<PAGE>
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, 1996
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-9818
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ALLIANCE CAPITAL MANAGEMENT L.P.
- --------------------------------------------------------------------------------
(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
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of Units representing assignments of beneficial ownership of Limited
Partnership Interests outstanding as of September 30, 1996 was 83,200,808 Units.
<PAGE>
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
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
ASSETS 9/30/96 12/31/95
------- --------
(unaudited)
Cash and cash equivalents.......................... $113,166 $124,256
Fees receivable:
Alliance mutual funds............................ 43,765 36,840
Affiliated clients............................... 2,633 2,006
Third party clients.............................. 53,236 46,766
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds............... 38,834 26,651
Investments, available-for-sale.................... 27,880 35,375
Furniture, equipment and leasehold
improvements, net................................ 47,843 44,208
Intangible assets, net............................. 238,826 84,209
Deferred sales commissions, net.................... 170,411 149,583
Other assets....................................... 27,498 25,164
-------- --------
Total assets..................................... $764,092 $575,058
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses............ $100,390 $ 74,054
Payable to Alliance mutual funds for share
purchases...................................... 61,971 45,217
Accrued expenses under employee benefit plans.... 94,881 44,086
Debt............................................. 24,671 3,462
Minority interests in consolidated subsidiaries.. 14,677 1,530
-------- --------
Total liabilities.............................. 296,590 168,349
Partners' capital.................................. 467,502 406,709
-------- --------
Total liabilities and partners' capital...... $764,092 $575,058
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
2
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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
------------------ -----------------
9/30/96 9/30/95 9/30/96 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Investment advisory and services fees:
Alliance mutual funds............................ $ 72,980 $ 61,417 $212,653 $168,566
Separately managed accounts:
Affiliated clients............................. 10,833 9,610 32,699 33,451
Third party clients............................ 57,907 46,600 167,109 129,017
Distribution plan fees from Alliance mutual funds.. 42,032 33,388 121,097 93,036
Shareholder servicing and administration fees...... 11,811 10,825 34,834 32,115
Other revenues..................................... 2,435 2,826 7,371 7,285
-------- -------- -------- --------
197,998 164,666 575,763 463,470
-------- -------- -------- --------
Expenses:
Employee compensation and benefits................. 53,754 43,950 157,230 125,477
Promotion and servicing:
Distribution plan payments to financial
intermediaries:
Affiliated..................................... 7,828 6,222 22,520 17,061
Unaffiliated................................... 29,303 22,707 83,749 62,680
Amortization of deferred sales commissions....... 13,406 12,645 38,772 38,172
Other............................................ 11,601 9,244 35,919 29,822
General and administrative......................... 24,584 23,211 73,540 62,724
Interest........................................... 605 238 1,319 877
Amortization of intangible assets.................. 4,259 2,186 11,353 6,560
-------- -------- -------- --------
145,340 120,403 424,402 343,373
-------- -------- -------- --------
Income before income taxes........................... 52,658 44,263 151,361 120,097
Income taxes....................................... 3,701 3,256 10,307 7,806
-------- -------- -------- --------
Net income........................................... $ 48,957 $ 41,007 $141,054 $112,291
-------- -------- -------- --------
-------- -------- -------- --------
Net income per Unit.................................. $ 0.57 $ 0.50 $ 1.66 $ 1.37
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average Units outstanding................... 84,880 81,596 84,222 81,456
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of
Changes in Partners' Capital
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
9/30/96 9/30/95 9/30/96 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Partners' capital - beginning of period............ $460,600 $391,854 $406,709 $381,329
Net income....................................... 48,957 41,007 141,054 112,291
Capital contribution received from Alliance
Capital Management Corporation................. 897 902 2,688 2,720
Distributions to partners........................ (44,757) (35,150) (129,002) (101,987)
Units issued for acquisition of Cursitor......... - - 42,816 -
Unit options exercised........................... 1,943 1,950 3,402 4,000
Issuance of Units to employees................... - - - 1,920
Unrealized gain (loss) on investments............ (60) (799) 195 (525)
Foreign currency translation adjustment.......... (78) (3) (360) 13
-------- -------- -------- --------
Partners' capital - end of period.................. $467,502 $399,761 $467,502 $399,761
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------
9/30/96 9/30/95
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $141,054 $112,291
Adjustments to reconcile net income to
net cash provided from operating activities:
Amortization and depreciation............................ 56,205 50,982
Other, net............................................... 6,182 4,389
Changes in assets and liabilities:
(Increase) decrease in fees receivable from Alliance
mutual funds, affiliated clients and
third party clients.................................. (2,198) 7,727
(Increase) in receivables from brokers and
dealers for sale of shares of Alliance mutual funds.. (12,183) (8,196)
(Increase) in deferred sales commissions............... (59,600) (25,474)
Decrease in other assets............................... 1,007 1,268
Increase in accounts payable and accrued expenses...... 20,177 12,742
Increase in payable to Alliance mutual funds
for share purchases.................................. 16,752 8,599
Increase in accrued expenses under employee benefit
plans, less deferred compensation.................... 48,511 27,509
-------- --------
Net cash provided from operating activities........ 215,907 191,837
-------- --------
Cash flows from investing activities:
Purchase of investments................................... (79,015) (34,086)
Proceeds from sale of investments......................... 86,487 33,110
Acquisitions, net.......................................... (99,551) -
Additions to furniture, equipment and
leasehold improvements, net............................. (9,442) (5,724)
-------- --------
Net cash (used in) investing activities (101,521) (6,700)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings.................................. - 87
Repayment of debt......................................... (46) (141)
Distributions to partners................................. (129,002) (101,987)
Capital contribution received from Alliance Capital
Management Corporation.................................. 439 470
Unit options exercised.................................... 3,402 4,000
-------- --------
Net cash (used in) financing activities............ (125,207) (97,571)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents.......................................... (269) 13
-------- --------
Net increase (decrease) in cash and cash equivalents........ (11,090) 87,579
Cash and cash equivalents at beginning of period............ 124,256 52,199
-------- --------
Cash and cash equivalents at end of period.................. $113,166 $139,778
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Alliance Capital Management L.P. (the "Partnership") included herein have
been prepared in accordance with the instructions to Form 10-Q pursuant to
the rules and regulations of the Securities and Exchange Commission. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of (a) financial
position at September 30, 1996, (b) results of operations for the three and
nine months ended September 30, 1996 and 1995 and (c) cash flows for the
nine months ended September 30, 1996 and 1995, have been made.
2. ACQUISITION
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 Alliance Holdings Limited, formerly,
Cursitor Holdings Limited (collectively,"Cursitor") for approximately
$159.0 million, including a purchase price adjustment of approximately
$9.4 million. The purchase price consists of 1,764,115 units representing
assignments of beneficial ownership of limited partnership interests in the
Partnership ("Units") with an aggregate value of $43.2 million, $94.3
million in cash, 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.
The acquisition was accounted for under the purchase method with the
results of Cursitor included in the Partnership's condensed consolidated
financial statements from the acquisition date. The excess of the purchase
price, including acquisition costs and minority interest, over the fair
value of Cursitor's net assets acquired resulted in goodwill of
approximately $161.0 million, which is being amortized over 20 years.
The acquisition of Cursitor resulted in the formation of a new
subsidiary of the Partnership, Cursitor Alliance LLC ("Cursitor
Alliance"), which combined Cursitor's global asset allocation services
and the Partnership's international and global equity management
services. CHLP owns a 7% minority equity interest in Cursitor Alliance.
Under certain circumstances, through February 28, 2006, the Partnership
has an option to purchase CHLP's minority interest in Cursitor Alliance,
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 $7.0 million or more than $52.0 million. The Buyout
Price is based on the pre-tax operating earnings of Cursitor Alliance
during the prior twelve month period. The payment of the Buyout Price
will be accounted for as an adjustment of the Cursitor purchase price.
6
<PAGE>
The following unaudited consolidated pro forma information of the
Partnership is presented as if the acquisition had occurred at the
beginning of each period presented. The pro forma information is included
for informational purposes only and is not necessarily indicative of the
results of operations that would have actually occurred had the acquisition
been in effect for the periods presented (in thousands, except per Unit
amounts).
Nine Months Ended
---------------------
9/30/96 9/30/95
------- -------
(unaudited)
Revenues $581,781 $485,377
Net income 142,379 113,927
Net income per Unit $1.67 $1.36
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 these funds upon the redemption of their shares. Contingent
deferred sales charges reduce unamortized deferred sales commissions when
received.
4. DEBT
As discussed in Note 2, the Partnership issued promissory notes to CHLP in
the aggregate principal amount of $21.5 million on February 29, 1996.
During February 1996, the Partnership entered into a new $250 million five-
year revolving credit facility with a group of banks which replaced its
$100 million revolving credit facility and its $100 million commercial
paper back-up revolving credit facility. Under the new revolving credit
facility, the interest rate, at the option of the Partnership, is a
floating rate generally based upon a defined prime rate, a rate related to
the London Interbank Offered Rate (LIBOR) or the Federal Funds rate. A
facility fee is payable on the total facility. The revolving credit
facility will be used to provide back-up liquidity for commercial paper to
be issued under the Partnership's $100 million commercial paper program, to
fund commission payments to financial intermediaries for the sale of Class
B and C Shares under the Partnership's mutual fund distribution system
("System"), and for general working capital purposes. As of September 30,
1996, 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 revolving credit facility.
5. CONTINGENCIES
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), the Partnership and certain other
defendants affiliated with the Partnership alleging violations of federal
securities laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The Complaint
sought
7
<PAGE>
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.
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 policies and 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. The plaintiffs have filed motions requesting that the
Court reconsider its decision and for permission to file an amended
complaint. While the ultimate outcome cannot be determined at this time,
management of the Partnership does not expect that it will have a material
adverse effect on the Partnership's results of operations or financial
condition.
6. INCOME TAXES
The Partnership is a publicly traded partnership for Federal income tax
purposes and, accordingly, is not currently subject to Federal and state
corporate income taxes but is subject to the New York City unincorporated
business tax. 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.
7. NET INCOME PER UNIT
Net income per Unit is derived by reducing net income for each period by 1%
for the general partnership interest held by the General Partner and
dividing the remaining 99% by the weighted average number of Units
outstanding, Unit equivalents and Units issuable upon conversion of the
Class A Limited Partnership Interest during each period.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
Interest................... $ 131 $ 182 $ 383 $ 523
Income taxes............... 3,555 3,241 9,814 8,159
A portion of the Cursitor purchase price consisted of the issuance of
1,764,115 Units with an aggregate value of $43.2 million and promissory
notes in the aggregate principal amount of $21.5 million. The condensed
consolidated statement of cash flows for the nine months ended
September 30, 1996 does not include the effects of these transactions since
they did not provide or use cash.
8
<PAGE>
9. SUBSEQUENT EVENT
On October 31, 1996, the Finance Committee of the Board of Directors of the
General Partner declared a distribution of $46,471,000 or $0.55 per Unit
representing the Available Cash Flow (as defined in the Partnership
Agreement) of the Partnership for the three months ended September 30,
1996. The distribution will be paid on November 18, 1996 to holders of
record on November 11, 1996.
9
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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 from fees for investment advisory, distribution
and other services provided to the Alliance mutual funds and from fees for
investment advisory services provided to separately managed accounts of
institutional investors ("Separately Managed Accounts"), including third party
clients and affiliates, principally The Equitable Life Assurance Society of the
United States ("ELAS"), a wholly-owned subsidiary of The Equitable Companies
Incorporated ("Equitable"). The Alliance mutual funds consist of a broad range
of open-end load and closed-end mutual funds, variable insurance and annuity
products ("variable products"), primarily The Hudson River Trust ("HRT"), and
cash management products including money market funds and deposit accounts. The
Partnership offers a diversified 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 Alliance Holdings Limited, formerly, Cursitor Holdings
Limited (collectively, "Cursitor"), an investment manager specializing in global
asset allocation with operations in London, Paris and Boston. The acquisition
of Cursitor increased the Partnership's assets under management at the date of
acquisition by $10.1 billion. The acquisition was accounted for under the
purchase method with the results of Cursitor included in the Partnership's
condensed consolidated financial statements from the acquisition date.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars & Units in millions, Three months ended Nine months ended
except per Unit amounts) 9/30/96 9/30/95 % Change 9/30/96 9/30/95 % Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $49.0 $41.0 19.5% $141.1 $112.3 25.6%
Net income per Unit $ 0.57 $0.50 14.0 $ 1.66 $ 1.37 21.2
Weighted average number of Units
and Unit equivalents
outstanding 84.9 81.6 4.0 84.2 81.5 3.3
Operating margin 26.6% 26.9% 26.3% 25.9%
- ------------------------------------------------------------------------------------------
ASSETS UNDER MANAGEMENT
(Dollars in billions) 9/30/96 9/30/95 $ Change % Change
- ------------------------------------------------------------------------------------------
Alliance mutual funds:
Mutual Funds $ 26.4 $ 22.9 $3.5 15.3%
Cash management products 17.2 13.2 4.0 30.3
Variable products 15.7 11.5 4.2 36.5
- ------------------------------------------------------------------------------------------
59.3 47.6 11.7 24.6
- ------------------------------------------------------------------------------------------
Separately Managed Accounts:
Active equity & balanced 51.6 45.0 6.6 14.7
Active fixed 36.1 32.9 3.2 9.7
Index 17.4 15.4 2.0 13.0
Asset allocation 9.3 0.5 8.8 1760.0
- ------------------------------------------------------------------------------------------
114.4 93.8 20.6 22.0
- ------------------------------------------------------------------------------------------
Total $173.7 $141.4 $32.3 22.8%
- ------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
AVERAGE ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
Three months ended Nine months ended
(Dollars in billions) 9/30/96 9/30/95 % Change 9/30/96 9/30/95 % Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds $ 57.1 $ 45.7 24.9% $ 54.5 $ 42.0 29.8%
Separately Managed Accounts:
Affiliated clients 25.5 22.0 15.9 24.6 21.6 13.9
Third party clients 86.2 69.0 24.9 84.1 65.2 29.0
- ------------------------------------------------------------------------------------------
Total $168.8 $136.7 23.5% $163.2 $128.8 26.7%
- ------------------------------------------------------------------------------------------
</TABLE>
The Partnership's assets under management were $173.7 billion at September 30,
1996, representing increases of $5.4 billion and $32.3 billion from June 30,
1996 and September 30, 1995, respectively.
Alliance mutual fund assets under management at September 30, 1996 were $59.3
billion, an increase of $11.7 billion or 24.6% from September 30, 1995, due
principally to market appreciation of $4.8 billion and net sales of cash
management and variable product mutual funds of $4.0 billion and $2.1 billion,
respectively. Assets under management in Separately Managed Accounts at
September 30, 1996 were $114.4 billion, an increase of $20.6 billion or 22.0%
from September 30, 1995, primarily due to market appreciation of $9.0 billion
and an increase of $9.8 billion attributable to the Cursitor acquisition.
REVENUES
<TABLE>
<CAPTION>
Three months ended Nine months ended
(Dollars in millions) 9/30/96 9/30/95 % Change 9/30/96 9/30/95 % Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment advisory and
services fees:
Alliance mutual funds $ 73.0 $ 61.4 18.9% $212.7 $168.6 26.2%
Separately Managed Accounts:
Affiliated clients 10.8 9.6 12.5 32.7 33.4 (2.1)
Third party clients 58.0 46.6 24.5 167.1 129.0 29.5
Distribution plan fees from
Alliance mutual funds 42.0 33.4 25.7 121.1 93.1 30.1
Shareholder servicing and
administration fees 11.8 10.8 9.3 34.8 32.1 8.4
Other revenues 2.4 2.9 (17.2) 7.4 7.3 1.4
- ------------------------------------------------------------------------------------------
Total revenues $198.0 $164.7 20.2% $575.8 $463.5 24.2%
- ------------------------------------------------------------------------------------------
</TABLE>
Investment advisory and services fees increased $24.2 million or 20.6% for the
three months and $81.5 million or 24.6% for the nine months. 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 for the three and
the nine months primarily due to higher average assets under management of 24.9%
and 29.8%, respectively.
11
<PAGE>
Investment advisory fees from affiliated clients increased for the three months
principally due to higher average assets under management of 15.9%. Investment
advisory fees from affiliated clients decreased for the nine months since
significant performance fees were recorded in the first nine months of 1995 due
to capital gains realized in leveraged buy-out portfolios managed by the
Partnership. This decrease was offset partially by higher average assets under
management of 13.9%.
Investment advisory and services fees from third party clients increased for the
three and nine months principally due to an increase in average assets under
management of 24.9% and 29.0%, respectively. The increase in third party
clients average assets under management is primarily a result of market
appreciation and the acquisition of Cursitor in February 1996.
Distribution plan fees increased for the three and nine months due principally
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 September 30, 1995. At September 30, 1996 the
Partnership's subsidiaries serviced approximately 2.3 million shareholder
accounts.
EXPENSES
<TABLE>
<CAPTION>
Three months ended Nine months ended
(Dollars in millions) 9/30/96 9/30/95 % Change 9/30/96 9/30/95 % Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee compensation and benefits $ 53.7 $ 44.0 22.0% $157.2 $125.5 25.3%
Promotion and servicing 62.1 50.8 22.2 181.0 147.7 22.5
General and administrative 24.6 23.2 6.0 73.5 62.7 17.2
Interest 0.6 0.2 200.0 1.3 0.9 44.4
Amortization of intangible assets 4.3 2.2 95.5 11.4 6.6 72.7
- ------------------------------------------------------------------------------------------
Total expenses $145.3 $120.4 20.7% $424.4 $343.4 23.6%
- ------------------------------------------------------------------------------------------
</TABLE>
Employee compensation and benefits increased for the three and nine months
primarily as a result of higher incentive compensation attributable to increased
operating earnings, higher commission expense attributable to increased mutual
fund sales and higher assets under management for cash management services
products and increased base compensation. Base compensation increased
principally due to the acquisition of Cursitor and salary increases.
Promotion and servicing expenses 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 and C Shares, travel and entertainment,
advertising and promotional materials. Promotion and servicing expenses
increased for the three and nine months primarily as a result of an increase in
distribution plan payments due principally to higher average cash management and
equity mutual fund assets under management.
Increases in general and administrative expenses for the three and nine months
were due principally to higher occupancy costs incurred in connection with the
expansion of the Partnership's New York headquarters and expenses incurred in
12
<PAGE>
connection with joint ventures. Increases in general and administrative
expenses for the nine months were also attributable to litigation costs and
higher systems consulting expenses associated with technology initiatives.
Amortization of intangibles increased for the three and nine months primarily
due to the amortization of goodwill associated with the February 1996 Cursitor
acquisition.
The provision for income taxes increased for the three and nine months primarily
as a result of the increase in pre-tax income for the Partnership and certain of
its corporate subsidiaries.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's cash and cash equivalents decreased by $11.1 million for the
nine months ended September 30, 1996. Cash outflows included $99.6 million used
for acquisitions, distributions to Unitholders of $129.0 million and capital
expenditures of $9.4 million. Cash inflows included $215.9 million from
operations, $7.5 million of proceeds from net sales of investments in Alliance
mutual funds and $3.4 million in proceeds from options exercised under the
Partnership's Unit Option Plans.
The Partnership acquired Cursitor on February 29, 1996 for approximately $159.0
million, including a purchase price adjustment of approximately $9.4 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.
The acquisition of Cursitor resulted in the formation of a new subsidiary of
the Partnership, Cursitor Alliance LLC ("Cursitor Alliance"), which combined
Cursitor's global asset allocation services and the Partnership's
international and global equity management services. CHLP owns a 7% minority
equity interest in Cursitor Alliance. Under certain circumstances, through
February 28, 2006, the Partnership has an option to purchase CHLP's minority
interest in Cursitor Alliance, 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 $7.0 million or more than $52.0 million.
The Buyout Price is based on the pre-tax operating earnings of Cursitor
Alliance for the prior twelve month period.
The Partnership's mutual fund distribution system (the "System") includes three
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"), or (c) without a front-end sales charge or, if the shares are held
for at least one year, CDSC and with higher distribution fees payable by the
funds ("Class C Shares"). During the nine months ended September 30, 1996,
payments made to financial intermediaries in connection with the sale of
Class B and C Shares under the System, net of CDSC received, totaled
$59.6 million.
13
<PAGE>
During February 1996, the Partnership entered into a new $250 million five-year
revolving credit facility with a group of banks which replaced its $100 million
revolving credit facility and its $100 million commercial paper back-up
revolving credit facility, as more fully described in Note 4. As of September
30, 1996, 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 revolving credit facility. The revolving credit facility
contains covenants which require the Partnership, among other things, to meet
certain financial ratios.
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.
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 was as follows (in thousands, except per Unit
information):
Three months ended Nine months ended
9/30/96 9/30/95 9/30/96 9/30/95
- --------------------------------------------------------------------------
Available Cash Flow $46,471 $39,332 $134,471 $107,936
Available Cash Flow per Unit $0.55 $0.48 $1.60 $1.32
- --------------------------------------------------------------------------
14
<PAGE>
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Alliance Capital Management L.P. Form 10-K for the year ended
December 31, 1995 and Form 8-K dated October 7, 1996 contained reports
with respect to the legal proceeding entitled IN RE ALLIANCE NORTH
AMERICAN GOVERNMENT INCOME TRUST, INC. SECURITIES LITIGATION. The
plaintiffs have filed motions requesting the Court to reconsider its
decision to dismiss all counts of the complaint and for permission to
file an amended complaint.
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
None.
(b) Reports on Form 8-K
Alliance Capital Management L.P. filed a report on Form 8-K dated
October 7, 1996 reporting that the United States District Court
for the Southern District of New York had granted the defendants
motion to dismiss all counts of the complaint in the legal
proceedings referred to in Item 1 of Part II of this report on
Form 10-Q.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE CAPITAL MANAGEMENT L.P.
Dated: November 12, 1996 By: Alliance Capital Management
Corporation, its General Partner
By: /s/ Robert H. Joseph, Jr.
------------------------------
Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer
16
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 113,166
<SECURITIES> 27,880
<RECEIVABLES> 138,468
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 279,514
<PP&E> 47,843
<DEPRECIATION> 0
<TOTAL-ASSETS> 764,092
<CURRENT-LIABILITIES> 277,294
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 467,502
<TOTAL-LIABILITY-AND-EQUITY> 764,092
<SALES> 197,998
<TOTAL-REVENUES> 197,998
<CGS> 0
<TOTAL-COSTS> 140,476
<OTHER-EXPENSES> 4,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 605
<INCOME-PRETAX> 52,658
<INCOME-TAX> 3,701
<INCOME-CONTINUING> 48,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,957
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
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