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 June 30, 1994 ------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ------------------------- Commission File No. 1-9818 ------------------------------------------------------------ ALLIANCE CAPITAL MANAGEMENT L.P. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3434400 - -------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1345 AVENUE OF THE AMERICAS, NEW YORK, NY 10105 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 969-1000 - ------------------------------------------------------------------------------- (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 June 30, 1994 was 73,002,660 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 10-14 Part II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS 15 Item 2. CHANGES IN SECURITIES 15 Item 3. DEFAULTS UPON SENIOR SECURITIES 15 Item 4. SUBMISSION OF MATTERS TO A VOTE OF 15 SECURITY HOLDERS Item 5. OTHER INFORMATION 15 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15 - 1 -
PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ALLIANCE CAPITAL MANAGEMENT L.P. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (IN THOUSANDS) <TABLE> <CAPTION> ASSETS 6/30/94 12/31/93 ------- -------- <S> <C> <C> Cash and cash equivalents....................... $ 86,089 $ 96,315 Fees receivable: Alliance mutual funds......................... 25,227 29,594 Other affiliated clients...................... 9,361 17,262 Institutional clients......................... 41,052 40,685 Receivable from brokers and dealers for sale of shares of Alliance mutual funds............ 37,760 103,921 Other receivables............................... 5,948 4,894 Investments in Alliance mutual funds............ 41,341 56,552 Other investments............................... 4,949 4,966 Furniture, equipment and leasehold improvements, net............................. 35,380 28,767 Intangible assets, net.......................... 97,276 30,707 Deferred sales commissions, net................. 164,506 140,558 Prepaid expenses and other assets............... 10,292 7,066 -------- -------- Total assets.............................. $559,181 $561,287 -------- -------- -------- -------- LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses........... $ 61,482 $ 56,526 Payable to Alliance mutual funds for share purchases..................................... 57,760 145,684 Accrued expenses under employee benefit plans... 59,171 35,597 Debt............................................ 109,153 109,435 -------- -------- Total liabilities......................... 287,566 347,242 Partners' capital................................. 271,615 214,045 -------- -------- Total liabilities and partners' capital... $559,181 $561,287 -------- -------- -------- -------- </TABLE> 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) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ ------------------------ 6/30/94 6/30/93 6/30/94 6/30/93 -------- -------- -------- -------- <S> <C> <C> <C> <C> Revenues: Investment advisory and services fees: Alliance mutual funds............................ $ 52,706 $ 38,963 $103,617 $ 76,409 Other affiliated clients......................... 9,533 8,273 20,498 15,928 Institutional clients............................ 40,856 34,361 79,639 69,788 Distribution plan fees from Alliance mutual funds.. 34,140 23,668 68,785 46,107 Shareholder servicing and administration fees...... 10,291 8,202 20,025 15,632 Other revenues..................................... 1,347 1,717 4,874 3,745 -------- -------- -------- -------- 148,873 115,184 297,438 227,609 -------- -------- -------- -------- Expenses: Employee compensation and benefits................. 42,637 33,528 85,026 68,797 General and administrative......................... 17,168 17,039 33,592 33,841 Interest........................................... 2,205 2,665 4,428 5,400 Promotion and servicing: Distribution plan payments to financial intermediaries: Affiliated..................................... 5,007 3,054 9,963 5,947 Unaffiliated................................... 20,964 14,521 43,302 28,705 Amortization of deferred sales commissions....... 12,883 8,439 24,863 16,386 Other............................................ 11,255 7,281 23,463 13,664 Amortization of intangible assets.................. 2,186 1,745 4,077 3,488 Nonrecurring transaction expenses.................. -- 33,542 -- 40,842 -------- -------- -------- -------- 114,305 121,814 228,714 217,070 -------- -------- -------- -------- Income (loss) before income taxes and cumulative effect of accounting change........................ 34,568 (6,630) 68,724 10,539 Income taxes....................................... 2,297 3,008 5,029 4,482 -------- -------- -------- -------- Income (loss) before cumulative effect of accounting change.................................. 32,271 (9,638) 63,695 6,057 Cumulative effect of change in accounting for income taxes................................. -- -- -- 900 -------- -------- -------- -------- Net income (loss).................................... $ 32,271 $(9,638) $ 63,695 $ 6,957 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per Unit: Income (loss) before cumulative effect of accounting change................................ $ 0.42 $ (0.14) $ 0.83 $ 0.09 Cumulative effect of change in accounting for income taxes................................. -- -- -- .01 -------- -------- -------- -------- Net income (loss) per Unit......................... $ 0.42 $ (0.14) $ 0.83 $ 0.10 -------- -------- -------- -------- -------- -------- -------- -------- Weighted average number of Units and Unit equivalents outstanding............................ 75,555 70,828 75,858 70,793 -------- -------- -------- -------- -------- -------- -------- -------- </TABLE> 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) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ ------------------------ 6/30/94 6/30/93 6/30/94 6/30/93 -------- -------- -------- -------- <S> <C> <C> <C> <C> Partners' capital - beginning of period............... $216,846 $159,251 $214,045 $160,626 Net income (loss)................................... 32,271 (9,638) 63,695 6,957 Capital contribution received from Alliance Capital Management Corporation.................... 901 288 1,377 805 Distributions to partners........................... (29,962) (19,555) (59,887) (38,510) Proceeds from sale of Class B Limited Partnership Interest to ELAS.................................. 50,000 -- 50,000 -- Unit options exercised.............................. 1,560 1,128 2,374 1,553 Foreign currency translation adjustment............. (1) 494 11 537 -------- -------- -------- -------- Partners' capital - end of period..................... $271,615 $131,968 $271,615 $131,968 -------- -------- -------- -------- -------- -------- -------- -------- </TABLE> 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) <TABLE> <CAPTION> SIX MONTHS ENDED ------------------------ 6/30/94 6/30/93 --------- --------- <S> <C> <C> Cash flows from operating activities: Net income ................................................ $ 63,695 $ 6,957 Adjustments to reconcile net income to net cash provided from operating activities: Amortization and depreciation............................ 32,651 23,477 Deferred compensation expense............................ 2,384 1,703 Nonrecurring transaction expenses........................ -- 15,442 Cumulative effect of change in accounting for income taxes........................................... -- (900) Other, net............................................... 227 (508) Changes in assets and liabilities: Decrease in fees receivable from Alliance mutual funds, other affiliated clients and institutional clients... 15,673 2,731 (Increase) decrease in receivables from brokers and dealers for sale of shares of Alliance mutual funds.. 66,161 (84,315) Increase (decrease) in other receivables............... (976) 4,459 (Increase) in deferred sales commissions............... (48,811) (25,078) (Increase) decrease in prepaid expenses and other assets......................................... (3,608) 152 Increase in accounts payable and accrued expenses...... 3,029 13,967 Increase (decrease) in payable to Alliance mutual funds for share purchases..................... (87,924) 100,021 Increase in accrued expenses under employee benefit plans, less deferred compensation.................... 22,302 15,822 -------- -------- Net cash provided from operating activities........ 64,803 73,930 -------- -------- Cash flows from investing activities: Purchase of Alliance mutual funds ........................ (25,409) (28,338) Proceeds from sale of Alliance mutual funds............... 40,620 3,100 Acquisition of Shields and Regent ........................ (73,570) -- Increase (decrease) in other investments.................. (213) 1,365 Additions to furniture, equipment and leasehold improvements, net............................. (9,172) (4,085) -------- -------- Net cash used in investing activities.............. (67,744) (27,958) -------- -------- Cash flows from financing activities: Proceeds from borrowings.................................. 70,094 -- Repayment of debt......................................... (70,142) (351) Distributions to partners................................. (59,887) (38,510) Proceeds from sale of Class B Limited Partnership Interest to ELAS........................................ 50,000 -- Capital contribution received from Alliance Capital Management Corporation.................................. 265 265 Unit options exercised.................................... 2,374 1,553 -------- -------- Net cash used in financing activities.............. (7,296) (37,043) -------- -------- Effect of exchange rate changes on cash and cash equivalents.......................................... 11 415 -------- -------- Net increase (decrease) in cash and cash equivalents........ (10,226) 9,344 Cash and cash equivalents at beginning of period............ 96,315 76,787 -------- -------- Cash and cash equivalents at end of period.................. $ 86,089 $ 86,131 -------- -------- -------- -------- </TABLE> See accompanying notes to condensed consolidated financial statements. - 5 -
ALLIANCE CAPITAL MANAGEMENT L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1994 (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 June 30, 1994, (b) results of operations for the three and six months ended June 30, 1994 and 1993 and (c) cash flows for the six months ended June 30, 1994 and 1993, have been made. 2. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. 3. ACQUISITIONS On March 7, 1994, the Partnership completed the acquisition of the business and substantially all of the assets of Shields Asset Management, Incorporated ("Shields") and its wholly-owned subsidiary, Regent Investor Services Incorporated ("Regent"), from Xerox Financial Services, Inc. for a purchase price of approximately $74 million in cash, including $.6 million in acquisition costs. In addition, the Partnership issued 645,160 new Units to key employees of Shields and Regent having an aggregate value of approximately $15 million in connection with the employees entering into long-term employment agreements with the Partnership. The aggregate value of these Units is being amortized as employee compensation expense ratably over five years. The acquisition was accounted for under the purchase method with the results of Shields and Regent included from the acquisition date. Goodwill of $70.6 million was recorded which represents the excess of the purchase price, including acquisition expenses, over the estimated fair value of the net assets of the acquired business. On July 22, 1993, Alliance Capital Management L.P. (the "Partnership") acquired the business and substantially all of the assets of Equitable Capital Management Corporation ("ECMC"), an indirect wholly-owned subsidiary of The Equitable Companies Incorporated ("Equitable"). The acquisition was accounted for in a manner similar to the pooling of interests method and, accordingly, consolidated financial information for the three and six months ended June 30, 1993 has been restated to include the results of operations of ECMC. - 6 -
4. INTANGIBLE ASSETS Intangible assets, consisting principally of goodwill and client files, are being amortized on a straight line basis over their estimated useful lives ranging from twelve to forty years. The Partnership periodically evaluates the value or recoverability of the carrying amount of its intangible assets utilizing forecasted undiscounted cash flows. 5. DEFERRED SALES COMMISSIONS Sales commissions paid to financial intermediaries in connection with the sale of shares of 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 the sales commissions are expected to be recovered from distribution plan payments received from the Alliance mutual funds and contingent deferred sales charges received from shareholders of the Alliance mutual funds. Contingent deferred sales charges reduce unamortized deferred sales commissions when received. 6. DEBT Debt includes two series of senior notes: Series A aggregating $80,000,000 with principal payments of $20,000,000, $25,000,000, $10,000,000 and $25,000,000 due on December 30 of each of the years 1994 through 1997, respectively; and Series B aggregating $25,000,000 payable on September 30, 1996. Interest on the Series A and Series B senior notes is paid semi-annually at annual rates of 7.0% and 7.35%, respectively. The senior note agreements contain covenants which require the Partnership, among other things, to meet certain financial ratios and to maintain minimum tangible partners' capital. The Partnership will prepay the senior notes in full during August 1994. During February 1994, the Partnership established a $100,000,000 revolving credit facility with several banks. The revolving credit facility converts on March 31, 1997 into a term loan repayable in equal installments quarterly through March 31, 1999. Outstanding borrowings generally bear interest at the Eurodollar Rate plus .875% per annum through March 31, 1997 and at the Eurodollar Rate plus 1.125% per annum after conversion through March 31, 1999. In addition, a quarterly commitment fee of .25% per annum is paid on the average daily unused amount. The revolving credit facility contains covenants which require the Partnership, among other things, to meet certain financial ratios. At June 30, 1994, there were no amounts outstanding under the facility. Debt also includes promissory notes contributed to certain investment partnerships in the aggregate principal amount of $3,875,000 at June 30, 1994. The principal amounts of the notes will be reduced proportionately as partners receive return of capital distributions from the investment partnerships. - 7 -
7. 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. ECMC is included in the Federal income tax return of Equitable and, prior to its acquisition by the Partnership, a Federal income tax equivalent provision was computed on a separate return basis. In addition, ECMC filed separate state and local income tax returns. The provision for income taxes is comprised of (in thousands): <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 1994 1993 1994 1993 ------ ------ ------ ------ <S> <C> <C> <C> <C> Partnership................ $2,297 $ 795 $5,029 $1,729 ECMC....................... -- 2,213 -- 2,753 ------ ------ ------ ------ $2,297 $3,008 $5,029 $4,482 ------ ------ ------ ------ ------ ------ ------ ------ </TABLE> 8. NET INCOME PER UNIT Net income per Unit is computed by reducing net income by 1% for the 1% 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 and Class B Limited Partnership Interests, and Unit equivalents outstanding during each period. 9. SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest and income taxes were as follows (in thousands): <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 1994 1993 1994 1993 ------ ------ ------ ------ <S> <C> <C> <C> <C> Interest................... $4,320 $4,780 $5,013 $5,317 Income taxes............... 3,555 3,032 6,159 4,760 </TABLE> - 8 -
The 1994 consolidated statement of cash flows does not include the issuance by the Partnership of new Units to key employees of Shields and Regent 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. 10. SUBSEQUENT EVENTS On July 1, 1994, the Partnership issued 2,482,030 newly issued Units to a wholly-owned subsidiary of Oversea-Chinese Banking Corporation Limited ("OCBC") for $50 million in cash. On July 21, 1994, the Board of Directors of the General Partner declared a distribution of $31,213,000 or $.41 per Unit representing the Available Cash Flow (as defined in the Partnership Agreement) of the Partnership for the three months ended June 30, 1994. The distribution was paid on August 8, 1994 to holders of record on August 1, 1994. On July 15, 1994, the Partnership gave notice to the holders of its senior notes that it will prepay the senior notes in full during August 1994. - 9 -
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 Equitable Capital Management Corporation ("ECMC") on July 22, 1993. The acquisition was accounted for in a manner similar to the pooling of interests method and, accordingly, the condensed consolidated financial statements of the Partnership and its subsidiaries for the three and six months ended June 30, 1993 have been restated to include the results of operations of ECMC. On March 7, 1994, 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. 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 JUNE 30, 1994 COMPARED TO THREE MONTHS ENDED JUNE 30, 1993 The Partnership recorded net income for the three months ended June 30, 1994 of $32.3 million or $.42 per Unit, compared to a net loss of $9.6 million or $.14 per Unit for the three months ended June 30, 1993. Net income for the three months ended June 30, 1993 includes a charge of $33.5 million for expenses incurred in connection with the acquisition of ECMC. Excluding this nonrecurring item, net income for the three months ended June 30, 1994 increased 37.2% over net income of $23.5 million, or $.33 per Unit, for the prior year period. Assets under management by the Partnership at June 30, 1994 were approximately $122.3 billion, an increase of $18.0 billion or 17.3% from June 30, 1993. The increase is primarily the result of net mutual fund sales of $7.9 billion, net institutional cash inflows of $3.0 billion and the acquisition of Shields and Regent which increased assets under management by $7.8 billion, offset partially by market depreciation of $0.7 billion. Revenues for the three months ended June 30, 1994 were $148.9 million, an increase of 29.2% from the prior year period. Investment advisory and services fees, which are based on assets under management, increased 26.3%. Investment advisory fees from Alliance mutual funds increased by 35.3% due to higher average assets under management resulting from strong net mutual fund sales through the first quarter of 1994. The Partnership experienced modest net redemptions in its open-end mutual funds during the second quarter of 1994. Investment advisory fees from other affiliated clients increased by 15.2% principally due to an increase in revenues from the general accounts of The Equitable Life Assurance Society of the United States ("ELAS") and its insurance company subsidiaries. Investment advisory fees from institutional clients increased by 18.9% due to an increase in average assets under management resulting from the acquisition of Shields, new account additions and market appreciation during the second half of 1993. - 10 -
Distribution plan fees increased 44.2% due principally to higher 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 25.5% 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 21.5% as a result of lower commissionable load mutual fund sales. Alliance Short-Term Multi-Market Trust accounted for approximately 4.9% and 10.2% of the Partnership's aggregate revenues during the three months ended June 30, 1994 and 1993, respectively. Expenses for the three months ended June 30, 1994 were $114.3 million, a decrease of 6.2% from the prior year period. Excluding the $33.5 million in nonrecurring transaction expenses incurred in connection with the ECMC acquisition in 1993, expenses increased 29.5% from the prior year period. Employee compensation and benefits increased 27.2% principally due to an increase of 217 employees since June 1993, including the addition of 84 Shields and Regent employees on March 7, 1994, and higher incentive compensation resulting from increased operating earnings. Promotion and fund servicing expense, which includes distribution plan payments to financial intermediaries for distribution of the Partnership's mutual fund and cash management services products, amortization of deferred sales commissions paid to brokers for the sale of Class B Shares, advertising, promotional materials and travel and entertainment, increased 50.5%. Distribution plan payments increased 47.8% due principally to higher average load mutual fund assets attributable to Class B and Class C Shares. Amortization of deferred sales commissions increased by 52.7% due to continuing sales of Class B Shares. Other promotional expenditures increased by 54.6% as a result of costs associated with the Partnership's new mutual fund advertising campaign and the launching of The Global Privatization Fund. The provision for income taxes decreased 23.6%. In 1993, despite the operating loss, a tax expense was provided due to nonrecurring transaction expenses that were not deductible for tax purposes. The portion related to ECMC's operations prior to the acquisition was calculated using a combined Federal and state corporate statutory income tax rate of approximately 47%. SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO SIX MONTHS ENDED JUNE 30, 1993 The Partnership recorded net income for the six months ended June 30, 1994 of $63.7 million or $.83 per Unit, compared to net income of $7.0 million or $.10 per Unit for the six months ended June 30, 1993. Net income for the six months ended June 30, 1993 includes a charge of $40.8 million for expenses incurred through that date in connection with the acquisition of ECMC and a $.9 million income tax benefit resulting from the adoption of Statement of Financial Accounting Standards No. 109 "Accounting For Income Taxes" as of January 1, 1993. Excluding these nonrecurring items, net income for the six months ended June 30, 1994 increased 41.2% over net income of $45.1 million, or $.63 per Unit, for the prior year period. - 11 -
Assets under management by the Partnership at June 30, 1994 were approximately $122.3 billion, an increase of $18.0 billion or 17.3% from June 30, 1993. The increase is primarily the result of net mutual fund sales of $7.9 billion, net institutional cash inflows of $3.0 billion and the acquisition of Shields and Regent which increased assets under management by $7.8 billion, offset partially by market depreciation of $0.7 billion. Revenues for the six months ended June 30, 1994 were $297.4 million, an increase of 30.7% from the prior year period. Investment advisory and services fees, which are based on assets under management, increased 25.7%. Investment advisory fees from Alliance mutual funds increased by 35.6% due to higher average assets under management resulting from strong net mutual fund sales through the first quarter of 1994. The Partnership experienced modest net redemptions in its open-end mutual funds during the second quarter of 1994. Investment advisory fees from other affiliated clients increased by 28.7% principally due to a $2.7 million increase in performance fees. Investment advisory fees from institutional clients increased by 14.1% due to an increase in average assets under management resulting from the acquisition of Shields, new account additions and market appreciation during the second half of 1993. Distribution plan fees increased 49.2% due principally to higher 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 28.1% 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, increased 30.1% as a result of the launching of a new closed-end fund, The Global Privatization Fund in the first quarter of 1994, for which the Partnership earned substantial commissions. Alliance Short-Term Multi-Market Trust accounted for approximately 5.3% and 10.9% of the Partnership's aggregate revenues during the six months ended June 30, 1994 and 1993, respectively. Expenses for the six months ended June 30, 1994 were $228.7 million, an increase of 5.4% from the prior year period. Excluding the $40.8 million in nonrecurring transaction expenses incurred in connection with the ECMC acquisition in 1993, expenses increased 30.0% from the prior year period. Employee compensation and benefits increased 23.6% principally due to higher incentive compensation of $5.0 million resulting from increased operating earnings and an increase in commission expense of $4.5 million resulting from increased mutual fund sales, including The Global Privatization Fund. Promotion and fund servicing expense, which includes distribution plan payments to financial intermediaries for distribution of the Partnership's mutual fund and cash management services products, amortization of deferred sales commissions paid to brokers for the sale of Class B Shares, advertising, promotional materials and travel and entertainment, increased 57.0%. Distribution plan payments increased 53.7% due principally to higher average load mutual fund assets attributable to Class B and Class C Shares. Amortization of deferred sales commissions increased by 51.7% due to continuing sales of Class B Shares. Other promotional expenditures increased by 71.7% as a result of costs associated with the Partnership's new mutual fund advertising campaign and the launching of the Global Privatization Fund. - 12 -
The effective income tax rate decreased from 42.5% to 7.3% since the 1993 provision included the tax effect of the nonrecurring transaction expenses that were not deductible for tax purposes. Additionally, the income tax provision related to ECMC's operations prior to the acquisition was calculated using a combined Federal and state corporate statutory income tax rate of approximately 47%. CAPITAL RESOURCES AND LIQUIDITY Cash flow from borrowings under the Partnership's revolving credit facility and cash flows from operations were the Partnership's principal sources of working capital during the six month period ended June 30, 1994. The Partnership's cash and cash equivalents decreased by $10.2 million. The cash outflows from the purchase of Shields for $73.6 million, capital expenditures of $9.2 million and cash distributions to Unitholders of $59.9 million, were partially offset by cash inflows of $50.0 million from the sale of the Class B Limited Partnership Interest to ELAS, $64.8 million in cash flow from operations and net redemptions of investments in Alliance mutual funds in the amount of $15.2 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 six months ended June 30, 1994, payments made to financial intermediaries in connection with the sale of Class B Shares under the System, net of CDSC received, totaled $48.8 million. On May 6, 1994, the Partnership issued a newly created Class B Limited Partnership Interest to ELAS for $50 million in cash. The Class B Limited Partnership Interest will be converted into 2,266,288 newly issued Units upon approval by the holders of a majority of the outstanding Units. The Partnership has repaid all outstanding balances under its revolving credit facility established during February to finance the acquisition of Shields and Regent. Outstanding debt at June 30, 1994 under the Partnership's senior notes was $105 million. The Partnership has given notice to the holders of the senior notes that it will prepay the senior notes in full during August 1994. On July 1, 1994, the Partnership issued 2,482,030 newly issued Units to a wholly-owned subsidiary of Oversea-Chinese Banking Corporation Limited for $50 million in cash. As a result of the substantial growth in the Partnership's business, increased sales levels of Class B Shares under the System and to take advantage of growth opportunities and strategic global opportunities, the Partnership will continue to require additional capital. Various alternatives for increasing the Partnership's capital base are being evaluated by management. Management of the Partnership believes that the Partnership will be able to access sufficient funds in the capital markets to support its future capital and liquidity requirements. - 13 -
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. Available Cash Flow and Available Cash Flow Per Unit amounts do not include Available Cash Flow resulting from the operations of ECMC prior to the acquisition. The Partnership's Available Cash Flow was as follows: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 1994 1993 1994 1993 -------- -------- -------- -------- <S> <C> <C> <C> <C> Available Cash Flow (in thousands)...... $31,213 $20,167 $61,443 $39,722 ------- ------- ------- ------- ------- ------- ------- ------- Available Cash Flow Per Unit............ $0.41 $0.35 $0.82 $0.69 ----- ----- ----- ----- ----- ----- ----- ----- </TABLE> - 14 -
Part II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None. Item 2. CHANGES IN SECURITIES See Item 5 "Other Information". Item 3. DEFAULTS UPON SENIOR SECURITIES None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Item 5. OTHER INFORMATION On July 1, 1994, Eastern Holdings Limited ("Eastern"), a wholly owned subsidiary of Oversea-Chinese Banking Corporation Limited ("OCBC"), purchased 2,482,030 Units for $50 million cash pursuant to the Unit Purchase Agreement dated as of June 28, 1994 among the Partnership, OCBC and Eastern. The Partnership will use the proceeds to take advantage of growth opportunities and to finance sales of shares of mutual funds sponsored by the Partnership. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 1. Unit Purchase Agreement dated as of June 28, 1994 among the Partnership, OCBC and Eastern. (b) Reports on Form 8-K None. - 15 -
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: August 8, 1994 By: Alliance Capital Management Corporation, its General Partner By:/s/ Myles R. Itkin ------------------------------ Myles R. Itkin Senior Vice President & Chief Financial Officer - 16 -