
incentive compensation plan in order to retain quality professionals. The
increase in employee compensation and benefits was offset partially by a $2.7
million reduction in the amortization of the discount on Units sold to
employees in 1988 as a result of the vesting of a portion of those Units.
General and administrative expenses, which account for approximately 21% of
total expenses, increased by $3.8 million or 4.9%. The increase was primarily
due to increased occupancy costs and related expenses resulting from additional
office space leased during the latter part of 1991 at the Partnership's New
York headquarters and in London to accommodate the Partnership's growth. This
increase was partially offset by a decline in professional fees due to the cost
reduction program implemented by ECMC during 1992.
Interest expense increased by $2.6 million or 37.9% as a result of additional
debt incurred principally to finance the Partnership's mutual fund distribution
activities and for working capital purposes.
Promotion and servicing expense increased by $22.9 million or 21.6% due
principally to increased amortization of deferred sales commissions of $11.9
million resulting from continuing sales of Class B Shares under the System,
higher average cash management and load mutual fund assets resulting in higher
distribution plan payments of $5.5 million made to financial intermediaries and
an increase of $5.5 million in travel and entertainment and promotional
expenses attributable to increased institutional and mutual fund marketing
activities.
The 1992 income tax benefit was $0.1 million compared to income tax expense of
$11.4 million in the prior year. These amounts include the income tax expenses
(benefit) resulting from ECMC's operations at the historical effective tax rate
of approximately 46%. ECMC incurred a $7.4 million loss in 1992 for which an
income tax benefit of $4.6 million
50
was recorded. This benefit offset the income tax expense incurred by the
Partnership, which is not subject to Federal, state or local income taxes
except for the New York City unincorporated business tax.
Capital Resources and Liquidity
Cash flow from operations and proceeds from the sale of Units were the
Partnership's principal sources of working capital in 1993. In connection with
the acquisition of ECMC, the Partnership sold 2,380,952 newly issued Units to
ACMC, Inc. a wholly-owned subsidiary of Equitable, for $50 million in cash to
provide for working capital and other needs.
During 1993 the Partnership expanded its load mutual fund distribution system
(the "System") to include a third distribution option. The System permits the
load mutual funds managed by the Partnership to offer investors the option of
purchasing shares (a) subject to a conventional front-end sales charge ("Class
A Shares") (b) without a front-end sales charge but subject to a contingent
deferred sales charge payable by shareholders ("CDSC") and higher distribution
fees and transfer agent costs payable by the funds ("Class B Shares") or (c)
without either a front-end sales charge or the CDSC but with higher
distribution fees payable by the funds ("Class C Shares"). If a shareholder
purchases Class A Shares, AFD compensates the financial intermediary
distributing the fund from the front-end sales charge paid by the shareholder
at the time of each sale. If a shareholder purchases Class B Shares, AFD does
not collect a front-end sales charge even though it is obligated to compensate
the financial intermediary at the time of sale. Payments made to financial
intermediaries in connection with the sale of Class B Shares under the System,
net of CDSC received, totaled approximately $75.3 million and $30.9 million
during 1993 and 1992, respectively. Management of the Partnership believes AFD
will recover the payments made to financial intermediaries from the higher
distribution fees and CDSC it receives under the Class B Shares over periods
not exceeding 5 1/2 years. If a shareholder purchases Class C Shares, AFD does
not collect a front-end sales charge or CDSC and does not compensate the
financial intermediary at the time of sale but the entire amount of the
distribution fees received by AFD applicable to Class C Shares is paid to the
financial intermediary.
The Partnership's cash and cash equivalents increased by $19.5 million during
1993. Net cash flow from operations of $6.4 million, after cash distributions
to Unitholders of $87.8 million, and proceeds from the sale of new Units of
$55.6 million were offset partially by the $20.0 million repayment of debt and
a net increase in investments in Alliance mutual funds of $17.0 million.
The Partnership's senior notes aggregated $105 million at December 31, 1993,
after its first principal payment of $20 million made in December 1993. The
next principal payment of $20 million is due during December 1994.
51
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Partnership's capital commitments consist primarily of office space,
furniture and equipment leases. The Partnership plans to continue to
consolidate ECMC's operations with its own, which will require the leasing of
additional office space at its New York headquarters for estimated annual
rental payments of approximately $2.1 million, net of anticipated sub-lease
rental income, beginning in mid 1995. Leasehold improvements, furniture and
equipment for the additional office space, along with general business growth,
are estimated to cost approximately $26 million, all of which will be incurred
during 1994.
On March 7, 1994 the Partnership completed the acquisition of the businesses
and substantially all of the assets of Shields Asset Management, Incorporated
("Shields") and its wholly-owned subsidiary, Regent Investor Services
Incorporated ("Regent"), for a purchase price of $70 million in cash. In
addition, the Partnership issued new Units with a value of approximately $15.2
million to key employees of Shields and Regent in exchange for their entering
into long-term employment contracts with the Partnership. The Partnership
financed the purchase with a new $100 million revolving credit facility
established during February 1994 with a group of banks.
As a result of the substantial growth in the Partnership's business and
increased sales levels of Class B Shares under the System, the Partnership will
require additional capital. Various alternatives for increasing the
Partnership's capital base, including the issuance of new Units for cash and
the issuance of additional debt, are being evaluated by management. Management
of the Partnership believes that funds generated from operations, additional
debt and the issuance of new Units will provide the Partnership with a capital
base sufficient to support its future capital and liquidity requirements.
The Partnership does not believe that inflation or changing prices have had a
material impact on its revenues or net income.
Changes in Accounting Principles
On January 1, 1993, the Partnership adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109) "Accounting for Income Taxes". As more fully
discussed in Note 10 to the consolidated financial statements, the cumulative
effect of the accounting change was a one-time deferred income tax benefit of
$.9 million or $.01 per unit, net of a valuation allowance of $8.1 million or
$.14 per unit.
Cash Distributions
The Partnership is required to distribute all of its Available Cash Flow, as
defined in the Partnership Agreement, to the General Partner and Unitholders.
Cash distributions paid for the years ended December 31, 1993, 1992, and 1991
aggregated $1.50, $1.285 and $1.06 per Unit, respectively.
52
Consolidated Statements of Financial Condition
At December 31 (in thousands)
1993 1992
-------- --------
Assets
Cash and cash equivalents $ 96,315 $ 76,787
Fees receivable:
Alliance mutual funds 29,594 25,525
Other affiliated clients 17,262 15,547
Institutional clients 40,685 33,996
Receivable from brokers and dealers for sale of shares of Alliance
mutual funds 103,921 25,542
Other receivables 4,894 7,270
Investments in Alliance mutual funds 56,552 39,592
Other investments 4,966 7,459
Furniture, equipment and leasehold improvements, net 28,767 32,658
Intangible assets, net 30,707 37,705
Deferred sales commissions, net 140,558 101,495
Prepaid expenses and other assets 7,066 12,275
Total assets $561,287 $415,851
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 56,526 $ 44,523
Payable to Alliance mutual funds for share purchases 145,684 35,689
Accrued expenses under employee benefit plans 35,597 32,776
Debt 109,435 142,237
Total liabilities 347,242 255,225
Partners' Capital:
General Partner 2,355 1,812
Limited partners; 72,186,000 and 69,337,448 Units issued and
outstanding, including Class A Limited Partnership Interest,
respectively 233,125 179,398
235,480 181,210
Less:Capital contributions receivable from General Partner 21,323 19,746
Deferred compensation expense 112 838
Total partners' capital 214,045 160,626
Total liabilities and partners' capital $561,287 $415,851
See accompanying notes to consolidated financial statements.
53
Consolidated Statements of Income
For the Years Ended December 31
(in thousands, except per Unit amounts)
1993 1992 1991
-------- -------- --------
Revenues:
Investment advisory and services fees:
Alliance mutual funds $167,043 $150,660 $129,071
Other affiliated clients 37,212 33,180 41,268
Institutional clients 146,509 138,006 133,706
Distribution plan fees from Alliance mutual funds 105,260 92,985 70,013
Shareholder servicing and administration fees 32,932 28,099 25,090
Commission income 5,524 4,643 7,222
Interest, dividends and other income 5,037 5,698 6,230
499,517 453,271 412,600
Expenses:
Employee compensation and benefits 148,128 152,397 133,235
General and administrative 65,978 80,637 76,884
Interest 10,251 9,466 6,864
Promotion and servicing:
Distribution payments to financial intermediaries:
Affiliated 13,722 10,755 8,761
Unaffiliated 65,445 55,526 52,024
Amortization of deferred sales commissions 36,237 32,495 20,613
Other 31,813 30,322 24,808
Amortization of intangible assets 6,975 6,993 6,893
Nonrecurring transaction expenses 40,842 -- --
419,391 378,591 330,082
Income before income taxes (benefit) and cumulative effect
of accounting change 80,126 74,680 82,518
Income taxes (benefit) 11,466 (100) 11,355
Income before cumulative effect of accounting change 68,660 74,780 71,163
Cumulative effect of change in accounting for income taxes 900 -- --
Net income $ 69,560 $ 74,780 $ 71,163
Earnings per Unit:
Income before cumulative effect of accounting change $0.95 $1.05 $1.01
Cumulative effect of change in accounting for income taxes 0.01 -- --
Net income per Unit $0.96 $1.05 $1.01
Weighted average Units outstanding 72,085 70,244 69,622
See accompanying notes to consolidated financial statements.
54
Consolidated Statements of Changes in Partners' Capital
For the Years Ended December 31 (in thousands)
General Limited Capital Deferred Total
Partner's Partners' Contributions Compensation Partners'
Capital Capital Receivable Expense Capital
--------- --------- ------------- ------------ ---------
Balance at December 31, 1990 $1,637 $162,252 $(16,009) $(8,015) $139,865
Net income 712 70,451 71,163
Cash distributions to partners
($1.01 per unit) (573) (56,691) (57,264)
Dividends paid to EIC (47) (4,681) (4,728)
Amortization of deferred
compensation expense 4,947 4,947
Capital contribution received
from General Partner 421 421
Compensation plan accrual 22 2,133 (2,155) --
Unit options exercised 20 2,015 2,035
Foreign currency translation
adjustment (20) (20)
Balance at December 31, 1991 1,771 175,459 (17,743) (3,068) 156,419
Net income 748 74,032 74,780
Cash distributions to partners
($1.255 per Unit) (716) (70,885) (71,601)
Dividends paid to EIC (46) (4,599) (4,645)
Amortization of deferred
compensation expense 2,230 2,230
Capital contribution received
from General Partner 483 483
Compensation plan accrual 25 2,461 (2,486) --
Unit options exercised 38 3,748 3,786
Foreign currency translation
adjustment (8) (818) (826)
Balance at December 31, 1992 1,812 179,398 (19,746) (838) 160,626
Net income 696 68,864 69,560
Cash distributions to partners
($1.42 per Unit) (878) (86,914) (87,792)
Amortization of deferred
compensation expense 726 726
Capital contribution received
from General Partner 666 666
Compensation plan accrual 22 2,221 (2,243) --
Unit options exercised 44 4,320 4,364
Proceeds from sale of Units to
Equitable 500 49,500 50,000
Sale of Units to employees 128 12,712 12,840
Excess of liabilities not assumed
over assets not acquired from
ECMC 26 2,502 2,528
Foreign currency translation
adjustment 5 522 527
Balance at December 31, 1993 $2,355 $233,125 $(21,323) $ (112) $214,045
See accompanying notes to consolidated financial statements.
55
Consolidated Statements of Cash Flows
For the Years Ended December 31 (in thousands)
1993 1992 1991
-------- -------- --------
Cash flows from operating activities:
Net income $69,560 $74,780 $71,163
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation 50,503 46,418 33,014
Deferred compensation expense 2,969 4,716 7,102
Nonrecurring transaction expenses 15,442 -- --
Cumulative effect of change in accounting for income taxes (900) -- --
Other, net (1,132) 137 (66)
Changes in assets and liabilities:
(Increase) in fees receivable from Alliance mutual funds (4,069) (3,320) (4,425)
(Increase) decrease in fees receivable from other
affiliated clients (6,330) 2,773 88
(Increase) in fees receivable from institutional clients (6,689) (238) (10,149)
(Increase) decrease in receivable from brokers and
dealers for sale of shares of Alliance mutual funds (78,379) 38,818 (31,180)
(Increase) decrease in other receivables (9,362) 3,620 4,552
(Increase) in deferred sales commissions (75,300) (30,913) (71,677)
(Increase) decrease in prepaid expenses and other assets 1,614 (3,354) 689
Increase (decrease) in accounts payable and accrued
expenses 24,093 (6,128) 14,413
Increase (decrease) in payable to Alliance mutual funds
for share purchases 109,995 (57,989) 29,714
Increase (decrease) in accrued expenses under employee
benefit plans, less deferred compensation 2,136 (13,270) 15,739
Net cash provided from operating activities 94,151 56,050 58,977
Cash flows from investing activities:
Purchase of Alliance mutual funds (57,562) (54,568) (64,123)
Proceeds from sale of Alliance mutual funds 40,602 49,679 50,742
(Increase) decrease in other investments 929 3,431 (1,023)
Purchase of business, net of cash acquired -- -- (1,573)
Additions to furniture, equipment and leasehold improvements (7,323) (9,941) (6,958)
Net cash used in investing activities (23,354) (11,399) (22,935)
Cash flows from financing activities:
Proceeds from issuance of debt 20 137,297 34,040
Repayment of debt (20,223) (100,423) (345)
Distributions to partners (87,792) (71,601) (57,264)
Dividends paid to EIC -- (4,645) (4,728)
Proceeds from sale of Units to employees and Equitable 51,284 -- --
Capital contribution received from General Partner 666 483 421
Unit options exercised 4,364 3,786 2,035
Net cash used in financing activities (51,681) (35,103) (25,841)
Effect of exchange rate changes on cash and cash equivalents 412 (525) (20)
Net increase in cash and cash equivalents 19,528 9,023 10,181
Cash and cash equivalents at beginning of period 76,787 67,764 57,583
Cash and cash equivalents at end of period $96,315 $76,787 $67,764
See accompanying notes to consolidated financial statements.
56
Notes to Consolidated Financial Statements
1. Organization
Alliance Capital Management L.P. (the "Partnership") is a registered
investment adviser under the Investment Advisers Act of 1940. ACMC, Inc.
("ACMC") was the Partnership's general partner until December 1991, at which
time it transferred the general partnership interest in the Partnership to
Alliance Capital Management Corporation ("Alliance"). Alliance and ACMC
(referred to as "General Partner" for the period each served as general
partner) are indirect wholly-owned subsidiaries of The Equitable Companies
Incorporated ("Equitable").
On July 22, 1993, the Partnership acquired the business and substantially all
of the assets of Equitable Capital Management Corporation ("ECMC"), a
wholly-owned subsidiary of Equitable Investment Corporation ("EIC"), in exchange
for 11.8 million newly issued units representing assignments of beneficial
ownership of limited partnership interests ("Units"), and a newly created Class
A Limited Partnership Interest convertible initially into 100,000 Units. EIC is
an indirect wholly-owned subsidiary of Equitable. Up to $25 million in
additional Units may be issued under the Class A Limited Partnership Interest
to reflect the receipt by the Partnership of certain performance fees through
March 1998. The Partnership also sold 2,380,952 newly issued Units to ACMC
for $50 million in cash to provide for working capital and other needs. The
acquisition was accounted for in a manner similar to the pooling of interests
method. Accordingly, all consolidated financial information for the periods
presented have been restated to include the results of operations of ECMC.
Assets and liabilities of ECMC acquired or assumed by the Partnership
aggregated (unaudited) $43,049,000 and $17,073,000, respectively. The
aggregate revenues and net income (loss) of ECMC included in the
Partnership's 1993, 1992 and 1991 results of operations are as follows (in
thousands):
Revenues
Period From Years Ended December 31,
January 1, 1993 -----------------------
to July 22, 1993 1992 1991
---------------- -------- --------
(unaudited)
Partnership $ 201,342 $350,610 $297,667
ECMC 50,708 102,661 114,933
$ 252,050 $453,271 $412,600
Net Income (Loss)
Period From Years Ended December 31,
January 1, 1993 -----------------------
to July 22, 1993 1992 1991
---------------- -------- --------
(unaudited)
Partnership $ 17,457 $77,635 $62,310
ECMC (5,064) (2,855) 8,853
$ 12,393 $74,780 $71,163
57
Notes to Consolidated Financial Statements
At December 31, 1993, Alliance owned a 1% general partnership interest, ACMC
owned 33,471,500 Units and ECMC owned 11,800,000 Units and the Class A
Limited Partnership Interest convertible into 100,000 Units.
Alliance Fund Distributors, Inc. ("AFD"), a wholly-owned subsidiary of the
Partnership, serves as distributor and/or underwriter for the registered
investment companies managed by the Partnership ("Alliance mutual funds").
AFD is registered as a broker-dealer under the Securities Exchange Act of
1934 and is subject to the minimum net capital requirements imposed by the
Securities and Exchange Commission. AFD's net capital at December 31, 1993
was $5,865,000, which was $1,311,000 in excess of its required net capital of
$4,554,000. Alliance Fund Services, Inc. ("AFS"), also a wholly-owned
subsidiary of the Partnership, provides accounting and shareholder servicing
assistance to the Alliance mutual funds. AFS is registered as a transfer
agent under the Securities Exchange Act of 1934. Alliance Corporate Finance
Group Incorporated ("ACFG"), a wholly-owned subsidiary of the Partnership, is
a registered investment adviser under the Investment Advisers Act of 1940 and
also serves as the general partner for certain investment partnerships it
sponsors.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the Partnership and its
majority-owned subsidiaries. The equity method of accounting is used for
unconsolidated subsidiaries in which the Partnership's ownership interests
range from 20 to 50 percent and the Partnership exercises significant
influence over operating and financial policies. All significant intercompany
transactions and balances among the consolidated entities have been
eliminated.
Cash and Cash Equivalents
Highly liquid debt instruments with a maturity of three months or less are
considered to be cash equivalents.
Investments in Alliance Mutual Funds
Investments in Alliance mutual funds are valued at cost, which approximates
fair value at December 31, 1993 and 1992.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided on a
straight line basis over the estimated useful lives of eight years for
furniture and three to six years for equipment. Leasehold improvements are
amortized on a straight line basis over the lesser of their estimated useful
lives or the terms of the related leases.
Intangible Assets
Intangible assets, consisting principally of client files and goodwill, are
being amortized on a straight line basis over their estimated useful lives
ranging from twelve to forty years.
58
Deferred Sales Commissions
Sales commissions paid to financial intermediaries in connection with the
sale of shares of Alliance mutual funds sold without a front-end sales charge
are capitalized and amortized over periods not exceeding five and one-half
years, which approximate the periods of time during which deferred sales
commissions are expected to be recovered from distribution plan payments
received from the Alliance mutual funds and contingent deferred sales charges
received from shareholders of the Alliance mutual funds upon the redemption
of their shares. Contingent deferred sales charges reduce unamortized
deferred sales commissions when received.
Revenue Recognition and Mutual Fund Underwriting Activities
Investment advisory and services fees are recorded as revenue as the related
services are performed. Purchases and sales of shares of Alliance mutual
funds in connection with the underwriting activities of AFD, including
related commission income, are recorded on the trade date. Receivables from
brokers and dealers for sale of shares of Alliance mutual funds are generally
realized within five business days from trade date, in conjunction with the
settlement of the related payables to Alliance mutual funds for share
purchases.
Foreign Currency Translation
Net foreign currency gains and losses resulting from the translation of
assets and liabilities of foreign operations into United States dollars are
accumulated in partners' capital. Net foreign currency gains and losses for
the three year period ended December 31, 1993 were not material.
Unit and Per Unit Data
Unit and per Unit amounts for all periods presented reflect a two-for-one
Unit split effective February 22, 1993.
Cash Distribution to Partners
The Partnership is required to distribute all of its Available Cash Flow, as
defined in the Partnership Agreement, to the General Partner and Unitholders.
Distributions do not include Available Cash Flow resulting from the
operations of ECMC through July 22, 1993, the date of the acquisition.
3. Net Income Per Unit
Net income per Unit is derived by reducing net income for each period by 1%
for the general partnership interest held by the General Partner and dividing
the remaining 99% by the weighted average number of Units, Class A Limited
Partnership Interest and Unit equivalents outstanding during each period.
59
Notes to Consolidated Financial Statements
4. Other Receivables
Other receivables at December 31, 1992 included an allowed claim of
$6,290,000 filed in the reorganization of Mortgage and Realty Trust ("MRT")
with a recorded value of $4,299,000. The Partnership purchased $8,700,000
principal amount of MRT commercial paper from an Alliance mutual fund in
1990. MRT subsequently filed a petition for reorganization under Chapter 11
of the Federal Bankruptcy Code which was approved during February 1991.
During 1993, the Partnership sold its claim against MRT for cash
approximating the recorded value of the claim.
5. Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are comprised of the following
at December 31, 1993 and 1992 (in thousands):
1993 1992
-------- --------
Furniture and equipment $20,884 $17,044
Leasehold improvements 25,818 32,466
46,702 49,510
Less: Accumulated depreciation and amortization 17,935 16,852
Furniture, equipment and leasehold improvements, net $28,767 $32,658
6. Debt
Debt includes senior notes outstanding aggregating $105,000,000 and
$125,000,000 at December 31, 1993 and 1992, respectively. The Partnership
made its first principal payment of $20,000,000 during 1993. The senior notes
consist of two series: Series A aggregating $80,000,000 with principal
payments of $20,000,000, $25,000,000, $10,000,000 and $25,000,000 due on
December 30 of each of the years 1994 through 1997, respectively; and Series
B in the amount of $25,000,000 payable on September 30, 1996. Interest on the
Series A and Series B senior notes is payable semi-annually at annual rates
of 7.0% and 7.35%, respectively. The estimated aggregate fair value of the
senior notes at December 31, 1993, calculated by discounting scheduled cash
outflows for principal and interest payments using interest rates currently
available for debt with similar terms and remaining maturities, is
approximately $109,000,000. The senior note agreements contain covenants
which require the Partnership, among other things, to meet certain financial
ratios and to maintain minimum tangible partners' capital.
Debt also includes promissory notes issued to certain investment partnerships
for which ACFG serves as general partner with aggregate outstanding principal
amounts of $4,110,000 and $4,704,000 at December 31, 1993 and 1992,
respectively. The principal amounts of the notes will be reduced
proportionately as partners receive return of capital distributions from the
investment partnerships.
Debt at December 31, 1992 included a $12,000,000 promissory note payable by
ECMC to a subsidiary of Equitable. The note bears interest at the one-month
London Interbank Offered Rate plus 3% (6.31% at December 31, 1992). The
Partnership did not assume the note.
60
7. Commitments
The Partnership and its subsidiaries lease office space, furniture and office
equipment under various operating leases. The minimum commitments under the
leases at December 31, 1993 aggregated $162,661,000 and are payable as
follows: $11,868,000, $12,215,000, $13,724,000, $11,469,000 and $11,645,000
for the years 1994 through 1998, respectively, and a total of $101,740,000
for the remaining years through 2009. Office leases contain escalation
clauses that provide for the pass through of increases in operating expenses
and real estate taxes. Rent expense for the years ended December 31, 1993,
1992 and 1991 was $21,224,000, $23,609,000 and $22,278,000, respectively.
8. Employee Benefit Plans
The Partnership and its subsidiaries maintain qualified and nonqualified
employee benefit and incentive compensation plans. Except as indicated, the
aggregate amount available for annual employee bonuses and contributions to
the various employee benefit plans discussed below is based on a percentage
of the consolidated operating profits of the Partnership and its
subsidiaries. Aggregate incentive compensation paid by ECMC for 1992 and 1991
was supplemented by amounts not otherwise payable under its incentive
compensation pool.
The Partnership maintains qualified profit sharing plans covering
substantially all U.S. and certain foreign employees. The amount of the
annual contributions to the plans is determined by a committee of the Board
of Directors of the General Partner. Contributions are limited to the maximum
amount deductible for Federal income tax purposes, generally 15% of the total
annual compensation of eligible participants. Aggregate contributions for
1993, 1992 and 1991 were $5,128,000, $5,355,000 and $4,441,000, respectively.
The Partnership maintains a qualified noncontributory defined benefit
retirement plan covering substantially all U.S. employees and certain foreign
employees. Benefits are based on years of credited service, average final
base salary and primary Social Security benefits. The Partnership's funding
policy is to contribute annually the maximum amount that can be deducted for
Federal income tax purposes. Plan assets are comprised principally of
corporate equity securities, U.S. Treasury securities and shares of Alliance
mutual funds.
61
Notes to Consolidated Financial Statements
The following table presents the retirement plan's funded status and amounts
recognized in the Partnership's consolidated statements of financial condition
at December 31, 1993 and 1992 (in thousands):
1993 1992
-------- --------
Actuarial present value of benefit obligations:
Accumulated vested benefit obligation $ (7,912) $ (5,604)
Accumulated unvested benefit obligation $ (548) $ (368)
Projected benefit obligation for service rendered to date $(15,608) $(11,303)
Plan assets at fair value 15,293 13,189
Plan assets (less than) in excess of projected benefit
obligation (315) 1,886
Unrecognized net (gain) loss from past experience different from
that assumed and effects of changes in assumptions 812 (426)
Prior service cost not yet recognized in net periodic pension
cost (137) (155)
Unrecognized net plan assets at January 1, 1987 being recognized
over 26.3 years (2,765) (2,907)
Accrued pension expense included in accrued expenses under
employee benefit plans $ (2,405) $ (1,602)
The net pension charge for the years ended December 31, 1993, 1992 and 1991 was
comprised of (in thousands):
1993 1992 1991
-------- -------- --------
Service cost $ 1,387 $ 1,134 $ 845
Interest cost on projected benefit
obligations 890 799 582
Actual return on plan assets (2,192) (1,150) (2,743)
Net amortization and deferral 718 (160) 1,693
Net pension charge $ 803 $ 623 $ 377
The actuarial computations at December 31, 1993, 1992 and 1991 were made
utilizing the following assumptions:
1993 1992 1991
-------- -------- --------
Discount rate on benefit obligations 7.5% 8.5% 8.5%
Expected long-term rate of return on plan
assets 10.0% 9.5% 9.5%
Annual salary increases 5.5% 6.0% 6.0%
Variances between assumptions and actual experience are amortized over the
estimated average remaining service lives of employees in the retirement
plan.
The Partnership maintains a nonqualified unfunded deferred compensation plan
known as the Capital Accumulation Plan and assumed obligations under
contractual unfunded deferred compensation arrangements covering certain
executives which are not funded from the incentive compensation pool. The
Capital Accumulation Plan was frozen on December 31, 1987 and no additional
awards have been made. The Board of Directors
62
of the General Partner may terminate the Capital Accumulation Plan at any
time without cause. Should the Capital Accumulation Plan be terminated, the
Partnership's liability would be limited to benefits that have vested.
Benefits due eligible executives under the contractual unfunded deferred
compensation arrangements vested on or before December 31, 1987. Payment of
vested benefits under both the Capital Accumulation Plan and the contractual
unfunded deferred compensation arrangements will generally be made over a ten
year period commencing at retirement age. ACMC is required to make capital
contributions to the Partnership in amounts equal to all benefits paid under
the Capital Accumulation Plan and the contractual unfunded deferred
compensation arrangements. The amounts included in employee compensation and
benefits expense for the Capital Accumulation Plan and the contractual
unfunded deferred compensation arrangements for the years ended December 31,
1993, 1992 and 1991 were $2,243,000, $2,486,000 and $2,155,000, respectively.
During 1988, certain employees entered into employment agreements with the
Partnership and acquired from ACMC an aggregate of 10,181,818 Units at either
10% or 20% of the initial public offering price. Accordingly, the Partnership
recorded deferred compensation expense and a corresponding increase in
partners' capital in the amount of the aggregate discount. The Units vest
over periods of employment ranging from two to six years through April 21,
1994 and the aggregate discount is being amortized as employee compensation
expense ratably over the applicable vesting periods. Amortization of
$726,000, $2,230,000 and $4,947,000 was recorded for the years ended December
31, 1993, 1992 and 1991, respectively.
In connection with the acquisition of ECMC during 1993, the Partnership
adopted the Retention Unit Bonus Plan under which certain former officers and
key employees of ECMC, who became employees of the Partnership or its
subsidiaries, purchased an aggregate of 600,000 Units at a per Unit price
approximating 10% of each Unit's fair market value. During 1993, the
Partnership recorded nonrecurring transaction expense and a corresponding
increase in partners' capital of $11,556,000, the amount of the aggregate
discount.
The Partnership maintains a Unit Option Plan under which options to purchase up
to an aggregate of 4,923,076 Units may be granted to certain key employees. A
committee of the Board of Directors of the General Partner administers the plan
and determines the grantees and the number of options to be granted. Options may
be granted for terms of up to ten years and each option must have an exercise
price of not less than the fair market value of the Units on the date of grant.
Options are exercisable at a rate of 20% of the Units subject to options on each
of the first five anniversary dates of the date of grant.
63
Notes to Consolidated Financial Statements
The following table summarizes the activity in options under the Unit Option
Plan:
Exercise Price Per
Units Unit
--------- ------------------
Outstanding at January 1, 1991 2,254,400 $ 6.0625 -$ 7.3125
Granted 1,063,000 $ 13.25 -$ 14.375
Exercised (322,800) $ 6.0625 -$ 7.3125
Forfeited (69,600) $ 6.0625 -$ 7.3125
Outstanding at December 31, 1991 2,925,000 $ 6.0625 -$ 14.375
Granted 1,234,000 $15.9375 -$16.3125
Exercised (539,600) $ 6.0625 -$ 13.25
Forfeited (112,800) $ 6.0625 -$ 13.25
Outstanding at December 31, 1992 3,506,600 $ 6.0625 -$16.3125
Granted 240,000 $ 21.25 -$ 21.375
Exercised (467,600) $ 6.0625 -$16.3125
Forfeited (45,600) $ 6.0625 -$15.9375
Outstanding at December 31, 1993 3,233,400 $ 6.0625 -$ 21.375
Exercisable at December 31, 1993 690,600
Available for grant at December 31, 1993 355,076
The 1993 Unit Option Plan, the Unit Bonus Plan and the Century Club Plan
(together the "New Plans") were established by the Partnership during 1993.
Committees of the Board of Directors of the General Partner administer the
New Plans and determine the recipients of grants and awards. Under the 1993
Unit Option Plan, options to purchase Units may be granted to key employees
for terms of up to ten years. Each option must have an exercise price of not
less than the fair market value of the Units on the date of grant. Options
are exercisable at a rate of 20% of the Units subject to options on each of
the first five anniversary dates of the date of grant. Under the Unit Bonus
Plan, Units may be awarded to key employees in lieu of all or a portion of
the cash bonuses they would otherwise receive under the Partnership's
incentive compensation program. Under the Century Club Plan, employees whose
primary responsibilities are to assist in the distribution of Alliance mutual
funds are eligible to receive an award of Units. The aggregate number of
Units that can be the subject of options granted or that can be awarded under
the New Plans may not exceed 3,200,000 Units. In addition, no more than
800,000 Units in the aggregate may be granted or awarded under the New Plans
in any of the first four years of the New Plans' operations. As of December
31, 1993, no options have been granted or Units have been awarded under the
New Plans.
64
9. Income Taxes
The Partnership is a publicly traded partnership for Federal income tax
purposes and, accordingly, is not currently subject to Federal and state
income taxes but is subject to the New York City unincorporated business tax
("UBT"). Current law generally provides that certain publicly traded
partnerships, including the Partnership, will be taxable as a corporation
beginning in 1998.
Domestic corporate subsidiaries of the Partnership, which are subject to
Federal, state and local income taxes, file a consolidated Federal income tax
return and separate state and local income tax returns. Foreign corporate
subsidiaries are generally subject to taxes in the foreign jurisdictions
where they are located.
ECMC is included in the Federal income tax return of Equitable and, prior to
the acquisition, a Federal income tax equivalent provision (benefit) was
computed on a separate return basis. In addition, ECMC filed separate state
and local income tax returns.
The Partnership adopted Statement of Financial Accounting Standards No. 109
("SFAS 109") effective January 1, 1993. Under SFAS 109, the deferred tax
provision is determined under the liability method. The cumulative effect to
January 1, 1993 of the accounting change to SFAS 109 was a one-time deferred
income tax benefit of $900,000 or $.01 per Unit, net of a valuation allowance
of $8,100,000 or $.14 per Unit. The valuation allowance was established to
reduce the recorded amount to an amount equal to the estimated income tax
benefit receivable by the Partnership based on the current UBT tax rate of 4%
and considers uncertainties surrounding the tax status of the Partnership
beginning in 1998. The resulting deferred tax asset, which is included in
prepaid expenses and other assets, results primarily from accrued deferred
compensation obligations that are deductible for tax purposes when paid.
The provision for income taxes (benefit) consists of (in thousands):
1993 1992 1991
-------- -------- --------
Partnership $ 5,301 $ 4,303 $ 2,900
Corporate subsidiaries:
Federal 1,720 133 --
State, local and foreign 1,299 47 195
ECMC 3,146 (4,583) 8,260
$11,466 $ (100) $11,355
The principal reasons for the difference between the Partnership's effective
tax rate and the UBT statutory tax rate of 4% are as follows:
1993 1992 1991
---- ---- ----
UBT statutory rate 4.0% 4.0% 4.0%
Nondeductible Partnership expenses and UBT adjustments 2.7% 1.1% .2%
Corporate subsidiaries' Federal and state income taxes 3.6% .5% .3%
Pre-acquisition ECMC income taxes (benefit) 4.0% (5.6%) 9.3%
14.3% 0.0% 13.8%
65
Notes to Consolidated Financial Statements
10. Related Party Transactions
The Partnership and its consolidated subsidiaries provide investment
management, distribution and shareholder services to the Alliance mutual
funds. Substantially all of the services rendered by the Partnership to the
Alliance mutual funds are provided under contracts that set forth the
services to be provided and the fees to be charged. These contracts are
subject to annual review and approval by each of the Alliance mutual funds'
boards of directors and, in certain circumstances, by the Alliance mutual
funds' shareholders. Revenues for services provided to the Alliance mutual
funds are as follows for the years ended December 31, 1993, 1992 and 1991 (in
thousands):
1993 1992 1991
-------- -------- --------
Investment advisory and services fees $167,043 $150,660 $129,071
Distribution plan fees 105,260 92,985 70,013
Shareholder servicing and administration fees 25,732 20,997 17,986
Alliance Short-Term Multi-Market Trust ("ASTMMT"), an Alliance mutual fund,
accounted for approximately $45,003,000, $80,593,000 and $73,874,000 of the
Partnership's total revenues for the years ended December 31, 1993, 1992 and
1991, respectively. Receivables from ASTMMT aggregated $1,608,000 and
$2,506,000 at December 31, 1993 and 1992, respectively.
The Partnership also provides investment management services to Equitable and
certain of its subsidiaries other than the Partnership ("Equitable
Subsidiaries"). Certain Equitable Subsidiaries distribute Alliance mutual
funds and cash management products and receive commissions and distribution
payments. Sales of Alliance mutual funds through these Equitable Subsidiaries
aggregated $522,440,000, $266,049,000 and $290,575,000 for the years ended
December 31, 1993, 1992 and 1991, respectively. The Partnership and its
employees are covered by various insurance policies maintained by Equitable
Subsidiaries. In addition, the Partnership pays, and prior to the acquisition
ECMC paid, fees for other services provided by Equitable Subsidiaries. Prior
to the acquisition, ECMC reimbursed certain Equitable Subsidiaries for rent
and the use of certain services and facilities. ECMC also paid Equitable for
its Federal income tax equivalent. Aggregate amounts included in the
consolidated financial statements for transactions with the Equitable
Subsidiaries are as follows for the years ended
December 31, 1993, 1992 and 1991 (in thousands):
Revenues 1993 1992 1991
-------- -------- --------
Investment advisory and services fees $37,212 $33,180 $41,268
Shareholder servicing and administration fees 6,987 6,891 6,552
Expenses:
General and administrative 12,394 17,768 16,299
Distribution payments to financial intermediaries 13,722 10,755 8,761
Income taxes (benefit) 1,912 (2,989) 4,580
66
11. Supplemental Cash Flow Information
Cash payments for interest and income taxes were as follows for the years
ended December 31, 1993, 1992 and 1991 (in thousands):
1993 1992 1991
-------- -------- --------
Interest $10,183 $10,795 $ 6,877
Income taxes 7,538 5,513 7,682
12. Subsequent Events
On January 27, 1994, the Board of Directors of the General Partner declared a
cash distribution of $29,895,000 or $.41 per Unit representing the Available
Cash Flow (as defined in the Partnership Agreement) of the Partnership for
the period October 1 through December 31, 1993. The distribution was paid on
February 14, 1994 to holders of record on February 7, 1994.
On March 7, 1994, the Partnership completed the acquisition of the business
and substantially all of the assets of Shields Asset Management, Incorporated
("Shields") and its wholly-owned subsidiary, Regent Investor Services
Incorporated ("Regent"), from Xerox Financial Services, Inc. for a purchase
price of $70 million in cash. In addition, the Partnership issued new Units
to key employees of Shields and Regent having an aggregate value of
approximately $15.2 million in connection with the employees entering into
long-term employment agreements with the Partnership. The acquisition was
accounted for under the purchase method.
67
Notes to Consolidated Financial Statements
13. Quarterly Financial Data (unaudited)
(in thousands, except per Unit data)
Quarter Ended 1993
----------------------------------------------
December September June March
31 30 30 31
-------- -------- -------- --------
Revenues $142,055 $129,853 $115,184 $112,425
Income (loss) before income taxes
(benefit) and cumulative effect of
accounting change 36,803 32,784 (6,630) 17,169
Net income (loss) 32,476 30,127 (9,638) 16,595
Net income (loss) per Unit .44 .41 (.14) .23
Cash distributions per Unit (1) .41 .40 .35 .34
Unit prices (2):
High 27-5/8 25-7/8 22-1/2 23-1/4
Low 21-3/4 20-1/4 18-3/8 16-3/4
Quarter Ended 1992
----------------------------------------------
December September June March
31 30 30 31
-------- -------- -------- --------
Revenues $112,970 $115,339 $106,432 $118,530
Income before income taxes and
cumulative effect of accounting change 15,278 17,340 17,856 24,206
Net income 17,758 17,655 18,057 21,310
Net income per Unit .25 .25 .25 .30
Cash distributions per Unit (1) .33 .325 .32 .31
Unit prices (2):
High 18-3/4 19-1/16 18-1/4 19-9/16
Low 15-1/16 14-7/16 14-3/4 15-13/16
<FN>
(1) Declared and paid during the following quarter. Distributions do not
include Available Cash Flow resulting from the operations of ECMC through
July 22, 1993, the date of the acquisition.
(2) High and low sales prices are as reported by the New York Stock Exchange.
The number of Unitholders of record at March 14, 1994 was approximately
1,461.
68
Independent Auditors' Report
The General Partner and Unitholders
Alliance Capital Management L.P.
We have audited the accompanying consolidated statements of financial condition
of Alliance Capital Management L.P. and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, changes in
partners' capital, and cash flows for the years ended December 31, 1993, 1992
and 1991. These consolidated financial statements are the responsibility of
the management of Alliance Capital Management Corporation, General Partner.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Alliance Capital
Management L.P. and subsidiaries as of December 31, 1993 and 1992 and the
results of their operations and their cash flows for the years ended December
31, 1993, 1992 and 1991 in conformity with generally accepted accounting
principles.
New York, New York
January 27, 1994,
except for Note 12
which is as of
March 7, 1994
69