Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2009, for AllianceBernstein Holding L.P. (Holding). 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. As of September 30, 2009, AXA and its subsidiaries held approximately 64.1% of the economic interest in AllianceBernstein.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Net Income | $62.5 million | $107.5 million |
| Net Income Per Unit (Diluted) | $0.67 | $1.17 |
| Equity in Net Income (AllianceBernstein) | $68.7 million | $125.4 million |
| Income Taxes | $6.2 million | $17.9 million |
| Total Assets | $1,680.1 million | (Balance Sheet Item) |
| Total Liabilities | $1.3 million | (Balance Sheet Item) |
| Partners' Capital | $1,678.8 million | (Balance Sheet Item) |
| Cash Distributions Received | (N/A) | $91.4 million |
| Cash Distributions Paid | (N/A) | $70.9 million |
| Net Cash Used in Operating Activities | (N/A) | ($20.5 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
- Net Income Decline: Net income for the nine months ended September 30, 2009, decreased by 51.3% to $107.5 million from $220.7 million in the prior year period. For the three-month period, net income decreased by 2.8% to $62.5 million from $64.4 million.
- Equity in Net Income: The decline in net income reflects a 49.4% decrease in equity in net income attributable to AllianceBernstein Unitholders for the nine-month period ($125.4 million vs. $248.0 million).
- Distributions: The distribution per unit for the nine months ended September 30, 2009, was $1.15, a 51.9% decrease from $2.39 in the prior year. However, the quarterly distribution for Q3 2009 ($0.67) represented an 11.7% increase over Q3 2008 ($0.60), which excluded a one-time insurance reimbursement.
- Capital Resources: Partners' capital increased by 4.7% to $1,678.8 million as of September 30, 2009, compared to $1,604.1 million in the prior year.
Guidance, Outlook, and Risks
Management Commentary: Management expects the global economy to grow modestly in 2010 but notes significant obstacles to sustained growth. The company's cash flow is entirely dependent on distributions from AllianceBernstein, which are subject to capital market performance.
Risks and Contingencies:
- 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 claims has been disbursed, the company cannot estimate the loss for the derivative claims and intends to vigorously defend the matter.
- Tax Status: Holding relies on its status as a "grandfathered" publicly-traded partnership to avoid corporate income tax. Proposed legislation could alter this status, which would materially reduce net income and distributions.
- Asset Impairment: Prolonged weakness in client assets under management (AUM) could result in impairment of goodwill, intangible assets, and deferred sales commissions.
Investor Verification Checklist
- Verify the status and potential financial impact of the pending derivative litigation regarding late trading and market timing.
- Monitor legislative developments regarding the taxation of publicly-traded partnerships (PTPs) and their potential effect on Holding's tax status.
- Review AllianceBernstein's separate Form 10-Q (Exhibit 99.1) for detailed asset under management (AUM) flows and investment performance, as Holding's results are derivative of these figures.
- Confirm the sustainability of the distribution policy given the 51.3% year-over-year decline in net income for the nine-month period.