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, 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 September 30, 1994 was 78,079,720 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 9/30/94 12/31/93 ------ -------- -------- <S> <C> <C> Cash and cash equivalents....................... $104,369 $ 96,315 Fees receivable: Alliance mutual funds......................... 31,937 29,594 Other affiliated clients...................... 10,518 17,262 Institutional clients......................... 40,099 40,685 Receivable from brokers and dealers for sale of shares of Alliance mutual funds............ 38,594 103,921 Other receivables............................... 3,344 4,894 Investments in Alliance mutual funds............ 32,852 56,552 Other investments............................... 4,862 4,966 Furniture, equipment and leasehold improvements, net............................. 39,683 28,767 Intangible assets, net.......................... 95,089 30,707 Deferred sales commissions, net................. 162,850 140,558 Prepaid expenses and other assets............... 7,904 7,066 -------- -------- Total assets.............................. $572,101 $561,287 -------- -------- -------- -------- LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses........... $ 63,337 $ 56,526 Payable to Alliance mutual funds for share purchases..................................... 54,913 145,684 Accrued expenses under employee benefit plans... 72,694 35,597 Debt............................................ 4,118 109,435 -------- -------- Total liabilities......................... 195,062 347,242 Partners' capital................................. 377,039 214,045 -------- -------- Total liabilities and partners' capital... $572,101 $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 Nine Months Ended -------------------- ------------------------ 9/30/94 9/30/93 9/30/94 9/30/93 ------- ------- ------- ------- <S> <C> <C> <C> <C> Revenues: Investment advisory and services fees: Alliance mutual funds............................ $ 54,429 $ 42,865 $158,047 $119,274 Other affiliated clients......................... 10,131 9,481 30,629 25,409 Institutional clients............................ 41,226 37,298 120,865 107,086 Distribution plan fees from Alliance mutual funds.. 34,159 27,380 102,944 73,487 Shareholder servicing and administration fees...... 10,226 8,325 30,250 23,957 Other revenues..................................... 1,799 4,504 6,673 8,249 ------- ------- -------- --------- 151,970 129,853 449,408 357,462 ------- ------- -------- --------- Expenses: Employee compensation and benefits................. 42,632 38,430 127,659 107,227 General and administrative......................... 18,190 15,963 51,782 49,804 Interest........................................... 2,342 2,502 6,770 7,902 Promotion and servicing: Distribution plan payments to financial intermediaries: Affiliated..................................... 5,222 3,198 15,185 9,145 Unaffiliated................................... 20,910 17,217 64,211 45,922 Amortization of deferred sales commissions....... 13,273 9,356 38,136 25,742 Other............................................ 10,896 8,660 34,359 22,324 Amortization of intangible assets.................. 2,186 1,743 6,263 5,231 Nonrecurring transaction expenses.................. -- -- -- 40,842 ------- ------- -------- --------- 115,651 97,069 344,365 314,139 ------- ------- -------- --------- Income before income taxes and cumulative effect of accounting change............................... 36,319 32,784 105,043 43,323 Income taxes....................................... 1,634 2,657 6,663 7,139 ------- ------- -------- --------- Income before cumulative effect of accounting change............................................. 34,685 30,127 98,380 36,184 Cumulative effect of change in accounting for income taxes................................. - - - 900 Net income........................................... $ 34,685 $ 30,127 $ 98,380 $ 37,084 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per Unit: Income before cumulative effect of accounting change........................................... $ .43 $ .41 $ 1.27 $ .50 Cumulative effect of change in accounting for income taxes................................. -- -- -- .01 -------- -------- -------- -------- Net income per Unit................................ $ .43 $ .41 $ 1.27 $ .51 -------- -------- -------- -------- -------- -------- -------- -------- Weighted average number of Units and Unit equivalents outstanding............................ 80,393 72,862 76,703 71,496 -------- -------- -------- -------- -------- -------- -------- -------- </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 Nine Months Ended ----------------------- ----------------------- 9/30/94 9/30/93 9/30/94 9/30/93 --------- -------- --------- -------- <S> <C> <C> <C> <C> Partners' capital - beginning of period. . . . . . . . $271,615 $131,968 $214,045 $160,626 Net income . . . . . . . . . . . . . . . . . . . . . 34,685 30,127 98,380 37,084 Capital contribution received from Alliance Capital Management Corporation . . . . . . . . . . 883 226 2,260 1,031 Distributions to partners. . . . . . . . . . . . . . (31,233) (20,166) (91,120) (58,676) Proceeds from sale of Units and Class B Limited Partnership Interest . . . . . . . . . . . . . . . 100,000 50,000 150,000 50,000 Unit options exercised . . . . . . . . . . . . . . . 1,088 965 3,462 2,518 Units sold pursuant to Retention Unit Bonus Plan . . -- 12,840 -- 12,840 Excess of liabilities not assumed over assets not acquired from ECMC . . . . . . . . . . . . . . . . -- 2,528 -- 2,528 Foreign currency translation adjustment. . . . . . . 1 226 12 763 -------- -------- -------- -------- Partners' capital - end of period. . . . . . . . . . . $377,039 $208,714 $377,039 $208,714 -------- -------- -------- -------- -------- -------- -------- -------- </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> NINE MONTHS ENDED ----------------------- 9/30/94 9/30/93 -------- -------- <S> <C> <C> Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,380 $ 37,084 Adjustments to reconcile net income to net cash provided from operating activities: Amortization and depreciation . . . . . . . . . . . . . . . . . . 50,047 36,568 Deferred compensation expense . . . . . . . . . . . . . . . . . . 3,770 2,379 Nonrecurring transaction expenses. . . . . . . . . . . . . . . . -- 15,442 Cumulative effect of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . -- (900) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 705 (1,045) Changes in assets and liabilities: (Increase) decrease in fees receivable from Alliance mutual funds, other affiliated clients and institutional clients . . . . . . . . . . . . . . . . . . . . 8,759 (3,481) (Increase) decrease in receivables from brokers and dealers for sale of shares of Alliance mutual funds . . . . . 65,327 (118,542) Increase (decrease) in other receivable . . . . . . . . . . . . 1,628 (6,573) (Increase) in deferred sales commissions. . . . . . . . . . . . (60,428) (48,779) (Increase) decrease in prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . . . . . (1,886) 1,007 Increase in accounts payable and accrued expenses . . . . . . . 4,884 18,121 Increase (decrease) in payable to Alliance mutual funds for share purchases. . . . . . . . . . . . . . . (90,771) 142,834 Increase in accrued expenses under employee benefit plans, less deferred compensation . . . . . . . . . . . . . . 35,189 25,869 -------- -------- Net cash provided from operating activities . . . . . . . . 115,604 99,984 -------- -------- Cash flows from investing activities: Purchase of Alliance mutual funds. . . . . . . . . . . . . . . . . (30,437) (48,905) Proceeds from sale of Alliance mutual funds. . . . . . . . . . . . 54,137 6,101 Acquisition of Shields and Regent. . . . . . . . . . . . . . . . . (73,570) -- Increase (decrease) in other investments . . . . . . . . . . . . . (126) 1,210 Additions to furniture, equipment and leasehold improvements, net . . . . . . . . . . . . . . . . . . (15,223) (5,756) -------- -------- Net cash used in investing activities . . . . . . . . . . . (65,219) (47,350) -------- -------- Cash flows from financing activities: Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . 100,093 -- Repayment of debt. . . . . . . . . . . . . . . . . . . . . . . . . (205,176) (460) Distributions to partners. . . . . . . . . . . . . . . . . . . . . (91,120) (58,676) Proceeds from sale of Units and Class B Limited Partnership Interest . . . . . . . . . . . . . . . . . . . . . . 150,000 51,284 Capital contribution received from Alliance Capital Management Corporation. . . . . . . . . . . . . . . . . . . . . 398 398 Unit options exercised . . . . . . . . . . . . . . . . . . . . . . 3,462 2,518 -------- -------- Net cash used in financing activities. . . . . . . . . . . (42,343) (4,936) -------- -------- Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . 12 641 -------- -------- Net increase in cash and cash equivalents. . . . . . . . . . . . . . 8,054 48,339 Cash and cash equivalents at beginning of period . . . . . . . . . . 96,315 76,787 -------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . . . $104,369 $125,126 -------- -------- -------- -------- </TABLE> See accompanying notes to condensed consolidated financial statements. - 5 -
ALLIANCE CAPITAL MANAGEMENT L.P. Notes to Condensed Consolidated Financial Statements September 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 September 30, 1994, (b) results of operations for the three months and nine months ended September 30, 1994 and 1993 and (c) cash flows for the nine months ended September 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, 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 months and nine months ended September 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 During August 1994, the Partnership repaid in full senior notes aggregating $105,000,000. 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 September 30, 1994, there were no amounts outstanding under the facility. Debt includes promissory notes contributed to certain investment partnerships in the aggregate principal amount of $3,875,000 at September 30, 1994. The principal amounts of the notes will be reduced proportionately as partners receive return of capital distributions from the investment partnerships. 7. PARTNERS' CAPITAL On May 6, 1994, the Partnership issued a newly created Class B Limited Partnership Interest to The Equitable Life Assurance Society of the United States for $50 million in cash. The Class B Limited Partnership Interest will be converted into 2,266,288 newly issued Units during the fourth quarter of 1994 after approval by the holders of a majority of the outstanding Units. 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. On August 12, 1994, the Partnership sold a convertible note to Banco Bilbao Vizcaya, S.A. for $50 million in cash. The note was subsequently converted into 2,482,030 newly issued Units. - 7 -
8. 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 Nine Months Ended September 30, September 30, ------------------ ----------------- 1994 1993 1994 1993 ------ ------ ----- ----- <S> <C> <C> <C> <C> Partnership................ $1,634 $2,265 $6,663 $3,993 ECMC....................... - 392 -- 3,146 ------ ------ ------ ------ $1,634 $2,657 $6,663 $7,139 ------ ------ ------ ------ ------ ------ ------ ------ </TABLE> 9. 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 and Unit equivalents outstanding during each period, including Units issuable upon conversion of the Class A and Class B Limited Partnership Interests. 10. SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest and income taxes were as follows (in thousands): <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1994 1993 1994 1993 ------ ------ ----- ----- <S> <C> <C> <C> <C> Interest................... $1,788 $220 $6,801 $5,537 Income taxes............... 1,892 919 8,051 5,679 </TABLE> 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. - 8 -
11. SUBSEQUENT EVENTS On October 20, 1994, the Board of Directors of the General Partner declared a distribution of $32,847,000 or $.41 per Unit representing the Available Cash Flow (as defined in the Partnership Agreement) of the Partnership for the three months ended September 30, 1994. The distribution was paid on November 7, 1994 to holders of record on October 31, 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 nine months ended September 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 SEPTEMBER 30, 1994 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1993 The Partnership recorded net income for the three months ended September 30, 1994 of $34.7 million or $.43 per Unit. This represents an increase of $4.6 million or $.02 per Unit compared to net income of $30.1 million or $.41 per Unit for the three months ended September 30, 1993. Assets under management by the Partnership at September 30, 1994 were approximately $123.1 billion, an increase of $11.6 billion or 10.4% from September 30, 1993. The increase is primarily the result of net mutual fund sales of $6.0 billion and the acquisition of Shields and Regent, which increased assets under management by $7.8 billion, offset partially by market depreciation of $1.2 billion. Revenues for the three months ended September 30, 1994 were $152.0 million, an increase of 17.0% from the prior year period. Investment advisory and services fees, which are based on assets under management, increased 18.0%. Investment advisory fees from Alliance mutual funds increased by 27.0% due to higher average assets under management, principally due to the launching of a new closed-end fund, The Global Privatization Fund, and the acquisition of the "wrap-free" business of Regent. Investment advisory fees from other affiliated clients increased by 6.9% 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 10.5% due to an increase in average assets under management resulting from the acquisition of Shields and from new account additions. Distribution plan fees increased 24.8% 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 22.8% due primarily to an increase in the number of shareholder accounts serviced by - 10 -
the Partnership and an increase in closed-end mutual fund administration fees. Other revenues, consisting of commissions, interest and dividends, decreased 60.1% as a result of the launching of Alliance World Dollar Government II in the third quarter of 1993 for which the Partnership earned $2.5 million in commissions. Alliance Short-Term Multi-Market Trust accounted for approximately 4% and 8% of the Partnership's aggregate revenues during the three months ended September 30, 1994 and 1993, respectively. Expenses for the three months ended September 30, 1994 were $115.7 million, an increase of 19.1% from the prior year period. Employee compensation and benefits increased 10.9% principally due to an increase of 188 employees since September 1993, including the addition of 84 Shields and Regent employees, and higher incentive compensation expense resulting from increased operating earnings. General and administrative expenses increased 14.0% principally due to higher occupancy costs and increases in sub-advisory and administration fees related to closed-end funds. Promotion and servicing expenses, which include distribution plan payments to financial intermediaries for distribution of the Partnership's mutual fund and cash management services products, amortization of deferred sales commissions paid to brokers for the sale of Class B Shares, advertising, promotional materials and travel and entertainment, increased 30.9%. Distribution plan payments increased 28.0% due principally to higher average load mutual fund assets attributable to Class B and Class C Shares. Amortization of deferred sales commissions increased by 41.9% due to continuing sales of Class B Shares. Other promotional expenditures increased by 25.8% as a result of costs associated with the Partnership's new mutual fund advertising campaign and the launching of The Global Privatization Fund. Amortization of intangibles increased 25.4% due to the amortization of goodwill associated with the Shields and Regent acquisition. The provision for income taxes for the three months ended September 30, 1994 decreased 38.5%. The 1993 provision reflects the income tax expense of ECMC's operations prior to the acquisition at the historical effective income tax rate of approximately 46.0%. NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1993 The Partnership recorded net income for the nine months ended September 30, 1994 of $98.4 million or $1.27 per Unit, compared to net income of $37.1 million or $.51 per Unit for the nine months ended September 30, 1993. Net income for the nine months ended September 30, 1993 includes a charge of $40.8 million for expenses incurred in connection with the acquisition of ECMC and a $900,000 or $0.01 per Unit deferred 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 nine months ended September 30, 1994 increased $23.2 million or 30.9% over net income of $75.2 million, or $1.04 per Unit, for the prior year period. Assets under management by the Partnership at September 30, 1994 were approximately $123.1 billion, an increase of $11.6 billion or 10.4% from September 30, 1993. The increase is primarily the result of net mutual fund sales of $6.0 billion and the acquisition of Shields and Regent, which increased assets under management by $7.8 billion, offset partially by market depreciation of $1.2 billion. - 11 -
Revenues for the nine months ended September 30, 1994 were $449.4 million, an increase of 25.7% from the prior year period. Investment advisory and services fees, which are based on assets under management, increased 22.9%. Investment advisory fees from Alliance mutual funds increased by 32.5% due to higher average assets under management, principally due to the launching of The Global Privatization Fund and the acquisition of the "wrap-free" business of Regent. Investment advisory fees from other affiliated clients increased by 20.5% principally due to a $2.5 million increase in performance fees. Investment advisory fees from institutional clients increased by 12.9% due to an increase in average assets under management resulting from the acquisition of Shields and from new account additions. Distribution plan fees increased 40.1% 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 26.3% 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 19.1% as a result of lower sales of Class A mutual fund shares subject to a conventional front-end sales charge. Alliance Short-Term Multi-Market Trust accounted for approximately 5% and 10% of the Partnership's aggregate revenues during the nine months ended September 30, 1994 and 1993, respectively. Expenses for the nine months ended September 30, 1994 were $344.4 million, an increase of 9.6% 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 26.0% from the prior year period. Employee compensation and benefits increased 19.1% principally due to an increase of 188 employees since September 1993, including the addition of 84 Shields and Regent employees, and higher incentive compensation expense resulting from increased operating earnings. Promotion and servicing expenses, which include distribution plan payments to financial intermediaries for distribution of the Partnership's mutual fund and cash management services products, amortization of deferred sales commissions paid to brokers for the sale of Class B Shares, advertising, promotional materials and travel and entertainment, increased 47.3%. Distribution plan payments increased 44.2% due principally to higher average load mutual fund assets attributable to Class B and Class C Shares. Amortization of deferred sales commissions increased by 48.1% due to continuing sales of Class B Shares. Other promotional expenditures increased by 53.9% as a result of costs associated with the Partnership's new mutual fund advertising campaign and the launching of The Global Privatization Fund. Amortization of intangibles increased 19.7% due to amortization of goodwill associated with the Shields and Regent acquisition. The effective income tax rate decreased from 16% to 6% since the 1993 provision includes the tax effect of the nonrecurring transaction expenses increased in connection with the 1993 ECMC acquisition 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 46%. - 12 -
CAPITAL RESOURCES AND LIQUIDITY Cash provided by operating activities and proceeds from sales of newly issued Units and a new Class B Limited Partnership Interest were the Partnership's principal sources of working capital during the nine month period ended September 30, 1994. 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 during the fourth quarter of 1994 after approval by the holders of a majority of the outstanding Units. The Partnership issued 2,482,030 newly issued Units on July 1, 1994 to a wholly-owned subsidiary of Oversea-Chinese Banking Corporation Limited for $50 million in cash. On August 12, 1994, the Partnership sold a convertible note to Banco Bilbao Vizcaya, S.A. for $50 million in cash. The note was subsequently converted into 2,482,030 newly issued Units. The proceeds from these transactions were used to repay in full the Partnership's $105 million senior notes and the outstanding balance under its revolving credit facility. The Partnership's cash and cash equivalents increased by $8.1 million. Cash inflows included the $50.0 million proceeds from the sale of the Class B Limited Partnership Interest, proceeds from issuance of Units to OCBC and BBV of $50.0 million each, $115.6 million from operations and $23.7 million of net redemptions of investments in Alliance mutual funds. These cash inflows were partially offset by the purchase of Shields and Regent for $73.6 million in cash, the repayment in full of the Partnership's $105.0 million senior notes, capital expenditures of $15.2 million and cash distributions to Unitholders of $91.1 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 nine months ended September 30, 1994, payments made to financial intermediaries in connection with the sale of Class B Shares under the System, net of CDSC received, totaled $60.4 million. Management believes that the Partnership's substantial equity base will enhance access to public and private debt financing should the need arise, on attractive terms. Increased capital availability should provide the Partnership with the financial flexibility to take advantage of strategic growth opportunities and global alliances, to finance capital requirements for mutual fund sales and service technology, and for general corporate purposes. - 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 (including the holders of the Class A and Class B Limited Partnership Interests based on Units issuable upon conversion of these Limited Partnership Interests). 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 Nine Months Ended September 30, September 30, ------------------ ------------------ 1994 1993 1994 1993 ------- ------- ------- ------- <S> <C> <C> <C> <C> Available Cash Flow (in thousands).. $32,847 $29,115 $94,309 $68,837 ------- ------- ------- ------- ------- ------- ------- ------- Available Cash Flow Per Unit........ $ .41 $ .40 $1.23 $1.09 ------- ------- ------- ------- ------- ------- ------- ------- </TABLE> - 14 -
Part II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None. 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 (b) Reports on Form 8-K The Partnership filed a Current Report on Form 8-K dated August 18, 1994 reporting the issuance of a convertible note in the principal amount of $50 million to Banco Bilbao Vizcaya, S.A. ("BBV"). The note was subsequently converted and 2,482,030 Units were issued to BBV upon conversion of the note. - 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: November 9, 1994 By: Alliance Capital Management Corporation, its General Partner By: /s/ Myles R. Itkin ------------------------------ Myles R. Itkin Senior Vice President & Chief Financial Officer - 16 -