AllianceBernstein Holding L.P. — Q1 2011 10-Q
Business context and period: For the three months ended March 31, 2011. Holding’s principal source of income and cash flow is its equity-method investment in AllianceBernstein L.P. (AB), an investment-management and research-services business. Holding’s figures therefore do not represent AB’s full consolidated operating results.
Key financial metrics
| Metric | Q1 2011 / March 31, 2011 | Prior comparable period / December 31, 2010 |
|---|---|---|
| Equity in AB net income attributable to its unitholders | $51.1 million | $54.2 million, Q1 2010 |
| Holding net income | $43.7 million | $47.2 million, Q1 2010 |
| Diluted net income per Holding unit | $0.42 | $0.46, Q1 2010 |
| Distribution per unit | $0.42 declared for Q1 2011 | $0.46, Q1 2010 |
| Net cash provided by operating activities | $43.8 million | $62.8 million, Q1 2010 |
| Cash distributions received from AB | $51.5 million | $71.0 million, Q1 2010 |
| Total assets | $1,796.6 million | $1,787.6 million at Dec. 31, 2010 |
| Investment in AB | $1,787.6 million | $1,786.3 million at Dec. 31, 2010 |
| Total liabilities | $7.8 million | $0.5 million at Dec. 31, 2010 |
Holding reported no cash or cash equivalents at either period end. The filing does not provide a clear debt balance, or Holding-level operating revenue or margin figures. AB’s net income attributable to its unitholders was $136.5 million, down 8.0% from $148.3 million; Holding’s weighted-average ownership interest in AB increased to 37.4% from 36.6%.
Material changes and management commentary
- Holding net income declined 7.5% year over year despite its higher average ownership in AB. Management attributed the decrease primarily to lower AB net income, partly offset by Holding’s increased ownership interest.
- Management said AB’s lower net income primarily reflected increased expenses. Holding’s effective tax rate rose to 14.5% from 12.8%, as qualifying AB revenues and Holding’s ownership interest increased.
- Operating cash flow fell by $19.0 million, primarily because distributions received from AB were lower. Holding distributed $43.8 million to unitholders during the quarter.
- On May 2, 2011, the General Partner declared a $44.1 million distribution, or $0.42 per unit, payable May 26 to holders of record May 13.
- Management believes distributions from AB will provide resources to meet Holding’s obligations. Holding generally distributes available cash flow, but the General Partner may retain amounts at its discretion.
Outlook, risks and unusual items
- The filing gives no specific earnings or revenue guidance. Future cash flow and distributions depend on AB’s operating cash flow, capital-market performance and other factors outside Holding’s control.
- Disclosed risks include market and investment performance, client assets and flows, competition, regulation and tax changes, potential goodwill impairment, and the possibility that institutional mandates will not be funded as anticipated. Management cautioned that adjusted compensation could exceed its stated target of 50% of adjusted net revenues and that real-estate cost savings depend on subleasing assumptions.
- In the long-running Hindo litigation, a $30 million settlement of shareholder, mutual-fund derivative and ERISA claims was previously expensed and disbursed. A separate Holding-unitholder derivative matter has a proposed settlement funded by $23 million in insurance proceeds; court preliminary approval remained pending. Management said other pending or threatened matters were not expected to have a material adverse effect, while noting litigation’s uncertainty.
- Holding’s publicly traded partnership tax status is important: losing its grandfathered status could subject it to corporate income tax and materially reduce net income and distributions.
- No material change in Holding’s market risk was reported. Management concluded disclosure controls were effective, and no materially affecting change in internal control was reported. The interim financial statements received an independent accountant’s review, not an audit.
Important facts for investors to verify
- Review AB’s accompanying Form 10-Q exhibit for underlying revenue, expenses, margins, assets under management, flows, debt and liquidity details; these are not clearly reported in Holding’s standalone statements.
- Track AB’s distributions to Holding and Holding’s resulting available cash flow, since Holding has no reported cash balance and relies on AB for cash.
- Confirm the payment and record dates and amount of the $0.42-per-unit distribution declared after quarter-end.
- Monitor the court status and financial effects, if any, of the proposed $23 million insurance-funded derivative settlement and other legal or regulatory matters.
- Assess tax-status and market-related risks, including their potential impact on Holding’s earnings and distributions.