FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-9818
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ALLIANCE CAPITAL MANAGEMENT L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3434400
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1345 Avenue of the Americas, New York, NY 10105
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(Address of principal executive offices)
(Zip Code)
(212) 969-1000
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(Registrant's telephone number, including area code)
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 ___
The number of Units representing assignments of beneficial ownership of Limited
Partnership Interests outstanding as of March 31, 1995 was 80,531,208 Units.
ALLIANCE CAPITAL MANAGEMENT L.P.
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Page
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Condensed Consolidated Statements of Financial Condition 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Changes in
Partners' Capital 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-11
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 12
Item 2. CHANGES IN SECURITIES 12
Item 3. DEFAULTS UPON SENIOR SECURITIES 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF 12
SECURITY HOLDERS
Item 5. OTHER INFORMATION 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
1
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
ASSETS 3/31/95 12/31/94
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Cash and cash equivalents....................... $ 88,732 $ 52,199
Fees receivable:
Alliance mutual funds......................... 31,084 31,366
Other affiliated clients...................... 10,497 14,238
Institutional clients......................... 38,719 39,265
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds............ 29,050 17,984
Investments in Alliance mutual funds............ 38,141 49,763
Furniture, equipment and leasehold
improvements, net............................. 45,194 43,830
Intangible assets, net.......................... 90,775 92,962
Deferred sales commissions, net................. 148,639 158,343
Other assets.................................... 19,154 18,419
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Total assets.............................. $539,985 $518,369
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses........... $ 68,617 $ 59,784
Payable to Alliance mutual funds for share
purchases..................................... 40,523 32,507
Accrued expenses under employee benefit plans... 43,137 40,878
Debt............................................ 3,917 3,871
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Total liabilities......................... 156,194 137,040
Partners' capital................................. 383,791 381,329
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Total liabilities and partners' capital... $539,985 $518,369
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See accompanying notes to condensed consolidated financial statements.
2
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per Unit amounts)
Three Months Ended
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3/31/95 3/31/94
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Revenues:
Investment advisory and services fees:
Alliance mutual funds............................ $ 51,646 $ 50,911
Other affiliated clients......................... 11,611 10,965
Institutional clients............................ 40,963 38,783
Distribution plan fees from Alliance mutual funds.. 29,012 34,645
Shareholder servicing and administration fees...... 10,255 9,734
Other revenues..................................... 1,892 3,527
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145,379 148,565
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Expenses:
Employee compensation and benefits................. 39,823 42,741
Promotion and servicing:
Distribution plan payments to financial
intermediaries:
Affiliated..................................... 5,395 4,956
Unaffiliated................................... 19,166 22,338
Amortization of deferred sales commissions....... 12,867 11,980
Other............................................ 10,117 11,083
General and administrative......................... 19,048 17,073
Interest........................................... 408 2,347
Amortization of intangible assets.................. 2,187 1,891
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109,011 114,409
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Income before income taxes........................... 36,368 34,156
Income taxes....................................... 2,183 2,732
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Net income........................................... $ 34,185 $ 31,424
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Net income per Unit.................................. $ .42 $ .42
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Weighted average number of Units and Unit
equivalents outstanding............................ 81,248 73,913
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See accompanying notes to condensed consolidated financial statements.
3
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of
Changes in Partners' Capital
(unaudited)
(in thousands)
Three Months Ended
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3/31/95 3/31/94
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Partners' capital - beginning of period............... $381,329 $214,045
Net income.......................................... 34,185 31,424
Capital contribution received from Alliance
Capital Management Corporation.................... 916 476
Distributions to partners........................... (33,383) (29,925)
Unit options exercised.............................. 734 814
Unrealized loss on investments...................... 8 -
Foreign currency translation adjustment............. 2 12
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Partners' capital - end of period..................... $383,791 $216,846
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See accompanying notes to condensed consolidated financial statements.
4
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands, except per Unit amounts)
Three Months Ended
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3/31/95 3/31/94
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Cash flows from operating activities:
Net income ................................................ $ 34,185 $ 31,424
Adjustments to reconcile net income to
net cash provided from operating activities:
Amortization and depreciation............................ 16,998 15,824
Other, net....................................... 1,488 991
Changes in assets and liabilities:
Decrease in fees receivable from Alliance
mutual funds, other affiliated clients and
institutional clients........................ 4,569 5,290
(Increase) decrease in receivables from brokers
and dealers for sale of shares of Alliance
mutual funds................................. (11,066) 32,981
(Increase) in deferred sales commissions....... (3,163) (34,117)
(Increase) decrease in other assets............ 863 (3,833)
Increase in accounts payable and accrued
expenses................................... .. 7,150 11,191
Increase (decrease) in payable to Alliance
mutual funds for share purchases............. 8,016 (47,259)
Increase in accrued expenses under employee
benefit plans, less deferred compensation.... 1,513 10,613
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Net cash provided from operating
activities................................ 60,553 23,105
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Cash flows from investing activities:
Purchase of Alliance mutual funds ......................... (410) (21,540)
Proceeds from sale of Alliance mutual funds................ 12,040 33,023
Acquisition of Shields and Regent ......................... - (70,639)
Additions to furniture, equipment and
leasehold improvements, net.............................. (3,215) (4,385)
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Net cash provided from (used in) investing
activities............................... 8,415 (63,541)
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Cash flows from financing activities:
Proceeds from borrowings................................... 87 70,000
Repayment of debt.......................................... (41) (20,058)
Distributions to partners.................................. (33,383) (29,925)
Capital contribution received from Alliance
Capital Management Corporation........................... 166 133
Unit options exercised..................................... 734 814
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Net cash provided from (used in)
financing activities.................... (32,437) 20,964
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Effect of exchange rate changes on cash and
cash equivalents.......................................... 2 12
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Net increase (decrease) in cash and cash equivalents........ 36,533 (19,460)
Cash and cash equivalents at beginning of period............ 52,199 96,315
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Cash and cash equivalents at end of period.................. $ 88,732 $ 76,855
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See accompanying notes to condensed consolidated financial statements.
5
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
March 31, 1995
(unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Alliance Capital Management L.P. ("Partnership") included herein have been
prepared in accordance with the instructions to Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. 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 management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
(a) financial position at March 31, 1995, (b) results of operations for the
three months ended March 31, 1995 and 1994 and (c) cash flows for the three
months ended March 31, 1995 and 1994, have been made.
2. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the
sale of shares of open-end mutual funds managed by the Partnership
("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 certain Alliance mutual funds and contingent deferred sales
charges received from shareholders of those Alliance mutual funds upon the
redemption of their shares. Contingent deferred sales charges reduce
unamortized deferred sales commissions when received.
4. COMMITMENTS AND CONTINGENCIES
At December 31, 1994, two money market fund portfolios ("Portfolios")
sponsored by the Partnership owned $30.0 million principal amount of Tax
and Revenue Anticipation Notes Series A issued by Orange County, California
due July 19, 1995 ("Orange County Obligations"). As a result of the
bankruptcy filing by Orange County, the Partnership arranged for the
issuance of letters of credit by a commercial bank in favor of the
Portfolios which initially allowed the Portfolios to draw down an aggregate
of up to $31.4 million if Orange County fails to pay principal and interest
due at maturity. The Partnership is required to pay the bank, on demand,
all amounts drawn down by the Portfolios under the letters of credit.
During the first quarter of
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1995, the Portfolios sold $4.4 million in principal of the Orange County
Obligations and the letters of credit were reduced to $27.1 million.
Management believes that the loss to the Partnership, if any, resulting
from the Orange County Obligations will not be material.
During the period through May 1, 1995, fourteen complaints were filed by
various shareholders of the Alliance North American Government Income
Trust, Inc. (the "Fund") alleging violations of federal securities laws,
fraud, negligence, negligent misrepresentations and omissions, breach of
fiduciary duty and breach of contract in connection with the Fund's
investments in Mexican and Argentine securities. Each of the actions is
brought against the Fund, the Partnership, which is the investment adviser
to the Fund, and Alliance Capital Management Corporation, the General
Partner of the Partnership. Other entities and persons are named as
defendants in certain of the complaints. Each of the actions seeks to have
a plaintiff class certified consisting of all shareholders of the Fund who
purchased or owned shares in the fund at varying times between February
1992 and December 1994. It is possible that one or more additional actions
making similar allegations may be filed against the Partnership and certain
of the other entities and persons noted above. The actions seek an
unspecified amount of damages, costs and attorneys' fees. The Partnership
believes that the allegations in these actions are without merit and
intends to vigorously defend against these claims. While the ultimate
results of these actions cannot be determined, management of the
Partnership does not expect that these actions will have a material adverse
effect on the Partnership's business.
5. INCOME TAXES
The Partnership is a publicly traded partnership for Federal income tax
purposes and, accordingly, is not currently subject to Federal and state
corporate income taxes but is subject to the New York City unincorporated
business tax. 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.
6. 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, Units
issuable upon conversion of the Class A Limited Partnership Interest and
Unit equivalents outstanding during each period.
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7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
Three Months Ended
March 31,
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1995 1994
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Interest......................... $118 $ 693
Income taxes..................... 409 2,604
The 1994 consolidated statement of cash flows does not include the issuance
by the Partnership of new Units to key employees of Shields Asset
Management, Incorporated and its wholly-owned subsidiary, Regent Investor
Services having an aggregate value of approximately $15 million in
connection with their entering into long-term employment agreements since
this transaction did not provide or use cash.
8. SUBSEQUENT EVENT
On May 4, 1995, the Finance Committee of the Board of Directors of the
General Partner declared a distribution of $33,435,000 or $.41 per Unit
representing the Available Cash Flow (as defined in the Partnership
Agreement) of the Partnership for the three months ended March 31, 1995.
The distribution is payable on May 22, 1995 to holders of record on May 15,
1995.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Partnership acquired 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. on March 7, 1994 for a purchase price of approximately
$74 million in cash, including $.6 million in acquisition costs. The
acquisition was accounted for under the purchase method with the results of
Shields and Regent included in the Partnership's condensed consolidated
financial statements from the acquisition date.
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THREE MONTHS ENDED MARCH 31, 1994
The Partnership recorded net income of $34.2 million for the three months ended
March 31, 1995, an increase of $2.8 million or 8.8% from $31.4 million for the
three months ended March 31, 1994. Net income per Unit for the first quarter of
1995 was $0.42 per Unit, unchanged from the first quarter of 1994. Weighted
average Units outstanding for the quarter ended March 31, 1995 were 81,248,000
compared to 73,913,000 for the quarter ended March 31, 1994, an increase of
9.9%.
Assets under management by the Partnership at March 31, 1995 were approximately
$126.3 billion, an increase of $5.0 billion or 4.1% from December 31, 1994. The
increase is primarily the result of market appreciation of $5.3 billion.
Institutional assets under management increased $4.0 billion or 4.8% from $83.2
billion to $87.2 billion at March 31,1995 due principally to market appreciation
of $4.7 billion, offset partially by net asset withdrawals of $0.7 billion.
Mutual fund assets under management increased $1.0 billion or 2.6% to $39.1
billion at March 31, 1995 from $38.1 billion at December 31, 1994. The increase
is primarily attributable to a $1.0 billion increase in assets of cash
management products and higher Hudson River Trust assets of $0.7 billion, offset
partially by net redemptions of $0.7 billion in load mutual funds, principally
taxable fixed income products.
Revenues for the three months ended March 31, 1995 were $145.4 million, a
decrease of $3.2 million or 2.1% from the prior year period. The decrease is
due principally to decreases of $5.6 million or 16.3% in distribution plan fees
and $1.6 million or 46.4% in other revenues, offset partially by an increase in
investment advisory fees of $3.6 million or 3.5%. Investment advisory and
services fees increased due to higher average assets under management resulting
from the Shields and Regent acquisition and market appreciation. Distribution
plan fees decreased 16.3% due principally to lower average load mutual fund
assets attributable to Class B and Class C Shares under the Partnership's mutual
fund distribution system described under "Capital Resources and Liquidity".
Shareholder servicing and administration fees increased 5.4% due primarily to an
increase in the number of shareholder accounts serviced by the Partnership and
an increase in closed-end mutual fund administration fees. Other revenues,
consisting of commissions, interest and dividends, decreased 46.4% since the
Partnership earned substantial commissions in March 1994 in connection with the
launching of The Global Privatization Fund.
9
Expenses for the three months ended March 31, 1995 were $109.0 million, a
decrease of $5.4 million or 4.7% from the prior year period. Employee
compensation and benefits decreased 6.8% principally due to lower incentive
compensation expense accruals offset partially by severance costs of $1.7
million and compensation costs for Shields and Regent employees for the full
quarter of 1995. Promotion and servicing expenses, which include 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, travel and
entertainment, advertising and promotional materials, decreased 5.6%.
Distribution plan payments decreased 10.0% due principally to lower average load
mutual fund assets, principally taxable fixed income mutual funds. Amortization
of deferred sales commissions increased by 7.4% due to continuing sales of Class
B Shares. Other promotional expenditures decreased by 8.7% since the
Partnership incurred significant printing and mailing costs in the first quarter
of 1994 in connection with the launching of The Global Privatization Fund.
General and administrative expenses increased 11.6% principally as a result of
higher occupancy, equipment and communication costs incurred in connection with
the Partnership's expansion of its New York office and the establishment of
several new international offices as well as higher professional fees.
Amortization of intangibles increased 15.7% due to the amortization of the value
of Units issued to certain Shields and Regent employees and goodwill associated
with the Shields and Regent acquisition in 1994.
The provision for income taxes for the three months ended March 31, 1995
decreased $0.5 million or 20.1% for the quarter.
CAPITAL RESOURCES AND LIQUIDITY
Cash provided by operating activities was the Partnership's principal sources of
working capital during the three month period ended March 31, 1995.
The Partnership's cash and cash equivalents increased by $36.5 million. Cash
inflows included $60.6 million from operations and proceeds of $11.6 million
from net redemptions of the Partnership's investments in Alliance mutual funds.
Cash outflows included distributions to Unitholders of $33.4 million and capital
expenditures of $3.2 million.
The Partnership's mutual fund distribution system (the "System") includes three
distribution options. The System permits the Alliance mutual funds 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 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"). During the three months ended
March 31, 1995, payments made to financial intermediaries in connection with the
sale of Class B Shares under the System, net of CDSC received, totaled $3.2
million.
10
At March 31, 1995, the Partnership had not issued any commercial paper under its
$100 million commercial paper program and there were no amounts outstanding
under the Partnership's revolving credit facilities. The revolving credit
facilities contain covenants which require the Partnership, among other things,
to meet certain financial ratios.
As discussed in Note 4 to the condensed consolidated financial statements, the
Partnership has a contingent obligation under two letters of credit issued by a
commercial bank totaling approximately $27.1 million.
Management of the Partnership believes that the Partnership has sufficient
financial resources to take advantage of strategic growth opportunities and
global alliances and to finance capital requirements for mutual fund sales.
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
(including the holder of the Class A Limited Partnership Interest based on Units
issuable upon conversion of the Limited Partnership Interest). The
Partnership's Available Cash Flow was as follows:
Three Months Ended
March 31,
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1995 1994
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Available Cash Flow (in thousands)................. $33,435 $30,230
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Available Cash Flow Per Unit....................... $ .41 $ .41
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11
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Item 6(b) below.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Alliance Capital Management L.P. ("Partnership") filed a
report on Form 8-K dated January 27, 1995 with respect to
complaints filed against Alliance North American
Government Income Trust, Inc.("Fund"), the Partnership,
which is the investment adviser to the Fund, and certain
other defendants.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ALLIANCE CAPITAL MANAGEMENT L.P.
Dated: May 15, 1995 By: Alliance Capital Management
Corporation, its General Partner
By: /s/ Robert H. Joseph, Jr.
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Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer
13