Business context and reporting period
AllianceBernstein Holding L.P. (Holding) reported for the quarter and nine months ended September 30, 2012. Holding’s principal income and cash flow come from its equity-method investment in AllianceBernstein L.P. (AllianceBernstein), a global investment-management and research firm. Holding owned a 37.5% weighted-average equity interest in AllianceBernstein during both 2012 periods.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Holding net income (loss) | $(23.1) million | $27.0 million | $24.9 million | $106.2 million |
| Holding diluted income (loss) per unit | $(0.23) | $0.26 | $0.25 | $1.02 |
| Distributions per unit | $0.36 | $0.26 | $0.83 | $1.02 |
| Cash provided by operating activities | Not provided for the quarter | $62.1 million | $124.1 million |
Holding’s nine-month cash flow also included $6.1 million used in investing activities and $56.0 million used in financing activities. Cash and cash equivalents were zero at September 30, 2012. Total assets were $1.605 billion, primarily the investment in AllianceBernstein; total liabilities were $5.0 million. The filing presents no Holding debt balance. Holding-level revenue and operating margin are not separately reported.
Material changes versus prior comparable periods
- Holding’s Q3 result shifted from profit to loss, and nine-month net income fell 76.6% year over year. Its share of AllianceBernstein income was $16.6 million lower in Q3 (loss) and declined 65.7% for the nine-month period.
- The principal reported driver was AllianceBernstein’s $168.1 million pretax real-estate charge for its global office consolidation plan, contributing to its $44.2 million Q3 net loss.
- Nine-month operating cash flow declined by $62.0 million, mainly because distributions received from AllianceBernstein fell by $67.3 million. Cash distributions paid to Holding unitholders fell by $64.7 million.
- Holding’s effective tax rate increased to 39.5% in Q3 and 43.3% year to date, from 20.8% and 17.0%, respectively, as income fell more sharply than qualifying revenues.
Outlook, risks and unusual items
On October 24, 2012, the general partner declared a $37.9 million distribution, or $0.36 per unit, for Q3 Available Cash Flow, payable November 21 to holders of record November 5. Management expects Holding’s cash flow from AllianceBernstein to cover its obligations, but Holding depends on AllianceBernstein distributions, which are exposed to market performance and other factors. Management anticipates future Available Cash Flow will typically use adjusted diluted earnings per unit, subject to its discretion.
AllianceBernstein’s real-estate consolidation charge is a significant unusual item. Management says the plan is intended to improve the cost structure, but estimates of future savings depend on leasing and property-market assumptions; additional charges or lower-than-expected savings are possible. The filing also identifies market, asset-flow, investment-performance, regulatory, tax, liquidity, and goodwill-impairment risks.
A former European pension fund client alleges negligence concerning management of a £500 million mortgage-backed-securities portfolio and claims damages of $177 million to $234 million, plus interest. AllianceBernstein disputes the allegations; a loss is reasonably possible, but the filing says the outcome and any loss range cannot currently be estimated. Other pending or threatened matters are not expected by management to have a material adverse effect, though losses are possible.
AllianceBernstein reported $167.98 million of Q3 pretax non-GAAP adjustments, principally associated with the real-estate charge. After its share of those adjustments, Holding’s non-GAAP adjusted diluted income per unit was $0.36 for Q3 versus $0.30 in 2011, and $0.89 for the nine months versus $1.06. These non-GAAP figures supplement, and do not replace, GAAP results.
Important facts for investors to verify
- Review AllianceBernstein’s accompanying Form 10-Q for the real-estate charge, operating trends, assets under management, and distribution capacity underlying Holding’s results.
- Assess the assumptions, expected savings, and potential further costs of the office consolidation plan.
- Monitor the pension-fund claim, for which the filing provides no estimable loss range.
- Confirm the timing and payment of the declared $0.36-per-unit distribution and the calculation of Available Cash Flow.
- Consider Holding’s dependence on AllianceBernstein distributions and its publicly traded partnership tax status; loss of the stated tax status could materially reduce net income and distributions.