ALLIANCEBERNSTEIN HOLDING L.P. - Quarter Report: 2008 June (Form 10-Q)
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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ý
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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
June 30, 2008
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.
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Yes ý
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No o
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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
ý
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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).
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Yes o
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No ý
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The number of units representing
assignments of beneficial ownership of limited partnership interests outstanding
as of June 30,
2008 was
87,577,430.*
*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.
Index to Form
10-Q
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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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1
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2
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3
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4-8
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9
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Item 2.
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10-11
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Item 3.
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12
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Item 4.
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12
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Part II
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OTHER
INFORMATION
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Item 1.
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13
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Item 1A.
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13
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Item 2.
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13
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Item 3.
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13
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Item 4.
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13
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Item 5.
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13
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Item 6.
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14
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15
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Part I
FINANCIAL
INFORMATION
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Item 1.
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ALLIANCEBERNSTEIN HOLDING
L.P.
Condensed Statements of Financial Condition
(in thousands, except unit
amounts)
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June 30,
2008
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December 31,
2007
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|||||||
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(unaudited)
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||||||||
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ASSETS
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||||||||
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Investment in
AllianceBernstein
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$
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1,645,472
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$
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1,574,512
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||||
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Other
assets
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711
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722
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||||||
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Total
assets
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$
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1,646,183
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$
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1,575,234
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||||
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LIABILITIES AND PARTNERS’
CAPITAL
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||||||||
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Liabilities:
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||||||||
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Payable to
AllianceBernstein
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$
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6,889
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$
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7,460
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||||
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Other
liabilities
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221
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314
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||||||
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Total
liabilities
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7,110
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7,774
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||||||
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Commitments and contingencies
(See Note
7)
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||||||||
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Partners’
capital:
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||||||||
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General Partner: 100,000 general
partnership units issued and outstanding
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1,688
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1,698
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||||||
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Limited partners: 87,477,430 and 86,848,149 limited partnership
units issued and outstanding
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1,617,759
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1,548,212
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||||||
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Accumulated other comprehensive
income
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19,626
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17,550
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||||||
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Total partners’
capital
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1,639,073
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1,567,460
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||||||
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Total liabilities and partners’
capital
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$
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1,646,183
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$
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1,575,234
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||||
See Accompanying Notes to Condensed Financial Statements.
ALLIANCEBERNSTEIN HOLDING
L.P.
Condensed Statements of
Income
(in thousands, except per unit
amounts)
(unaudited)
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Three
Months Ended June 30,
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Six
Months Ended June 30,
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|||||||||||||||
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2008
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2007
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2008
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2007
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|||||||||||||
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Equity
in earnings of AllianceBernstein
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$ | 93,042 | $ | 110,267 | $ | 175,039 | $ | 198,101 | ||||||||
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Income
taxes
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9,131 | 9,620 | 18,692 | 18,929 | ||||||||||||
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Net
income
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$ | 83,911 | $ | 100,647 | $ | 156,347 | $ | 179,172 | ||||||||
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Net
income per unit:
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||||||||||||||||
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Basic
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$ | 0.96 | $ | 1.17 | $ | 1.79 | $ | 2.08 | ||||||||
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Diluted
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$ | 0.96 | $ | 1.16 | $ | 1.79 | $ | 2.06 | ||||||||
See Accompanying Notes to Condensed
Financial Statements.
ALLIANCEBERNSTEIN HOLDING
L.P.
Condensed Statements of
Cash Flows
(in thousands)
(unaudited)
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Six Months Ended June 30,
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||||||||
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2008
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2007
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|||||||
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Cash flows from operating
activities:
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||||||||
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Net
income
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$
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156,347
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$
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179,172
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Adjustments
to reconcile net income to net cash used in operating
activities:
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||||||||
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Equity in earnings of
AllianceBernstein
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(175,039
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)
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(198,101
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)
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Changes in assets and
liabilities:
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||||||||
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Decrease in other
assets
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11
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114
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||||||
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(Decrease) increase in payable to
AllianceBernstein
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(571
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)
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97
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|||||
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(Decrease) in other
liabilities
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(93
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)
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(1,095
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)
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Net cash used in operating
activities
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(19,345
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)
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(19,813
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)
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Cash flows from investing
activities:
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Investment in AllianceBernstein
with proceeds from exercise of compensatory options to buy Holding
Units
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(12,559
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)
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(36,801
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)
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Cash distributions received from
AllianceBernstein
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184,297
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224,666
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Net cash provided by investing
activities
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171,738
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187,865
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Cash flows from financing
activities:
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Cash distributions to
unitholders
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(164,952
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)
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(204,853
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)
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Proceeds from exercise of
compensatory options to buy Holding Units
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12,559
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36,801
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||||||
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Net cash used in financing
activities
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(152,393
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)
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(168,052
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)
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Change in cash and cash
equivalents
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—
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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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Non-cash investing
activities:
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Change in accumulated other
comprehensive income
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$
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2,076
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$
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3,432
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||||
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Issuance of Holding Units
to fund deferred
compensation plans
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$
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18,604
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$
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—
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Awards of Holding Units made by
AllianceBernstein under deferred compensation plans, net of
forfeitures
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$
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69,908
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$
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34,138
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Non-cash financing
activities:
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Purchases of Holding Units by
AllianceBernstein to fund deferred
compensation plans, net
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$
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(22,929
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)
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$
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(13,949
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)
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See Accompanying Notes to Condensed Financial Statements.
ALLIANCEBERNSTEIN HOLDING
L.P.
Notes to Condensed
Financial Statements
June 30, 2008
(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.
Cross-references are in italics.
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1.
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Business
Description and Organization
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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,
2007.
AllianceBernstein provides research,
diversified investment management, and related services globally to a broad
range of clients. Its principal services include:
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•
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Institutional
Investment 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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•
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Retail Services –
servicing its individual clients, primarily by means of retail mutual
funds sponsored by AllianceBernstein or an affiliated company,
sub-advisory relationships in respect of mutual funds sponsored by third
parties, separately managed account programs sponsored by financial
intermediaries worldwide, and other investment
vehicles.
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•
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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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•
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Institutional
Research Services – servicing institutional clients seeking independent
research, portfolio strategy, and brokerage-related
services.
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AllianceBernstein also provides
distribution, shareholder servicing, and administrative services to the mutual
funds it sponsors.
AllianceBernstein provides a broad range
of services with expertise in:
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•
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Value equities,
generally targeting stocks that are out of favor and that may trade at
bargain prices;
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•
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Growth equities,
generally targeting stocks with under-appreciated growth
potential;
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•
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Fixed income
securities, including both taxable and tax-exempt
securities;
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•
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Blend strategies,
combining style-pure investment components with systematic
rebalancing;
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•
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Passive management, including both
index and enhanced index
strategies;
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•
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Alternative investments, such as
hedge funds, currency management, and venture capital;
and
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•
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Asset allocation
services, by which AllianceBernstein offers specifically-tailored
investment solutions for its clients (e.g., customized target date fund
retirement services for institutional defined contribution
clients).
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AllianceBernstein manages 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 geographic location (e.g., U.S., international, global, and emerging
markets), as well as local and regional disciplines in major markets around the
world.
AllianceBernstein’s independent research
is the foundation of its business. AllianceBernstein’s research disciplines
include fundamental research, quantitative research, economic research, and
currency forecasting capabilities. In addition, AllianceBernstein has created
several specialized research units, including one unit that examines global
strategic changes that can affect multiple industries and geographies, and
another dedicated to identifying potentially successful innovations within
private early-stage and later-stage high growth companies.
As of June 30, 2008, 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, AXA Financial, Inc. (an indirect
wholly-owned subsidiary of AXA, “AXA Financial”), AXA Equitable Life Insurance Company (a
wholly-owned subsidiary of AXA Financial, “AXA Equitable”), and certain subsidiaries
of AXA Financial, collectively referred to as
“AXA and its subsidiaries”, owned
approximately 1.6% of the issued and outstanding units representing assignments
of beneficial ownership of limited partnership interests in Holding (“Holding
Units”).
As of June 30, 2008, the ownership structure of
AllianceBernstein, as a percentage of general and limited partnership interests,
was as follows:
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AXA and its
subsidiaries
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62.5
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%
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Holding
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33.2
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|||
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SCB Partners Inc. (a wholly-owned
subsidiary of SCB Inc.; formerly known as Sanford
C. Bernstein Inc.)
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3.1
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Unaffiliated
Holders
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1.2
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|||
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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. AXA and its subsidiaries were the
beneficial owners of approximately 62.7% of the units of limited partnership interest in
AllianceBernstein (“AllianceBernstein Units”) at June 30, 2008 (including those held indirectly
through its ownership of approximately 1.6% of the issued and outstanding
Holding Units) which, including the general partnership interests in
AllianceBernstein and Holding, represent an approximate 63.0% economic interest
in AllianceBernstein.
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2.
|
Summary of
Significant Accounting
Policies
|
Basis of
Presentation
The interim condensed financial
statements of Holding included herein 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,
2007 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.
Investment in
AllianceBernstein
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,
Holding’s investment is adjusted to reflect certain capital transactions of
AllianceBernstein.
Cash Distributions
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.
On July 23, 2008, the General Partner declared a
distribution of $84.1 million, or $0.96 per unit, representing Available Cash
Flow for the three months ended June 30, 2008. Each general partnership unit in
Holding is entitled to receive distributions equal to those received by each
Holding Unit. The distribution is payable on August 14, 2008 to holders of record at the close of
business on August 4,
2008.
Compensatory Option
Plans
AllianceBernstein maintains certain
compensation plans under which options to buy Holding Units have been, or may
be, granted to employees of AllianceBernstein and independent directors of the
General Partner. In accordance with Statement of Financial Accounting Standards
No. 123 (revised 2004), (“SFAS No. 123-R”), “Share Based
Payment”, AllianceBernstein
recognizes compensation expense related to grants of compensatory
options in the financial statements. Under the fair value method,
compensatory expense is measured at the grant date based on the estimated fair
value of the award (determined using the Black-Scholes option valuation model)
and is recognized over the vesting period. Upon exercise of Holding Unit
options, Holding exchanges the proceeds for AllianceBernstein Units, thus
increasing Holding’s investment in AllianceBernstein.
|
3.
|
Net Income Per
Unit
|
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 Net income – diluted by the diluted weighted average number of
units outstanding for each period.
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
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(in
thousands, except per unit amounts)
|
||||||||||||||||
|
Net
income – basic
|
$ | 83,911 | $ | 100,647 | $ | 156,347 | $ | 179,172 | ||||||||
|
Additional
allocation of equity in earnings of AllianceBernstein resulting from
assumed dilutive effect of compensatory options
|
139 | 1,392 | 312 | 2,765 | ||||||||||||
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Net
income – diluted
|
$ | 84,050 | $ | 102,039 | $ | 156,659 | $ | 181,937 | ||||||||
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Weighted
average units outstanding – basic
|
87,481 | 86,389 | 87,357 | 86,167 | ||||||||||||
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Dilutive
effect of compensatory options
|
206 | 1,805 | 267 | 2,036 | ||||||||||||
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Weighted
average units outstanding – diluted
|
87,687 | 88,194 | 87,624 | 88,203 | ||||||||||||
|
Basic
net income per unit
|
$ | 0.96 | $ | 1.17 | $ | 1.79 | $ | 2.08 | ||||||||
|
Diluted
net income per unit
|
$ | 0.96 | $ | 1.16 | $ | 1.79 | $ | 2.06 | ||||||||
For the three months and six months
ended June 30,
2008, we excluded 3,664,405
out-of-the-money options (i.e., options with an exercise price greater than the
weighted average closing price of a unit for the relevant period) from the
diluted net income per unit computation due to their anti-dilutive effect. For
the three months and six months ended June 30, 2007, we excluded 1,669,205 out-of-the-money
options from the diluted net income per unit computation due to their
anti-dilutive effect.
|
4.
|
Investment in
AllianceBernstein
|
Changes in Holding’s investment in
AllianceBernstein for the six-month period ended June 30, 2008 were as follows (in thousands):
|
Investment in AllianceBernstein as
of December 31,
2007
|
$
|
1,574,512
|
||
|
Equity in earnings of
AllianceBernstein
|
175,039
|
|||
|
Additional investment with
proceeds from exercise of compensatory options to buy Holding
Units
|
12,559
|
|||
|
Change in accumulated other
comprehensive income
|
2,076
|
|||
|
Cash distributions received from
AllianceBernstein
|
(184,297
|
)
|
||
|
Purchases of Holding Units by
AllianceBernstein to fund deferred compensation plans,
net
|
(22,929
|
)
|
||
|
Issuance of Holding Units to fund
deferred compensation plans
|
18,604
|
|||
|
Awards of Holding Units made by
AllianceBernstein under deferred compensation plans, net of
forfeitures
|
69,908
|
|||
|
Investment in AllianceBernstein as
of June
30,
2008
|
$
|
1,645,472
|
|
5.
|
Units
Outstanding
|
The following table summarizes the
activity in Holding Units during the first six months of
2008:
|
Outstanding as of December 31,
2007
|
86,948,149
|
|||
|
Options
exercised
|
289,467
|
|||
|
Units
awarded
|
48,365
|
|||
|
Issuance of
units
|
293,344
|
|||
|
Units
forfeited
|
(1,895
|
)
|
||
|
Outstanding as of June 30, 2008
|
87,577,430
|
Units awarded and units forfeited pertain to
restricted unit awards made to independent members of the Board of Directors and
to Century Club Plan unit awards made to AllianceBernstein employees
whose primary responsibilities are to assist in the distribution of
company-sponsored mutual funds and who meet certain sales targets. Issuance of
units pertains to Holding Units issued by AllianceBernstein to fund deferred
compensation plan elections by participants.
|
6.
|
Income
Taxes
|
Holding is a 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.
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.
|
7.
|
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.
Legal Proceedings
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 as required by Statement of Financial
Accounting Standards No. 5, “Accounting for
Contingencies”, and FASB
Interpretation No. 14, “Reasonable
Estimation of the Amount of a Loss – an interpretation of FASB Statement No.
5”. 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, we disclose that fact together with the
estimate of the possible loss or range of loss. However, it is 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, or when the litigation is highly
complex or broad in scope.
On October 2, 2003, a purported class action complaint entitled Hindo, et al. v.
AllianceBernstein Growth & Income Fund,
et al. (“Hindo Complaint”)
was filed against, among
others, AllianceBernstein,
Holding, and the General Partner. The Hindo Complaint alleges that certain
defendants failed to disclose that they improperly allowed certain hedge funds
and other unidentified parties to engage in “late trading” and “market timing”
of certain of our
U.S. mutual fund securities, violating various securities
laws.
Following October 2, 2003, additional lawsuits making factual
allegations generally similar to those in the Hindo Complaint were filed in
various federal and state courts against AllianceBernstein and certain other
defendants. On September 29, 2004, plaintiffs filed consolidated amended
complaints with respect to four claim types: mutual fund shareholder claims;
mutual fund derivative claims; derivative claims brought on behalf of Holding;
and claims brought under the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”) by participants in the Profit Sharing Plan for Employees of
AllianceBernstein.
On April 21, 2006, AllianceBernstein and attorneys for
the plaintiffs in the mutual fund shareholder claims, mutual fund derivative
claims, and ERISA claims entered into a confidential memorandum of understanding
containing their agreement to settle these claims. The agreement will be
documented by a stipulation of settlement and will be submitted for court
approval at a later date. The settlement amount ($30 million), which we
previously expensed and disclosed, has been disbursed. The
derivative claims brought on behalf of Holding, in which plaintiffs seek an
unspecified amount of damages, remain pending.
We intend to vigorously defend against
the lawsuit involving derivative claims brought on behalf of Holding. At the
present time, we are unable to predict the outcome or estimate a possible loss
or range of loss in respect of this matter because of the inherent uncertainty
regarding the outcome of complex litigation, and the fact that the plaintiffs
did not specify an amount of damages sought in their
complaint.
We are involved in various other
matters, including regulatory inquiries, administrative proceedings, and
litigation, some of which allege substantial damages. While any proceeding or
litigation has the element of uncertainty, management believes that the outcome
of any one of the other lawsuits or claims that is pending or threatened, or all
of them combined, will not have a material adverse effect on our results of
operations or financial condition.
Claims Processing
Contingency
During the fourth quarter of 2006,
AllianceBernstein recorded a $56.0 million pre-tax charge ($54.5 million, net of
related income tax benefit) for the estimated cost of reimbursing certain
clients for losses arising out of an error AllianceBernstein made in processing
claims for class action settlement proceeds on behalf of these clients, which
include some AllianceBernstein-sponsored mutual funds. We believe that most of
this cost will ultimately be recovered from residual settlement proceeds and
insurance. Our fourth quarter 2006 cash distribution was declared by the General
Partner prior to recognition of this adjustment. As a result, to the extent that
all or a portion of the cost is recovered by AllianceBernstein in subsequent
periods, it does not intend to include recoveries in Available Cash Flow (as
defined in the AllianceBernstein Partnership Agreement), and will not distribute
those amounts to its unitholders. As of June 30, 2008, AllianceBernstein had $9.8 million
remaining in accrued liabilities related to the $56.0 million pre-tax
charge.
|
8.
|
Comprehensive
Income
|
Partners’ capital is adjusted to reflect
certain capital transactions of AllianceBernstein. Comprehensive income was
comprised of:
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Net
income
|
$ | 83,911 | $ | 100,647 | $ | 156,347 | $ | 179,172 | ||||||||
|
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||
|
Unrealized
gain (loss) on investments
|
(200 | ) | 237 | (1,197 | ) | (126 | ) | |||||||||
|
Foreign
currency translation adjustment
|
(213 | ) | 2,628 | 3,370 | 3,609 | |||||||||||
|
Changes
in retirement plan related items
|
(54 | ) | (25 | ) | (97 | ) | (51 | ) | ||||||||
| (467 | ) | 2,840 | 2,076 | 3,432 | ||||||||||||
|
Comprehensive
income
|
$ | 83,444 | $ | 103,487 | $ | 158,423 | $ | 182,604 | ||||||||
Report of Independent Registered Public Accounting
Firm
To the General Partner and
Unitholders
AllianceBernstein Holding
L.P.
We have reviewed the accompanying
condensed statement of financial condition of AllianceBernstein Holding L.P.
(“AllianceBernstein Holding”) as of June 30, 2008, the related condensed statements of
income for the three-month and six-month periods ended June 30, 2008 and 2007, and the condensed statements
of cash flows for the six-month periods ended June 30, 2008 and 2007. These interim financial
statements are the responsibility of the management of AllianceBernstein
Corporation, the General Partner.
We conducted our review in accordance
with the standards of the Public Company Accounting Oversight Board
(United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of
any material modifications that should be made to the accompanying
condensed interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We previously audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the statement of financial condition as of December 31, 2007, and the related statements of income,
of changes in partners’ capital and comprehensive income, and of cash flows for
the year then ended (not presented herein), and in our report dated February 22, 2008, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth in the
accompanying condensed statement of financial condition as of December 31, 2007 is fairly stated in all material
respects in relation to the statement of financial condition from which it has
been derived.
|
/s/ PricewaterhouseCoopers
LLP
|
|
|
New York, New York
|
|
|
August 1,
2008
|
|
|
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 interests. The Holding 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,
2007.
Results of
Operations
|
Three
Months Ended
June 30,
|
Six
Months Ended
June 30,
|
|||||||||||||||||||||||
|
2008
|
2007
|
%
Change
|
2008
|
2007
|
%
Change
|
|||||||||||||||||||
|
(in
millions, except per unit amounts)
|
||||||||||||||||||||||||
|
AllianceBernstein
net income
|
$ | 280.3 | $ | 334.9 | (16.3 | )% | $ | 527.7 | $ | 602.6 | (12.4 | )% | ||||||||||||
|
Weighted
average equity ownership interest
|
33.2 | % | 32.9 | % | 33.2 | % | 32.9 | % | ||||||||||||||||
|
Equity
in earnings of AllianceBernstein
|
$ | 93.0 | $ | 110.3 | (15.6 | ) | $ | 175.0 | $ | 198.1 | (11.6 | ) | ||||||||||||
|
Net
income of Holding
|
$ | 83.9 | $ | 100.6 | (16.6 | ) | $ | 156.3 | $ | 179.2 | (12.7 | ) | ||||||||||||
|
Diluted
net income per Holding Unit
|
$ | 0.96 | $ | 1.16 | (17.2 | ) | $ | 1.79 | $ | 2.06 | (13.1 | ) | ||||||||||||
|
Distribution
per Holding Unit
|
$ | 0.96 | $ | 1.16 | (17.2 | ) | $ | 1.79 | $ | 2.07 | (13.5 | ) | ||||||||||||
Net income for the three-month and
six-month periods ended June 30, 2008 decreased $16.7 million and $22.9
million, respectively, to $83.9 million and $156.3 million from net income of
$100.6 million and $179.2 million, for the corresponding prior year periods. The
decrease reflects lower equity in earnings of AllianceBernstein. See
AllianceBernstein’s MD&A contained in Exhibit 99.1.
Capital Resources and
Liquidity
The following table identifies selected
items relating to capital resources and liquidity:
|
Six Months Ended June
30,
|
||||||||||||
|
2008
|
2007
|
% Change
|
||||||||||
|
(in
millions)
|
||||||||||||
|
Partners’ capital, as of June
30
|
$
|
1,639.1
|
$
|
1,594.1
|
2.8
|
%
|
||||||
|
Distributions received from
AllianceBernstein
|
184.3
|
224.7
|
(18.0
|
)
|
||||||||
|
Distributions paid to
unitholders
|
(165.0
|
)
|
(204.9
|
)
|
(19.5
|
)
|
||||||
|
Proceeds from exercise of
compensatory options to buy Holding Units
|
12.6
|
36.8
|
(65.9
|
)
|
||||||||
|
Investment in AllianceBernstein
with proceeds from exercise of compensatory options to buy Holding
Units
|
(12.6
|
)
|
(36.8
|
)
|
(65.9
|
)
|
||||||
|
Purchases of Holding Units by
AllianceBernstein to fund deferred compensation plans,
net
|
(22.9
|
)
|
(13.9
|
)
|
64.4
|
|||||||
|
Issuance of Holding Units to fund
deferred compensation plans
|
18.6
|
—
|
n/m
|
|||||||||
|
Awards of Holding Units made by
AllianceBernstein under deferred compensation plans, net of
forfeitures
|
69.9
|
34.1
|
104.8
|
|||||||||
|
Available Cash
Flow
|
156.6
|
178.7
|
(12.4
|
)
|
||||||||
Cash and cash equivalents were zero as
of June 30,
2008 and
2007. Cash inflows from AllianceBernstein distributions received were
offset by cash distributions paid to unitholders and income taxes paid. 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). Management believes that the cash flow realized from its investment in
AllianceBernstein will provide Holding with the resources to meet its financial
obligations. See Note 2 to the
Holding condensed financial statements contained in Item 1 for a description of Available Cash
Flow.
Commitments and
Contingencies
See Note 7 to the
Holding 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, 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,
2007
and Part II, Item 1A of this Form 10-Q. Any or all of the
forward-looking statements that we make in Form 10-K, this Form 10-Q or 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 include statements regarding:
|
|
•
|
Turbulent
market conditions providing
opportunities for
strong relative and absolute investment performance in future
periods:
The actual
performance of the capital markets and other factors beyond our control
will affect our investment success for clients and asset
flows. Turbulent
market conditions may continue for longer than anticipated or may worsen,
which would make achieving investment success for our clients more
difficult.
|
|
|
•
|
Our
backlog 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 we currently
anticipate.
|
|
|
•
|
Our
estimate
of the cost to reimburse certain of our clients for losses arising out of
an error we made in processing class action claims, and our ability to
recover most of this cost: Our estimate of the cost to
reimburse clients is based on our review to date; as we continue our
review, our estimate and the ultimate
cost we incur may change. Our ability to recover most of the cost of the
error depends, in part, on the availability of funds from the related
class-action settlement funds, the amount of which is not known, and the
willingness of our insurers to reimburse us under existing
policies.
|
|
|
•
|
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 a material adverse effect on our results of operations or
financial condition.
|
|
|
•
|
Our
substantial capital base and access to public and private debt providing
adequate liquidity for our general business needs: Our substantial capital base is
dependent on our cash flow from operations, which is subject to the
performance of the capital markets and other factors beyond our control.
Our access to public and private debt, as well as the market for debt or
equity we may choose to issue, may be limited by turbulent market
conditions and changes in government regulations, including tax rates and
interest rates.
|
OTHER INFORMATION
With respect to the unaudited condensed
interim financial information of Holding for the three-month and six-month
periods ended June 30,
2008, 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 August 1, 2008 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.
|
Item
3.
|
Quantitative and Qualitative Disclosures About Market
Risk
|
There have been no material changes to
Holding’s market risk for the quarter ended June 30, 2008.
|
Item
4.
|
Controls and
Procedures
|
Disclosure Controls and
Procedures
Each of Holding and AllianceBernstein
maintains a system of disclosure controls and procedures that is designed to
ensure that information required to be disclosed in our reports under the
Securities Exchange Act of 1934, as amended, 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 second quarter of 2008 that materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Part II
OTHER
INFORMATION
|
Item
1.
|
Legal
Proceedings
|
See Note 7 to the
condensed financial statements contained in Part I, Item 1.
|
Item
1A.
|
Risk Factors
|
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, 2007. 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.
|
Item
2.
|
Unregistered Sales of Equity Securities and Use of
Proceeds
|
There were no Holding Units sold by
Holding in the period covered by this report that were not registered under the
Securities Act.
The following table provides information
relating to any purchases of Holding Units by AllianceBernstein made in the
quarter covered by this report:
ISSUER PURCHASES OF EQUITY
SECURITIES
|
Period
|
(a)
Total Number of Units Purchased
|
(b)
Average Price Paid Per Unit, net of
Commissions
|
(c)
Total Number of
Units Purchased as
Part of Publicly
Announced Plans
or Programs
|
(d)
Maximum Number
(or Approximate
Dollar Value) of
Units that May Yet
Be Purchased Under
the Plans or Programs
|
||||||||||||
|
4/1/08 - 4/30/08
|
3,085
|
$
|
58.59
|
—
|
—
|
|||||||||||
|
5/1/08 - 5/31/08
|
57
|
63.41
|
—
|
—
|
||||||||||||
|
6/1/08 - 6/30/08
|
—
|
—
|
—
|
—
|
||||||||||||
|
Total
|
3,142
|
$
|
58.68
|
—
|
—
|
|||||||||||
All Holding Units were purchased from
employees to allow them to fulfill statutory withholding tax requirements at the
time of distribution of deferred compensation awards.
|
Item
3.
|
Defaults Upon Senior
Securities
|
None.
|
Item
4.
|
Submission of Matters to a Vote of Security
Holders
|
None.
|
Item
5.
|
Other
Information
|
None.
|
Item
6.
|
|
Letter from PricewaterhouseCoopers
LLP, our independent registered public accounting firm, regarding
unaudited interim financial information.
|
|
|
Certification of Mr. Sanders furnished pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
Certification of Mr. Joseph furnished pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
Certification of Mr. Sanders 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.
|
|
|
Certification of Mr. Joseph 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.
|
|
|
Part I, Items 1 through 4, of the
AllianceBernstein L.P. Quarterly Report on Form 10-Q for the quarter ended
June 30,
2008.
|
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.
|
Date: August 1,
2008
|
AllianceBernstein
Holding
l.p.
|
||
|
By:
|
/s/ Robert H. Joseph, Jr.
|
||
|
Robert H. Joseph, Jr.
|
|||
|
Senior Vice President and Chief
Financial Officer
|
|||
15