AllianceBernstein Holding L.P. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Holding is a publicly traded partnership whose principal income and cash flow come from its equity-method investment in AllianceBernstein L.P., an investment manager and research provider. This summary covers Holding; the filing includes AllianceBernstein’s separate report as an exhibit.
Financial results and liquidity
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Equity in AllianceBernstein income | $34.1m | $18.9m | $127.9m | $112.0m |
| Holding net income | $27.0m | $12.2m | $106.2m | $91.2m |
| Diluted net income per unit | $0.26 | $0.12 | $1.02 | $0.90 |
| Adjusted diluted net income per unit (non-GAAP) | $0.30 | $0.36 | $1.06 | $1.20 |
Q3 equity earnings rose 80.2% and net income rose 121.1%; for the first nine months, equity earnings increased 14.1% and net income increased 16.4%. The Q3 effective tax rate fell to 20.8% from 35.4%; the nine-month rate fell to 17.0% from 18.6%. Holding’s taxes are based largely on specified AllianceBernstein revenues, not directly on its equity earnings.
For the nine months, operating cash flow was $120.7m versus $139.5m in 2010, mainly reflecting $18.9m lower distributions received from AllianceBernstein. Investing cash use was $1.5m; financing cash use was $119.2m, principally distributions to unitholders. Holding reported no cash at period-end. It generally distributes available cash flow to unitholders and reported a $0.26-per-unit distribution for Q3, declared October 26, 2011 and payable November 23.
At September 30, total assets were $1.766bn, primarily a $1.762bn investment in AllianceBernstein; total liabilities were $261,000. The balance sheet reports no debt. Partners’ capital was $1.766bn. Holding’s investment in AllianceBernstein was down from $1.786bn at December 31, 2010.
Material changes and notable items
- The higher year-over-year GAAP earnings comparison partly reflects an $89.6m real-estate charge recorded by AllianceBernstein in Q3 2010. Holding’s increased ownership interest in AllianceBernstein also contributed to higher equity earnings.
- Despite higher GAAP earnings, Holding’s adjusted non-GAAP diluted earnings per unit were lower year over year: $0.30 versus $0.36 for Q3 and $1.06 versus $1.20 for nine months. The filing cautions that these measures are not GAAP and may not be comparable with other companies’ measures.
- AllianceBernstein’s settlement of a derivative case was approved in August 2011. It received approximately $17.2m net proceeds after plaintiffs’ legal fees; Holding’s filing says AllianceBernstein collected a $6.5m receivable and recorded the remaining proceeds as income in its consolidated results.
- AllianceBernstein bought approximately 3.0m Holding units during Q3 for about $44.8m, primarily for incentive-compensation obligations, and adopted a Rule 10b5-1 repurchase plan that expired October 26, 2011.
Outlook, risks and contingencies
No specific earnings or revenue guidance is provided. Management said business challenges were likely to continue through the remainder of 2011, while expressing confidence in the firm’s diversified business model, client relationships and financial viability. Holding’s ability to meet obligations depends on distributions from AllianceBernstein and, ultimately, its operating cash flow and market conditions.
Risks highlighted include financial-market performance, investment results, client asset flows and redemptions, competition, regulation and tax changes, possible goodwill impairment, and litigation. Holding also warns that loss of its grandfathered publicly traded partnership tax status could materially reduce net income and distributions. Management believes other pending or threatened matters, individually or together, are not expected to materially adversely affect results or financial condition, but litigation outcomes remain uncertain.
The interim financial statements were reviewed, not audited, by PricewaterhouseCoopers LLP. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Review the attached AllianceBernstein 10-Q for operating revenue, margins, assets under management, flows, and debt details; those operating metrics are not set out in this Holding summary.
- Assess the sustainability of AllianceBernstein distributions and how they translate into Holding’s cash available for distribution.
- Reconcile GAAP and adjusted earnings, especially the prior-year real-estate charge and other underlying-company adjustments.
- Monitor market-related asset and revenue risks, potential goodwill impairment, and the tax conditions supporting Holding’s partnership status.
- Track the resolution and financial effects of litigation and regulatory matters, including any subsequent developments after the reported settlement.