Business Context and Reporting Period
Company: AllianceBernstein Holding L.P. (Holding)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Holding is a publicly-traded partnership whose principal source of income and cash flow is its investment in AllianceBernstein L.P. (AllianceBernstein), a global provider of research, diversified investment management, and related services. AllianceBernstein serves institutional, retail, and private clients through various investment vehicles including mutual funds, hedge funds, and separately-managed accounts. As of March 31, 2010, AXA and its subsidiaries held approximately 62.3% of the economic interest in AllianceBernstein.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Income | $47.2 million | $6.7 million |
| Net Income Per Unit (Diluted) | $0.46 | $0.07 |
| Equity in Net Income (AllianceBernstein) | $54.2 million | $12.6 million |
| Income Taxes | $7.0 million | $5.9 million |
| Comprehensive Income | $40.5 million | $4.8 million |
| Total Assets | $1,790.4 million | $1,800.1 million (Dec 31, 2009) |
| Total Liabilities | $7.7 million | $2.2 million (Dec 31, 2009) |
| Partners' Capital | $1,782.7 million | $1,797.9 million (Dec 31, 2009) |
| Cash and Cash Equivalents | $0 | $0 |
| Available Cash Flow | $46.8 million | $6.4 million |
| Distributions Paid to Unitholders | $62.8 million | $26.6 million |
Note: Holding maintains zero cash and cash equivalents as it is required to distribute all Available Cash Flow to unitholders.
Material Changes vs. Prior Period
- Profitability Surge: Net income increased by 601.5% to $47.2 million from $6.7 million in the prior year quarter. This was driven by a 329.8% increase in equity in net income attributable to AllianceBernstein Unitholders ($54.2 million vs. $12.6 million).
- Ownership Interest: Holding's weighted average equity ownership interest in AllianceBernstein increased to 36.6% from 34.2% in the prior year, resulting from the acquisition of additional AllianceBernstein Units to fund deferred compensation plans.
- Cash Flow: Distributions received from AllianceBernstein rose 108.9% to $71.0 million. Consequently, distributions paid to unitholders increased 136.0% to $62.8 million.
- Comprehensive Income: Comprehensive income was reduced by $6.8 million due to foreign currency translation adjustments, compared to a $2.0 million reduction in the prior year.
Guidance, Outlook, Risks, and Unusual Items
- Dividend Declaration: On May 3, 2010, the General Partner declared a distribution of $0.46 per unit ($46.8 million total), payable May 27, 2010.
- Forward-Looking Risks: Management highlighted risks including the performance of financial markets, the possibility that new institutional mandates may not be funded, and the potential for goodwill impairment if client assets under management remain weak for prolonged periods.
- Legal Proceedings: A derivative lawsuit brought on behalf of Holding regarding "late trading" and "market timing" allegations remains pending. While a $30 million settlement for other related claims has been disbursed, the company cannot estimate the loss for the derivative claims and intends to vigorously defend the matter.
- Tax Status: Holding maintains its status as a "grandfathered" publicly-traded partnership to avoid corporate income tax. Loss of this status would materially reduce net income and distributions.
- Accounting Change: The company reclassified its proportionate share of Holding Units held by AllianceBernstein for deferred compensation plans as a reduction of partners' capital, which also reduced the investment in AllianceBernstein.
Investor Verification Checklist
- Underlying Performance: Verify the detailed financial results of AllianceBernstein L.P. (the operating subsidiary) as Holding's results are derived primarily from its equity interest in that entity.
- Legal Exposure: Monitor the status of the pending derivative litigation regarding late trading and market timing, as the potential loss is currently unquantifiable.
- Asset Flows: Assess the funding status of the pipeline of new institutional client mandates, as these are not legally binding commitments until funded.
- Tax Compliance: Confirm that Holding continues to meet the requirements to maintain its "grandfathered" publicly-traded partnership status to avoid corporate taxation.
- Share Repurchases: Note that AllianceBernstein purchased 833,970 Holding Units on the open market in March 2010 to fund incentive compensation obligations.