form10q.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2013
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File No. 001-09818
ALLIANCEBERNSTEIN HOLDING L.P.
(Exact name of registrant as specified in its charter)
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Delaware
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13-3434400
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1345 Avenue of the Americas, New York, NY 10105
(Address of principal executive offices)
(Zip Code)
(212) 969-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of units representing assignments of beneficial ownership of limited partnership interests outstanding as of March 31, 2013 was 105,565,870.*
*includes 100,000 units of general partnership interest having economic interests equivalent to the economic interests of the units representing assignments of beneficial ownership of limited partnership interests.
ALLIANCEBERNSTEIN HOLDING L.P.
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Page
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Part I
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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1
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2
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3
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4
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5-10
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Item 2.
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11-13
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Item 3.
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14
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Item 4.
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14
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Part II
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OTHER INFORMATION
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Item 1.
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15
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Item 1A.
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15
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Item 2.
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15-16
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Item 3.
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16
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Item 4.
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16
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Item 5.
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16-17
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Item 6.
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17
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18
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Part I
FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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ALLIANCEBERNSTEIN HOLDING L.P.
(in thousands, except unit amounts)
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March 31,
2013
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December 31,
2012
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(unaudited)
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ASSETS
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Investment in AllianceBernstein
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$ |
1,615,585 |
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$ |
1,560,536 |
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Other assets
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1,291 |
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5,957 |
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Total assets
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$ |
1,616,876 |
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$ |
1,566,493 |
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LIABILITIES AND PARTNERS’ CAPITAL
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Liabilities:
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Due to AllianceBernstein
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$ |
8,158 |
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$ |
6,053 |
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Other liabilities
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461 |
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358 |
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Total liabilities
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8,619 |
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6,411 |
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Commitments and contingencies (See Note 8)
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Partners’ capital:
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General Partner: 100,000 general partnership units issued and outstanding
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1,366 |
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1,369 |
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Limited partners: 105,465,870 and 105,073,342 limited partnership units issued and outstanding
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1,731,792 |
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1,723,172 |
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Holding Units held by AllianceBernstein to fund long-term incentive compensation plans
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(102,981 |
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(146,258 |
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Accumulated other comprehensive income (loss)
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(21,920 |
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(18,201 |
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Total partners’ capital
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1,608,257 |
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1,560,082 |
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Total liabilities and partners’ capital
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$ |
1,616,876 |
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$ |
1,566,493 |
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See Accompanying Notes to Condensed Financial Statements.
ALLIANCEBERNSTEIN HOLDING L.P.
(in thousands, except per unit amounts)
(unaudited)
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Three Months Ended March 31,
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2013
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2012
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Equity in net income attributable to AllianceBernstein Unitholders
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$ |
42,997 |
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$ |
32,707 |
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Income taxes
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4,766 |
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6,008 |
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Net income
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$ |
38,231 |
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$ |
26,699 |
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Net income per unit:
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Basic
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$ |
0.38 |
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$ |
0.26 |
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Diluted
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$ |
0.38 |
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$ |
0.26 |
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See Accompanying Notes to Condensed Financial Statements.
ALLIANCEBERNSTEIN HOLDING L.P.
(in thousands)
(unaudited)
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Three Months Ended
March 31,
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2013
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2012
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Net income
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$
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38,231
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$
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26,699
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Other comprehensive income (loss):
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Foreign currency translation adjustments
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(3,878
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)
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683
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Income tax (expense)
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(6
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—
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Foreign currency translation adjustments, net of tax
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(3,884
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683
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Unrealized gains on investments:
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Unrealized gains arising during period
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282
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264
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Less: reclassification adjustments for gains included in net income
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—
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—
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Changes in unrealized gains on investments
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282
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264
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Income tax (expense)
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(145
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(113
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Unrealized gains on investments, net of tax
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137
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151
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Changes in employee benefit related items:
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Amortization of transition asset
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(13
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(13
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Amortization of prior service cost
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9
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10
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Recognized actuarial loss (gain)
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67
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(29
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Changes in employee benefit related items
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63
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(32
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Income tax (expense)
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(35
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—
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Employee benefit related items, net of tax
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28
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(32
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Other comprehensive (loss) income
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(3,719
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)
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802
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Comprehensive income
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$
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34,512
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$
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27,501
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See Accompanying Notes to Condensed Financial Statements.
ALLIANCEBERNSTEIN HOLDING L.P.
(in thousands)
(unaudited)
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Three Months Ended
March 31,
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2013
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2012
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Cash flows from operating activities:
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Net income
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$
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38,231
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$
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26,699
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Adjustments to reconcile net income to net cash provided by operating activities:
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Equity in net income attributable to AllianceBernstein Unitholders
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(42,997
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)
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(32,707
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Cash distributions received from AllianceBernstein
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40,077
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17,880
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Changes in assets and liabilities:
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(Increase) in due from AllianceBernstein
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—
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(2,810
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)
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Decrease in other assets
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4,666
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1,072
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Increase (decrease) in due to AllianceBernstein
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2,105
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(2,453
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Increase in other liabilities
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103
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4,939
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Net cash provided by operating activities
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42,185
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12,620
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Cash flows from investing activities:
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Investments in AllianceBernstein from cash distributions paid to AllianceBernstein consolidated rabbi trust
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(5,929
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(864
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Investments in AllianceBernstein with proceeds from exercise of compensatory options to buy Holding Units
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(6,642
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—
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Net cash used in investing activities
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(12,571
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(864
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Cash flows from financing activities:
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Cash distributions to unitholders
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(36,256
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(11,756
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Proceeds from exercise of compensatory options to buy Holding Units
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6,642
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—
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Net cash used in financing activities
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(29,614
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(11,756
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Change in cash and cash equivalents
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—
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—
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Cash and cash equivalents as of beginning of period
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—
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—
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Cash and cash equivalents as of end of period
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$
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—
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$
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—
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See Accompanying Notes to Condensed Financial Statements.
ALLIANCEBERNSTEIN HOLDING L.P.
March 31, 2013
(unaudited)
The words “we” and “our” refer collectively to AllianceBernstein Holding L.P. (“Holding”) and AllianceBernstein L.P. and its subsidiaries (“AllianceBernstein”), or to their officers and employees. Similarly, the word “company” refers to both Holding and AllianceBernstein. Where the context requires distinguishing between Holding and AllianceBernstein, we identify which of them is being discussed.
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1.
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Business Description, Organization and Basis of Presentation
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Business Description
Holding’s principal source of income and cash flow is attributable to its investment in AllianceBernstein limited partnership interests. The condensed financial statements and notes of Holding should be read in conjunction with the condensed consolidated financial statements and notes of AllianceBernstein included as an exhibit to this quarterly report on Form 10-Q and with Holding’s and AllianceBernstein’s audited financial statements included in Holding’s Form 10-K for the year ended December 31, 2012.
AllianceBernstein provides research, diversified investment management and related services globally to a broad range of clients. Its principal services include:
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Institutional Services – servicing its institutional clients, including unaffiliated corporate and public employee pension funds, endowment funds, domestic and foreign institutions and governments, and affiliates such as AXA and certain of its insurance company subsidiaries, by means of separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles.
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Retail Services – servicing its retail clients, primarily by means of retail mutual funds sponsored by AllianceBernstein or an affiliated company, sub-advisory relationships with mutual funds sponsored by third parties, separately-managed account programs sponsored by financial intermediaries worldwide and other investment vehicles.
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Private Client Services – servicing its private clients, including high-net-worth individuals, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities, by means of separately-managed accounts, hedge funds, mutual funds and other investment vehicles.
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Bernstein Research Services – servicing institutional investors seeking high-quality research, portfolio strategy advice and brokerage-related services.
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AllianceBernstein also provides distribution, shareholder servicing and administrative services to the mutual funds it sponsors.
AllianceBernstein’s high-quality, in-depth research is the foundation of its business. AllianceBernstein’s research disciplines include fundamental, quantitative and economic research and currency forecasting. In addition, AllianceBernstein has created several specialized research initiatives, including research examining global strategic developments that can affect multiple industries and geographies.
AllianceBernstein provides a broad range of investment services with expertise in:
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Equity securities, including value and growth equities;
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Fixed income securities, including taxable and tax-exempt securities;
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Passive management, including index and enhanced index strategies;
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Alternative investments, including hedge funds, fund of funds, currency management strategies and private equity (e.g., direct real estate investing); and
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Asset allocation services, including dynamic asset allocation, customized target date funds, target risk funds and other strategies tailored to help clients meet their investment goals.
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AllianceBernstein provides these services using various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term (e.g., long-, intermediate- and short-duration debt securities), and geography (e.g., U.S., international, global and emerging markets), as well as local and regional disciplines in major markets around the world.
Organization
As of March 31, 2013, AXA, a société anonyme organized under the laws of France and the holding company for an international group of insurance and related financial services companies, through certain of its subsidiaries (“AXA and its subsidiaries”) owned approximately 1.4% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in Holding (“Holding Units”).
As of March 31, 2013, the ownership structure of AllianceBernstein, expressed as a percentage of general and limited partnership interests, was as follows:
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AXA and its subsidiaries
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61.0
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%
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Holding
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37.6
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Unaffiliated holders
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1.4
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100.0
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%
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AllianceBernstein Corporation (an indirect wholly-owned subsidiary of AXA, “General Partner”) is the general partner of both Holding and AllianceBernstein. AllianceBernstein Corporation owns 100,000 general partnership units in Holding and a 1% general partnership interest in AllianceBernstein. Including both the general partnership and limited partnership interests in Holding and AllianceBernstein, AXA and its subsidiaries had an approximate 64.2% economic interest in AllianceBernstein as of March 31, 2013.
Basis of Presentation
The interim condensed financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the interim results, have been made. The preparation of the condensed financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed financial statements and the reported amounts of revenues and expenses during the interim reporting periods. Actual results could differ from those estimates. The December 31, 2012 condensed statement of financial condition was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Holding records its investment in AllianceBernstein using the equity method of accounting. Holding’s investment is increased to reflect its proportionate share of income of AllianceBernstein and decreased to reflect its proportionate share of losses of AllianceBernstein and cash distributions made by AllianceBernstein to its unitholders. In addition, its investment is adjusted to reflect its proportionate share of certain capital transactions of AllianceBernstein.
Revision
During 2012, we identified an error in the classification for our cash distributions to AllianceBernstein on unallocated Holding Units held in its consolidated rabbi trust. As such, we revised the classification of prior period amounts recorded for our cash distributions to AllianceBernstein on unallocated Holding Units held in its consolidated rabbi trust from due from AllianceBernstein to investments in AllianceBernstein in the statement of financial condition. In addition, changes in due from AllianceBernstein included in cash flows from operating activities in prior periods are now presented as additional investments in AllianceBernstein included in cash flows from investing activities. The impact of the revision for the three months ended March 31, 2012 in the statement of cash flows was $0.9 million. Management concluded that the error did not, individually or in the aggregate, result in a material misstatement of Holding’s financial statements for any prior period.
Holding is required to distribute all of its Available Cash Flow, as defined in the Amended and Restated Agreement of Limited Partnership of Holding (“Holding Partnership Agreement”), to its unitholders pro rata in accordance with their percentage interests in Holding. Available Cash Flow is defined as the cash distributions Holding receives from AllianceBernstein minus such amounts as the General Partner determines, in its sole discretion, should be retained by Holding for use in its business or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow.
On May 1, 2013, the General Partner declared a distribution of $0.38 per unit, representing Available Cash Flow for the three months ended March 31, 2013. Each general partnership unit in Holding is entitled to receive distributions equal to those received by each Holding Unit. The distribution is payable on May 23, 2013 to holders of record at the close of business on May 13, 2013.
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3.
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Long-term Incentive Compensation Plans
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AllianceBernstein maintains several unfunded, non-qualified long-term incentive compensation plans under which awards of restricted Holding Units and options to buy Holding Units are granted to employees of AllianceBernstein and eligible members of the Board of Directors (“Eligible Directors”).
AllianceBernstein funds its restricted Holding Unit awards either by purchasing Holding Units on the open market or purchasing newly-issued Holding Units from Holding, all of which are held in a consolidated rabbi trust until they are distributed to employees upon vesting. In accordance with the Holding Partnership Agreement, when AllianceBernstein purchases newly-issued Holding Units from Holding, Holding is required to use the proceeds it receives from AllianceBernstein to purchase the equivalent number of newly-issued AllianceBernstein Units, thus increasing its percentage ownership interest in AllianceBernstein. Holding Units held in the consolidated rabbi trust are corporate assets in the name of the trust and are available to the general creditors of AllianceBernstein.
During the first quarters of 2013 and 2012, AllianceBernstein purchased 1.0 million and 4.5 million Holding Units for $19.6 million and $66.0 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 0.8 million and 4.3 million Holding Units for $16.0 million and $63.2 million, respectively, with the remainder relating to purchases of Holding Units from employees to allow them to fulfill statutory tax withholding requirements at the time of distribution of long-term incentive compensation awards, offset by Holding Units purchased by employees as part of a distribution reinvestment election.
Since the third quarter of 2011, AllianceBernstein has implemented plans each quarter to repurchase Holding Units pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). A Rule 10b5-1 plan allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods and because it possesses material non-public information. Each broker selected by AllianceBernstein has the authority under the terms and limitations specified in the plan to repurchase Holding Units on AllianceBernstein’s behalf in accordance with the terms of the plan. Repurchases are subject to SEC regulations as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the first quarter of 2013 expired at the close of business on April 29, 2013. AllianceBernstein intends to adopt additional Rule 10b5-1 plans so that the firm can continue to engage in open-market purchases of Holding Units to help fund anticipated obligations under its incentive compensation award program and for other corporate purposes.
AllianceBernstein granted to employees and Eligible Directors 6.6 million restricted Holding Unit awards (including 6.5 million granted in January 2013 for 2012 year-end awards) and 9.1 million restricted Holding Unit awards (including 8.7 million granted in January 2012 for 2011 year-end awards) during the first quarters of 2013 and 2012, respectively. To fund these awards, AllianceBernstein allocated previously repurchased Holding Units that had been held in AllianceBernstein’s consolidated rabbi trust. There were approximately 12.5 million unallocated Holding Units remaining in AllianceBernstein’s consolidated rabbi trust as of March 31, 2013.
During the first quarter of 2013, Holding issued 392,528 Holding Units upon exercise of options to buy Holding Units. Holding used the proceeds of $6.6 million to purchase the equivalent number of newly-issued AllianceBernstein Units.
Basic net income per unit is derived by dividing net income by the basic weighted average number of units outstanding for each period. Diluted net income per unit is derived by adjusting net income for the assumed dilutive effect of compensatory options (“Net income – diluted”) and dividing by the diluted weighted average number of units outstanding for each period.
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Three Months Ended March 31,
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2013
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2012
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(in thousands, except per unit amounts) |
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Net income – basic
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$ |
38,231 |
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$ |
26,699 |
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Additional allocation of equity in net income attributable to AllianceBernstein resulting from assumed dilutive effect of compensatory options
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243 |
|
|
|
— |
|
|
Net income – diluted
|
|
$ |
38,474 |
|
|
$ |
26,699 |
|
| |
|
|
|
|
|
|
|
|
|
Weighted average units outstanding – basic
|
|
|
100,297 |
|
|
|
101,767 |
|
|
Dilutive effect of compensatory options
|
|
|
937 |
|
|
|
— |
|
|
Weighted average units outstanding – diluted
|
|
|
101,234 |
|
|
|
101,767 |
|
| |
|
|
|
|
|
|
|
|
|
Basic net income per unit
|
|
$ |
0.38 |
|
|
$ |
0.26 |
|
|
Diluted net income per unit
|
|
$ |
0.38 |
|
|
$ |
0.26 |
|
As of March 31, 2013 and 2012, we excluded 3,161,304 and 8,977,349 options, respectively, from the diluted net income per unit computation due to their anti-dilutive effect. Weighted average units outstanding do not include Holding’s proportional share (37.5% during the first quarters of 2013 and 2012) of the Holding Units held by AllianceBernstein in its consolidated rabbi trust.
|
5.
|
Investment in AllianceBernstein
|
Changes in Holding’s investment in AllianceBernstein during the three-month period ended March 31, 2013 were as follows (in thousands):
|
Investment in AllianceBernstein as of December 31, 2012
|
|
$
|
1,560,536
|
|
|
Equity in net income attributable to AllianceBernstein Unitholders
|
|
|
42,997
|
|
|
Changes in accumulated other comprehensive income (loss)
|
|
|
(3,719
|
)
|
|
Additional investments in AllianceBernstein from cash distributions paid to AllianceBernstein consolidated rabbi trust
|
|
|
5,929
|
|
|
Additional investments with proceeds from exercise of compensatory options to buy Holding Units, net
|
|
|
6,642
|
|
|
Cash distributions received from AllianceBernstein
|
|
|
(40,077
|
)
|
|
Change in Holding Units held by AllianceBernstein for long-term incentive compensation plans
|
|
|
43,277
|
|
|
Investment in AllianceBernstein as of March 31, 2013
|
|
$
|
1,615,585
|
|
Changes in Holding Units outstanding during the three-month period ended March 31, 2013 were as follows:
|
Outstanding as of December 31, 2012
|
|
|
105,173,342
|
|
|
Options exercised
|
|
|
392,528
|
|
|
Units issued
|
|
|
—
|
|
|
Units forfeited
|
|
|
—
|
|
|
Outstanding as of March 31, 2013
|
|
|
105,565,870
|
|
Holding is a “grandfathered” publicly-traded partnership for federal tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, Holding is subject to the 4.0% New York City unincorporated business tax (“UBT”), net of credits for UBT paid by AllianceBernstein, and to a 3.5% federal tax on 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 brokerage commissions) by Holding’s ownership interest in AllianceBernstein, multiplied by the 3.5% tax rate. Since the fourth quarter of 2012, Holding Units in AllianceBernstein’s consolidated rabbi trust have not been treated as outstanding for purposes of calculating Holding’s ownership interest in AllianceBernstein.
| |
|
Three Months Ended
March 31,
|
|
|
|
|
| |
|
2013
|
|
|
2012
|
|
|
% Change
|
|
| |
|
(in thousands) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Net income attributable to AllianceBernstein Unitholders
|
|
$ |
114,516 |
|
|
$ |
87,278 |
|
|
|
31.2 |
% |
|
Multiplied by: weighted average equity ownership interest
|
|
|
37.5 |
% |
|
|
37.5 |
% |
|
|
|
|
|
Equity in net income attributable to AllianceBernstein Unitholders
|
|
$ |
42,997 |
|
|
$ |
32,707 |
|
|
|
31.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
AllianceBernstein qualifying revenues
|
|
$ |
482,586 |
|
|
$ |
449,691 |
|
|
|
7.3 |
|
|
Multiplied by: weighted average equity ownership interest for calculating tax
|
|
|
27.7 |
% |
|
|
37.5 |
% |
|
|
|
|
|
Multiplied by: federal tax
|
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
|
|
|
Federal income taxes
|
|
|
4,666 |
|
|
|
5,908 |
|
|
|
(21.0 |
) |
|
State income taxes
|
|
|
100 |
|
|
|
100 |
|
|
|
|
|
|
Total income taxes
|
|
$ |
4,766 |
|
|
$ |
6,008 |
|
|
|
(20.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
11.1 |
% |
|
|
18.4 |
% |
|
|
|
|
In order to preserve Holding’s status as a “grandfathered” publicly-traded partnership for federal income tax purposes, management ensures that Holding does not directly or indirectly (through AllianceBernstein) enter into a substantial new line of business. If Holding were to lose its status as a “grandfathered” publicly-traded partnership, it would be subject to corporate income tax, which would reduce materially Holding’s net income and its quarterly distributions to Holding unitholders.
|
8.
|
Commitments and Contingencies
|
Legal and regulatory matters described below pertain to AllianceBernstein and are included here due to their potential significance to Holding’s investment in AllianceBernstein.
With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable, and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages, the litigation is in its early stages, or when the litigation is highly complex or broad in scope. In such cases, we disclose that we are unable to predict the outcome or estimate a possible loss or range of loss.
During the first quarter of 2012, AllianceBernstein received a legal letter of claim (the “Letter of Claim”) sent on behalf of a former European pension fund client, alleging that AllianceBernstein Limited (a wholly-owned subsidiary of AllianceBernstein organized in the U.K.) was negligent and failed to meet certain applicable standards of care with respect to the initial investment in and management of a £500 million portfolio of U.S. mortgage-backed securities. The alleged damages range between $177 million and $234 million, plus compound interest on an alleged $125 million of realized losses in the portfolio. AllianceBernstein believes that any losses to this client resulted from adverse developments in the U.S. housing and mortgage market that precipitated the financial crisis in 2008 and not any negligence or failure on its part. AllianceBernstein believes that it has strong defenses to these claims, which are set forth in AllianceBernstein’s October 12, 2012 response to the Letter of Claim, and will defend this matter vigorously. Currently, AllianceBernstein is unable to estimate a reasonably possible range of loss because the matter remains in its early stages.
In addition to the Letter of Claim, AllianceBernstein is involved in various other matters, including regulatory inquiries, administrative proceedings and litigation, some of which allege significant damages.
In the opinion of AllianceBernstein’s management, an adequate accrual has been made as of March 31, 2013 to provide for any probable losses regarding any litigation matters for which it can reasonably estimate an amount of loss. It is reasonably possible that AllianceBernstein could incur additional losses pertaining to these matters, but management currently is unable to estimate any such additional losses.
Management, after consultation with legal counsel, currently believes that the outcome of any matter that is pending or threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or liquidity. However, as any inquiry, proceeding or litigation has an element of uncertainty, management cannot determine whether further developments relating to any matter that is pending or threatened, or all of them combined, will have a material adverse effect on our results of operations, financial condition or liquidity in any future reporting period.
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, 2012.
Results of Operations
| |
|
Three Months Ended
March 31,
|
|
|
|
|
| |
|
2013
|
|
|
2012
|
|
|
% Change
|
|
| |
|
(in millions, except per unit amounts) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Net income attributable to AllianceBernstein Unitholders
|
|
$ |
114.5 |
|
|
$ |
87.3 |
|
|
|
31.2 |
% |
|
Weighted average equity ownership interest
|
|
|
37.5 |
% |
|
|
37.5 |
% |
|
|
|
|
|
Equity in net income attributable to AllianceBernstein Unitholders
|
|
$ |
43.0 |
|
|
$ |
32.7 |
|
|
|
31.5 |
|
|
Net income of Holding
|
|
$ |
38.2 |
|
|
$ |
26.7 |
|
|
|
43.2 |
|
|
Diluted net income per Holding Unit
|
|
$ |
0.38 |
|
|
$ |
0.26 |
|
|
|
46.2 |
|
|
Distribution per Holding Unit
|
|
$ |
0.38 |
|
|
$ |
0.26 |
|
|
|
46.2 |
|
Net income for the three months ended March 31, 2013 increased $11.5 million to $38.2 million from net income of $26.7 million for the three months ended March 31, 2012. The increase reflects higher net income attributable to AllianceBernstein Unitholders.
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 brokerage commissions) by Holding’s ownership interest in AllianceBernstein (adjusted for Holding Units owned by AllianceBernstein’s consolidated rabbi trust), multiplied by the 3.5% tax rate. Holding’s effective tax rate was 11.1% in the first quarter of 2013 compared to 18.4% during the first quarter of 2012. The lower effective tax rate is due to a 20.7% decrease in income tax expense, primarily a result of a lower weighted average equity ownership interest for calculating tax, and a 31.5% increase in equity in net income attributable to AllianceBernstein Unitholders. See Note 7 to the condensed financial statements contained in Item 1.
As supplemental information, AllianceBernstein provides the performance measures “adjusted net revenues”, “adjusted operating income” and “adjusted operating margin”, which are the principal 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 March 31,
|
|
| |
|
2013
|
|
|
2012
|
|
| |
|
(in thousands, except per unit amounts)
|
|
| |
|
|
|
|
|
|
|
AllianceBernstein non-GAAP adjustments, before taxes
|
|
$ |
667 |
|
|
$ |
7,480 |
|
|
Income tax effect on non-GAAP adjustments
|
|
|
(98 |
) |
|
|
(165 |
) |
|
AllianceBernstein non-GAAP adjustments, after taxes
|
|
|
569 |
|
|
|
7,315 |
|
|
Holding’s weighted average equity ownership interest in AllianceBernstein
|
|
|
37.5 |
% |
|
|
37.5 |
% |
|
Impact on Holding’s net income of AllianceBernstein non-GAAP adjustments
|
|
$ |
214 |
|
|
$ |
2,741 |
|
| |
|
|
|
|
|
|
|
|
|
Net income – diluted, GAAP basis
|
|
$ |
38,474 |
|
|
$ |
26,699 |
|
|
Impact on Holding’s net income of AllianceBernstein non-GAAP adjustments
|
|
|
214 |
|
|
|
2,741 |
|
|
Adjusted net income – diluted
|
|
$ |
38,688 |
|
|
$ |
29,440 |
|
| |
|
|
|
|
|
|
|
|
|
Diluted net income per Holding Unit, GAAP basis
|
|
$ |
0.38 |
|
|
$ |
0.26 |
|
|
Impact of AllianceBernstein non-GAAP adjustments
|
|
|
— |
|
|
|
0.03 |
|
|
Adjusted diluted net income per Holding Unit
|
|
$ |
0.38 |
|
|
$ |
0.29 |
|
The impact on Holding’s net 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 three months ended March 31, 2013, net cash provided by operating activities was $42.2 million, compared to $12.6 million during the corresponding 2012 period. The increase was primarily due to higher cash distributions received from AllianceBernstein of $22.2 million.
During the three months ended March 31, 2013, net cash used in investing activities was $12.6 million, compared to $0.9 million during the corresponding 2012 period. The increase reflects investments in AllianceBernstein with proceeds from exercises of compensatory options to buy Holding Units of $6.6 million in the first quarter of 2013 and higher investments in AllianceBernstein from cash distributions paid to the AllianceBernstein consolidated rabbi trust of $5.1 million.
During the three months ended March 31, 2013, net cash used in financing activities was $29.6 million, compared to $11.8 million during the corresponding 2012 period. The increase was primarily due to higher cash distributions paid to unitholders of $24.5 million, offset by proceeds from the exercise of compensatory options to buy Holding Units of $6.6 million in 2013.
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 was 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 compensation-related charge in the fourth quarter of 2011 and the real estate charge in the third quarter of 2012, the effects of these non-cash charges were eliminated. Starting in the third quarter of 2012, Available Cash Flow has been 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.
Commitments and Contingencies
See Note 8 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, 2012 and Part II, Item 1A in this Form 10-Q. Any or all of the forward-looking statements that we make in our 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 revenues, financial condition, results of operations and business prospects.
The forward-looking statements referred to in the preceding paragraph, most of which directly affect AllianceBernstein but also affect Holding because Holding’s principal source of income and cash flow is attributable to its investment in AllianceBernstein, 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 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, financial condition or liquidity, any settlement or judgment with respect to a legal proceeding could be significant, and could have such an effect.
|
|
|
●
|
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.
|
There have been no material changes to Holding’s market risk for the quarter ended March 31, 2013.
Disclosure Controls and Procedures
Holding and AllianceBernstein each maintains a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our reports under the Exchange Act is (i) recorded, processed, summarized and reported in a timely manner, and (ii) accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to permit timely decisions regarding our disclosure.
As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the first quarter of 2013 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II
OTHER INFORMATION
See Note 8 to the condensed financial statements contained in Part I, Item 1.
In addition to the information set forth in this report, please consider carefully “Risk Factors” in Part I, Item 1A of our Form 10-K for the year ended December 31, 2012. Such factors could materially affect our revenues, financial condition, results of operations and business prospects. See also our “Cautions Regarding Forward-Looking Statements” in Part I, Item 2.
There were no Holding Units sold by Holding in the period covered by this report that were not registered under the Securities Act.
During the fourth quarter of 2012 and the first quarter of 2013, AllianceBernstein implemented plans to repurchase Holding Units pursuant to Rule 10b5-1 under the Exchange Act. See Note 3 to the condensed financial statements contained in Part I, Item 1.
The following table provides information relating to any Holding Units bought by AllianceBernstein in the quarter covered by this report:
ISSUER PURCHASES OF EQUITY SECURITIES
|
Period
|
|
(a)
Total Number
of Holding
Units
Purchased
|
|
|
(b)
Average Price
Paid
Per Holding
Unit, net of
Commissions
|
|
|
(c)
Total Number of
Holding
Units Purchased as
Part of Publicly
Announced Plans
or Programs
|
|
|
(d)
Maximum Number
(or Approximate
Dollar Value) of
Holding Units
that May Yet
Be Purchased Under
the Plans or
Programs
|
|
|
1/1/13 - 1/31/13(1)(3)
|
|
|
650,171
|
|
|
$
|
19.15
|
|
|
|
527,643
|
|
|
|
—
|
|
|
2/1/13 - 2/28/13(1)(2)(3)
|
|
|
123,983
|
|
|
|
21.36
|
|
|
|
123,500
|
|
|
|
—
|
|
|
3/1/13 - 3/31/13(2)(3)
|
|
|
205,647
|
|
|
|
22.00
|
|
|
|
150,300
|
|
|
|
—
|
|
|
Total
|
|
|
979,801
|
|
|
$
|
20.03
|
|
|
|
801,443
|
|
|
|
—
|
|
|
|
(1)
|
Between January 2, 2013 and February 11, 2013 (inclusive), AllianceBernstein purchased 527,643 Holding Units on the open market pursuant to a Rule 10b5-1 plan, which was adopted on October 26, 2012 and expired on February 11, 2013, to help fund anticipated obligations under its incentive compensation award program and for other corporate purposes.
|
|
|
(2)
|
Between February 13, 2013 and March 31, 2013 (inclusive), AllianceBernstein purchased 273,800 Holding Units on the open market pursuant to a Rule 10b5-1 plan, which was adopted on February 13, 2013 and expired on April 29, 2013, to help fund anticipated obligations under its incentive compensation award program and for other corporate purposes.
|
|
|
(3)
|
During the first quarter of 2013, AllianceBernstein purchased from employees 178,358 Holding Units to allow them to fulfill statutory withholding tax requirements at the time of distribution of long-term incentive compensation awards.
|
The following table provides information relating to any AllianceBernstein Units bought by AllianceBernstein in the quarter covered by this report:
ISSUER PURCHASES OF EQUITY SECURITIES
|
Period
|
|
(a)
Total Number
of
AllianceBernstein
Units
Purchased
|
|
|
(b)
Average Price
Paid Per
AllianceBernstein
Unit, net of
Commissions
|
|
|
(c)
Total Number of
AllianceBernstein
Units Purchased as
Part of Publicly
Announced Plans
or Programs
|
|
|
(d)
Maximum Number
(or Approximate
Dollar Value) of
AllianceBernstein
Units that May Yet
Be Purchased Under
the Plans or
Programs
|
|
|
1/1/13 - 1/31/13
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2 /1/13 -2/28/13
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
3/1/13 - 3/31/13(1)
|
|
|
300
|
|
|
|
22.57
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
|
300
|
|
|
$
|
22.57
|
|
|
|
—
|
|
|
|
—
|
|
| |
(1)
|
During March 2013, AllianceBernstein purchased 300 AllianceBernstein Units in private transactions.
|
None.
None.
Iran Threat Reduction and Syria Human Rights Act
AllianceBernstein, Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act (“Iran Act”), nor were they involved in the AXA Group insurance policies described immediately below.
The non-U.S. based subsidiaries of AXA, our parent company, operate in compliance with applicable laws and regulations of the various jurisdictions where they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see Note 1 to the condensed financial statements contained in Part I, Item 1.
AXA has reported to us that 14 insurance policies underwritten by two of AXA’s European insurance subsidiaries, AXA France IARD and AXA Winterthur, that were in-force during the first quarter of 2013 potentially come within the scope of the disclosure requirements of the Iran Act. Of these insurance policies, 13 policies were written by AXA France IARD and relate to property and casualty insurance (homeowners, auto, accident, liability and/or fraud policies) covering property located in France where the insured is a company or other entity that may have, direct or indirect, ties to the Government of Iran (the “French Policies”), including Iranian entities designated under Executive Orders 13224 and 13382. AXA France IARD is a French company, based in Paris, which is licensed to operate in France. The other policy, described below, was written by AXA Winterthur and provides global coverage to a Swiss-based non-governmental organization based in Geneva that was initially established by the United Nations to facilitate international transport (the “Swiss Policy”). AXA Winterthur is a Swiss company, based in Winterthur, Switzerland, which is licensed to operate in Switzerland.
With respect to these policies, as of the date of this report: (1) AXA France IARD has taken actions necessary to terminate coverage under all 13 of the French Policies; and (2) AXA Winterthur has restructured coverage under the Swiss Policy to specifically exclude Iran. The aggregate premium for these 14 policies was less than $1 million (approximately $105,000 for the 13 French Policies and approximately $884,000 for the relevant premium amount under the Swiss Policy), representing less than 0.001% of AXA’s consolidated revenues, which are in excess of $100 billion. The net profit attributable to these 14 insurance policies is difficult to calculate with precision, but AXA estimates its net profit attributable to all 14 of these policies, in the aggregate, was less than $300,000, representing less than 0.006% of AXA’s aggregate net profit.
The Swiss Policy relates to insurance provided to the International Road Transport Union (“IRU”), a nongovernmental organization based in Geneva which, among other things, acts as the implementing partner of the Transports Internationaux Routiers Customs Transit System (“TIR System”) under mandate of the United Nations. The TIR System is an international harmonized system of customs control that facilitates trade and transport by TIR Carnets, which are customs transit documents used to prove the existence of the international guarantee for duties and taxes for the goods transported under the TIR System, with the IRU guaranteeing payment to the contracting countries. The TIR Convention includes more than 70 contracting countries, including the United States, each member of the European Union and many other countries, including Iran.
During the first quarter of 2013, AXA Winterthur provided global cover to the IRU insuring it against financial losses that the IRU may incur if a carrier fails to pay the duty charges under the terms of a TIR Carnet. Under this policy, AXA Winterthur guaranteed duty payments on behalf of the IRU to the TIR national transport associations in each of the more than 70 participating countries, which includes Iran’s TIR System national transport association (the Iran Chamber of Commerce Industry Mines and Agriculture).
As noted above, AXA Winterthur has restructured coverage under the Swiss Policy to specifically exclude Iran and notified the IRU accordingly.
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Certification of Mr. Kraus furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Mr. Weisenseel furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Mr. Kraus furnished for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Mr. Weisenseel furnished for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Part I, Items 1 through 4 of the AllianceBernstein L.P. Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.
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101.INS
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XBRL Instance Document.
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101.SCH
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XBRL Taxonomy Extension Schema.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase.
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: May 1, 2013
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ALLIANCEBERNSTEIN HOLDING L.P.
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By:
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/s/ John C. Weisenseel
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John C. Weisenseel
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Chief Financial Officer
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