form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-Q
(Mark
One)
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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 September 30, 2007
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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)
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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer” and “large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer ý
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Accelerated
filer o
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Non-accelerated
filer 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 September 30, 2007 was
86,724,454.*
*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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Financial
Statements
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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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10-12
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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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13-14
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Item
2.
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14
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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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Item
5.
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14
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Item
6.
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14
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15
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Part I
FINANCIAL
INFORMATION
Item
1.
Financial
Statements
ALLIANCEBERNSTEIN
HOLDING
L.P.
Condensed
Statements of Financial Condition
(in
thousands, except unit amounts)
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September 30,
2007
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December 31,
2006
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(unaudited)
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ASSETS
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Investment
in AllianceBernstein
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$ |
1,616,425
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$ |
1,567,733
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Other
assets
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200
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301
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Total
assets
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$ |
1,616,625
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$ |
1,568,034
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LIABILITIES
AND PARTNERS’ CAPITAL
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Liabilities:
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Payable
to AllianceBernstein
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$ |
7,898
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$ |
7,149
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Other
liabilities
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48
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1,697
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Total
liabilities
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7,946
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8,846
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Commitments
and contingencies (See Note 6)
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Partners’
capital:
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General
Partner: 100,000 general partnership units issued and
outstanding
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1,713
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1,739
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Limited
partners: 86,624,454 and 85,568,171 limited partnership units
issued and
outstanding
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1,589,783
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1,546,598
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Accumulated
other comprehensive income
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17,183
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10,851
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Total
partners’ capital
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1,608,679
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1,559,188
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Total
liabilities and partners’ capital
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$ |
1,616,625
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$ |
1,568,034
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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
September
30,
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Nine
Months Ended
September
30,
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2007
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2006
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2007
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2006
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Equity
in earnings of AllianceBernstein
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$ |
114,856
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$ |
82,028
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$ |
312,957
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$ |
239,706
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Income
taxes
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10,028
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8,025
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28,957
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24,139
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Net
income
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$ |
104,828
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$ |
74,003
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$ |
284,000
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$ |
215,567
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Net
income per unit:
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Basic
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$ |
1.21
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$ |
0.88
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$ |
3.29
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$ |
2.57
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Diluted
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$ |
1.20
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$ |
0.87
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$ |
3.26
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$ |
2.54
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See
Accompanying Notes to Condensed Financial
Statements.
ALLIANCEBERNSTEIN
HOLDING
L.P.
Condensed
Statements of Cash Flows
(in
thousands)
(unaudited)
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Nine
Months Ended
September
30,
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2007
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2006
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Cash
flows from operating activities:
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Net
income
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$ |
284,000
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$ |
215,567
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Adjustments
to reconcile net income to net cash used in operating
activities:
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Equity
in earnings of AllianceBernstein
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(312,957 |
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(239,706 |
) |
Changes
in assets and liabilities:
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Decrease
in other assets
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101
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204
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Increase
(decrease) in payable to AllianceBernstein
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749
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(800 |
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(Decrease)
in other liabilities
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(1,649 |
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(834 |
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Net
cash used in operating activities
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(29,756 |
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(25,569 |
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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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(41,446 |
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(63,245 |
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Cash
distributions received from AllianceBernstein
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334,760
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250,423
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Net
cash provided by investing activities
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293,314
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187,178
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Cash
flows from financing activities:
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Cash
distributions to unitholders
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(305,004 |
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(224,943 |
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Proceeds
from exercise of compensatory options to buy Holding Units
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41,446
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63,245
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Net
cash used in financing activities
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(263,558 |
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(161,698 |
) |
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Net
(decrease) in cash and cash equivalents
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—
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(89 |
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Cash
and cash equivalents as of beginning of period
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—
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89
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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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Non-cash
investing activities:
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Change
in accumulated other comprehensive income
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$ |
6,332
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$ |
1,103
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Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
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$ |
—
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$ |
47,161
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Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
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$ |
35,102
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$ |
36,413
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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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$ |
(12,530 |
) |
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$ |
(16,648 |
) |
See
Accompanying Notes to Condensed Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Notes
to Condensed Financial Statements
September
30, 2007
(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.
1.
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Organization
and Business
Description
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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, 2006.
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 institutional investors, 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, group
trusts,
mutual funds (sponsored by AllianceBernstein or an
affiliated company),
and other investment
vehicles.
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•
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Retail
Services – servicing
individual investors, 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 that are sponsored by various financial intermediaries
worldwide, and other investment
vehicles.
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•
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Private
Client Services –
servicing 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 investors desiring institutional research
services
including independent, in-depth fundamental 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 investment 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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Passive
management, including
both index and enhanced index strategies;
and
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•
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Blend
strategies, combining style
pure investment components with systematic
rebalancing.
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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, in-depth 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 specialist 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 early-stage companies.
As
of
September 30, 2007, 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 1.7% of the issued and outstanding
Holding Units.
As
of
September 30, 2007, the ownership structure of AllianceBernstein, as a
percentage of general and limited partnership interests, was as
follows:
AXA
and its subsidiaries
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62.6
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%
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Holding
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33.0
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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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Other
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1.3
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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 the general
partnership interests in AllianceBernstein and Holding, and their equity
interest in Holding, as of September 30, 2007, AXA and its subsidiaries had
an
approximate 63.2% economic interest in AllianceBernstein.
2.
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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, 2006
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
October 24, 2007, the General Partner declared a distribution of $104.1 million,
or $1.20 per unit, representing Available Cash Flow for the three months ended
September 30, 2007. Each general partnership unit in Holding is entitled to
receive quarterly distributions equal to those received by each limited
partnership unit. The distribution is payable on November 15, 2007 to holders
of
record at the close of business on November 5, 2007. Cash distributions are
recorded when declared.
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. AllianceBernstein uses the Black-Scholes
option valuation model to determine the fair value of Holding Unit option
awards. Upon exercise of Holding Unit options, Holding exchanges the proceeds
for AllianceBernstein Units, thus increasing Holding’s investment in
AllianceBernstein.
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.
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|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income – basic
|
|
$ |
104,828
|
|
|
$ |
74,003
|
|
|
$ |
284,000
|
|
|
$ |
215,567
|
|
Additional
allocation of equity in earnings of AllianceBernstein resulting from
assumed dilutive effect of compensatory options
|
|
|
1,219
|
|
|
|
1,238
|
|
|
|
4,157
|
|
|
|
3,737
|
|
Net
income – diluted
|
|
$ |
106,047
|
|
|
$ |
75,241
|
|
|
$ |
288,157
|
|
|
$ |
219,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average units outstanding – basic
|
|
|
86,680
|
|
|
|
84,444
|
|
|
|
86,340
|
|
|
|
84,037
|
|
Dilutive
effect of compensatory options
|
|
|
1,525
|
|
|
|
2,127
|
|
|
|
1,943
|
|
|
|
2,192
|
|
Weighted
average units outstanding – diluted
|
|
|
88,205
|
|
|
|
86,571
|
|
|
|
88,283
|
|
|
|
86,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per unit
|
|
$ |
1.21
|
|
|
$ |
0.88
|
|
|
$ |
3.29
|
|
|
$ |
2.57
|
|
Diluted
net income per unit
|
|
$ |
1.20
|
|
|
$ |
0.87
|
|
|
$ |
3.26
|
|
|
$ |
2.54
|
|
For
the three
months ended September 30, 2007, we excluded 1,678,985 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 ended
September 30, 2006, there were no out-of-the-money options. Out-of-the-money
options to buy 1,678,985 and 9,712 units for the nine months ended September
30,
2007 and 2006, respectively, have been excluded from the diluted net income
per
unit computation.
4.
|
Investment
in
AllianceBernstein
|
Changes
in Holding’s investment in AllianceBernstein for the nine-month period ended
September 30, 2007 were as follows (in thousands):
Investment
in AllianceBernstein as of January 1, 2007
|
|
$
|
1,567,733
|
|
Equity
in earnings of AllianceBernstein
|
|
|
312,957
|
|
Additional
investment with proceeds from exercises of compensatory options to
buy
Holding Units
|
|
|
41,446
|
|
Change
in accumulated other comprehensive income
|
|
|
6,332
|
|
Cash
distributions received from AllianceBernstein
|
|
|
(334,760
|
)
|
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation
plans,
net
|
|
|
(12,530
|
)
|
Impact
of initial adoption of FIN 48
|
|
|
145
|
|
Awards
of Holding Units made by AllianceBernstein under deferred compensations
plans, net of forfeitures
|
|
|
35,102
|
|
Investment
in AllianceBernstein as of September 30, 2007
|
|
$
|
1,616,425
|
|
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. For additional information regarding Holding’s tax status,
see Part II, Item 1A of this
Form 10-Q.
Effective
January 1, 2007, we adopted the provisions of Financial Accounting Standards
Board (“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109.
FIN 48 requires that the effects of a tax position be recognized in the
financial statements only if, as of the reporting date, it is “more likely than
not” to be sustained based solely on its technical merits. In making
this assessment, a company must assume that the taxing authority will examine
the tax position and have full knowledge of all relevant
information.
We
did
not recognize a liability for unrecognized tax benefits under FIN 48 as of
January 1, 2007, and there is no such liability as of September 30,
2007. Likewise, our financial statements did not reflect a liability for
tax positions prior to the application of FIN 48. A liability for
unrecognized tax benefits, if required, would be recorded in income tax expense
and affect the company’s effective tax rate.
The
company is no longer subject to federal, state, and local income tax
examinations by tax authorities for all years prior to 2004. Currently, there
are no examinations in progress and to date we have not been notified of any
future examinations by applicable taxing authorities.
6.
|
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 conduct a probability
assessment of 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 AllianceBernstein, Holding, the General
Partner, AXA Financial, the AllianceBernstein-sponsored mutual funds (“U.S.
Funds”) that are registered under the Investment Company Act of 1940, as amended
(“Investment Company Act”), certain officers of AllianceBernstein
(“AllianceBernstein defendants”), and certain unaffiliated defendants, as well
as unnamed Doe defendants. The Hindo Complaint was filed in the United States
District Court for the Southern District of New York by alleged shareholders
of
two of the U.S. Funds. The Hindo Complaint alleges that certain of the
AllianceBernstein defendants failed to disclose that they improperly allowed
certain hedge funds and other unidentified parties to engage in “late trading”
and “market timing” of U.S. Fund securities, violating Sections 11 and 15 of the
Securities Act of 1933, as amended (“Securities Act”), Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”),
and Sections 206 and 215 of the Investment Advisers Act of 1940, as amended
(“Advisers Act”). Plaintiffs seek an unspecified amount of compensatory damages
and rescission of the U.S. Funds’ contracts with AllianceBernstein, including
recovery of all fees paid to AllianceBernstein pursuant to such
contracts.
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. All state court
actions against AllianceBernstein either were voluntarily dismissed or removed
to federal court. On February 20, 2004, the Judicial Panel on Multidistrict
Litigation transferred all federal actions to the United States District Court
for the District of Maryland (“Mutual Fund MDL”). 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. All four complaints
included substantially identical factual allegations, which appear to be based
in large part on the Order of the SEC dated December 18, 2003 (as amended and
restated January 15, 2004, “SEC Order”) and the New York State Attorney General
Assurance of Discontinuance dated September 1, 2004 (“NYAG AoD”).
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 accrued 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.
The
matters disclosed in previous reports involving the West Virginia Attorney
General and the West Virginia Securities Commissioner have been resolved. The
former was dismissed and the latter settled pursuant to an agreement in which
AllianceBernstein does not admit liability.
We
are
involved in various other matters, including employee arbitrations, regulatory
inquiries, administrative proceedings, and litigation, some of which allege
material 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.
Partners’
capital is adjusted to reflect certain capital transactions of
AllianceBernstein. Comprehensive
income was comprised of:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
104,828
|
|
|
$ |
74,003
|
|
|
$ |
284,000
|
|
|
$ |
215,567
|
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on
investments
|
|
|
(1,507 |
) |
|
|
617 |
|
|
|
(1,633 |
) |
|
|
498 |
|
Foreign
currency translation adjustment
|
|
|
4,426
|
|
|
|
(273 |
) |
|
|
8,035
|
|
|
|
605
|
|
Other
|
|
|
(19 |
) |
|
|
—
|
|
|
|
(70 |
) |
|
|
—
|
|
|
|
|
2,900
|
|
|
|
344
|
|
|
|
6,332
|
|
|
|
1,103
|
|
Comprehensive
income
|
|
$ |
107,728
|
|
|
$ |
74,347
|
|
|
$ |
290,332
|
|
|
$ |
216,670
|
|
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 September 30, 2007, the related condensed
statements of income for the three-month and nine-month periods ended September
30, 2007 and 2006, and the condensed statements of cash flows for the nine-month
periods ended September 30, 2007 and 2006. 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
have
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, 2006, and the related statements of income, changes in
partners’ capital and comprehensive income, and cash flows for the year then
ended (not presented herein), and in our report dated February 27, 2007 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, 2006 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
|
November
2, 2007
|
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, 2006.
Results
of Operations
|
|
Three
Months Ended
September
30,
|
|
|
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
|
(in
millions, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AllianceBernstein
net income
|
|
$ |
348.1
|
|
|
$ |
253.0
|
|
|
|
37.6 |
% |
|
$ |
950.7
|
|
|
$ |
741.7
|
|
|
|
28.2 |
% |
Weighted
average equity ownership interest
|
|
|
33.0 |
% |
|
|
32.4 |
% |
|
|
|
|
|
|
32.9 |
% |
|
|
32.3 |
% |
|
|
|
|
Equity
in earnings of AllianceBernstein
|
|
$ |
114.9
|
|
|
$ |
82.0
|
|
|
|
40.0
|
|
|
$ |
313.0
|
|
|
$ |
239.7
|
|
|
|
30.6
|
|
Net
income of Holding
|
|
$ |
104.8
|
|
|
$ |
74.0
|
|
|
|
41.7
|
|
|
$ |
284.0
|
|
|
$ |
215.6
|
|
|
|
31.7
|
|
Diluted
net income per Holding Unit
|
|
$ |
1.20
|
|
|
$ |
0.87
|
|
|
|
37.9
|
|
|
$ |
3.26
|
|
|
$ |
2.54
|
|
|
|
28.3
|
|
Distribution
per Holding Unit
|
|
$ |
1.20
|
|
|
$ |
0.87
|
|
|
|
37.9
|
|
|
$ |
3.27
|
|
|
$ |
2.54
|
|
|
|
28.7
|
|
Net
income for the three-month and nine-month periods ended September 30, 2007
increased $30.8 million and $68.4 million, respectively, from net income of
$74.0 million and $215.6 million, for the corresponding prior year periods.
The
increases reflect increased equity in earnings of AllianceBernstein. See
AllianceBernstein’s MD&A contained in Exhibit 99.1 to this
Form 10-Q.
Earnings
Guidance
Our
earnings are becoming more seasonal, primarily due to the increasing amount
of
AllianceBernstein’s assets under management subject to performance fee
arrangements, as well as other factors affecting AllianceBernstein’s expense
ratios. To clarify this point, in our second quarter 2007 Earnings Release
we
provided a full year 2007 earnings guidance estimate of approximately $4.90
-
$5.25 per Unit, with the fourth quarter accounting for a disproportionate
share of the total. In our third quarter 2007 Earnings Release, we estimated
that full year 2007 earnings will be approximately $4.50 - $4.80 per Unit,
with
the entire reduction attributable to substantially lower estimated hedge fund
performance fees to be earned by AllianceBernstein. This estimate, which is
not
being updated in this Report, was based on information available at the time
of
the Earnings Release and on the assumptions that equity and fixed income market
returns would be at annual rates of 8% and 5%, respectively, for the fourth
quarter of 2007 and that AllianceBernstein’s net asset inflows for the fourth
quarter of 2007 would continue at levels similar to rates experienced during
the
third quarter of 2007 (adjusted to exclude the $6 billion of index mandate
terminations referred to in our third quarter 2007 Earnings Release; see
AllianceBernstein’s MD&A contained in Exhibit 99.1 to this
Form 10-Q). It is important to stress that our earnings are subject to
considerable uncertainty including, but not limited to, capital market
volatility, the effect of which can be amplified by the aforementioned increase
in assets under management subject to performance fee arrangements. Earnings
guidance should be evaluated in this context.
Proposed
Tax Legislation
See
Part II, Item 1A of this Form 10-Q.
Capital Resources and
Liquidity
The
following table identifies selected items relating to capital resources and
liquidity:
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
|
(in
millions, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’
capital, as of September 30
|
|
$
|
1,608.7
|
|
|
$
|
1,490.7
|
|
|
|
7.9
|
%
|
Distributions
received from AllianceBernstein
|
|
|
334.8
|
|
|
|
250.4
|
|
|
|
33.7
|
|
Distributions
paid to unitholders
|
|
|
(305.0
|
)
|
|
|
(224.9
|
)
|
|
|
35.6
|
|
Proceeds
from exercise of compensatory options
|
|
|
41.4
|
|
|
|
63.2
|
|
|
|
(34.5
|
)
|
Investment
in AllianceBernstein with proceeds from exercise of compensatory
options
to buy Holding Units
|
|
|
(41.4
|
)
|
|
|
(63.2
|
)
|
|
|
(34.5
|
)
|
Purchase
of Holding Units by AllianceBernstein to fund deferred compensation
plans,
net
|
|
|
(12.5
|
)
|
|
|
(16.6
|
)
|
|
|
(24.7
|
)
|
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
|
|
—
|
|
|
|
47.2
|
|
|
|
(100.0
|
)
|
Awards
of Holding Units by AllianceBernstein
|
|
|
35.1
|
|
|
|
36.4
|
|
|
|
(3.6
|
)
|
Available
Cash Flow
|
|
|
282.5
|
|
|
|
214.3
|
|
|
|
31.8
|
|
Distributions
per Holding Unit
|
|
|
3.27
|
|
|
|
2.54
|
|
|
|
28.7
|
|
Cash
and
cash equivalents were zero as of September 30, 2007 and 2006. Cash
inflows from AllianceBernstein distributions received were offset by income
taxes and cash distributions paid to unitholders. 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 of this Form 10-Q for a description of
Available Cash Flow.
Commitments
and Contingencies
See
Note 6 to the Holding condensed financial statements contained in
Item 1 of this
Form 10-Q.
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, 2006 and Part II, Item
1A of this Form 10-Q. Any or all of the
forward-looking statements that we make in 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 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.
The
forward-looking statements referred to above also include a description of
estimated earnings guidance and related assumptions provided for full year
2007,
which was included in our third quarter 2007 Earnings Release, and which is
not
being updated in this Report. That earnings guidance was based on
information available as of the date of the Earnings Release and a number of
assumptions, including, but not limited to, the following: net asset
inflows for the fourth quarter of 2007 continuing at levels similar to the
third
quarter of 2007 (adjusted to exclude the $6 billion index mandate terminations
referred to in our third quarter 2007 Earnings Release) and assumes equity
and
fixed income market returns at annual rates of 8% and 5%, respectively, for
the
fourth quarter. Net inflows of client assets are subject to domestic
and international securities market conditions, competitive factors, and
relative performance, each of which may have a negative effect on net inflows;
capital market performance is inherently unpredictable. In view of
these factors, and particularly given the volatility of capital markets (and
the
effect of such volatility on performance fees and the value of investments
in
respect of incentive compensation) and the difficulty of predicting client
asset
inflows and outflows, our earnings estimates should not be relied on as
predictions of actual performance, but only as estimates based on assumptions
that may or may not be correct. There can be no assurance that we
will be able to meet the investment and service goals and needs of our clients
or that, even if we do, it will have a positive effect on our financial
performance.
In
addition, the forward-looking statements we make in this Report include our
anticipation that the level of net asset flows into our institutional channel
will improve in 2008 due to our growing momentum in the defined contribution
market, that robust growth will continue in our private client channel, and
that
we are optimistic about the long-term outlook for our retail
business. The market for defined contribution plan investment
services is highly competitive and we may not be successful in winning new
mandates. Also, 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. Growth in the private client and retail
channels may be impaired by changes in competitive and securities market
conditions and relative performance. The actual performance of the capital
markets and other factors beyond our control will affect our investment success
for clients and asset inflows.
OTHER
INFORMATION
With
respect to the unaudited condensed interim financial information of Holding
for
the three-month and nine-month periods ended September 30, 2007, 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
November 2, 2007 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 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
September 30, 2007.
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 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 third
quarter of 2007 that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Part II
OTHER
INFORMATION
See
Note 6 to the condensed financial statements contained in Part I, Item
1 of this Form 10-Q.
In
addition to the information set forth below, please consider carefully “Risk
Factors” in Part I, Item 1A of our Form 10-K for the year ended
December 31, 2006. 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 of this Form 10-Q.
Changes
in the partnership structure of Holding and AllianceBernstein and/or changes
in
the tax law governing partnerships would have significant tax
ramifications.
Holding,
having elected under Section 7704(g) of the Internal Revenue Code of 1986,
as
amended (“Code”), to be subject to a 3.5% federal tax on partnership gross
income from the active conduct of a trade or business, is a “grandfathered”
publicly traded partnership for federal income tax purposes. Holding
is also subject to the 4.0% New York City unincorporated business tax (“UBT”),
net of credits for UBT paid by 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.
A
“new line of business” would be any business that is not closely related to
AllianceBernstein’s historical business of providing research and diversified
investment management and related services to its clients. A new line of
business is “substantial” when a partnership derives more than 15% of its gross
income from, or uses more than 15% of its total assets in, the new line of
business.
AllianceBernstein
is a private partnership for federal income tax purposes and, accordingly,
is
not subject to federal and state corporate income taxes. However,
AllianceBernstein is subject to the 4.0% UBT. Domestic corporate subsidiaries
of
AllianceBernstein, which are subject to federal, state and local income taxes,
are generally included in the filing of a consolidated federal income tax return
with separate state and local income tax returns being filed. Foreign corporate
subsidiaries are generally subject to taxes at higher rates in the foreign
jurisdiction where they are located. As our business increasingly
operates in countries other than the U.S., our effective tax rate continues
to
increase because our international subsidiaries are subject to corporate level
taxes in the jurisdictions where they are located.
In
order
to preserve AllianceBernstein’s status as a private partnership for federal
income tax purposes, AllianceBernstein Units must not be considered publicly
traded. The Amended and Restated Agreement of Limited Partnership of
AllianceBernstein provides that all transfers of AllianceBernstein Units must
be
approved by AXA Equitable and the General Partner; AXA Equitable and the General
Partner approve only those transfers permitted pursuant to one or more of the
safe harbors contained in relevant treasury regulations. If such units were
considered readily tradable, AllianceBernstein would be subject to federal
and
state corporate income tax on its net income. Furthermore, as noted above,
should AllianceBernstein enter into a substantial new line of business, Holding,
by virtue of its ownership of AllianceBernstein, would lose its status as a
grandfathered publicly traded partnership and would become subject to corporate
income tax as set forth above.
Earlier
this year, Congress proposed tax legislation that would cause certain
partnerships whose partnership interests are traded in a public market (“PTPs”)
and that derive income from investment adviser or asset management services
to
be taxed as corporations, thus subjecting their income to a higher level of
income tax. Holding is a PTP that derives its income from such services through
its ownership interest in AllianceBernstein. However, our review of the
legislation in the form proposed confirms our belief that Holding’s PTP status
would not be affected. In addition, we have received consistent indications
from
a number of individuals involved in the legislative process that Holding’s tax
status is not the focus of the proposed legislation, and that they do not expect
to change that approach. However, we cannot predict whether, or in what form,
the proposed tax legislation will pass, and are unable to determine what effect
any new legislation might have on us. If Holding were to lose its federal tax
status as a grandfathered PTP, it would be subject to corporate income tax,
which would reduce materially its net income and quarterly distributions to
Holding Unitholders.
In
its
current form, the proposed legislation would not affect AllianceBernstein,
because it is a private partnership.
|
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
|
|
7/1/07
– 7/31/07
|
|
|
991
|
|
|
$
|
88.87
|
|
|
|
—
|
|
|
|
—
|
|
8/1/07
– 8/31/07
|
|
|
1,149
|
|
|
|
88.21
|
|
|
|
—
|
|
|
|
—
|
|
9/1/07
– 9/30/07
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
2,140
|
|
|
$
|
88.52
|
|
|
|
—
|
|
|
|
—
|
|
All
Holding Units were purchased from employees to allow them to fulfill statutory
withholding tax requirements at the time of distribution of deferred
compensation and compensatory unit awards.
|
Defaults
Upon Senior
Securities
|
None.
|
Submission
of Matters to a
Vote of Security
Holders
|
None.
None.
|
Amendment
and Restatement of the Profit Sharing Plan for Employees of
AllianceBernstein L.P. (as amended through September 1,
2007).
|
|
|
|
Amendment
and Restatement of the Retirement Plan for Employees of AllianceBernstein
L.P. (as amended through September 1, 2007).
|
|
|
|
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
1, Items 1 through 4 of the AllianceBernstein L.P. Quarterly Report
on
Form 10-Q for the quarter ended September 30,
2007.
|
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:
November 2, 2007
|
ALLIANCEBERNSTEIN
HOLDING
L.P.
|
|
|
|
|
|
By:
|
/s/
Robert H. Joseph, Jr.
|
|
|
|
Robert
H. Joseph, Jr.
|
|
|
|
Senior
Vice President and Chief Financial
Officer
|