AllianceBernstein Holding L.P. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance sheet compared with December 31, 2012. Holding’s principal income and cash flow come from its investment in AllianceBernstein L.P. (AB), an investment-management and research business. Holding accounts for its investment using the equity method, so its reported results are not a standalone measure of AB’s revenue or operating margins.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Equity income from AB | $43.0 million | $32.7 million; up 31.5% |
| Holding net income | $38.2 million | $26.7 million; up 43.2% |
| Diluted net income per unit | $0.38 | $0.26; up 46.2% |
| Income taxes / effective tax rate | $4.8 million / 11.1% | $6.0 million / 18.4% |
| Operating cash flow | $42.2 million | $12.6 million |
| Investing cash flow | $(12.6) million | $(0.9) million |
| Financing cash flow | $(29.6) million | $(11.8) million |
| Total assets | $1,616.9 million | $1,566.5 million at Dec. 31, 2012 |
| Total liabilities | $8.6 million | $6.4 million at Dec. 31, 2012 |
Holding reported no cash and cash equivalents at either period end. Its investment in AB was $1,615.6 million; amounts due to AB were $8.2 million. The filing does not show debt or provide revenue or margin figures for Holding. Management said cash distributions from AB should provide resources to meet Holding’s obligations, while noting Holding’s cash flow depends on AB’s operations and capital markets.
Material changes and distributions
- Net income growth reflected higher income attributable to AB unitholders. AB’s net income attributable to its unitholders was $114.5 million, versus $87.3 million a year earlier.
- Operating cash flow rose primarily because cash distributions received from AB increased by $22.2 million, to $40.1 million.
- Cash distributions paid to Holding unitholders were $36.3 million, versus $11.8 million in Q1 2012. On May 1, 2013, the general partner declared a $0.38-per-unit distribution for Q1, payable May 23 to holders of record May 13.
- Holding’s reported $0.38 diluted earnings per unit excludes $0.00 per unit of AB non-GAAP adjustments in Q1 2013; the comparable Q1 2012 adjustment was $0.03 per unit. These supplemental measures are not GAAP and may not be comparable across companies.
Outlook, risks and unusual items
- Management expects Available Cash Flow typically to be based on adjusted diluted net income per unit, subject to its judgment on adjustments; future distributions are not assured.
- Holding’s tax structure depends on preserving its “grandfathered” publicly traded partnership status. Losing that status could subject Holding to corporate income tax and materially reduce net income and distributions.
- A former European pension fund client alleges negligence concerning management of a £500 million U.S. mortgage-backed securities portfolio and claims $177 million to $234 million plus compound interest on alleged realized losses. AB disputes the allegations, intends to defend the matter, and says it cannot estimate a reasonably possible loss range because the matter is at an early stage. AB also faces other regulatory, administrative and litigation matters; additional losses may be possible but are not currently estimable.
- Key stated uncertainties include financial-market performance, investment results, economic and industry conditions, competition, regulation and tax changes. Holding’s liquidity also depends on AB distributions.
- AB repurchased 979,801 Holding units during Q1 at an average net price of $20.03, principally to fund incentive compensation obligations and for other corporate purposes. The quarter’s Rule 10b5-1 repurchase plan expired April 29, 2013.
- No material change in Holding’s market risk was reported. Management concluded disclosure controls were effective and reported no material Q1 change in internal control over financial reporting.
Investor verification points
- Review AB’s accompanying Q1 10-Q for the operating revenue, margins, assets under management and detailed drivers behind the higher equity income.
- Track AB distributions and Holding’s cash position, given Holding reported no cash at quarter-end and depends on AB for cash flow.
- Monitor the pension-fund claim, other legal matters and any changes to estimated loss exposure.
- Confirm future distributions and assess the effect of any changes to Available Cash Flow calculations or Holding’s partnership tax status.