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 September 30, 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 September 30, 1997 was 83,788,143 Units.
ALLIANCE CAPITAL MANAGEMENT L.P.
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Page
----
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 6-9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-15
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 16
Item 2. CHANGES IN SECURITIES 16
Item 3. DEFAULTS UPON SENIOR SECURITIES 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF 16
SECURITY HOLDERS
Item 5. OTHER INFORMATION 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17
1
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
ASSETS 9/30/97 12/31/96
------ ----------- ----------
(unaudited)
Cash and cash equivalents.. . . . . . . . . . . . . . . . . . . . . . $101,377 $ 57,441
Fees receivable:
Alliance mutual funds.. . . . . . . . . . . . . . . . . . . . . . 54,652 46,483
Separately managed accounts:
Affiliated clients . . . . . . . . . . . . . . . . . . . . . 4,422 4,479
Third party clients. . . . . . . . . . . . . . . . . . . . . 61,579 58,339
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds. . . . . . . . . . . . . . . . 60,815 30,976
Investments, available-for-sale . . . . . . . . . . . . . . . . . . . 64,551 35,966
Furniture, equipment and leasehold improvements, net. . . . . . . . . 77,032 57,210
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . 98,280 234,404
Deferred sales commissions, net . . . . . . . . . . . . . . . . . . . 227,747 175,172
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,829 25,427
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $782,284 $725,897
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . $124,038 $103,427
Payable to Alliance mutual funds for share purchases. . . . . . . 90,133 55,468
Accrued expenses under employee benefit plans . . . . . . . . . . 118,747 51,633
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,527 24,658
Minority interests in consolidated subsidiaries.. . . . . . . . . 4,177 14,691
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 395,622 249,877
Partners' capital . . . . . . . . . . . . . . . . . . . . . . . . . . 386,662 476,020
-------- --------
Total liabilities and partners' capital. . . . . . . . . . . $782,284 $725,897
-------- --------
-------- --------
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 Nine Months Ended
----------------------- ----------------------
9/30/97 9/30/96 9/30/97 9/30/96
------- ------- ------- -------
Revenues:
Investment advisory and services fees:
Alliance mutual funds . . . . . . . . . . . . . . . . . . . $102,957 $72,980 $275,698 $212,653
Separately managed accounts:
Affiliated clients . . . . . . . . . . . . . . . . . . 12,665 10,833 38,509 32,699
Third party clients. . . . . . . . . . . . . . . . . . 62,363 57,907 181,393 167,109
Distribution plan fees from Alliance mutual funds... . . . . . . 56,764 42,032 153,317 121,097
Shareholder servicing and administration fees. . . . . . . . . . 13,859 11,990 40,150 35,141
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . 2,240 2,256 6,368 7,064
-------- ------- -------- --------
250,848 197,998 695,435 575,763
-------- ------- -------- --------
Expenses:
Employee compensation and benefits . . . . . . . . . . . . . . . 66,061 53,774 188,899 157,340
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated . . . . . . . . . . . . . . . . . . . . . . 15,407 7,828 39,448 22,520
Third party. . . . . . . . . . . . . . . . . . . . . . 30,655 29,170 88,889 83,536
Amortization of deferred sales commissions. . . . . . . . . 19,266 13,406 52,651 38,772
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,959 11,714 44,808 36,023
General and administrative.. . . . . . . . . . . . . . . . . . . 31,709 24,584 83,005 73,539
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 713 605 2,005 1,319
Amortization of intangible assets. . . . . . . . . . . . . . . . 881 4,259 6,124 11,353
Reduction in recorded value of intangible assets . . . . . . . . - - 120,900 -
-------- ------- -------- --------
179,651 145,340 626,729 424,402
-------- ------- -------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . 71,197 52,658 68,706 151,361
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 4,988 3,701 13,270 10,307
-------- ------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,209 $48,957 $ 55,436 $141,054
-------- ------- -------- --------
-------- ------- -------- --------
Net income per Unit. . . . . . . . . . . . . . . . . . . . . . . . . $ 0.76 $ 0.57 $ 0.64 $ 1.66
-------- ------- -------- --------
-------- ------- -------- --------
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 Nine Months Ended
---------------------- ----------------------
9/30/97 9/30/96 9/30/97 9/30/96
------- ------- ------- -------
Partners' capital - beginning of period. . . . . . . . . . . . . $371,996 $460,600 $476,020 $406,709
Net income . . . . . . . . . . . . . . . . . . . . . . . . . 66,209 48,957 55,436 141,054
Capital contribution received from Alliance Capital
Management Corporation. . . . . . . . . . . . . . . . . 898 897 2,694 2,688
Cash distributions to partners . . . . . . . . . . . . . . . (54,504) (44,757) (155,505) (129,002)
Issuance of Units for acquisition of Cursitor. . . . . . . . -- -- -- 42,816
Proceeds from Unit options exercised . . . . . . . . . . . . 1,592 1,943 6,876 3,402
Unrealized gain (loss) on investments. . . . . . . . . . . . 471 (60) 1,117 195
Foreign currency translation adjustment. . . . . . . . . . . -- (78) 24 (360)
-------- -------- -------- --------
Partners' capital - end of period. . . . . . . . . . . . . . . . $386,662 $467,502 $386,662 $467,502
-------- -------- -------- --------
-------- -------- -------- --------
See accompanying notes to condensed consolidated financial statements.
4
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended
----------------------
9/30/97 9/30/96
------- -------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,436 $141,054
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 67,229 56,205
Reduction in recorded value of intangible assets. . . . . . . . . . . . . . . . 120,900 --
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,418 6,182
Changes in assets and liabilities:
(Increase) in fees receivable from Alliance mutual funds,
affiliated clients and third party clients . . . . . . . . . . . . . . . (11,352) (2,198)
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds . . . . . . . . . . . . . . . . . . . (29,839) (12,183)
(Increase) in deferred sales commissions . . . . . . . . . . . . . . . . . (105,226) (59,600)
(Increase) decrease in other assets. . . . . . . . . . . . . . . . . . . . (6,689) 1,007
Increase in accounts payable and accrued expenses. . . . . . . . . . . . . 19,027 20,177
Increase in payable to Alliance mutual funds for share
purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,665 16,752
Increase in accrued expenses under employee benefit
plans, less deferred compensation. . . . . . . . . . . . . . . . . . . . 64,764 48,511
-------- --------
Net cash provided from operating activities. . . . . . . . . . . . . . 213,333 215,907
-------- --------
Cash flows from investing activities:
Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (317,612) (79,015)
Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . . . . 290,145 86,487
Acquisitions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (99,551)
Additions to furniture, equipment and leasehold
improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,324) (9,442)
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . (55,791) (101,521)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 --
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,444) (46)
Distributions to partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . (155,505) (129,002)
Capital contribution received from Alliance Capital Management
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443 439
Unit options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,876 3,402
-------- --------
Net cash used in financing activities . . . . . . . . . . . . . . . . (113,630) (125,207)
-------- --------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . 24 (269)
-------- --------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . 43,936 (11,090)
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . . . 57,441 124,256
-------- --------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . . . $101,377 $113,166
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
5
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
September 30, 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 September 30, 1997, (b) results of operations for the three
months and nine months ended September 30, 1997 and 1996 and (c) cash flows
for the nine months ended September 30, 1997 and 1996, have been made.
2. RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. INTANGIBLE ASSETS
Intangible assets consist of (in thousands):
9/30/97 12/31/96
------- --------
Goodwill (net of accumulated
amortization of $12,638 and $9,856, respectively) . . . . . . $78,191 $116,721
Contracts of businesses acquired (net of accumulated
amortization of $30,111 and $26,768, respectively). . . . . . 20,089 117,683
------- --------
$98,280 $234,404
------- --------
------- --------
The Partnership evaluates impairment of its intangible assets by comparing
the undiscounted cash flows expected to be realized from those 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 ". If the expected
future cash flows are less than the carrying value of intangible assets,
the Partnership recognizes an impairment loss for the difference between
the carrying amount and the estimated fair value of those intangible
assets.
During the second quarter of 1997, management of the Partnership determined
that the value of the assets of Cursitor Holdings, L.P. and the stock of
Cursitor Holdings Limited (collectively "Cursitor") acquired on February
29, 1996 was impaired and reduced the unamortized recorded value of the
intangible assets associated with the Cursitor acquisition by $120.9
million to $20.4 million. This noncash charge reflected the Partnership's
view that the decline in Cursitor's assets under management and its reduced
profitability no longer supported the unamortized cost of its investment.
4. 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.
6
5. 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 sought 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 alleged 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 ("First Decision"). On October 11, 1996, plaintiffs filed
a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the
First Decision. On October 29, 1997, the United States Court of Appeals
for the Second Circuit issued an order granting defendants' motion to
strike and dismissing plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. 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. Plaintiffs
also alleged that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so. On July
15, 1997, the District Court denied plaintiffs' motion for leave to file an
amended complaint and ordered that the case be dismissed ("Second
Decision"). On October 29, 1997, the United States Court of Appeals for
the Second Circuit dismissed plaintiffs' appeal of the Second Decision as
premature on the grounds that the District Court failed to enter a final
judgment in respect of the Second Decision. The Court of Appeals remanded
the case back to the District Court with instructions to enter a final
judgment in respect of the Second Decision.
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.
6. 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. 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.
Under prior tax law, the exemption from Federal income taxes for certain
publicly traded limited partnerships, including the Partnership, would have
expired on December 31, 1997. However, the Taxpayer Relief Act of 1997,
signed into law on August 5, 1997, includes the option for certain publicly
traded partnerships, including the Partnership, to maintain partnership tax
status after 1997 and pay a tax of 3.5% of partnership gross income from
the active conduct of a trade or business. The Partnership intends to
remain a publicly traded partnership.
7
7. 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 86,194,000 and 84,880,000 for the three months ended September
30, 1997 and 1996, respectively, and 85,736,000 and 84,222,000 for the nine
months ended September 30, 1997 and 1996, respectively.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1997 1996 1997 1996
--------- -------- -------- --------
Interest . . . . . $ 1,463 $ 131 $ 1,710 $ 383
Income taxes . . . 4,087 3,555 10,653 9,814
9. ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") 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 SFAS 128, the Partnership will present "basic" earnings per Unit and
"diluted" earnings per Unit. Basic earnings per Unit will be computed by
dividing income available to Unitholders by the weighted average number of
Units outstanding for each period. Diluted earnings per Unit will give
effect to all potentially dilutive Units outstanding during each period and
will be computed in a manner similar to the Partnership's current
computation of earnings per Unit.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS 130) "REPORTING COMPREHENSIVE INCOME". SFAS 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance
of other comprehensive income separately in the partners' capital section
of the statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. The Partnership intends to adopt
SFAS 130 and provide the required supplemental disclosures in its 1998
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS 131) "DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION". SFAS 131 establishes standards
for the way public business enterprises report information about
operating segments in their annual and interim financial statements.
It also establishes standards for related disclosures about products
and services, geographic areas and major customers. Generally,
financial information will be required to be reported on the basis
used by management for evaluating segment performance and for deciding
how to allocate resources to segments. SFAS 131 is effective for
fiscal years beginning after December 15, 1997 and need not be applied
to interim reporting in the initial year of adoption. The Partnership
intends to adopt SFAS 131 and provide the required supplemental
disclosures in its 1998 annual report.
8
10. SUBSEQUENT EVENT
On November 3, 1997, the Finance Committee of the Board of Directors of the
General Partner declared a distribution of $63,042,000 or $0.74 per Unit
representing the Available Cash Flow (as defined in the Partnership
Agreement) of the Partnership for the three months ended September 30,
1997. The distribution is payable on November 28, 1997 to holders of
record on November 20, 1997.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Alliance Capital Management L.P. (the "Partnership") offers a broad range of
investment management products and services to meet the varied needs and
objectives of individual and institutional investors. The Partnership derives
substantially all of its revenues and net income from: (a) fees for investment
advisory, distribution and related services provided to the Alliance mutual
funds, and (b) 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 (c) fees for investment
advisory services provided 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.
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"). Cursitor specializes in providing global
asset allocation services to U.S. and non-U.S. institutional investors. 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. Due to its poor investment results, Cursitor
experienced significant client account terminations and asset outflows.
Cursitor's assets under management aggregated $4.0 billion at September 30, 1997
a decrease of $4.4 billion from $8.4 billion at December 31, 1996.
The Partnership evaluates impairment of its intangible assets by comparing the
undiscounted cash flows expected to be realized from those 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". During the second quarter of 1997,
management of the Partnership determined that the Cursitor intangible assets
were impaired and reduced the unamortized recorded value of the intangible
assets associated with the Cursitor acquisition by $120.9 million to $20.4
million.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars & Units in millions, Three months ended Nine months ended
except per Unit amounts) 9/30/97 9/30/96 % Change 9/30/97 9/30/96 % Change
- --------------------------------------------------------------------------------------------------------------------------
Net income $66.2 $49.0 35.1% $55.4 $141.1 (60.7)%
Net income per Unit $0.76 $0.57 33.3 $0.64 $ 1.66 (61.4)
Weighted average number of Units and
Unit equivalents outstanding 86.2 84.9 1.5 85.7 84.2 1.8
Operating margin* 28.4% 26.6% -- 27.3% 26.3% --
*Excludes the reduction in recorded value of the Cursitor intangible assets
10
ASSETS UNDER MANAGEMENT
(Dollars in billions) 9/30/97 9/30/96 $ Change % Change
- --------------------------------------------------------------------------------------------
Alliance mutual funds(1):
Mutual funds $ 38.1 $ 26.4 $11.7 44.3%
Cash management products 20.4 17.2 3.2 18.6
Variable products 23.2 15.7 7.5 47.8
- --------------------------------------------------------------------------------------------
81.7 59.3 22.4 37.8
- --------------------------------------------------------------------------------------------
Separately managed accounts(1):
Active equity & balanced 66.9 51.6 15.3 29.7
Active fixed 41.3 36.1 5.2 14.4
Index 23.1 17.4 5.7 32.8
Asset allocation 4.3 9.3 (5.0) (53.8)
- --------------------------------------------------------------------------------------------
135.6 114.4 21.2 18.5
- --------------------------------------------------------------------------------------------
Total $217.3 $173.7 $43.6 25.1%
- --------------------------------------------------------------------------------------------
(1)Includes mutual fund and separately managed account assets under management
of unconsolidated subsidiaries of $0.9 billion and $0.2 billion, respectively.
AVERAGE ASSETS UNDER MANAGEMENT
Three months ended Nine months ended
(Dollars in billions) 9/30/97 9/30/96 % Change 9/30/97 9/30/96 % Change
- ---------------------------------------------------------------------------------------------------------------------------
Alliance mutual funds $ 76.6 $ 57.1 34.2% $ 70.2 $ 54.5 28.8%
Separately managed accounts:
Affiliated clients 28.9 25.4 13.8 27.8 24.4 13.9
Third party clients 104.7 86.3 21.3 97.9 84.3 16.1
- ---------------------------------------------------------------------------------------------------------------------------
Total $210.2 $168.8 24.5% $195.9 $163.2 20.0%
- ---------------------------------------------------------------------------------------------------------------------------
Assets under management at September 30, 1997 were $217.3 billion, an increase
of $43.6 billion or 25.1% from September 30, 1996 and an increase of $34.5
billion or 18.9% from December 31, 1996. Alliance mutual fund assets under
management at September 30, 1997 were $81.7 billion, an increase of $22.4
billion or 37.8% from September 30, 1996, due principally to market appreciation
of $11.3 billion and net sales of Alliance mutual funds of $10.2 billion.
Separately managed account assets under management at September 30, 1997 were
$135.6 billion, an increase of $21.2 billion or 18.5% from September 30, 1996.
This increase was primarily due to market appreciation of $26.7 billion and net
asset additions to affiliated client accounts of $4.4 billion, offset partially
by net third party client account terminations and asset withdrawals of $10.1
billion, primarily global asset allocation accounts and active equity and
balanced accounts.
REVENUES
Three months ended Nine months ended
(Dollars in millions) 9/30/97 9/30/96 % Change 9/30/97 9/30/96 % Change
- ------------------------------------------------------------------------------------------------------------------------
Investment advisory and services fees:
Alliance mutual funds $102.9 $ 73.0 41.0% $275.7 $212.7 29.6%
Separately managed accounts:
Affiliated clients 12.7 10.8 17.6 38.5 32.7 17.7
Third party clients 62.4 57.9 7.8 181.4 167.1 8.6
Distribution plan fees from Alliance mutual funds 56.8 42.0 35.2 153.3 121.1 26.6
Shareholder servicing and administration fees 13.8 12.0 15.0 40.1 35.1 14.2
Other revenues 2.2 2.3 (4.3) 6.4 7.1 (9.9)
- ------------------------------------------------------------------------------------------------------------------------
Total revenues $250.8 $198.0 26.7% $695.4 $575.8 20.8%
- ------------------------------------------------------------------------------------------------------------------------
11
Investment advisory and services fees were $178.0 million for the three months
ended September 30, 1997, an increase of $36.3 million or 25.6% over the prior
year period. Investment advisory and services fees were $495.6 million for the
nine months ended September 30,1997, an increase of $83.1 million or 20.1% 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 $29.9 million or
41.0% for the three months and $63.0 million or 29.6% for the nine months
primarily as a result of increases of 34.2% and 28.8% in average assets under
management for the three and nine months ended September 30, 1997, respectively.
Investment advisory fees from affiliated clients, primarily the General Accounts
of ELAS, increased $1.9 million or 17.6% for the three months and $5.8 million
or 17.7% for the nine months due principally to increases in average assets
under management of 13.8% for the three months and 13.9% for the nine months
ended September 30, 1997, respectively. Increases in performance fees of $0.6
million and $2.3 million for the three months and nine months ended September
30, 1997, respectively, also contributed to the increases in affiliated client
advisory fees.
Investment advisory and services fees from third party clients increased $4.5
million or 7.8% for the three months and $14.3 million or 8.6% for the nine
months due principally to increases in average assets under management of 21.3%
for the three months and 16.1% for the nine months ended September 30, 1997,
respectively. The increases in third party clients average assets under
management are primarily a result of market appreciation offset partially by net
third party clients outflows, primarily global asset allocation accounts and
active equity and balanced accounts. Decreases in performance fees of $2.2
million for the three months and $3.4 million for the nine months partially
offset the increased fees.
Distribution plan fees increased primarily due to higher average assets under
management for equity mutual fund and cash management products. 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 September 30, 1996. At September 30, 1997, the
Partnership's subsidiaries serviced approximately 3.1 million shareholder
accounts.
EXPENSES
Three months ended Nine months ended
(Dollars in millions) 9/30/97 9/30/96 % Change 9/30/97 9/30/96 % Change
- -------------------------------------------------------------------------------------------------------------------------------
Employee compensation and benefits $ 66.1 $ 53.7 23.1% $188.9 $157.3 20.1%
Promotion and servicing 80.3 62.1 29.3 225.8 180.9 24.8
General and administrative 31.7 24.6 28.9 83.0 73.5 12.9
Interest 0.7 0.6 16.7 2.0 1.3 53.8
Amortization of intangible assets 0.9 4.3 (79.1) 6.1 11.4 (46.5)
Reduction in recorded value
of intangible assets - - - 120.9 - -
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses $179.7 $145.3 23.7% $626.7 $424.4 47.7%
- -------------------------------------------------------------------------------------------------------------------------------
12
Employee compensation and benefits increased primarily as a result of higher
incentive compensation, attributable to increased operating earnings, and
increased base compensation. Base compensation increased principally due to an
increase in the number of employees from 1,452 at September 30, 1996 to 1,600 at
September 30, 1997, resulting from the expansion of the Partnership's mutual
fund operations and its administration and technology departments, combined with
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. Amortization of deferred sales commissions paid to financial
intermediaries for the sale of Class B and Class C shares increased as a result
of higher mutual fund sales. Increases in cash management promotional and
servicing costs and increased international travel also contributed to the
increase in promotion and servicing.
The increase in general and administrative expenses was due principally to
higher costs associated with the expansion of the Partnership's international
and mutual fund operations as well as higher systems consulting expenses
associated with technology initiatives. An increase in professional fees as a
result of higher accruals for ongoing litigation and general reserves also
contributed to the increase in general and administrative expenses for the three
months ended September 30, 1997.
The decrease in amortization of intangible assets was due principally to a
decrease in amortization of costs assigned to investment management contracts of
ACMC, Inc., the predecessor of the Partnership, which was acquired by ELAS in
1985. The costs assigned to the ACMC, Inc. contracts were fully amortized as of
December 31, 1996.
The Partnership recorded a noncash charge of $120.9 million during the second
quarter of 1997 to reduce the unamortized recorded value of the Cursitor
intangible assets associated with the Cursitor acquisition to estimated fair
value. This noncash charge reflected the Partnership's view that the decline in
Cursitor's assets under management and its reduced profitability no longer
supported the carrying value of its investment.
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 jurisdictions where they are located. The provision for income
taxes increased for the three and nine months primarily as a result of the
increase in taxable income of the Partnership and certain of its corporate
subsidiaries.
Under prior tax law, the exemption from Federal income taxes for certain
publicly traded partnerships, including the Partnership, would have expired on
December 31, 1997. However, the Taxpayer Relief Act of 1997, signed into law on
August 5, 1997, includes the option for certain publicly traded partnerships,
including the Partnership, to maintain partnership tax status after 1997 and pay
a tax, beginning 1998, of 3.5% of partnership gross income from the active
conduct of a trade or business. The Partnership intends to remain a publicly
traded partnership and estimates that the tax will reduce net income and cash
distributions by approximately 10% to 15%.
13
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital decreased $89.4 million to $386.7 million at September 30,
1997 from $476.0 million at December 31, 1996. The decrease was primarily due
to the noncash charge of $120.9 million to reduce the value of intangible assets
associated with the acquisition of Cursitor to estimated fair value.
The Partnership's cash and cash equivalents increased by $43.9 million for the
nine months ended September 30, 1997. Cash inflows included $213.3 million from
operations, proceeds from borrowings net of repayments of debt of $34.6 million
and $6.9 million in proceeds from options exercised under the Partnership's Unit
Option Plans. Cash outflows included cash distributions to Unitholders of
$155.5 million, capital expenditures of $28.3 million and net purchases of
investments of $27.5 million.
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 at February 29, 1996 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. Certain
agreements relating to the Cursitor acquisition were amended during 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 subsidiary formed at the time of the
acquisition of Cursitor, and CHLP has an option to sell its minority interest in
Cursitor Alliance to the Partnership for cash, Units, or a combination thereof
of not less than $10.0 million or more than $37.0 million ("Buyout Price"). 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 without
CDSC, if the shares are held for more than one year, but 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 nine months ended September 30,
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 $105.2 million.
As of September 30, 1997, the Partnership had not issued any commercial paper
under its $100 million commercial paper program and there were borrowings of
$40.0 million outstanding under its $250 million five year revolving credit
facility. These borrowings were used primarily to finance capital requirements
for mutual fund sales. 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.
14
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 Nine months ended
9/30/97 9/30/96 9/30/97 9/30/96
- -----------------------------------------------------------------------------------------------
Available Cash Flow (in thousands) $63,042 $46,532 $168,534 $134,533
Distributions Per Unit $ 0.74 $ 0.55 $ 1.98 $ 1.60
- -----------------------------------------------------------------------------------------------
FORWARD - LOOKING STATEMENTS
Certain statements provided by the Partnership in this report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. The most significant of such factors include, but
are not limited to, the following: the performance of financial markets, the
investment performance of the Partnership's sponsored investment products and
separately managed accounts, general economic conditions, future acquisitions,
competitive conditions and government regulations, including changes in tax
rates. The Partnership cautions readers to carefully consider such factors.
Further, such forward-looking statements speak only as of the date on which such
statements are made; the Partnership undertakes no obligation to update any
forward-looking statements to reflect events or circumstances after the date of
such statements.
15
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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 ("First Decision") in the
legal proceeding reported in the Alliance Capital Management L.P.
Annual Report on Form 10-K for the year ended December 31, 1996.
On October 11, 1996, plaintiffs filed a motion for
reconsideration of the First Decision. On November 25, 1996, the
District Court denied plaintiffs' motion for reconsideration of
the First Decision. On October 29, 1997, the United States Court
of Appeals for the Second Circuit issued an order granting
defendants' motion to strike and dismissing plaintiffs' appeal of
the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file
an amended complaint. 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. Plaintiffs
also alleged that the Fund failed to hedge against the risks of
investing in foreign securities despite representations that it
would do so. On July 15, 1997, the District Court denied
plaintiffs' motion for leave to file an amended complaint and
ordered that the case be dismissed ("Second Decision"). On
October 29, 1997, the United States Court of Appeals for the
Second Circuit dismissed plaintiffs' appeal of the Second
Decision as premature on the grounds that the District Court
failed to enter a final judgment in respect of the Second
Decision. The Court of Appeals remanded the case back to the
District Court with instructions to enter a final judgment in
respect of the Second Decision.
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.
16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Alliance Capital Management L.P. filed a Report on Form 8-K dated
August 6, 1997 with respect to a press release issued on
August 6, 1997 announcing that it intends to remain a publicly
traded limited partnership in light of the Taxpayer Relief Act of
1997.
17
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: November 12, 1997 By: Alliance Capital Management
Corporation, its General Partner
By:
----------------------------------
Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer
18
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: November 12, 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
19