Business Context and Reporting Period
Company: AllianceBernstein Holding L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: The registrant is a publicly-traded partnership whose principal source of income and cash flow is its investment in AllianceBernstein L.P., a global provider of research, diversified investment management, and related services. As of September 30, 2008, AXA and its subsidiaries held an approximate 63.0% economic interest in AllianceBernstein.
Key Financial Metrics
| Metric (in thousands, except per unit) | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Equity in Earnings of AllianceBernstein | $72,936 | $247,975 |
| Net Income | $64,361 | $220,708 |
| Net Income Per Unit (Diluted) | $0.73 | $2.52 |
| Total Assets | $1,611,134 | N/A |
| Total Liabilities | $7,037 | N/A |
| Partners' Capital | $1,604,097 | N/A |
| Cash and Cash Equivalents | $0 | $0 |
| Cash Distributions Received (9 Months) | N/A | $277,127 |
| Cash Distributions Paid (9 Months) | N/A | $(248,900) |
Note: The company holds no cash and cash equivalents as it is required to distribute all Available Cash Flow to unitholders quarterly.
Material Changes vs. Prior Period
- Net Income Decline: Net income for the three months ended September 30, 2008, decreased 38.6% to $64.4 million from $104.8 million in the prior year period. For the nine-month period, net income decreased 22.3% to $220.7 million from $284.0 million.
- Earnings Contribution: The decline is primarily attributed to lower equity in earnings from AllianceBernstein, which fell 36.5% for the quarter and 20.8% for the nine-month period compared to 2007.
- Distributions: The distribution per unit for the quarter was $0.60, a 50.0% decrease from $1.20 in the prior year quarter. For the nine months, the distribution per unit was $2.39, down 26.9% from $3.27.
- Comprehensive Income: Comprehensive income for the nine months ended September 30, 2008, was $206.7 million, compared to $290.3 million in 2007, largely due to a $12.6 million loss from foreign currency translation adjustments.
Outlook, Risks, and Unusual Items
- Expense Reduction: Management announced intentions to reduce headcount and future capital outlays to lower the expense base due to declines in assets under management and net revenues. Most headcount reductions are expected in the fourth quarter of 2008, resulting in a charge against earnings.
- Claims Processing Contingency: In Q3 2008, AllianceBernstein recorded approximately $35.3 million in insurance recoveries related to a 2006 class action claims processing error. These recoveries are not included in the Q3 2008 cash distribution. As of September 30, 2008, $7.8 million in accrued liabilities related to this charge remained.
- Legal Proceedings: Derivative claims brought on behalf of Holding regarding "late trading" and "market timing" allegations remain pending. Management intends to vigorously defend these claims but cannot estimate a possible loss.
- Risk Factors: Significant risks include the global financial crisis, potential shifts by clients from equity to fixed income or passive products, and the possibility of future impairments of goodwill and intangible assets if market conditions stagnate.
Investor Verification Checklist
- Headcount Reduction Impact: Verify the specific size of the announced headcount reduction and the magnitude of the expected fourth-quarter charge against earnings.
- Claims Processing Recovery: Monitor the status of the remaining $7.8 million accrued liability and the potential for further recoveries from class action settlement funds.
- Derivative Litigation: Track developments in the pending derivative claims regarding late trading and market timing, as damages are unspecified.
- Asset Flows: Assess the impact of the global economic turmoil on assets under management and the shift toward fixed income or passive products.
- Impairment Tests: Review future reports for results of impairment tests on goodwill, intangible assets, and deferred sales commission assets given depressed securities valuations.