FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 -------------------------------------------------- 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 Identification No.) incorporation or organization) 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 March 31, 1997 was 83,550,543 Units.
ALLIANCE CAPITAL MANAGEMENT L.P. Index to Form 10-Q Part I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Page ----- Condensed Consolidated Statements of Financial Condition 2 Condensed Consolidated Statements of Income 3 Condensed Consolidated Statements of Changes in Partners' Capital 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-12 Part II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS 13 Item 2. CHANGES IN SECURITIES 13 Item 3. DEFAULTS UPON SENIOR SECURITIES 13 Item 4. SUBMISSION OF MATTERS TO A VOTE OF 13 SECURITY HOLDERS Item 5. OTHER INFORMATION 13 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Part I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ALLIANCE CAPITAL MANAGEMENT L.P. Condensed Consolidated Statements of Financial Condition (in thousands) <TABLE> <CAPTION> ASSETS 3/31/97 12/31/96 ------- -------- (unaudited) <S> <C> <C> Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . $ 69,568 $ 57,441 Fees receivable: Alliance mutual funds. . . . . . . . . . . . . . . . . . . . . . . . . 47,992 46,483 Separately managed accounts: Affiliated clients . . . . . . . . . . . . . . . . . . . . . . . . . 5,163 4,479 Third party clients. . . . . . . . . . . . . . . . . . . . . . . . . 61,512 58,339 Receivable from brokers and dealers for sale of shares of Alliance mutual funds . . . . . . . . . . . . . . . . . . 53,913 30,976 Investments, available-for-sale. . . . . . . . . . . . . . . . . . . . . . 23,829 35,966 Furniture, equipment and leasehold improvements, net . . . . . . . . . . . 67,074 57,483 Goodwill, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,634 116,721 Contracts of businesses acquired, net. . . . . . . . . . . . . . . . . . . 116,148 117,683 Deferred sales commissions, net. . . . . . . . . . . . . . . . . . . . . . 190,978 175,172 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,159 25,154 --------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $777,970 $725,897 --------- -------- --------- -------- LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . $110,623 $103,427 Payable to Alliance mutual funds for share purchases . . . . . . . . . 80,122 55,468 Accrued expenses under employee benefit plans. . . . . . . . . . . . . 69,942 51,633 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,271 24,658 Minority interests in consolidated subsidiaries. . . . . . . . . . . . 14,711 14,691 --------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 294,669 249,877 Partners' capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483,301 476,020 --------- -------- Total liabilities and partners' capital. . . . . . . . . . . . . . . . $777,970 $725,897 --------- -------- --------- -------- </TABLE> See accompanying notes to condensed consolidated financial statements.
ALLIANCE CAPITAL MANAGEMENT L.P. Condensed Consolidated Statements of Income (unaudited) (in thousands, except per Unit amounts) <TABLE> <CAPTION> Three Months Ended ---------------------- 3/31/97 3/31/96 ------- ------- <S> <C> <C> Revenues: Investment advisory and services fees: Alliance mutual funds. . . . . . . . . . . . . . . . . . . . . . . . . $85,994 $67,824 Separately managed accounts: Affiliated clients . . . . . . . . . . . . . . . . . . . . . . . . . 12,554 10,098 Third party clients. . . . . . . . . . . . . . . . . . . . . . . . . 58,462 51,121 Distribution plan fees from Alliance mutual funds... . . . . . . . . . . 47,247 38,483 Shareholder servicing and administration fees. . . . . . . . . . . . . . 12,765 11,466 Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,229 2,624 ------- ------- 219,251 181,616 ------- ------- Expenses: Employee compensation and benefits . . . . . . . . . . . . . . . . . . . 60,502 49,414 Promotion and servicing: Distribution plan payments to financial intermediaries: Affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,085 6,991 Third party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,714 26,762 Amortization of deferred sales commissions . . . . . . . . . . . . . . 15,738 12,518 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,805 11,130 General and administrative.. . . . . . . . . . . . . . . . . . . . . . . 25,746 23,440 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673 242 Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . 2,622 2,913 ------- ------- 161,885 133,410 ------- ------- Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 57,366 48,206 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,017 3,139 ------- ------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,349 $45,067 ------- ------- ------- ------- Net income per Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.54 ------- ------- ------- ------- </TABLE> See accompanying notes to condensed consolidated financial statements.
ALLIANCE CAPITAL MANAGEMENT L.P. Condensed Consolidated Statements of Changes in Partners' Capital (unaudited) (in thousands) <TABLE> <CAPTION> Three Months Ended ---------------------- 3/31/97 3/31/96 ------- -------- <S> <C> <C> Partners' capital - beginning of period. . . . . . . . . . . . . . . $476,020 $406,709 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,349 45,067 Capital contribution received from Alliance Capital Management Corporation . . . . . . . . . . . . . . . . . . . . . 898 893 Cash distributions to partners . . . . . . . . . . . . . . . . . . (50,013) (41,001) Issuance of Units for acquisition of Cursitor. . . . . . . . . . . -- 42,394 Proceeds from Unit options exercised . . . . . . . . . . . . . . . 3,065 708 Unrealized (loss) gain on investments. . . . . . . . . . . . . . . (18) 129 Foreign currency translation adjustment. . . . . . . . . . . . . . -- (283) -------- --------- Partners' capital - end of period. . . . . . . . . . . . . . . . . . $483,301 $454,616 -------- --------- -------- --------- </TABLE> See accompanying notes to condensed consolidated financial statements.
ALLIANCE CAPITAL MANAGEMENT L.P. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) <TABLE> <CAPTION> Three Months Ended ---------------------- 3/31/97 3/31/96 ------- ------- <S> <C> <C> Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,349 $45,067 Adjustments to reconcile net income to net cash provided from operating activities: Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . . 21,031 17,465 Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,522 2,168 Changes in assets and liabilities: (Increase) in fees receivable from Alliance mutual funds, affiliated clients and third party clients . . . . . . . . (5,366) (1,305) (Increase) in receivable from brokers and dealers for sale of shares of Alliance mutual funds . . . . . . . . . . . . . . . . . . . (22,937) (10,013) (Increase) in deferred sales commissions . . . . . . . . . . . . . . . . . (31,544) (20,397) (Increase) decrease in other assets. . . . . . . . . . . . . . . . . . . . (966) 5,668 Increase in accounts payable and accrued expenses. . . . . . . . . . . . . 7,196 11,520 Increase in payable to Alliance mutual funds for share purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,654 12,557 Increase in accrued expenses under employee benefit plans, less deferred compensation. . . . . . . . . . . . . . . . . . . . 17,544 8,672 ------- ------- Net cash provided from operating activities. . . . . . . . . . . . . . 64,483 71,402 ------- ------- Cash flows from investing activities: Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,907) (1,209) Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . . 58,027 23,522 Acquisitions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (85,330) Additions to furniture, equipment and leasehold improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,289) (2,275) ------- ------- Net cash used in investing activities. . . . . . . . . . . . . . . . . (169) (65,292) ------- ------- Cash flows from financing activities: Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,387) (15) Distributions to partners . . . . . . . . . . . . . . . . . . . . . . . . . . (50,013) (41,001) Capital contribution received from Alliance Capital Management Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 143 Unit options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,065 708 ------- ------- Net cash used in financing activities. . . . . . . . . . . . . . . . (52,187) (40,165) ------- ------- Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . -- (274) ------- ------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . 12,127 (34,329) Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . 57,441 124,256 ------- ------- Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . $69,568 $89,927 ------- ------- ------- ------- </TABLE> See accompanying notes to condensed consolidated financial statements.
ALLIANCE CAPITAL MANAGEMENT L.P. Notes to Condensed Consolidated Financial Statements March 31, 1997 (unaudited) 1. BASIS OF PRESENTATION The unaudited interim condensed consolidated financial statements of Alliance Capital Management L.P. (the "Partnership") included herein have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of (a) financial position at March 31, 1997, (b) results of operations for the three months ended March 31, 1997 and 1996 and (c) cash flows for the three months ended March 31, 1997 and 1996, have been made. 2. RECLASSIFICATION Certain prior period amounts have been reclassified to conform to the current period presentation. 3. DEFERRED SALES COMMISSIONS Sales commissions paid to financial intermediaries in connection with the sale of shares of open-end mutual funds managed by the Partnership sold without a front-end sales charge are capitalized and amortized over periods not exceeding five and one-half years, the periods of time estimated by management of the Partnership during which deferred sales commissions are expected to be recovered from distribution plan payments received from these funds and contingent deferred sales charges received from shareholders of those funds upon the redemption of their shares. Contingent deferred sales charges reduce unamortized deferred sales commissions when received. 4. CONTINGENCIES On July 25, 1995, a Consolidated and Supplemental Class Action Complaint ("Complaint") was filed against the Alliance North American Government Income Trust, Inc. (the "Fund"), the Partnership and certain other defendants affiliated with the Partnership alleging violations of federal securities laws, fraud and breach of fiduciary duty in connection with the Fund's investments in Mexican and Argentine securities. The Complaint which sought certification of a plaintiff class of persons who purchased or owned Class A, B or C shares of the Fund from March 27, 1992 through December 23, 1994 seeks an unspecified amount of damages, costs, attorneys' fees and punitive damages. The principal allegations are that the Fund purchased debt securities issued by the Mexican and Argentine governments in amounts that were not permitted by the Fund's investment objective, and that there was no shareholder vote to change the investment objective to permit purchases in such amounts. The Complaint further alleges that the decline in the value of the Mexican and Argentine securities held by the Fund caused the Fund's net asset value to decline to the detriment of the Fund's shareholders. On September 26, 1996, the United States District Court for the Southern District of New York granted the defendants' motion to dismiss all counts of the Complaint. On October 11, 1996, plantiffs filed a motion for reconsideration of the Court's decision granting defendants' motion to dismiss the Complaint. On November 25, 1996, the Court denied plantiffs' motion for reconsideration. On October 29, 1996, plaintiffs filed a motion for leave to file an amended complaint, which is still pending. The principal allegations of the proposed amended complaint are that the Fund did not
properly disclose that it planned to invest in mortgage-backed derivative securities and that two advertisements used by the Fund misrepresented the risks of investing in the Fund. Plantiffs also reiterated allegations in the Complaint that the Fund failed to hedge against the risks of investing in foreign securities despite representations that it would do so. While the ultimate outcome of this matter cannot be determined at this time, management of the Partnership does not expect that it will have a material adverse effect on the Partnership's results of operations or financial condition. 5. INCOME TAXES The Partnership is a publicly traded partnership for Federal income tax purposes and, accordingly, is not currently subject to Federal and state corporate income taxes but is subject to the New York City unincorporated business tax. Current law generally provides that certain publicly traded partnerships, including the Partnership, will be taxable as corporations beginning in 1998. Domestic corporate subsidiaries of the Partnership, which are subject to Federal, state and local income taxes, file a consolidated Federal income tax return and separate state and local income tax returns. Foreign corporate subsidiaries are generally subject to taxes in the foreign jurisdictions where they are located. 6. NET INCOME PER UNIT Net income per Unit is derived by reducing net income for each period by 1% for the general partnership interest held by the General Partner and dividing the remaining 99% by the weighted average number of Units outstanding, Unit equivalents and Units issuable upon conversion of the Class A Limited Partnership Interest during each period. The aggregate weighted average number of Units outstanding used in computing net income per Unit was 85,505,000 and 83,098,000 for the three months ended March 31, 1997 and 1996, respectively. 7. SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest and income taxes were as follows (in thousands): Three Months Ended March 31, -------------------- 1997 1996 ----- ----- Interest . . . . . . . . $ 165 $ 167 Income taxes . . . . . . 2,654 2,623 8. SUBSEQUENT EVENT On April 30, 1997, the Finance Committee of the Board of Directors of the General Partner declared a distribution of $50,971,000 or $0.60 per Unit representing the Available Cash Flow (as defined in the Partnership Agreement) of the Partnership for the three months ended March 31, 1997. The distribution is payable on May 20, 1997 to holders of record on May 13, 1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Alliance Capital Management L.P. (the "Partnership") derives substantially all of its revenues and net income (a) from fees for investment advisory, distribution and related services provided to the Alliance mutual funds, and (b) from fees for investment advisory services provided to affiliated clients including The Equitable Life Assurance Society of the United States ("ELAS"), a wholly-owned subsidiary of The Equitable Companies Incorporated ("Equitable"), and certain other ELAS affiliates and to unaffiliated separately managed accounts for institutional investors and high net-worth individuals ("third party clients"). The Alliance mutual funds consist of a broad range of open-end load and closed-end mutual funds ("mutual funds"), variable products including The Hudson River Trust ("HRT"), and cash management products, including money market funds and deposit accounts. The Partnership offers a broad range of investment management products and services to meet the varied needs and objectives of individual and institutional investors. On February 29, 1996, the Partnership acquired substantially all of the assets and liabilities of Cursitor Holdings, L.P. ("CHLP") and all of the outstanding shares of Cursitor Holdings Limited, currently Cursitor Alliance Holdings Limited, (collectively, "Cursitor"). The acquisition was accounted for under the purchase method with the results of Cursitor from the date of acquisition included in the Partnership's condensed consolidated financial statements. Cursitor specializes in providing global asset allocation services to U.S. and non-U.S. institutional investors. Cursitor's investment results were poor in 1995 and 1996. Despite a modest improvement in investment results during the three months ended March 31, 1997, Cursitor continued to experience significant client account terminations and asset outflows. Cursitor's assets under management at March 31, 1997 and April 30, 1997 were approximately $6.0 billion and $5.4 billion, respectively. The Partnership evaluates the potential impairment of its intangible assets by comparing the undiscounted cash flows expected to be realized from those intangible assets to their recorded values pursuant to Statement of Financial Accounting Standards No. 121 (SFAS 121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Management of the Partnership currently estimates that despite a significant decline in the profitability of Cursitor, the undiscounted cash flows from Cursitor will be sufficient for the Partnership to recover its investment. However, should the profitability of Cursitor continue to decline, management's estimate may change and the Partnership's investment in Cursitor might be considered impaired. In such event the Partnership would be required to reduce the recorded value of Cursitor goodwill and contracts acquired to fair market value, which is significantly below their recorded value. MATERIAL CHANGES IN RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Dollars & Units in millions, Three months ended except per Unit amounts) 3/31/97 3/31/96 % Change - -------------------------------------------------------------------------------- Net income $53.3 $45.1 18.2% Net income per Unit $0.62 $0.54 14.8 Weighted average number of Units and Unit equivalents outstanding 85.5 83.1 2.9 Operating margin 26.2% 26.5% - - --------------------------------------------------------------------------------
ASSETS UNDER MANAGEMENT <TABLE> <CAPTION> (Dollars in billions) 3/31/97 3/31/96 $ Change % Change - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Alliance mutual funds: Mutual funds $ 28.4 $ 23.8 $ 4.6 19.3% Cash management products 19.9 15.7 4.2 26.8 Variable products 17.4 13.6 3.8 27.9 - ------------------------------------------------------------------------------------------- 65.7 53.1 12.6 23.7 - ------------------------------------------------------------------------------------------- Seperately managed accounts: Active equity & balanced 52.5 48.6 3.9 8.0 Active fixed 38.7 34.1 4.6 13.5 Index 18.9 16.9 2.0 11.8 Asset allocation 6.2 10.3 (4.1) (39.8) - ------------------------------------------------------------------------------------------- 116.3 109.9 6.4 5.8 - ------------------------------------------------------------------------------------------- Total $182.0 $163.0 $19.0 11.7% - ------------------------------------------------------------------------------------------- AVERAGE ASSETS UNDER MANAGEMENT Three months ended (Dollars in billions) 3/31/97 3/31/96 % Change - ------------------------------------------------------------------------------------------- Alliance mutual funds $ 65.3 $ 51.6 26.6% Separately managed accounts: Affiliated clients 26.7 23.3 14.6 Third party clients 92.9 80.3 15.7 - ------------------------------------------------------------------------------------------- Total $184.9 $155.2 19.1% - ------------------------------------------------------------------------------------------- </TABLE> Assets under management at March 31, 1997 were $182.0 billion, an increase of $19.0 billion or 11.7% from March 31, 1996 and a decrease of $0.8 billion or 0.4% from December 31, 1996. Alliance mutual fund assets under management at March 31, 1997 were $65.7 billion, an increase of $12.6 billion or 23.7% from March 31, 1996, due principally to net sales of Alliance mutual funds of $8.4 billion and market appreciation of $4.2 billion. Seperately managed account assets under management at March 31, 1997 were $116.3 billion, an increase of $6.4 billion or 5.8% from March 31, 1996. This increase was primarily due to market appreciation of $8.8 billion and net asset additions to affiliated client accounts of $3.0 billion, offset partially by net third party client account asset withdrawals of $5.3 billion, primarily attributable to Cursitor accounts. <TABLE> <CAPTION> REVENUES Three months ended (Dollars in millions) 3/31/97 3/31/96 % Change - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> Investment advisory and services fees: Alliance mutual funds $86.0 $67.8 26.8 % Separately managed accounts: Affiliated clients 12.6 10.1 24.8 Third party clients 58.5 51.1 14.5 Distribution plan fees from Alliance mutual funds 47.2 38.5 22.6 Shareholder servicing and administration fees 12.8 11.4 12.3 Other revenues 2.2 2.7 (18.5) - ------------------------------------------------------------------------------------------- Total revenues $219.3 $181.6 20.8% - ------------------------------------------------------------------------------------------- </TABLE> Investment advisory and services fees were $157.1 million for the three months ended March 31, 1997, an increase of $28.1 million or 21.8% over the prior year period. In general, the Partnership's investment advisory and services fees are based on the market value of assets under management and vary with the type of account managed. Investment advisory agreements for certain accounts provide for performance fees in addition to a base fee. Performance fees are earned when investment performance exceeds a contractually agreed upon benchmark and, accordingly, may increase the volatility of both the Partnership's revenues and earnings.
Investment advisory fees from Alliance mutual funds increased $18.2 million or 26.8% primarily as a result of a 26.6% increase in average assets under management. Investment advisory fees from affiliated clients, primarily the General Accounts of ELAS, increased $2.5 million or 24.8% due principally to higher average assets under management of 14.6%. An increase in performance fees of $1.2 million also contributed to the increase in affiliated client advisory fees. Investment advisory and services fees from third party clients increased $7.4 million or 14.5% due principally to an increase in average assets under management of 15.7%. The increase in third party clients average assets under management is primarily a result of market appreciation during 1996 and the acquisition of Cursitor in February 1996. Distribution plan fees increased primarily due to higher average equity mutual fund and cash management assets under management. The increase in distribution plan fees for equity mutual funds is principally due to market appreciation and net sales of Class B Shares of these funds under the Partnership's mutual fund distribution system described under "Capital Resources and Liquidity". The increase in shareholder servicing and administration fees was primarily due to an increase in the number of mutual fund shareholder accounts serviced by the Partnership's subsidiaries from March 31, 1996. At March 31, 1997, the Partnership's subsidiaries serviced approximately 2.9 million shareholder accounts. EXPENSES Three months ended (Dollars in millions) 3/31/97 3/31/96 % Change - -------------------------------------------------------------------------------- Employee compensation and benefits $ 60.5 $ 49.4 22.5 % Promotion and servicing 72.4 57.4 26.1 General and administrative 25.7 23.4 9.8 Interest 0.7 0.3 133.3 Amortization of intangible assets 2.6 2.9 (10.3) - -------------------------------------------------------------------------------- Total expenses $161.9 $133.4 21.4 % - -------------------------------------------------------------------------------- Employee compensation and benefits increased primarily as a result of higher incentive compensation attributable to increased operating earnings and increased base compensation principally due to an increase in the number of employees resulting from the expansion of the Partnership's mutual fund operations and the acquisition of Cursitor and salary increases. Promotion and servicing expenses include distribution plan payments to financial intermediaries for distribution of the Partnership's sponsored mutual funds and cash management services' products and amortization of deferred sales commissions paid to financial intermediaries under the System. Also included in this expense category are travel and entertainment, advertising, promotional materials and investment meetings and seminars for financial intermediaries that distribute the Partnership's mutual fund products. Promotion and servicing expenses increased primarily due to increased distribution plan payments resulting from higher average cash management and equity mutual fund assets under management. Higher cash management promotional and servicing costs and increased mutual fund advertising also contributed to the increase in promotion and servicing. The increase in general and administrative expenses was due principally to higher occupancy costs incurred in connection with the Partnership's expansion of its international operations and expenses incurred in connection with joint ventures.
The Partnership generally is not subject to Federal, state and local income taxes, with the exception of the New York City unincorporated business tax, which is currently imposed at a rate of 4%. Domestic subsidiaries of the Partnership are subject to Federal, state and local income taxes. Subsidiaries organized and operating outside the United States are generally subject to taxes in the foreign jurisdications where they are located. The provision for income taxes increased for the three months primarily as a result of the increase in taxable income of the Partnership and certain of its corporate subsidiaries. The tax exemption for certain publicly traded limited partnerships, including the Partnership, will expire on December 31, 1997. As a consequence, if the Partnership retains its current structure, it will be taxed as a corporation as of January 1, 1998. In response to this pending loss of its partnership tax status, management of the Partnership is presently reviewing alternatives and the Partnership expects to announce its plans during the second quarter of 1997. CAPITAL RESOURCES AND LIQUIDITY The Partnership's cash and cash equivalents increased by $12.1 million for the three months ended March 31, 1997. Cash inflows included $64.5 million from operations, $12.1 million of proceeds from net sales of investments in Alliance mutual funds and $3.1 million in proceeds from options exercised under the Partnership's Unit Option Plans. Cash outflows included cash distributions to Unitholders of $50.0 million, capital expenditures of $12.3 million and a $5.4 million principal repayment of the notes issued in connection with the Cursitor acquisition. The Partnership acquired Cursitor on February 29, 1996 for approximately $159.0 million. The purchase price consisted of cash payments of $94.3 million, 1,764,115 Units with an aggregate value of $43.2 million, and notes in the aggregate principal amount of $21.5 million ("Notes"). The Notes bear interest at 6% per annum and are payable ratably over the next four years. Acquisition costs of $4.0 million were also incurred. Due to the decline in Cursitor's global asset allocation business, certain agreements relating to Cursitor were amended in the second quarter of 1997. Under certain circumstances, through February 28, 2006, the Partnership has an option to purchase CHLP's minority interest in Cursitor Alliance LLC ("Cursitor Alliance"), a newly formed subsidiary, and CHLP has an option to sell its minority interest to the Partnership for a price ("Buyout Price") in cash, Units, or a combination thereof of not less than $10.0 million or more than $37.0 million. The Buyout Price will be determined based on the amount of global asset allocation investment advisory revenues earned by Cursitor Alliance. If either option is exercised, the payment of the Buyout Price will be accounted for as an increase in the Cursitor purchase price. The Partnership's mutual fund distribution system (the "System") includes four distribution options. The System permits the Partnership's open-end mutual funds to offer investors the option of purchasing shares (a) subject to a conventional front-end sales charge ("Class A Shares"), (b) without a front-end sales charge but subject to a contingent deferred sales charge payable by shareholders ("CDSC") and higher distribution fees payable by the funds ("Class B Shares"), (c) without a front-end sales charge and, if the shares are held for at least one year, CDSC combined with higher distribution fees payable by the funds ("Class C Shares") or (d) without a front-end sales charge, CDSC or ongoing distribution fees payable by the funds ("Advisor Class Shares"). During the three months ended March 31, 1997, payments made to financial intermediaries in connection with the sale of Class B and C Shares under the System, net of CDSC received, totaled approximately $31.5 million.
As of March 31, 1997, the Partnership had not issued any commercial paper under its $100 million commercial paper program and there were no borrowings outstanding under the Partnership's $250 million five year revolving credit facility. The revolving credit facility contains covenants which require the Partnership, among other things, to meet certain financial ratios. The Partnership's substantial equity base and access to public and private debt, at competitive interest rates and other terms should provide adequate liquidity for its general business needs. Management of the Partnership believes that cash flow from operations and the issuance of debt and Units will provide the Partnership with the financial resources to take advantage of strategic growth opportunities, to finance capital requirements for mutual fund sales and to meet the Partnership's other capital requirements. CHANGES IN ACCOUNTING PRINCIPLES In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128) "EARNINGS PER SHARE" which will be effective commencing with the Partnership's financial statements for the year ended December 31, 1997. Upon adoption of the standard, the Partnership will present "basic" earnings per Unit and "diluted" earnings per Unit. Basic earnings per Unit excludes dilution and is computed by dividing income available to Unitholders by the weighted average number of Units outstanding for the period. The computation of diluted earnings per Unit, as required under the new standard, gives effect to all dilutive potential Units that were outstanding during the period. The adoption of this standard would not have a material effect on the Partnership's earnings per Unit since diluted earnings per Unit is computed in a manner similar to the Partnership's current computation of earnings per Unit. CASH DISTRIBUTIONS The Partnership is required to distribute all of its Available Cash Flow, as defined in the Partnership Agreement, to the General Partner and Unitholders (including the holder of the Class A Limited Partnership Interest based on Units issuable upon conversion of the Class A Limited Partnership Interest). The Partnership's Available Cash Flow and Distributions per Unit were as follows (in thousands, except per Unit information): Three months ended 3/31/97 3/31/96 - -------------------------------------------------------------------------------- Available Cash Flow (in thousands) $50,971 $43,243 Distributions Per Unit $ 0.60 $ 0.52 - --------------------------------------------------------------------------------
Part II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS There have been no material developments in the legal proceeding reported in the Alliance Capital Management L.P. ("Partnership") Form 10-K for the year ended December 31, 1996. Item 2. CHANGES IN SECURITIES None. Item 3. DEFAULTS UPON SENIOR SECURITIES None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Item 5. OTHER INFORMATION None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 1. Amendment to the Transaction Agreement dated as of December 28, 1995 among the Partnership, The Shareholders of Record of Cursitor Holdings Limited, Cursitor Holdings, L.P. ("CHLP") and the Persons listed on Schedule 1.2 to the Transaction Agreement. 2. Amendment Number One to the Amended and Restated Limited Liability Company Agreement of Cursitor Alliance LLC dated as of February 29, 1996 among the Partnership, Alliance Capital Management Corporation of Delaware and CHLP. (b) Reports on Form 8-K None.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIANCE CAPITAL MANAGEMENT L.P. Dated: May 15, 1997 By: Alliance Capital Management Corporation, its General Partner By: /s/ ROBERT H. JOSEPH, JR. ------------------------- Robert H. Joseph, Jr. Senior Vice President & Chief Financial Officer