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, 1997
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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 Identification No.)
incorporation or organization)
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
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The number of Units representing assignments of beneficial ownership of Limited
Partnership Interests outstanding as of March 31, 1997 was 83,550,543 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 6-7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-12
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 13
Item 2. CHANGES IN SECURITIES 13
Item 3. DEFAULTS UPON SENIOR SECURITIES 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF 13
SECURITY HOLDERS
Item 5. OTHER INFORMATION 13
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
ASSETS 3/31/97 12/31/96
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(unaudited)
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . $ 69,568 $ 57,441
Fees receivable:
Alliance mutual funds. . . . . . . . . . . . . . . . . . . . . . . . . 47,992 46,483
Separately managed accounts:
Affiliated clients . . . . . . . . . . . . . . . . . . . . . . . . . 5,163 4,479
Third party clients. . . . . . . . . . . . . . . . . . . . . . . . . 61,512 58,339
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds . . . . . . . . . . . . . . . . . . 53,913 30,976
Investments, available-for-sale. . . . . . . . . . . . . . . . . . . . . . 23,829 35,966
Furniture, equipment and leasehold improvements, net . . . . . . . . . . . 67,074 57,483
Goodwill, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,634 116,721
Contracts of businesses acquired, net. . . . . . . . . . . . . . . . . . . 116,148 117,683
Deferred sales commissions, net. . . . . . . . . . . . . . . . . . . . . . 190,978 175,172
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,159 25,154
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Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $777,970 $725,897
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . $110,623 $103,427
Payable to Alliance mutual funds for share purchases . . . . . . . . . 80,122 55,468
Accrued expenses under employee benefit plans. . . . . . . . . . . . . 69,942 51,633
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,271 24,658
Minority interests in consolidated subsidiaries. . . . . . . . . . . . 14,711 14,691
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Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 294,669 249,877
Partners' capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483,301 476,020
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Total liabilities and partners' capital. . . . . . . . . . . . . . . . $777,970 $725,897
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See accompanying notes to condensed consolidated financial statements.
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per Unit amounts)
Three Months Ended
----------------------
3/31/97 3/31/96
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Revenues:
Investment advisory and services fees:
Alliance mutual funds. . . . . . . . . . . . . . . . . . . . . . . . . $85,994 $67,824
Separately managed accounts:
Affiliated clients . . . . . . . . . . . . . . . . . . . . . . . . . 12,554 10,098
Third party clients. . . . . . . . . . . . . . . . . . . . . . . . . 58,462 51,121
Distribution plan fees from Alliance mutual funds... . . . . . . . . . . 47,247 38,483
Shareholder servicing and administration fees. . . . . . . . . . . . . . 12,765 11,466
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,229 2,624
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219,251 181,616
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Expenses:
Employee compensation and benefits . . . . . . . . . . . . . . . . . . . 60,502 49,414
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,085 6,991
Third party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,714 26,762
Amortization of deferred sales commissions . . . . . . . . . . . . . . 15,738 12,518
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,805 11,130
General and administrative.. . . . . . . . . . . . . . . . . . . . . . . 25,746 23,440
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673 242
Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . 2,622 2,913
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161,885 133,410
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Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 57,366 48,206
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,017 3,139
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Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,349 $45,067
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Net income per Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.54
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See accompanying notes to condensed consolidated financial statements.
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of
Changes in Partners' Capital
(unaudited)
(in thousands)
Three Months Ended
----------------------
3/31/97 3/31/96
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Partners' capital - beginning of period. . . . . . . . . . . . . . . $476,020 $406,709
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,349 45,067
Capital contribution received from Alliance Capital
Management Corporation . . . . . . . . . . . . . . . . . . . . . 898 893
Cash distributions to partners . . . . . . . . . . . . . . . . . . (50,013) (41,001)
Issuance of Units for acquisition of Cursitor. . . . . . . . . . . -- 42,394
Proceeds from Unit options exercised . . . . . . . . . . . . . . . 3,065 708
Unrealized (loss) gain on investments. . . . . . . . . . . . . . . (18) 129
Foreign currency translation adjustment. . . . . . . . . . . . . . -- (283)
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Partners' capital - end of period. . . . . . . . . . . . . . . . . . $483,301 $454,616
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See accompanying notes to condensed consolidated financial statements.
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
----------------------
3/31/97 3/31/96
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Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,349 $45,067
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . . 21,031 17,465
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,522 2,168
Changes in assets and liabilities:
(Increase) in fees receivable from Alliance
mutual funds, affiliated clients and third party clients . . . . . . . . (5,366) (1,305)
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds . . . . . . . . . . . . . . . . . . . (22,937) (10,013)
(Increase) in deferred sales commissions . . . . . . . . . . . . . . . . . (31,544) (20,397)
(Increase) decrease in other assets. . . . . . . . . . . . . . . . . . . . (966) 5,668
Increase in accounts payable and accrued expenses. . . . . . . . . . . . . 7,196 11,520
Increase in payable to Alliance mutual funds for share
purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,654 12,557
Increase in accrued expenses under employee benefit
plans, less deferred compensation. . . . . . . . . . . . . . . . . . . . 17,544 8,672
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Net cash provided from operating activities. . . . . . . . . . . . . . 64,483 71,402
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Cash flows from investing activities:
Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,907) (1,209)
Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . . 58,027 23,522
Acquisitions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (85,330)
Additions to furniture, equipment and leasehold
improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,289) (2,275)
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Net cash used in investing activities. . . . . . . . . . . . . . . . . (169) (65,292)
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Cash flows from financing activities:
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,387) (15)
Distributions to partners . . . . . . . . . . . . . . . . . . . . . . . . . . (50,013) (41,001)
Capital contribution received from Alliance Capital Management
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 143
Unit options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,065 708
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Net cash used in financing activities. . . . . . . . . . . . . . . . (52,187) (40,165)
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Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . -- (274)
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Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . 12,127 (34,329)
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . 57,441 124,256
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Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . $69,568 $89,927
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See accompanying notes to condensed consolidated financial statements.
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Alliance Capital Management L.P. (the "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. 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, 1997, (b) results of operations for the three months
ended March 31, 1997 and 1996 and (c) cash flows for the three months ended
March 31, 1997 and 1996, have been made.
2. RECLASSIFICATION
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 sold
without a front-end sales charge are capitalized and amortized over periods
not exceeding five and one-half years, the periods of time estimated by
management of the Partnership during which deferred sales commissions are
expected to be recovered from distribution plan payments received from
these funds and contingent deferred sales charges received from
shareholders of those funds upon the redemption of their shares.
Contingent deferred sales charges reduce unamortized deferred sales
commissions when received.
4. CONTINGENCIES
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), the Partnership and certain other
defendants affiliated with the Partnership alleging violations of federal
securities laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The Complaint
which sought certification of a plaintiff class of persons who purchased or
owned Class A, B or C shares of the Fund from March 27, 1992 through
December 23, 1994 seeks an unspecified amount of damages, costs, attorneys'
fees and punitive damages. The principal allegations are that the Fund
purchased debt securities issued by the Mexican and Argentine governments
in amounts that were not permitted by the Fund's investment objective, and
that there was no shareholder vote to change the investment objective to
permit purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by the
Fund caused the Fund's net asset value to decline to the detriment of the
Fund's shareholders.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts
of the Complaint. On October 11, 1996, plantiffs filed a motion for
reconsideration of the Court's decision granting defendants' motion to
dismiss the Complaint. On November 25, 1996, the Court denied plantiffs'
motion for reconsideration. On October 29, 1996, plaintiffs filed a motion
for leave to file an amended complaint, which is still pending. The
principal allegations of the proposed amended complaint are that the Fund
did not
properly disclose that it planned to invest in mortgage-backed derivative
securities and that two advertisements used by the Fund misrepresented the
risks of investing in the Fund. Plantiffs also reiterated allegations in
the Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so. While
the ultimate outcome of this matter cannot be determined at this time,
management of the Partnership does not expect that it will have a material
adverse effect on the Partnership's results of operations or financial
condition.
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 corporations
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
outstanding, Unit equivalents and Units issuable upon conversion of the
Class A Limited Partnership Interest during each period. The aggregate
weighted average number of Units outstanding used in computing net income
per Unit was 85,505,000 and 83,098,000 for the three months ended March 31,
1997 and 1996, respectively.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
Three Months Ended
March 31,
--------------------
1997 1996
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Interest . . . . . . . . $ 165 $ 167
Income taxes . . . . . . 2,654 2,623
8. SUBSEQUENT EVENT
On April 30, 1997, the Finance Committee of the Board of Directors of the
General Partner declared a distribution of $50,971,000 or $0.60 per Unit
representing the Available Cash Flow (as defined in the Partnership
Agreement) of the Partnership for the three months ended March 31, 1997.
The distribution is payable on May 20, 1997 to holders of record on
May 13, 1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Alliance Capital Management L.P. (the "Partnership") derives substantially all
of its revenues and net income (a) from fees for investment advisory,
distribution and related services provided to the Alliance mutual funds, and (b)
from fees for investment advisory services provided to affiliated clients
including The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of The Equitable Companies Incorporated ("Equitable"),
and certain other ELAS affiliates and to unaffiliated separately managed
accounts for institutional investors and high net-worth individuals ("third
party clients"). The Alliance mutual funds consist of a broad range of open-end
load and closed-end mutual funds ("mutual funds"), variable products including
The Hudson River Trust ("HRT"), and cash management products, including money
market funds and deposit accounts. The Partnership offers a broad range of
investment management products and services to meet the varied needs and
objectives of individual and institutional investors.
On February 29, 1996, the Partnership acquired substantially all of the assets
and liabilities of Cursitor Holdings, L.P. ("CHLP") and all of the outstanding
shares of Cursitor Holdings Limited, currently Cursitor Alliance Holdings
Limited, (collectively, "Cursitor"). The acquisition was accounted for under
the purchase method with the results of Cursitor from the date of acquisition
included in the Partnership's condensed consolidated financial statements.
Cursitor specializes in providing global asset allocation services to U.S. and
non-U.S. institutional investors. Cursitor's investment results were poor in
1995 and 1996. Despite a modest improvement in investment results during the
three months ended March 31, 1997, Cursitor continued to experience significant
client account terminations and asset outflows. Cursitor's assets under
management at March 31, 1997 and April 30, 1997 were approximately $6.0 billion
and $5.4 billion, respectively.
The Partnership evaluates the potential impairment of its intangible assets by
comparing the undiscounted cash flows expected to be realized from those
intangible assets to their recorded values pursuant to Statement of Financial
Accounting Standards No. 121 (SFAS 121) "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Management of
the Partnership currently estimates that despite a significant decline in the
profitability of Cursitor, the undiscounted cash flows from Cursitor will be
sufficient for the Partnership to recover its investment. However, should the
profitability of Cursitor continue to decline, management's estimate may change
and the Partnership's investment in Cursitor might be considered impaired. In
such event the Partnership would be required to reduce the recorded value of
Cursitor goodwill and contracts acquired to fair market value, which is
significantly below their recorded value.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars & Units in millions, Three months ended
except per Unit amounts) 3/31/97 3/31/96 % Change
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Net income $53.3 $45.1 18.2%
Net income per Unit $0.62 $0.54 14.8
Weighted average number of Units and
Unit equivalents outstanding 85.5 83.1 2.9
Operating margin 26.2% 26.5% -
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ASSETS UNDER MANAGEMENT
(Dollars in billions) 3/31/97 3/31/96 $ Change % Change
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Alliance mutual funds:
Mutual funds $ 28.4 $ 23.8 $ 4.6 19.3%
Cash management products 19.9 15.7 4.2 26.8
Variable products 17.4 13.6 3.8 27.9
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65.7 53.1 12.6 23.7
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Seperately managed accounts:
Active equity & balanced 52.5 48.6 3.9 8.0
Active fixed 38.7 34.1 4.6 13.5
Index 18.9 16.9 2.0 11.8
Asset allocation 6.2 10.3 (4.1) (39.8)
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116.3 109.9 6.4 5.8
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Total $182.0 $163.0 $19.0 11.7%
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AVERAGE ASSETS UNDER MANAGEMENT
Three months ended
(Dollars in billions) 3/31/97 3/31/96 % Change
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Alliance mutual funds $ 65.3 $ 51.6 26.6%
Separately managed accounts:
Affiliated clients 26.7 23.3 14.6
Third party clients 92.9 80.3 15.7
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Total $184.9 $155.2 19.1%
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Assets under management at March 31, 1997 were $182.0 billion, an increase of
$19.0 billion or 11.7% from March 31, 1996 and a decrease of $0.8 billion or
0.4% from December 31, 1996. Alliance mutual fund assets under management at
March 31, 1997 were $65.7 billion, an increase of $12.6 billion or 23.7% from
March 31, 1996, due principally to net sales of Alliance mutual funds of $8.4
billion and market appreciation of $4.2 billion. Seperately managed account
assets under management at March 31, 1997 were $116.3 billion, an increase of
$6.4 billion or 5.8% from March 31, 1996. This increase was primarily due to
market appreciation of $8.8 billion and net asset additions to affiliated client
accounts of $3.0 billion, offset partially by net third party client account
asset withdrawals of $5.3 billion, primarily attributable to Cursitor accounts.
REVENUES
Three months ended
(Dollars in millions) 3/31/97 3/31/96 % Change
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Investment advisory and services fees:
Alliance mutual funds $86.0 $67.8 26.8 %
Separately managed accounts:
Affiliated clients 12.6 10.1 24.8
Third party clients 58.5 51.1 14.5
Distribution plan fees from Alliance mutual funds 47.2 38.5 22.6
Shareholder servicing and administration fees 12.8 11.4 12.3
Other revenues 2.2 2.7 (18.5)
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Total revenues $219.3 $181.6 20.8%
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Investment advisory and services fees were $157.1 million for the three months
ended March 31, 1997, an increase of $28.1 million or 21.8% over the prior year
period. In general, the Partnership's investment advisory and services fees are
based on the market value of assets under management and vary with the type of
account managed. 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.
Investment advisory fees from Alliance mutual funds increased $18.2 million or
26.8% primarily as a result of a 26.6% increase in average assets under
management.
Investment advisory fees from affiliated clients, primarily the General Accounts
of ELAS, increased $2.5 million or 24.8% due principally to higher average
assets under management of 14.6%. An increase in performance fees of $1.2
million also contributed to the increase in affiliated client advisory fees.
Investment advisory and services fees from third party clients increased $7.4
million or 14.5% due principally to an increase in average assets under
management of 15.7%. The increase in third party clients average assets under
management is primarily a result of market appreciation during 1996 and the
acquisition of Cursitor in February 1996.
Distribution plan fees increased primarily due to higher average equity mutual
fund and cash management assets under management. The increase in distribution
plan fees for equity mutual funds is principally due to market appreciation and
net sales of Class B Shares of these funds under the Partnership's mutual fund
distribution system described under "Capital Resources and Liquidity".
The increase in shareholder servicing and administration fees was primarily due
to an increase in the number of mutual fund shareholder accounts serviced by the
Partnership's subsidiaries from March 31, 1996. At March 31, 1997, the
Partnership's subsidiaries serviced approximately 2.9 million shareholder
accounts.
EXPENSES
Three months ended
(Dollars in millions) 3/31/97 3/31/96 % Change
- --------------------------------------------------------------------------------
Employee compensation and benefits $ 60.5 $ 49.4 22.5 %
Promotion and servicing 72.4 57.4 26.1
General and administrative 25.7 23.4 9.8
Interest 0.7 0.3 133.3
Amortization of intangible assets 2.6 2.9 (10.3)
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Total expenses $161.9 $133.4 21.4 %
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Employee compensation and benefits increased primarily as a result of higher
incentive compensation attributable to increased operating earnings and
increased base compensation principally due to an increase in the number of
employees resulting from the expansion of the Partnership's mutual fund
operations and the acquisition of Cursitor and salary increases.
Promotion and servicing expenses include distribution plan payments 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 the System. 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. Promotion and servicing
expenses increased primarily due to increased distribution plan payments
resulting from higher average cash management and equity mutual fund assets
under management. Higher cash management promotional and servicing costs and
increased mutual fund advertising also contributed to the increase in promotion
and servicing.
The increase in general and administrative expenses was due principally to
higher occupancy costs incurred in connection with the Partnership's expansion
of its international operations and expenses incurred in connection with joint
ventures.
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%. Domestic subsidiaries of the
Partnership are subject to Federal, state and local income taxes. Subsidiaries
organized and operating outside the United States are generally subject to taxes
in the foreign jurisdications where they are located. The provision for income
taxes increased for the three months primarily as a result of the increase in
taxable income of the Partnership and certain of its corporate subsidiaries.
The tax exemption for certain publicly traded limited partnerships, including
the Partnership, will expire on December 31, 1997. As a consequence, if the
Partnership retains its current structure, it will be taxed as a corporation as
of January 1, 1998. In response to this pending loss of its partnership tax
status, management of the Partnership is presently reviewing alternatives and
the Partnership expects to announce its plans during the second quarter of 1997.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's cash and cash equivalents increased by $12.1 million for the
three months ended March 31, 1997. Cash inflows included $64.5 million from
operations, $12.1 million of proceeds from net sales of investments in Alliance
mutual funds and $3.1 million in proceeds from options exercised under the
Partnership's Unit Option Plans. Cash outflows included cash distributions to
Unitholders of $50.0 million, capital expenditures of $12.3 million and a $5.4
million principal repayment of the notes issued in connection with the Cursitor
acquisition.
The Partnership acquired Cursitor on February 29, 1996 for approximately
$159.0 million. The purchase price consisted of cash payments of $94.3
million, 1,764,115 Units with an aggregate value of $43.2 million, and notes
in the aggregate principal amount of $21.5 million ("Notes"). The Notes bear
interest at 6% per annum and are payable ratably over the next four years.
Acquisition costs of $4.0 million were also incurred. Due to the decline in
Cursitor's global asset allocation business, certain agreements relating to
Cursitor were amended in the second quarter of 1997. Under certain
circumstances, through February 28, 2006, the Partnership has an option to
purchase CHLP's minority interest in Cursitor Alliance LLC ("Cursitor
Alliance"), a newly formed subsidiary, and CHLP has an option to sell its
minority interest to the Partnership for a price ("Buyout Price") in cash,
Units, or a combination thereof of not less than $10.0 million or more than
$37.0 million. The Buyout Price will be determined based on the amount of
global asset allocation investment advisory revenues earned by Cursitor
Alliance. If either option is exercised, the payment of the Buyout Price
will be accounted for as an increase in the Cursitor purchase price.
The Partnership's mutual fund distribution system (the "System") includes four
distribution options. The System permits the Partnership's open-end 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"), (c) without a front-end sales charge and, if the shares are held for
at least one year, CDSC combined with higher distribution fees payable by the
funds ("Class C Shares") or (d) without a front-end sales charge, CDSC or
ongoing distribution fees payable by the funds ("Advisor Class Shares"). During
the three months ended March 31, 1997, payments made to financial intermediaries
in connection with the sale of Class B and C Shares under the System, net of
CDSC received, totaled approximately $31.5 million.
As of March 31, 1997, the Partnership had not issued any commercial paper under
its $100 million commercial paper program and there were no borrowings
outstanding under the Partnership's $250 million five year revolving credit
facility. The revolving credit facility contains covenants which require the
Partnership, among other things, to meet certain financial ratios.
The Partnership's substantial equity base and access to public and private debt,
at competitive interest rates and other terms should provide adequate liquidity
for its general business needs. Management of the Partnership believes that cash
flow from operations and the issuance of debt and Units will provide the
Partnership with the financial resources to take advantage of strategic growth
opportunities, to finance capital requirements for mutual fund sales and to meet
the Partnership's other capital requirements.
CHANGES IN ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128) "EARNINGS PER SHARE" which
will be effective commencing with the Partnership's financial statements for the
year ended December 31, 1997. Upon adoption of the standard, the Partnership
will present "basic" earnings per Unit and "diluted" earnings per Unit. Basic
earnings per Unit excludes dilution and is computed by dividing income available
to Unitholders by the weighted average number of Units outstanding for the
period. The computation of diluted earnings per Unit, as required under the new
standard, gives effect to all dilutive potential Units that were outstanding
during the period. The adoption of this standard would not have a material
effect on the Partnership's earnings per Unit since diluted earnings per Unit is
computed in a manner similar to the Partnership's current computation of
earnings 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
(including the holder of the Class A Limited Partnership Interest based on Units
issuable upon conversion of the Class A Limited Partnership Interest). The
Partnership's Available Cash Flow and Distributions per Unit were as follows (in
thousands, except per Unit information):
Three months ended
3/31/97 3/31/96
- --------------------------------------------------------------------------------
Available Cash Flow (in thousands) $50,971 $43,243
Distributions Per Unit $ 0.60 $ 0.52
- --------------------------------------------------------------------------------
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There have been no material developments in the legal proceeding
reported in the Alliance Capital Management L.P. ("Partnership") Form
10-K for the year ended December 31, 1996.
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
1. Amendment to the Transaction Agreement dated as of
December 28, 1995 among the Partnership, The Shareholders
of Record of Cursitor Holdings Limited, Cursitor Holdings,
L.P. ("CHLP") and the Persons listed on Schedule 1.2 to
the Transaction Agreement.
2. Amendment Number One to the Amended and Restated Limited
Liability Company Agreement of Cursitor Alliance LLC dated
as of February 29, 1996 among the Partnership, Alliance
Capital Management Corporation of Delaware and CHLP.
(b) Reports on Form 8-K
None.
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, 1997 By: Alliance Capital Management
Corporation, its General
Partner
By: /s/ ROBERT H. JOSEPH, JR.
-------------------------
Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer