ALLIANCEBERNSTEIN HOLDING L.P. - Quarter Report: 2012 September (Form 10-Q)

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T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware	13-3434400
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Yes T

No o

Yes T

No o

 

Large accelerated filer T	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Yes o

No T

 

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		Page
Part I
FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Statements of Financial Condition	1
	Condensed Statements of Income	2
	Condensed Statements of Comprehensive Income	3
	Condensed Statements of Cash Flows	4
	Notes to Condensed Financial Statements	5-11
	Report of Independent Registered Public Accounting Firm	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16-17
Part II
OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18-19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19
SIGNATURE		20

Item 1.

Financial Statements

		September 30, 2012				December 31, 2011
		(unaudited)
ASSETS
Investment in AllianceBernstein		$	1,605,472			$	1,627,912
Other assets			—				1,072
Total assets		$	1,605,472			$	1,628,984
LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Other liabilities		$	701			$	358
Due to AllianceBernstein			4,307				2,453
Total liabilities			5,008				2,811
Commitments and contingencies (See Note 7)
Partners’ capital:
General Partner: 100,000 general partnership units issued and outstanding			1,380				1,416
Limited partners: 105,073,342 and 105,073,342 limited partnership units issued and outstanding			1,729,311				1,760,388
Holding Units held by AllianceBernstein to fund deferred compensation plans			(117,910	)			(121,186	)
Accumulated other comprehensive loss			(12,317	)			(14,445	)
Total partners’ capital			1,600,464				1,626,173
Total liabilities and partners’ capital		$	1,605,472			$	1,628,984

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Equity in net (loss) income attributable to AllianceBernstein Unitholders		$	(16,595	)		$	34,074			$	43,915			$	127,877
Income taxes			6,547				7,071				19,019				21,682
Net (loss) income		$	(23,142	)		$	27,003			$	24,896			$	106,195
Net (loss) income per unit:
Basic		$	(0.23	)		$	0.26			$	0.25			$	1.02
Diluted		$	(0.23	)		$	0.26			$	0.25			$	1.02

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Net (loss) income		$	(23,142	)		$	27,003			$	24,896			$	106,195
Other comprehensive income (loss), before taxes:
Foreign currency translation adjustments			2,298				(4,367	)			1,569				3,362
Unrealized gains on investments:
Unrealized gains (losses) arising during period			120				(345	)			410				(136	)
Less: reclassification adjustment for gains (losses) included in net income			(17	)			15				(10	)			(33	)
Change in unrealized gains (losses) on investments			137				(360	)			420				(103	)
Changes in employee benefit related items:
Amortization of transition asset			(13	)			(13	)			(40	)			(40	)
Amortization of prior service cost			10				10				30				30
Recognized actuarial loss (gain)			79				(13	)			124				7
Other comprehensive income (loss), before taxes			2,511				(4,743	)			2,103				3,256
Income tax benefit (expense)			(146	)			(156	)			26				(417	)
Comprehensive (loss) income		$	(20,777	)		$	22,104			$	27,025			$	109,034

		Nine Months Ended September 30,
		2012				2011
Cash flows from operating activities:
Net income		$	24,896			$	106,195
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net income attributable to AllianceBernstein Unitholders			(43,915	)			(127,877	)
Cash distributions received from AllianceBernstein			77,829				145,102
Changes in assets and liabilities:
Decrease (increase) in other assets			1,072				(129	)
Increase in payable to AllianceBernstein			1,854				992
Increase (decrease) in other liabilities			343				(197	)
Net cash provided by operating activities			62,079				124,086
Cash flows from investing activities:
Investments in AllianceBernstein from cash distributions paid to AllianceBernstein consolidated rabbi trust			(6,071	)			(3,371	)
Investments in AllianceBernstein with proceeds from exercise of compensatory options to buy Holding Units			—				(1,476	)
Net cash used in investing activities			(6,071	)			(4,847	)
Cash flows from financing activities:
Cash distributions to unitholders			(56,008	)			(120,715	)
Proceeds from exercise of compensatory options to buy Holding Units			—				1,476
Net cash used in financing activities			(56,008	)			(119,239	)
Change in cash and cash equivalents			—				—
Cash and cash equivalents as of beginning of period			—				—
Cash and cash equivalents as of end of period		$	—			$	—

1.	Business Description and Organization

•

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.

•

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.

•

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.

•

Bernstein Research Services – servicing institutional investors seeking high-quality research, portfolio analysis and brokerage-related services, and issuers of publicly-traded securities seeking equity capital markets services.

•

Value equities, generally targeting stocks that are out of favor and considered undervalued;

•

Growth equities, generally targeting stocks with under-appreciated growth potential;

•

Fixed income securities, including taxable and tax-exempt securities;

•

Blend strategies, combining style-pure investment components with systematic rebalancing;

•

Passive management, including index and enhanced index strategies;

•

Alternative investments, including hedge funds, fund of funds, currency management strategies and private equity (e.g., direct real estate investing); and

•

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.

AXA and its subsidiaries			61.0	%
Holding			37.5
Unaffiliated holders			1.5
			100.0	%

2.	Summary of Significant Accounting Policies

·

AllianceBernstein made investments in its services that were notionally elected by participants and maintained them in a consolidated rabbi trust or separate custodial account.

·

Awards generally vested over four years but could vest more quickly depending on the terms of the individual award, the age of the participant, or the terms of the participant’s employment, separation or retirement agreement. Upon vesting, an award is distributed to the participant unless the participant has made a voluntary long-term election to defer receipt.

·

Quarterly cash distributions on unvested Holding Units for which a long-term deferral election has not been made are paid currently to participants. Quarterly cash distributions on notional investments in Holding Units and income credited on notional investments in our investment services or the money market fund for which a long-term deferral election has been made are reinvested and distributed as elected by participants.

·

Prior to a fourth quarter 2011 amendment made to all outstanding deferred incentive compensation awards of active employees (discussed below), compensation expense for awards under the plans, including changes in participant account balances resulting from gains and losses on related investments (other than in Holding Units and options to buy Holding Units), was recognized by AllianceBernstein on a straight-line basis over the applicable vesting periods. Mark-to-market gains or losses on investments made to fund deferred compensation obligations (other than in Holding Units and options to buy Holding Units) were, and continue to be, recognized by AllianceBernstein as investment gains (losses) in the condensed consolidated statements of income. In addition, equity in the earnings of investments in limited partnership hedge funds made to fund deferred compensation obligations was, and continues to be, recognized by AllianceBernstein as investment gains (losses) in the condensed consolidated statements of income.

·

AllianceBernstein engaged in open-market purchases of Holding Units, or purchased newly-issued Holding Units from Holding, that were awarded to participants and held them in a consolidated rabbi trust.

·

Upon vesting, awards are distributed to participants unless the participant has made a voluntary long-term election to defer receipt.

·

Quarterly cash distributions on vested and unvested Holding Units are paid currently to participants, regardless of whether or not a long-term deferral election has been made.

·

Prior to a fourth quarter 2011 amendment made to all outstanding deferred incentive compensation awards of active employees (discussed below), compensation expense for awards under the plans was recognized by AllianceBernstein on a straight-line basis over the applicable vesting periods.

·

AllianceBernstein engaged in open-market purchases of Holding Units, or purchased newly-issued Holding Units from Holding, that were awarded to participants and held in a consolidated rabbi trust.

·

Quarterly distributions on vested and unvested Holding Units are paid currently to participants, regardless of whether or not a long-term deferral election has been made.

·

Interest on deferred cash is accrued monthly based on AllianceBernstein’s monthly weighted average cost of funds.

3.	Net (Loss) Income Per Unit

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
		(in thousands, except per unit amounts)
Net (loss) income – basic		$	(23,142	)		$	27,003			$	24,896			$	106,195
Additional allocation of equity in net (loss) income attributable to AllianceBernstein resulting from assumed dilutive effect of compensatory options			—				—				—				240
Net (loss) income – diluted		$	(23,142	)		$	27,003			$	24,896			$	106,435
Weighted average units outstanding – basic			101,333				103,156				101,507				103,915
Dilutive effect of compensatory options			—				—				—				316
Weighted average units outstanding – diluted			101,333				103,156				101,507				104,231
Basic net (loss) income per unit		$	(0.23	)		$	0.26			$	0.25			$	1.02
Diluted net (loss) income per unit		$	(0.23	)		$	0.26			$	0.25			$	1.02

4.	Investment in AllianceBernstein

Investment in AllianceBernstein as of December 31, 2011		$	1,627,912
Equity in net income attributable to AllianceBernstein Unitholders			43,915
Changes in accumulated other comprehensive income (loss)			2,128
Additional investments in AllianceBernstein from cash distributions paid to AllianceBernstein consolidated rabbi trust			6,071
Cash distributions received from AllianceBernstein			(77,829	)
Change in Holding Units held by AllianceBernstein for deferred compensation plans			3,275
Investment in AllianceBernstein as of September 30, 2012		$	1,605,472

5.	Units Outstanding

Outstanding as of December 31, 2011			105,173,342
Options exercised			—
Units issued			—
Units forfeited			—
Outstanding as of September 30, 2012			105,173,342

6.	Income Taxes

		Three Months Ended September 30,												Nine Months Ended September 30,
		2012				2011				% Change				2012				2011				% Change
		(in thousands)
Net (loss) income attributable to AllianceBernstein Unitholders		$	(44,246	)		$	90,981				n/m			$	117,217			$	341,592				(65.7	)%
Multiplied by: weighted average equity ownership interest (see note)			37.5	%			37.5	%							37.5	%			37.4	%
Equity in net (loss) income attributable to AllianceBernstein Unitholders		$	(16,595	)		$	34,074				n/m			$	43,915			$	127,877				(65.7	)
AllianceBernstein qualifying revenues		$	492,996			$	533,542				(7.6	) %		$	1,428,600			$	1,633,584				(12.5	)
Multiplied by: weighted average equity ownership interest (see note)			37.5	%			37.5	%							37.5	%			37.4	%
Multiplied by: federal tax			3.5	%			3.5	%							3.5	%			3.5	%
Income taxes		$	6,547			$	7,071				(7.4	)		$	19,019			$	21,682				(12.3	)
Effective tax rate			39.5	%			20.8	%							43.3	%			17.0	%

7.	Commitments and Contingencies

/s/ PricewaterhouseCoopers LLP
New York, New York
October 24, 2012

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

		Three Months Ended September 30,												Nine Months Ended September 30,
		2012				2011				% Change				2012				2011				% Change
		(in millions, except per unit amounts)
Net (loss) income attributable to AllianceBernstein Unitholders		$	(44.2	)		$	91.0				n/m	%		$	117.2			$	341.6				(65.7	)%
Weighted average equity ownership interest			37.5	%			37.5	%							37.5	%			37.4	%
Equity in net (loss) income attributable to AllianceBernstein Unitholders		$	(16.6	)		$	34.1				n/m			$	43.9			$	127.9				(65.7	)
Net (loss) income of Holding		$	(23.1	)		$	27.0				n/m			$	24.9			$	106.2				(76.6	)
Diluted net (loss) income per Holding Unit		$	(0.23	)		$	0.26				n/m			$	0.25			$	1.02				(75.5	)
Distribution per Holding Unit		$	0.36			$	0.26				38.5			$	0.83			$	1.02				(18.6	)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
		(in thousands, except per unit amounts)
AllianceBernstein non-GAAP adjustments, before taxes		$	167,980			$	10,342			$	183,203			$	11,548
Income tax effect on non-GAAP adjustments			(9,103	)			(269	)			(9,402	)			(300	)
AllianceBernstein non-GAAP adjustments, after taxes			158,877				10,073				173,801				11,248
Holding’s weighted average equity ownership interest in AllianceBernstein			37.5	%			37.5	%			37.5	%			37.4	%
Impact on Holding’s net income of AllianceBernstein non-GAAP adjustments		$	59,589			$	3,773			$	65,113			$	4,212
Net (loss) income – diluted, GAAP basis		$	(23,142	)		$	27,003			$	24,896			$	106,435
Impact on Holding’s net income of AllianceBernstein non-GAAP adjustments			59,589				3,773				65,113				4,212
Adjusted net income – diluted		$	36,447			$	30,776			$	90,009			$	110,647
Diluted net (loss) income per Holding Unit, GAAP basis		$	(0.23	)		$	0.26			$	0.25				1.02
Impact of AllianceBernstein non-GAAP adjustments			0.59				0.04				0.64				0.04
Adjusted diluted net income per Holding Unit		$	0.36			$	0.30			$	0.89			$	1.06

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

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(1)				(d) Maximum Number (or Approximate Dollar Value) of Holding Units that May Yet Be Purchased Under the Plans or Programs(1)
7/1/12 - 7/31/12(2)(4)			714,758			$	12.38				680,755				—
8/1/12 - 8/31/12(2)(3)(4)			1,242,542				13.32				1,201,753				—
9/1/12 - 9/30/12(3)(4)			954,652				15.11				952,575				—
Total			2,911,952			$	13.68				2,835,083				—

(1)

AllianceBernstein entered into a Rule 10b5-1 plan on each of May 4, 2012 (which expired on August 2, 2012) and August 3, 2012 (which expires on October 24, 2012). The daily purchase limitation under each plan was 18%-22% of the composite trading volume of Holding Units on the trade date, subject to the daily volume limitation under Rule 10b-18 (i.e., 25% of the composite average daily trading volume of Holding Units over the four calendar weeks preceding the trade date). Neither plan specified an aggregate limitation.

(2)

Between July 2, 2012 and August 2, 2012, AllianceBernstein purchased 750,552 Holding Units on the open market pursuant to a Rule 10b5-1 plan to help fund anticipated obligations under its incentive compensation award program.

(3)

Between August 3, 2012 and September 28, 2012, AllianceBernstein purchased 2,084,531 Holding Units on the open market pursuant to a Rule 10b5-1 plan to help fund anticipated obligations under its incentive compensation award program.

(4)

During the third quarter of 2012, AllianceBernstein purchased from employees 76,869 Holding Units to allow them to fulfill statutory withholding tax requirements at the time of distribution of long-term incentive compensation awards.

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
7/1/12 - 7/31/12			—			$	—				—				—
8 /1/12 -8/31/12			—				—				—				—
9/1/12 - 9/30/12(1)			3,456				14.29				—				—
Total			3,456			$	14.29				—				—

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

15.1

Letter from PricewaterhouseCoopers LLP, our independent registered public accounting firm, regarding unaudited interim financial information.

31.1

Certification of Mr. Kraus furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Mr. Weisenseel furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

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.

32.2

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.

99.1

Part I, Items 1 through 4 of the AllianceBernstein L.P. Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.

Date: October 24, 2012	ALLIANCEBERNSTEIN HOLDING L.P.
	By:	/s/ John C. Weisenseel
		John C. Weisenseel
		Chief Financial Officer