Business Context and Reporting Period
Company: AllianceBernstein Holding L.P. (Holding)
Reporting Period: Quarterly period ended June 30, 2011 (Form 10-Q).
Business Overview: 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 June 30, 2011, Holding owned approximately 37.5% of AllianceBernstein, while AXA and its subsidiaries held approximately 60.9%.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2011 |
Six Months Ended June 30, 2011 |
|---|---|---|
| Net Income | $35.5 million | $79.2 million |
| Diluted Net Income Per Unit | $0.34 | $0.76 |
| Equity in Net Income (AllianceBernstein) | $42.7 million | $93.8 million |
| Income Taxes | $7.2 million | $14.6 million |
| Effective Tax Rate | 16.9% | 15.6% |
| Cash Provided by Operating Activities | N/A | $86.6 million |
| Cash Distributions Received (from AllianceBernstein) | N/A | $102.0 million |
| Cash Distributions Paid to Unitholders | N/A | $86.6 million |
| Total Assets | $1,781.7 million | N/A |
| Total Liabilities | $0.2 million | N/A |
Note: Holding has no debt. Cash and cash equivalents were $0 as of June 30, 2011, as all available cash flow is distributed to unitholders.
Material Changes vs. Prior Period
- Net Income (Q2): Increased 11.8% to $35.5 million from $31.8 million in Q2 2010. This was driven by higher net income attributable to AllianceBernstein Unitholders and an increased ownership interest in AllianceBernstein.
- Net Income (YTD): Increased 0.2% to $79.2 million from $79.0 million in the prior year period. The increase in ownership interest was partially offset by slightly lower net income attributable to AllianceBernstein Unitholders.
- Operating Cash Flow (YTD): Decreased to $86.6 million from $109.1 million in the prior year period, primarily due to lower cash distributions received from AllianceBernstein ($23.2 million decrease).
- Share Repurchases: AllianceBernstein purchased approximately 2.5 million Holding Units for $51.0 million in Q2 2011 to fund incentive compensation awards.
Guidance, Outlook, and Risks
Management Commentary: Management believes cash flow from the investment in AllianceBernstein will provide sufficient resources to meet financial obligations. The company declared a distribution of $0.34 per unit for the quarter ended June 30, 2011, payable August 18, 2011.
Risks and Contingencies:
- Market Performance: Financial condition is dependent on capital market performance and client assets under management.
- Goodwill Impairment: Prolonged weakness in asset values could result in goodwill impairment.
- Legal Proceedings: Ongoing litigation regarding "late trading" and "market timing" (Hindo Complaint) has been largely settled, though derivative claims remain subject to court approval. Management does not expect a material adverse effect from pending matters.
- Tax Status: Holding relies on its status as a "grandfathered" publicly-traded partnership to avoid corporate income tax. Loss of this status would materially reduce net income.
Investor Verification Checklist
- Ownership Structure: Verify the 37.5% ownership stake in AllianceBernstein and the 60.9% stake held by AXA.
- Distribution Policy: Confirm that Holding distributes all "Available Cash Flow" and has no retained earnings or cash reserves.
- Non-GAAP Measures: Review the reconciliation of GAAP net income to "Adjusted Net Income" provided in the MD&A, which excludes certain non-GAAP adjustments from AllianceBernstein.
- Share Count: Note the 105,173,342 units outstanding as of June 30, 2011, and the impact of open-market repurchases on dilution.
- Legal Settlements: Monitor the final court approval of the derivative claim settlement involving $23 million in insurance proceeds.