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AB > SEC Filings for AB > Form 10-Q on 24-Oct-2012All Recent SEC Filings

Show all filings for ALLIANCEBERNSTEIN HOLDING L.P.

Form 10-Q for ALLIANCEBERNSTEIN HOLDING L.P.


24-Oct-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Holding's principal source of income and cash flow is attributable to its investment in AllianceBernstein limited partnership Units. Holding's interim condensed financial statements and notes and management's discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with those of AllianceBernstein included as an exhibit to this Form 10-Q. They should also be read in conjunction with AllianceBernstein's audited financial statements and notes and MD&A included in Holding's Form 10-K for the year ended December 31, 2011.

Results of Operations

                            Three Months Ended                           Nine Months Ended
                              September 30,                                September 30,
                           2012            2011         % Change         2012          2011         % Change
                                               (in millions, except per unit amounts)

Net (loss) income
attributable to
AllianceBernstein
Unitholders             $    (44.2 )     $    91.0            n/m %   $    117.2     $   341.6          (65.7 )%
Weighted average
equity ownership
interest                      37.5 %          37.5 %                        37.5 %        37.4 %
Equity in net (loss)
income attributable
to AllianceBernstein
Unitholders             $    (16.6 )     $    34.1            n/m     $     43.9     $   127.9          (65.7 )
Net (loss) income of
Holding                 $    (23.1 )     $    27.0            n/m     $     24.9     $   106.2          (76.6 )
Diluted net (loss)
income per Holding
Unit                    $    (0.23 )     $    0.26            n/m     $     0.25     $    1.02          (75.5 )
Distribution per
Holding Unit            $     0.36       $    0.26           38.5     $     0.83     $    1.02          (18.6 )

Net (loss) income for the three and nine months ended September 30, 2012 decreased $50.1 million and $81.3 million, respectively, to $(23.1) million and $24.9 million from net income of $27.0 million and $106.2 million, for the corresponding prior-year periods. The decreases reflect lower net income attributable to AllianceBernstein Unitholders primarily as a result of AllianceBernstein incurring a net loss of $44.2 million, resulting from a pre-tax real estate charge of $168.1 million AllianceBernstein recorded in the third quarter of 2012 in regard to its global office space consolidation plan. .
Holding's income taxes represent a 3.5% federal tax on its partnership gross income from the active conduct of a trade or business. Holding's partnership gross income is derived from its interest in AllianceBernstein. Holding's income tax is computed by multiplying certain AllianceBernstein qualifying revenues (primarily U.S. investment advisory fees and SCB LLC commissions) by Holding's ownership interest in AllianceBernstein, multiplied by the 3.5% tax rate. Holding's effective tax rate increased to 39.5% and 43.3% during the three months and nine months ended September 30, 2012, respectively, compared to 20.8% and 17.0% in the corresponding periods in 2011 due to AllianceBernstein's 2012 net income decreasing compared to 2011 at a greater rate than the decrease in its 2012 qualifying revenues, which resulted from AllianceBernstein's third quarter 2012 real estate charge. See Note 6 to the condensed financial statements contained in Item 1.


Index

As supplemental information, AllianceBernstein provides the performance measures "adjusted net revenues", "adjusted operating income" and "adjusted operating margin", which are the principal operating metrics management uses in evaluating and comparing the period-to-period operating performance of AllianceBernstein. Such measures are not based on generally accepted accounting principles ("non-GAAP measures"). See AllianceBernstein's MD&A contained in Exhibit 99.1. The impact of these non-GAAP measures on Holding's net income and diluted net income per Holding Unit are as follows:

                                              Three Months Ended            Nine Months Ended
                                                 September 30,                September 30,
                                              2012           2011          2012          2011
                                                  (in thousands, except per unit amounts)

AllianceBernstein non-GAAP adjustments,
before taxes                               $   167,980     $  10,342     $ 183,203     $  11,548
Income tax effect on non-GAAP
adjustments                                     (9,103 )        (269 )      (9,402 )        (300 )
AllianceBernstein non-GAAP adjustments,
after taxes                                    158,877        10,073       173,801        11,248
Holding's weighted average equity
ownership interest in AllianceBernstein           37.5 %        37.5 %        37.5 %        37.4 %
Impact on Holding's net income of
AllianceBernstein non-GAAP adjustments     $    59,589     $   3,773     $  65,113     $   4,212

Net (loss) income - diluted, GAAP basis    $   (23,142 )   $  27,003     $  24,896     $ 106,435
Impact on Holding's net income of
AllianceBernstein non-GAAP adjustments          59,589         3,773        65,113         4,212
Adjusted net income - diluted              $    36,447     $  30,776     $  90,009     $ 110,647

Diluted net (loss) income per Holding
Unit, GAAP basis                           $     (0.23 )   $    0.26     $    0.25          1.02
Impact of AllianceBernstein non-GAAP
adjustments                                       0.59          0.04          0.64          0.04
Adjusted diluted net income per Holding
Unit                                       $      0.36     $    0.30     $    0.89     $    1.06

The impact on Holding's net (loss) income of AllianceBernstein's non-GAAP adjustments reflects Holding's share (based on its ownership percentage of AllianceBernstein over the applicable period) of AllianceBernstein's non-GAAP adjustments to its net income. These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both the GAAP and non-GAAP measures in evaluating our financial performance. The non-GAAP measures alone may pose limitations because they do not include all of AllianceBernstein's revenues and expenses.

Capital Resources and Liquidity

During the nine months ended September 30, 2012, net cash provided by operating activities was $62.1 million, compared to $124.1 million during the corresponding 2011 period. The decrease was primarily due to lower cash distributions received from AllianceBernstein of $67.3 million.

During the nine months ended September 30, 2012, net cash used in investing activities was $6.1 million, compared to $4.8 million during the corresponding 2011 period.

During the nine months ended September 30, 2012, net cash used in financing activities was $56.0 million, compared to $119.2 million during the corresponding 2011 period. The decrease was primarily due to lower cash distributions paid to unitholders of $64.7 million.

Management believes that the cash flow realized from its investment in AllianceBernstein will provide Holding with the resources necessary to meet its financial obligations.

Cash Distributions

Holding is required to distribute all of its Available Cash Flow, as defined in the Holding Partnership Agreement, to its unitholders (including the General Partner). Typically in the past, Available Cash Flow has been the diluted earnings per unit for the quarter multiplied by the number of units outstanding at the end of the quarter, except when, as was the case with the deferred compensation-related charge in the fourth quarter of 2011, the impact of the non-cash charge was eliminated. For the third quarter of 2012, Available Cash Flow is the adjusted diluted net income per unit for the quarter multiplied by the number of units outstanding at the end of the quarter. In future periods, management anticipates that Available Cash Flow typically will be based on adjusted diluted net income per unit, unless management determines that one or more non-GAAP adjustments should not be made with respect to the Available Cash Flow calculation. See Note 2 to the condensed financial statements contained in Item 1 for a description of Available Cash Flow.


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Commitments and Contingencies

See Note 7 to the condensed financial statements contained in Item 1.

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS

Certain statements provided by management in this report and in the portion of AllianceBernstein's Form 10-Q attached hereto as Exhibit 99.1 are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately-managed accounts, general economic conditions, industry trends, future acquisitions, competitive conditions and government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. We caution readers to carefully consider such factors. Further, such forward-looking statements speak only as of the date on which such statements are made; we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ, see "Risk Factors" in Part I, Item 1A of our Form 10-K for the year ended December 31, 2011 and Part II, Item 1A in this Form 10-Q. Any or all of the forward-looking statements that we make in Form 10-K, this Form 10-Q, other documents we file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in "Risk Factors" and those listed below could also adversely affect our financial condition, results of operations and business prospects.

The forward-looking statements referred to in the preceding paragraph include statements regarding:

Our belief that the cash flow Holding realizes from its investment in AllianceBernstein will provide Holding with the resources necessary to meet its financial obligations: Holding's cash flow is dependent on the quarterly cash distributions it receives from AllianceBernstein. Accordingly, Holding's ability to meet its financial obligations is dependent on AllianceBernstein's cash flow from its operations, which is subject to the performance of the capital markets and other factors beyond our control.

Our financial condition and ability to issue public and private debt providing adequate liquidity for our general business needs: Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to issue public and private debt on reasonable terms, as well as the market for such debt or equity, may be limited by adverse market conditions, our firm's long-term credit ratings, our profitability and changes in government regulations, including tax rates and interest rates.

The possible impairment of goodwill in the future: As a result of increased economic uncertainty and current market dynamics, determining whether an impairment of the goodwill asset exists is increasingly difficult and requires management to exercise significant judgment. In addition, to the extent that securities valuations are depressed for prolonged periods of time and market conditions stagnate or worsen as a result of global economic and debt fears and the threat of another financial crisis, or if we continue to experience significant net redemptions, our assets under management, revenues, profitability and unit price may continue to be adversely affected. Although the price of a Holding Unit is just one factor in the calculation of fair value, if current Holding Unit price levels decline significantly, reaching the conclusion that fair value exceeds carrying value will, over time, become more difficult. As a result, subsequent impairment tests may be more frequent and based upon more negative assumptions and future cash flow projections, which may result in an impairment of this asset. Any impairment could reduce materially the recorded amount of goodwill, with a corresponding charge to our earnings.

The outcome of litigation: Litigation is inherently unpredictable, and excessive damage awards do occur. Though we have stated that we do not expect certain legal proceedings to have a material adverse effect on our results of operations or financial condition, any settlement or judgment with respect to a legal proceeding could be significant, and could have such an effect.

Our anticipation that the proposed 12b-1 fee-related rule changes will not have a material effect on us: We cannot predict the impact of this rule change, which is dependent upon the final rules adopted by the SEC, any phase-in or grandfathering period, and any other changes made with respect to share class distribution arrangements.


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Our intention to continue to engage in open market purchases of Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of Holding Units needed in future periods to make incentive compensation awards is dependent upon various factors, some of which are beyond our control, including the fluctuation in the price of a Holding Unit (NYSE: AB).

Our determination that adjusted employee compensation expense should not exceed 50% of our adjusted revenues: Aggregate employee compensation reflects employee performance and competitive compensation levels. Fluctuations in our revenues and/or changes in competitive compensation levels could result in adjusted employee compensation expense being higher than 50% of our adjusted revenues.

The pipeline of new institutional mandates not yet funded: Before they are funded, institutional mandates do not represent legally binding commitments to fund and, accordingly, the possibility exists that not all mandates will be funded in the amounts and at the times currently anticipated, or that mandates ultimately will not be funded.

Our belief that our real estate consolidation plan will be effective in meaningfully improving our cost structure and helping position our firm for a stronger future: Any charges we record and our estimates of reduced occupancy expenses in future years are based on our current assumptions regarding sublease marketing periods, costs to prepare the properties to market, market rental rates, broker commissions and subtenant allowances/incentives, all of which are factors largely beyond our control. If our assumptions prove to be incorrect, we may be forced to record an additional charge and/or our estimated occupancy cost reduction may be less than we currently project.

Our belief that, while the outlook for both the Eurozone and the post-election U.S. economy remains uncertain, it is increasingly clear that the strategy we are executing is positioning AllianceBernstein for a stronger future: Changes and volatility in political, economic, capital market or industry conditions can result in changes in demand for our products and services or affect the value of our assets under management, all of which may adversely affect our financial condition and results of operations. The actual performance of the capital markets and other factors beyond our control will affect our investment success for clients and asset flows. Furthermore, improved flows depend on a number of factors, including our ability to deliver consistent, competitive investment performance, which cannot be assured, conditions of financial markets, consultant recommendations, and changes in our clients' investment preferences, risk tolerances and liquidity needs.

OTHER INFORMATION

With respect to the unaudited condensed interim financial information of Holding for the three months and nine months ended September 30, 2012 and 2011 included in this quarterly report on Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated October 24, 2012 appearing herein states that they did not audit and they do not express an opinion on the unaudited condensed interim financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended ("Securities Act") for their report on the unaudited condensed interim financial information because that report is not a "report" or a "part" of registration statements prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act.

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