<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 June 30, 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 June 30, 1997 was 83,687,443 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 (Loss) 3
Condensed Consolidated Statements of Changes in
Partners' Capital 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-15
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 16
Item 2. CHANGES IN SECURITIES 16
Item 3. DEFAULTS UPON SENIOR SECURITIES 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF 16
SECURITY HOLDERS
Item 5. OTHER INFORMATION 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16
1
<PAGE>
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
<TABLE>
<CAPTION>
ASSETS 6/30/97 12/31/96
----------- -----------
(unaudited)
<S> <C> <C>
Cash and cash equivalents.. . . . . . . . . . . . . . . . . $ 79,305 $ 57,441
Fees receivable:
Alliance mutual funds.. . . . . . . . . . . . . . . . . 50,723 46,483
Separately managed accounts:
Affiliated clients . . . . . . . . . . . . . . . . 7,130 4,479
Third party clients. . . . . . . . . . . . . . . . 58,426 58,339
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds. . . . . . . . . . . 52,923 30,976
Investments, available-for-sale . . . . . . . . . . . . . . 17,381 35,966
Furniture, equipment and leasehold improvements, net. . . . 72,142 57,483
Intangible assets, net. . . . . . . . . . . . . . . . . . . 99,160 234,404
Deferred sales commissions, net . . . . . . . . . . . . . . 205,798 175,172
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 32,274 25,154
----------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . $ 675,262 $ 725,897
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . $ 108,007 $ 103,427
Payable to Alliance mutual funds for share purchases. . 77,205 55,468
Accrued expenses under employee benefit plans . . . . . 93,294 51,633
Debt . . . . . . . . . . . . . . . . . . . . . . . . 19,096 24,658
Minority interests in consolidated subsidiaries.. . . . 5,664 14,691
----------- -----------
Total liabilities. . . . . . . . . . . . . . . . . 303,266 249,877
Partners' capital . . . . . . . . . . . . . . . . . . . . . 371,996 476,020
----------- -----------
Total liabilities and partners' capital. . . . . . $ 675,262 $ 725,897
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Income (Loss)
(unaudited)
(in thousands, except per Unit amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -------------------------
6/30/97 6/30/96 6/30/97 6/30/96
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues:
Investment advisory and services fees:
Alliance mutual funds . . . . . . . . . . . . . . . . . $ 86,747 $ 71,849 $ 172,741 $ 139,673
Separately managed accounts:
Affiliated clients . . . . . . . . . . . . . . . . 13,290 11,768 25,844 21,866
Third party clients. . . . . . . . . . . . . . . . 60,568 58,081 119,030 109,202
Distribution plan fees from Alliance mutual funds... . . . . 49,306 40,582 96,553 79,065
Shareholder servicing and administration fees. . . . . . . . 13,526 11,685 26,291 23,151
Other revenues . . . . . . . . . . . . . . . . . . . . . . . 1,899 2,184 4,128 4,808
--------- ---------- ---------- ----------
225,336 196,149 444,587 377,765
--------- ---------- ---------- ----------
Expenses:
Employee compensation and benefits . . . . . . . . . . . . . 62,336 54,152 122,838 103,566
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated . . . . . . . . . . . . . . . . . . . . 14,956 7,701 24,041 14,692
Third party. . . . . . . . . . . . . . . . . . . . 25,520 27,604 58,234 54,366
Amortization of deferred sales commissions. . . . . . . 17,647 12,848 33,385 25,366
Other . . . . . . . . . . . . . . . . . . . . . . . . . 15,044 13,179 29,849 24,309
General and administrative.. . . . . . . . . . . . . . . . . 25,550 25,515 51,296 48,955
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 619 472 1,292 714
Amortization of intangible assets. . . . . . . . . . . . . . 2,621 4,181 5,243 7,094
Reduction in recorded value of intangible assets . . . . . . 120,900 - 120,900 -
--------- ---------- ---------- ----------
285,193 145,652 447,078 279,062
--------- ---------- ---------- ----------
Income (loss) before income taxes. . . . . . . . . . . . . . . . (59,857) 50,497 (2,491) 98,703
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 4,265 3,467 8,282 6,606
--------- ---------- ---------- ----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ (64,122) $ 47,030 $ (10,773) $ 92,097
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Net income (loss) per Unit . . . . . . . . . . . . . . . . . . . $ (0.74) $ 0.55 $ (0.12) $ 1.09
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</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 Six Months Ended
------------------------ ------------------------
6/30/97 6/30/96 6/30/97 6/30/96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Partners' capital - beginning of period . . . . . . . . . . $ 483,301 $ 455,038 $ 476,020 $ 406,709
Net income (loss) . . . . . . . . . . . . . . . . . . . (64,122) 47,030 (10,773) 92,097
Capital contribution received from Alliance Capital
Management Corporation . . . . . . . . . . . . . . 898 898 1,795 1,791
Cash distributions to partners. . . . . . . . . . . . . (50,988) (43,243) (101,001) (84,245)
Issuance of Units for acquisition of Cursitor . . . . . -- -- -- 42,816
Proceeds from Unit options exercised. . . . . . . . . . 2,219 751 5,285 1,459
Unrealized gain on investments. . . . . . . . . . . . . 664 126 646 255
Foreign currency translation adjustment . . . . . . . . 24 -- 24 (282)
--------- --------- --------- ---------
Partners' capital - end of period . . . . . . . . . . . . . $ 371,996 $ 460,600 $ 371,996 $ 460,600
--------- --------- --------- ---------
--------- --------- --------- ---------
</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>
Six Months Ended
----------------------------
6/30/97 6/30/96
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $(10,773) $ 92,097
Adjustments to reconcile net income (loss) to net cash provided
from operating activities:
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . 44,043 36,519
Reduction in recorded value of intangible assets. . . . . . . . . . . 120,900 --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,362 4,161
Changes in assets and liabilities:
(Increase) in fees receivable from Alliance
mutual funds, affiliated clients and third party clients. . (6,978) (2,613)
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds. . . . . . . . . . . . . (21,947) (9,935)
(Increase) in deferred sales commissions . . . . . . . . . . . . (64,011) (40,934)
(Increase) decrease in other assets. . . . . . . . . . . . . . . (6,239) 5,904
Increase in accounts payable and accrued expenses. . . . . . . . 4,580 1,757
Increase in payable to Alliance mutual funds for share
purchases . . . . . . . . . . . . . . . . . . . . . . . . . 21,737 7,307
Increase in accrued expenses under employee benefit
plans, less deferred compensation . . . . . . . . . . . . . 40,106 28,506
-------- --------
Net cash provided from operating activities. . . . . . 123,780 122,769
-------- --------
Cash flows from investing activities:
Proceeds from sale of investments. . . . . . . . . . . . . . . . . . . . . 163,621 70,521
Purchase of investments. . . . . . . . . . . . . . . . . . . . . . . . . . (144,390) (43,754)
Acquisitions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (90,576)
Additions to furniture, equipment and leasehold
improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . . (20,354) (4,682)
-------- --------
Net cash used in investing activities. . . . . . . . . (1,123) (68,491)
-------- --------
Cash flows from financing activities:
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,396) (30)
Distributions to partners. . . . . . . . . . . . . . . . . . . . . . . . . (101,001) (84,245)
Capital contribution received from Alliance Capital Management
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 291
Unit options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . 5,285 1,459
-------- --------
Net cash used in financing activities. . . . . . . . . (100,817) (82,525)
-------- --------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . 24 (273)
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 21,864 (28,520)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 57,441 124,256
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 79,305 $ 95,736
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Alliance Capital Management L.P. (the "Partnership") included herein have
been prepared in accordance with the instructions to Form 10-Q pursuant to
the rules and regulations of the Securities and Exchange Commission. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of (a) financial
position at June 30, 1997, (b) results of operations for the three months
and six months ended June 30, 1997 and 1996 and (c) cash flows for the six
months ended June 30, 1997 and 1996, have been made.
2. RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. INTANGIBLE ASSETS
Intangible assets consist of (in thousands):
6/30/97 12/31/96
------- --------
Goodwill (net of accumulated
amortization of $12,030 and $9,856, respectively) $78,799 $116,721
Contracts of businesses acquired (net of accumulated
amortization of $29,838 and $26,768, respectively) 20,361 117,683
------- --------
$99,160 $234,404
------- --------
------- --------
The Partnership evaluates impairment of its intangible assets by comparing
the undiscounted cash flows expected to be realized from those assets to
their recorded values pursuant to Statement of Financial Accounting
Standards No. 121 (SFAS 121 ) "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF". If the expected
future cash flows are less than the carrying value of intangible assets,
the Partnership recognizes an impairment loss for the difference between
the carrying amount and the estimated fair value of those intangible
assets.
During the second quarter of 1997, management of the Partnership determined
that the assets of Cursitor Holdings, L.P. and the stock of Cursitor
Holdings Limited (collectively "Cursitor") acquired on February 29, 1996
were impaired and reduced the remaining unamortized recorded value of the
intangible assets associated with the Cursitor acquisition by $120.9
million to $20.4 million. This non-cash charge reflects the Partnership's
view that the decline in Cursitor's assets under management and its reduced
profitability no longer supported the remaining unamortized cost of its
investment.
4. DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the
sale of shares of open-end mutual funds managed by the Partnership sold
without a front-end sales charge are capitalized and amortized over periods
not exceeding five and one-half years, the periods of time estimated by
management of the Partnership during which deferred sales commissions are
expected to be recovered from distribution plan payments received from
these funds and contingent deferred sales
6
<PAGE>
charges received from shareholders of those funds upon the redemption of
their shares. Contingent deferred sales charges reduce unamortized
deferred sales commissions when received.
5. CONTINGENCIES
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), the Partnership and certain other
defendants affiliated with the Partnership alleging violations of federal
securities laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The Complaint
which sought certification of a plaintiff class of persons who purchased or
owned Class A, B or C shares of the Fund from March 27, 1992 through
December 23, 1994 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, plaintiffs filed a motion for
reconsideration of the Court's decision granting defendants' motion to
dismiss the Complaint. On November 25, 1996, the Court denied plaintiffs'
motion for reconsideration. On October 29, 1996, plaintiffs filed a motion
for leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose that
it planned to invest in mortgage-backed derivative securities and that two
advertisements used by the Fund misrepresented the risks of investing in
the Fund. Plaintiffs also 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. On July 15, 1997, the Court
denied plaintiffs' motion for leave to file an amended complaint and
ordered that the case be dismissed. Plaintiffs have until August 18, 1997
to file an appeal to the Second Circuit Court of Appeals. While the
ultimate outcome of this matter cannot be determined at this time,
management of the Partnership does not expect that it will have a material
adverse effect on the Partnership's results of operations or financial
condition.
6. INCOME TAXES
The Partnership is a publicly traded partnership for Federal income tax
purposes and, accordingly, is not currently subject to Federal and state
corporate income taxes but is subject to the New York City unincorporated
business tax. Domestic corporate subsidiaries of the Partnership, which are
subject to Federal, state and local income taxes, file a consolidated
Federal income tax return and separate state and local income tax returns.
Foreign corporate subsidiaries are generally subject to taxes in the
foreign jurisdictions where they are located.
7. NET INCOME PER UNIT
Net income per Unit is derived by reducing net income for each period by 1%
for the general partnership interest held by the General Partner and
dividing the remaining 99% by the weighted average number of Units
outstanding, Unit equivalents and Units issuable upon conversion of the
Class A Limited Partnership Interest during each period. The aggregate
weighted average number of Units outstanding used in computing net income
per Unit was 85,422,000 and 84,702,000 for the three months ended June 30,
1997 and 1996, respectively, and 85,444,000 and 83,905,000 for the six
months ended June 30, 1997 and 1996, respectively.
7
<PAGE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
------ ------ ------ ------
Interest . . . . . . $ 81 $ 85 $ 246 $ 251
Income taxes . . . . 3,913 3,636 6,566 6,259
9. ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 (SFAS 128) "EARNINGS
PER SHARE" which will be effective commencing with the Partnership's
financial statements for the year ended December 31, 1997. Upon adoption
of SFAS 128, the Partnership will present "basic" earnings per Unit and
"diluted" earnings per Unit. Basic earnings per Unit will be computed by
dividing income available to Unitholders by the weighted average number of
Units outstanding for each period. Diluted earnings per Unit will give
effect to all Units which may be issuable and have a dilutive effect during
each period and will be computed in a manner similar to the Partnership's
current computation of earnings per Unit.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS 130) "REPORTING COMPREHENSIVE INCOME". SFAS 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance
of other comprehensive income separately in the partners'capital section of
the statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. The Partnership intends to adopt
SFAS 130 and provide the required supplemental disclosures in its 1998
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 (SFAS 131) "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION". SFAS 131 establishes standards for the way public business
enterprises report information about operating segments in their annual and
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment performance
and for deciding how to allocate resources to segments. SFAS 131 is
effective for fiscal years beginning after December 15, 1997 but need not
be applied to interim reporting in the initial year of adoption. The
Partnership intends to adopt SFAS 131 and provide the required supplemental
disclosures in its 1998 annual report.
10. SUBSEQUENT EVENTS
On July 31, 1997, the Board of Directors of the General Partner declared a
distribution of $54,457,000 or $0.64 per Unit representing the Available
Cash Flow (as defined in the Partnership Agreement) of the Partnership for
the three months ended June 30, 1997. The distribution is payable on
August 21, 1997 to holders of record on August 14, 1997.
Under prior tax law, the exemption from Federal income taxes for certain
publicly traded limited
8
<PAGE>
partnerships, including the Partnership, would have expired on December 31,
1997. However, the Taxpayer Relief Act of 1997, signed into law on August
5, 1997, includes the option for certain publicly traded partnerships,
including the Partnership, to maintain partnership tax status after 1997
and pay a tax of 3.5% of partnership gross income from the active conduct
of a trade or business. The Partnership intends to utilize this option and
remain a publicly traded partnership.
9
<PAGE>
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. Due to Cursitor's poor investment results,
Cursitor has experienced significant client account terminations and asset
outflows. Cursitor's assets under management aggregated $4.9 billion at July
31, 1997 a decrease of $3.5 billion from $8.4 billion at December 31, 1996.
The Partnership evaluates impairment of its intangible assets by comparing the
undiscounted cash flows expected to be realized from those assets to their
recorded values pursuant to Statement of Financial Accounting Standards No. 121
(SFAS 121) "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF". If the expected future cash flows are
less than the carrying value of intangible assets, the Partnership recognizes
an impairment loss for the difference between the carrying amount and the
estimated fair value of those intangible assets. During the second quarter of
1997, management of the Partnership determined that the Cursitor intangible
assets were impaired and reduced the remaining unamortized recorded value of the
intangible assets associated with the Cursitor acquisition by $120.9 million to
$20.4 million. This non-cash charge reflects the Partnership's view that the
decline in Cursitor's assets under management and its reduced profitability no
longer supported the remaining unamortized cost of its investment.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars & Units in millions, Three months ended Six months ended
except per Unit amounts) 6/30/97 6/30/96 % Change 6/30/97 6/30/96 % Change
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $(64.1) $47.0 (236.4)% $(10.8) $92.1 (111.7)%
Net income (loss) per Unit $(0.74) $0.55 (234.5) $(0.12) $1.09 (111.0)
Weighted average number of Units and
Unit equivalents outstanding 85.4 84.7 0.8 85.4 83.9 1.8
Operating margin* 27.1% 25.7% 26.6% 26.1%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Excludes the reduction in recorded value of intangible assets
10
<PAGE>
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT
(Dollars in billions) 6/30/97 6/30/96 $ Change % Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance mutual funds:
Mutual funds $32.5 $24.9 $7.6 30.5%
Cash management products 18.7 16.1 2.6 16.1
Variable products 20.5 14.8 5.7 38.5
- ----------------------------------------------------------------------------------------
71.7 55.8 15.9 28.5
- ----------------------------------------------------------------------------------------
Separately managed accounts:
Active equity & balanced 61.4 49.3 12.1 24.5
Active fixed 39.2 35.7 3.5 9.8
Index 21.6 17.1 4.5 26.3
Asset allocation 5.4 10.3 (4.9) (47.6)
- ----------------------------------------------------------------------------------------
127.6 112.4 15.2 13.5
- ----------------------------------------------------------------------------------------
Total $199.3 $168.2 $31.1 18.5%
- ----------------------------------------------------------------------------------------
</TABLE>
AVERAGE ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
Three months ended Six months ended
(Dollars in billions) 6/30/97 6/30/96 % Change 6/30/97 6/30/96 % Change
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds $67.9 $ 54.7 24.1% $66.8 $ 53.1 25.8%
Separately managed accounts:
Affiliated clients 27.6 24.5 12.7 27.1 24.1 12.4
Third party clients 94.4 87.5 7.9 94.3 83.5 12.9
- --------------------------------------------------------------------------------------------------------------------
Total $189.9 $166.7 13.9% $188.2 $160.7 17.1%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Assets under management at June 30, 1997 were $199.3 billion, an increase of
$31.1 billion or 18.5% from June 30, 1996 and an increase of $16.5 billion or
9.0% from December 31, 1996. Alliance mutual fund assets under management at
June 30, 1997 were $71.7 billion, an increase of $15.9 billion or 28.5% from
June 30, 1996, due principally to market appreciation of $8.0 billion and net
sales of Alliance mutual funds of $7.9 billion. Separately managed account
assets under management at June 30, 1997 were $127.6 billion, an increase of
$15.2 billion or 13.5% from June 30, 1996. This increase was primarily due to
market appreciation of $19.3 billion and net asset additions to affiliated
client accounts of $2.6 billion, offset partially by net third party client
account terminations and asset withdrawals of $6.8 billion, primarily
attributable to the Cursitor accounts.
<TABLE>
<CAPTION>
REVENUES
Three months ended Six months ended
(Dollars in millions) 6/30/97 6/30/96 % Change 6/30/97 6/30/96 % Change
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment advisory and services fees:
Alliance mutual funds $86.7 $71.8 20.8% $172.7 $139.6 23.7%
Separately managed accounts:
Affiliated clients 13.3 11.8 12.7 25.8 21.9 17.8
Third party clients 60.6 58.1 4.3 119.1 109.2 9.1
Distribution plan fees from Alliance mutual funds 49.3 40.6 21.4 96.6 79.1 22.1
Shareholder servicing and administration fees 13.5 11.6 16.4 26.3 23.2 13.4
Other revenues 1.9 2.2 (13.6) 4.1 4.8 (14.6)
- --------------------------------------------------------------------------------------------------------------------------
Total revenues $225.3 $196.1 14.9% $444.6 $377.8 17.7%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment advisory and services fees were $160.6 million for the three months
ended June 30, 1997, an increase of $18.9 million or 13.3% 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.
11
<PAGE>
Investment advisory fees from Alliance mutual funds increased $14.9 million or
20.8% for the three months and $33.1 million or 23.7% for the six months
primarily as a result of a 24.1% and 25.8% increase in average assets under
management for the three and six months ended June 30, 1997, respectively.
Investment advisory fees from affiliated clients, primarily the General Accounts
of ELAS, increased $1.5 million or 12.7% for the three months and $3.9 million
or 17.8% for the six months due principally to an increase in average assets
under management of 12.7% for the three months and 12.4% for the six months
ended June 30, 1997, respectively. An increase in performance fees of $0.5 and
$1.7 million for the three months and six months ended June 30, 1997,
respectively, also contributed to the increase in affiliated client advisory
fees.
Investment advisory and services fees from third party clients increased $2.5
million or 4.3% for the three months and $9.9 million or 9.1% for the six months
due principally to an increase in average assets under management of 7.9% for
the three months and 12.9% for the six months ended June 30, 1997, respectively.
The increase in third party clients average assets under management is primarily
a result of market appreciation offset partially by net third party clients
outflows, primarily global asset allocation accounts. A decrease in performance
fees of $1.4 million for the three months and $1.2 million for the six months
partially offset the increased fees.
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 June 30, 1996. At June 30, 1997, the
Partnership's subsidiaries serviced approximately 2.9 million shareholder
accounts.
<TABLE>
<CAPTION>
EXPENSES
Three months ended Six months ended
(Dollars in millions) 6/30/97 6/30/96 % Change 6/30/97 6/30/96 % Change
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee compensation and benefits $62.3 $54.2 14.9% $122.8 $103.6 18.5%
Promotion and servicing 73.2 61.3 19.4 145.6 118.7 22.7
General and administrative 25.6 25.5 0.4 51.3 49.0 4.7
Interest 0.6 0.5 20.0 1.3 0.7 85.7
Amortization of intangible assets 2.6 4.2 (38.1) 5.2 7.1 (26.8)
Reduction in recorded value
of intangible assets 120.9 - - 120.9 - -
- -------------------------------------------------------------------------------------------------------------------------
Total expenses $285.2 $145.7 95.7% $447.1 $279.1 60.2%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 from 1,446 at June 30, 1996 to 1,622 at June 30, 1997 resulting from
the expansion of the Partnership's mutual fund operations and its administration
and technology departments combined with salary increases.
Promotion and servicing expenses include distribution plan payments to financial
intermediaries for distribution of the Partnership's sponsored mutual funds and
cash management services' products and amortization of deferred sales
commissions paid to financial intermediaries under the System. Also included in
this expense category are travel and entertainment, advertising, promotional
materials and investment meetings and seminars for financial intermediaries that
distribute the
12
<PAGE>
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, increased international travel
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 systems consulting expenses associated with technology initiatives and
higher occupancy costs incurred in connection with the Partnership's expansion
of its international operations.
The decrease in amortization of intangible assets was due principally to a
decrease in amortization of costs assigned to investment management contracts of
ACMC, Inc., the predecessor of the Partnership which was acquired by ELAS in
1985. The costs assigned to these contracts were fully amortized as of December
31, 1996.
The Partnership recorded a non-cash charge of $120.9 million during the second
quarter of 1997 to reduce the remaining unamortized recorded value of the
intangible assets associated with the Cursitor acquisition to estimated fair
value. This non-cash charge reflects the Partnership's view that the decline in
Cursitor's assets under management and its reduced profitability no longer
supported the remaining unamortized cost of its investment.
The Partnership generally is not subject to Federal, state and local income
taxes, with the exception of the New York City unincorporated business tax,
which is currently imposed at a rate of 4%. Domestic subsidiaries of the
Partnership are subject to Federal, state and local income taxes. Subsidiaries
organized and operating outside the United States are generally subject to taxes
in the foreign jurisdications where they are located. The provision for income
taxes increased for the three and six months primarily as a result of the
increase in taxable income of the Partnership and certain of its corporate
subsidiaries.
Under prior tax law, the exemption from Federal income taxes for certain
publicly traded partnerships, including the Partnership, would have expired on
December 31, 1997. However, the Taxpayer Relief Act of 1997, signed into law on
August 5, 1997, includes the option for certain publicly traded partnerships,
including the Partnership, to maintain partnership tax status after 1997 and pay
a tax, beginning 1998, of 3.5% of partnership gross income from the active
conduct of a trade or business. The Partnership intends to utilize this option
and remain a publicly traded partnership. The Partnership estimates that this
additional tax will reduce net income and cash distributions by approximately
10% to 12%.
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital decreased $104.0 million to $372.0 million at June 30, 1997
from $476.0 million at December 31, 1996. The decrease was primarily due to the
non-cash charge of $120.9 million to reduce the value of intangible assets
associated with the acquisition of Cursitor to estimated fair value.
The Partnership's cash and cash equivalents increased by $21.9 million for the
six months ended June 30, 1997. Cash inflows included $123.8 million from
operations, $19.2 million of proceeds from net sales of investments in Alliance
mutual funds and $5.3 million in proceeds from options exercised under the
Partnership's Unit Option Plans. Cash outflows included cash distributions to
Unitholders of $101.0 million, capital expenditures of $20.4 million and a $5.4
million principal repayment of the notes issued in connection with the Cursitor
acquisition.
13
<PAGE>
The Partnership acquired Cursitor on February 29, 1996 for approximately $159.0
million. The purchase price consisted of cash payments of $94.3 million,
1,764,115 Units with an aggregate value at February 29, 1996 of $43.2 million,
and notes in the aggregate principal amount of $21.5 million ("Notes"). The
Notes bear interest at 6% per annum and are payable ratably over the next four
years. Acquisition costs of $4.0 million were also incurred. Certain
agreements relating to the Cursitor acquisition were amended during the second
quarter of 1997. Under certain circumstances, through February 28, 2006, the
Partnership has an option to purchase CHLP's minority interest in Cursitor
Alliance LLC ("Cursitor Alliance"), a subsidiary formed at the time of the
acquisition of Cursitor, and CHLP has an option to sell its minority interest in
Cursitor Alliance to the Partnership for cash, Units, or a combination thereof
of not less than $10.0 million or more than $37.0 million ("Buyout Price"). The
Buyout Price will be determined based on the amount of global asset allocation
investment advisory revenues earned by Cursitor Alliance. If either option is
exercised, the payment of the Buyout Price will be accounted for as an increase
in the Cursitor purchase price.
The Partnership's mutual fund distribution system (the "System") includes four
distribution options. The System permits the Partnership's open-end mutual
funds to offer investors the option of purchasing shares (a) subject to a
conventional front-end sales charge ("Class A Shares"), (b) without a front-end
sales charge but subject to a contingent deferred sales charge payable by
shareholders ("CDSC") and higher distribution fees payable by the funds ("Class
B Shares"), (c) without a front-end sales charge and, 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 six months ended June 30, 1997, payments made to financial intermediaries in
connection with the sale of Class B and C Shares under the System, net of CDSC
received, totaled approximately $64.0 million.
As of June 30, 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. During July 1997, the Partnership borrowed $15.0 million under its
revolving credit facility to finance capital requirements for mutual fund sales.
The revolving credit facility contains covenants which require the Partnership,
among other things, to meet certain financial ratios.
The Partnership's strong equity base and access to public and private debt, at
competitive interest rates and other terms should provide adequate liquidity for
its general business needs. Management of the Partnership believes that cash
flow from operations and the issuance of debt and Units will provide the
Partnership with the financial resources to take advantage of strategic growth
opportunities, to finance capital requirements for mutual fund sales and to meet
the Partnership's other capital requirements.
14
<PAGE>
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):
<TABLE>
<CAPTION>
Three months ended Six months ended
6/30/97 6/30/96 6/30/97 6/30/96
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available Cash Flow (in thousands) $54,457 $44,757 $105,446 $88,000
Distributions Per Unit $ 0.64 $ 0.53 $ 1.24 $ 1.05
- ------------------------------------------------------------------------------------------
</TABLE>
FORWARD - LOOKING STATEMENTS
Certain statements provided by the Partnership in this report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. The most significant of such factors include, but
are not limited to, the following: the performance of financial markets, the
investment performance of the Partnership's sponsored investment products and
separately managed accounts, general economic conditions, future acquisitions,
competitive conditions and government regulations, including changes in tax
rates. The Partnership cautions readers to carefully consider such factors.
Further, such forward-looking statements speak only as of the date on which such
statements are made; the Partnership undertakes no obligation to update any
forward-looking statements to reflect events or circumstances after the date of
such statements.
15
<PAGE>
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On July 15, 1997 the Court denied plaintiffs' motion for leave to file
an amended complaint and dismissed the legal proceeding reported in
the Alliance Capital Management L.P. Form 10-K for the year ended
December 31, 1996. Plaintiffs have until August 18, 1997 to file an
appeal with the Second Circuit Court of Appeals.
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 June
26, 1997 with respect to a press release issued on June 24, 1997
announcing a proposed change in structure to address a possible
year-end change in its tax status and a non-cash write-down for its
Cursitor investment.
16
<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: August 14, 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
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 79,305
<SECURITIES> 17,381
<RECEIVABLES> 169,202
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 265,888
<PP&E> 72,142
<DEPRECIATION> 0
<TOTAL-ASSETS> 675,262
<CURRENT-LIABILITIES> 284,170
<BONDS> 19,096
0
0
<COMMON> 0
<OTHER-SE> 371,996
<TOTAL-LIABILITY-AND-EQUITY> 675,262
<SALES> 225,336
<TOTAL-REVENUES> 225,336
<CGS> 0
<TOTAL-COSTS> 281,953
<OTHER-EXPENSES> 2,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 619
<INCOME-PRETAX> (59,857)
<INCOME-TAX> 4,265
<INCOME-CONTINUING> (64,122)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64,122)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> (.74)
</TABLE>
