AllianceBernstein Holding L.P. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. Holding’s principal source of income and cash flow is its equity-method investment in AllianceBernstein L.P., a global investment manager. Holding’s reported results therefore reflect its share of AllianceBernstein’s earnings, rather than a separate operating revenue base.
Key financial results
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Equity in AllianceBernstein unitholder income (loss) | $34.5 million | $(16.6) million | $122.9 million | $43.9 million |
| Holding net income (loss) | $29.5 million | $(23.1) million | $108.0 million | $24.9 million |
| Diluted net income (loss) per unit | $0.32 | $(0.23) | $1.10 | $0.25 |
| Distribution per unit | $0.40 | $0.36 | $1.19 | $0.83 |
For the nine months, operating cash flow was $122.9 million, compared with $62.1 million in 2012; cash distributions received from AllianceBernstein were $124.0 million versus $77.8 million. Investing activities used $26.8 million and financing activities used $96.1 million, including $107.2 million of distributions paid to unitholders. Holding reported no cash or cash equivalents at period-end. Total assets were $1.425 billion, almost entirely its investment in AllianceBernstein; total liabilities were $5.1 million. No debt balance is reported. Operating margins are not applicable to Holding’s equity-method presentation; its own revenue and margin are not separately reported.
Changes and notable items
- Net income rose substantially year over year, which management attributed primarily to higher AllianceBernstein earnings, including lower real estate charges in 2013. AllianceBernstein qualifying revenues increased 1.9% in Q3 and 4.7% for the nine-month period.
- Holding’s effective tax rate fell to 14.4% from 39.5% for Q3 and to 12.1% from 43.3% for the nine months. Lower tax expense reflected, in part, a lower ownership percentage used for tax calculations.
- On July 1, Holding and AllianceBernstein retired approximately 13.1 million units each. Holding units outstanding were 92.1 million at September 30, down from 105.2 million at December 31, 2012. Management said retirements reduce Holding’s share of AllianceBernstein earnings but can benefit per-unit results by reducing weighted-average units.
- Holding reported adjusted diluted income per unit of $0.40 for Q3 and $1.20 for the nine months, versus GAAP diluted income per unit of $0.32 and $1.10, respectively. These are non-GAAP measures and should not be treated as substitutes for GAAP results.
Outlook, risks and contingencies
On October 24, 2013, the general partner declared a $0.40-per-unit distribution for Q3, payable November 21 to holders of record November 4. Holding generally distributes its available cash flow; management expects the calculation typically to use adjusted diluted net income per unit. Management believes cash flow from AllianceBernstein will meet Holding’s obligations, but Holding depends on AllianceBernstein’s distributions and, ultimately, on market performance and other factors beyond its control. No formal earnings guidance is provided.
AllianceBernstein faces a former European pension client’s claim relating to management of a £500 million mortgage-backed-securities portfolio. Alleged damages are $177 million to $234 million plus compound interest on alleged realized losses; the company disputes the allegations and says it cannot estimate a reasonably possible loss. Other litigation and regulatory matters are also pending; management says adequate accruals have been made for estimable probable losses, but additional losses are possible and not estimable. Other cited risks include financial-market performance, investment results, client assets, competition, regulation and preserving Holding’s grandfathered publicly traded partnership tax status. Management also noted that real estate consolidation write-offs were expected to remain within a previously stated $225 million–$250 million range, subject to assumptions and potential additional charges.
Management reported effective disclosure controls and no material change in internal control during the quarter. No material change in Holding’s market risk was reported.
Important facts for investors to verify
- Review AllianceBernstein’s accompanying Form 10-Q for the operating drivers behind Holding’s equity income, cash distributions and real estate charges.
- Track the declared $0.40 distribution and the available-cash-flow calculation, which is based on management’s defined measure and can differ from GAAP earnings.
- Monitor unit retirements, repurchases and new issuances, which affect Holding’s ownership share and per-unit results.
- Assess the pension-client claim and other legal matters, for which potential additional losses are not currently estimable.
- Consider Holding’s dependence on AllianceBernstein cash flows and the tax-status risk that loss of grandfathered partnership treatment could materially reduce net income and distributions.