Item 1. Financial Statements
Item 1.
Financial Statements
ALLIANCEBERNSTEIN HOLDING L.P.
Condensed Statements of Financial Condition
(in thousands, except unit amounts)
(unaudited)
June 30,
2020
December 31,
2019
ASSETS
Investment in AB
$
1,486,617
$
1,554,203
Other assets
371
61
Total assets
$
1,486,988
$
1,554,264
LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Other liabilities
$
266
$
1,726
Total liabilities
266
1,726
Commitments and contingencies ( See Note 8 )
Partners’ capital:
General Partner: 100,000 general partnership units issued and outstanding
1,374
1,402
Limited partners: 96,331,971 and 98,092,098 limited partnership units issued and outstanding
1,556,813
1,619,200
AB Holding Units held by AB to fund long-term incentive compensation plans
( 26,202
)
( 27,436
)
Accumulated other comprehensive loss
( 45,263
)
( 40,628
)
Total partners’ capital
1,486,722
1,552,538
Total liabilities and partners’ capital
$
1,486,988
$
1,554,264
See Accompanying Notes to Condensed Financial Statements.
1
Index
ALLIANCEBERNSTEIN HOLDING L.P.
Condensed Statements of Income
(in thousands, except per unit amounts)
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Equity in net income attributable to AB Unitholders
$
63,201
$
59,023
$
133,115
$
111,661
Income taxes
6,275
6,749
13,930
12,948
Net income
$
56,926
$
52,274
$
119,185
$
98,713
Net income per unit:
Basic
$
0.59
$
0.54
$
1.23
$
1.03
Diluted
$
0.59
$
0.54
$
1.23
$
1.03
See Accompanying Notes to Condensed Financial Statements.
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Index
ALLIANCEBERNSTEIN HOLDING L.P.
Condensed Statements of Comprehensive Income
(in thousands)
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Net income
$
56,926
$
52,274
$
119,185
$
98,713
Other comprehensive income:
Foreign currency translation adjustments, before tax
2,473
( 985
)
( 5,154
)
167
Income tax benefit (expense)
72
( 51
)
78
( 53
)
Foreign currency translation adjustments, net of tax
2,545
( 1,036
)
( 5,076
)
114
Changes in employee benefit related items:
Amortization of prior service cost
4
—
7
5
Recognized actuarial gain (loss)
295
( 86
)
464
200
Changes in employee benefit related items
299
( 86
)
471
205
Income tax (expense) benefit
( 2
)
10
( 30
)
12
Employee benefit related items, net of tax
297
( 76
)
441
217
Other comprehensive income (loss)
2,842
( 1,112
)
( 4,635
)
331
Comprehensive income
$
59,768
$
51,162
$
114,550
$
99,044
See Accompanying Notes to Condensed Financial Statements.
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Index
ALLIANCEBERNSTEIN HOLDING L.P.
Condensed Statements of Changes in Partners’ Capital
(in thousands)
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
General Partner’s Capital
Balance, beginning of period
$
1,380
$
1,370
$
1,402
$
1,385
Net income
59
55
121
103
Cash distributions to Unitholders
( 65
)
( 50
)
( 149
)
( 113
)
Balance, end of period
1,374
1,375
1,374
1,375
Limited Partners’ Capital
Balance, beginning of period
1,592,161
1,490,581
1,619,200
1,555,892
Net income
56,867
52,219
119,064
98,610
Cash distributions to Unitholders
( 61,760
)
( 47,311
)
( 145,381
)
( 108,055
)
Retirement of AB Holding Units
( 31,958
)
( 3,730
)
( 46,178
)
( 73,383
)
Issuance of AB Holding Units to fund long-term incentive compensation plan awards
1,503
49,590
9,961
60,903
Exercise of compensatory options to buy AB Holding Units
—
1,569
147
8,951
Balance, end of period
1,556,813
1,542,918
1,556,813
1,542,918
AB Holding Units held by AB to fund long-term incentive compensation plans
Balance, beginning of period
( 29,002
)
( 24,464
)
( 27,436
)
( 27,759
)
Change in AB Holding Units held by AB to fund long-term incentive compensation plans
2,800
( 11,282
)
1,234
( 7,987
)
Balance, end of period
( 26,202
)
( 35,746
)
( 26,202
)
( 35,746
)
Accumulated Other Comprehensive (Loss) Income
Balance, beginning of period
( 48,105
)
( 38,018
)
( 40,628
)
( 39,461
)
Foreign currency translation adjustment, net of tax
2,545
( 1,036
)
( 5,076
)
114
Changes in employee benefit related items, net of tax
297
( 76
)
441
217
Balance, end of period
( 45,263
)
( 39,130
)
( 45,263
)
( 39,130
)
Total Partners’ Capital
$
1,486,722
$
1,469,417
$
1,486,722
$
1,469,417
See Accompanying Notes to Condensed Financial Statements.
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Index
ALLIANCEBERNSTEIN HOLDING L.P.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
2020
2019
Cash flows from operating activities:
Net income
$
119,185
$
98,713
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net income attributable to AB Unitholders
( 133,115
)
( 111,661
)
Cash distributions received from AB
160,259
121,617
Changes in assets and liabilities:
(Increase) in other assets
( 310
)
—
(Decrease) in other liabilities
( 1,460
)
( 7
)
Net cash provided by operating activities
144,559
108,662
Cash flows from investing activities:
Investments in AB with proceeds from exercise of compensatory options to buy AB Holding Units
( 147
)
( 8,951
)
Net cash used in investing activities
( 147
)
( 8,951
)
Cash flows from financing activities:
Cash distributions to Unitholders
( 145,530
)
( 108,168
)
Capital contributions from (to) AB
971
( 494
)
Proceeds from exercise of compensatory options to buy AB Holding Units
147
8,951
Net cash used in financing activities
( 144,412
)
( 99,711
)
Change in cash and cash equivalents
—
—
Cash and cash equivalents as of beginning of period
—
—
Cash and cash equivalents as of end of period
$
—
$
—
See Accompanying Notes to Condensed Financial Statements.
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Index
ALLIANCEBERNSTEIN HOLDING L.P.
Notes to Condensed Financial Statements
June 30, 2020
(unaudited)
The words “we” and “our” refer collectively to AllianceBernstein Holding L.P. (“AB Holding”) and AllianceBernstein L.P. and its subsidiaries (“AB”), or to their officers and employees. Similarly, the word “company” refers to both AB Holding and AB. Where the context requires distinguishing between AB Holding and AB, we identify which of them is being discussed.
1.
Business Description, Organization and Basis of Presentation
Business Description
AB Holding’s principal source of income and cash flow is attributable to its investment in AB limited partnership interests. The condensed financial statements and notes of AB Holding should be read in conjunction with the condensed consolidated financial statements and notes of AB included as an exhibit to this quarterly report on Form 10-Q and with AB Holding’s and AB’s audited financial statements included in AB Holding’s Form 10-K for the year ended December 31, 2019 .
AB provides diversified investment management, research and related services globally to a broad range of clients. Its principal services include:
•
Institutional Services – servicing its institutional clients, including private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and affiliates such as Equitable Holdings, Inc. ("EQH") and its 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 AB 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 Wealth Management Services – servicing its private clients, including high-net-worth individuals and families, 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, such as pension fund, hedge fund and mutual fund managers, seeking high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options.
AB also provides distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds it sponsors.
AB’s high-quality, in-depth research is the foundation of its business. AB’s research disciplines include economic, fundamental equity, fixed income and quantitative research. In addition, AB has experts focused on multi-asset strategies, wealth management and alternative investments.
AB provides a broad range of investment services with expertise in:
•
Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and investment strategies, including value, growth and core equities;
•
Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;
•
Passive management, including index and enhanced index strategies;
•
Alternative investments, including hedge funds, fund of funds, direct lending and private equity; and
•
Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds.
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Index
AB’s services span 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, emerging markets, regional and local), in major markets around the world.
Organization
During the second quarter of 2018, AXA S.A. ("AXA") completed the sale of a minority stake in EQH through an initial public offering ("IPO"). Since then, AXA has completed additional offerings and taken other steps, most recently during the fourth quarter of 2019. As a result, AXA owned less than 10 % of the outstanding common stock of EQH as of June 30, 2020 .
As of June 30, 2020 , EQH owned approximately 4.2 % of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AB Holding (“AB Holding Units”). AllianceBernstein Corporation (an indirect wholly-owned subsidiary of EQH, “General Partner”) is the general partner of both AB Holding and AB. AllianceBernstein Corporation owns 100,000 general partnership units in AB Holding and a 1 % general partnership interest in AB.
As of June 30, 2020 , the ownership structure of AB, expressed as a percentage of general and limited partnership interests, was as follows:
EQH and its subsidiaries
63.7
%
AB Holding
35.5
Unaffiliated holders
0.8
100.0
%
Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate 65.2 % economic interest in AB as of June 30, 2020 .
Basis of Presentation
The interim condensed financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the interim results, have been made. The preparation of the condensed financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed financial statements and the reported amounts of revenues and expenses during the interim reporting periods. Actual results could differ from those estimates. The condensed statement of financial condition as of December 31, 2019 was derived from audited financial statements, but it does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).
AB Holding records its investment in AB using the equity method of accounting. AB Holding’s investment is increased to reflect its proportionate share of income of AB and decreased to reflect its proportionate share of losses of AB and cash distributions made by AB to its Unitholders. In addition, AB Holding's investment is adjusted to reflect its proportionate share of certain capital transactions of AB.
2.
Cash Distributions
AB Holding is required to distribute all of its Available Cash Flow, as defined in the Amended and Restated Agreement of Limited Partnership of AB Holding (“AB Holding Partnership Agreement”), to its Unitholders pro rata in accordance with their percentage interests in AB Holding. Available Cash Flow is defined as the cash distributions AB Holding receives from AB minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB Holding for use in its business (such as the payment of taxes) or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow.
On July 23, 2020 , the General Partner declared a distribution of $ 0.61 per unit, representing a distribution of Available Cash Flow for the three months ended June 30, 2020 . Each general partnership unit in AB Holding is entitled to receive distributions equal to those received by each AB Holding Unit. The distribution is payable on August 20, 2020 to holders of record at the close of business on August 3, 2020 .
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Index
3.
Long-term Incentive Compensation Plans
AB maintains several unfunded, non-qualified long-term incentive compensation plans, under which the company grants awards of restricted AB Holding Units to its employees and members of the Board of Directors, who are not employed by AB or by any of AB’s affiliates (“Eligible Directors”).
AB funds its restricted AB Holding Unit awards either by purchasing AB Holding Units on the open market or purchasing newly-issued AB Holding Units from AB Holding, and then keeping these AB Holding Units in a consolidated rabbi trust until delivering them or retiring them. In accordance with the AB Holding Partnership Agreement, when AB purchases newly-issued AB Holding Units from AB Holding, AB Holding is required to use the proceeds it receives from AB to purchase the equivalent number of newly-issued AB Units, thus increasing its percentage ownership interest in AB. AB Holding Units held in the consolidated rabbi trust are corporate assets in the name of the trust and are available to the general creditors of AB.
Repurchases of AB Holding Units for the three and six months ended June 30, 2020 and 2019 consisted of the following:
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
(in millions)
Total amount of AB Holding Units Purchased (1)
1.3
—
2.2
2.0
Total Cash Paid for AB Holding Units Purchased (1)
$
27.8
$
—
$
47.6
$
58.6
Open Market Purchases of AB Holding Units Purchased (2)
1.3
—
2.2
1.9
Total Cash Paid for Open Market Purchases of AB Holding Units (2)
$
27.8
$
—
$
45.1
$
55.2
(1) Purchased on a trade date basis.
(2) The remainder related to purchases of AB Holding Units from employees to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards.
Each quarter, AB considers whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). A plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker selected by AB has the authority under the terms and limitations specified in the plan to repurchase AB Holding Units on AB’s behalf in accordance with the terms and limitations specified in the plan. Repurchases are subject to regulations promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the second quarter of 2020 expired at the close of business on July 22, 2020. AB may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under its incentive compensation award program and for other corporate purposes.
During the first six months of 2020 and 2019 , AB granted to employees and Eligible Directors 0.2 million and 1.7 million restricted AB Holding Unit awards, respectively. AB used AB Holding Units repurchased during the applicable period and newly-issued AB Holding Units to fund these restricted AB Holding Unit awards.
During the first six months of 2020 and 2019 , AB Holding issued 5,182 and 0.4 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $ 0.1 million and $ 9.0 million , respectively, received from award recipients as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.
8
Index
4.
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 by the diluted weighted average number of units outstanding for each period.
Three Months Ended June 30,
Six Months Ended
June 30,
2020
2019
2020
2019
(in thousands, except per unit amounts)
Net income – basic
$
56,926
$
52,274
$
119,185
$
98,713
Additional allocation of equity in net income attributable to AB resulting from assumed dilutive effect of compensatory options
3
19
18
45
Net income – diluted
$
56,929
$
52,293
$
119,203
$
98,758
Weighted average units outstanding – basic
96,892
96,283
96,526
95,717
Dilutive effect of compensatory options
10
48
22
60
Weighted average units outstanding – diluted
96,902
96,331
96,548
95,777
Basic net income per unit
$
0.59
$
0.54
$
1.23
$
1.03
Diluted net income per unit
$
0.59
$
0.54
$
1.23
$
1.03
Three Months Ended June 30,
Six Months Ended
June 30,
2020
2019
2020
2019
(amounts as shown)
Anti-dilutive options excluded from diluted net income
44,877
29,056
44,877
29,056
5.
Investment in AB
Changes in AB Holding’s investment in AB during the six -month period ended June 30, 2020 are as follows (in thousands):
Investment in AB as of December 31, 2019
$
1,554,203
Equity in net income attributable to AB Unitholders
133,115
Changes in accumulated other comprehensive (loss) income
( 4,635
)
Cash distributions received from AB
( 160,259
)
Additional investments with proceeds from exercise of compensatory options to buy AB Holding Units
147
Capital contributions (from) to AB
( 971
)
AB Holding Units retired
( 46,178
)
AB Holding Units issued to fund long-term incentive compensation plans
9,961
Change in AB Holding Units held by AB for long-term incentive compensation plans
1,234
Investment in AB as of June 30, 2020
$
1,486,617
9
Index
6.
Units Outstanding
Changes in AB Holding Units outstanding during the six -month period ended June 30, 2020 are as follows:
Outstanding as of December 31, 2019
98,192,098
Options exercised
5,182
Units issued
408,059
Units retired
( 2,173,368
)
Outstanding as of June 30, 2020
96,431,971
7.
Income Taxes
AB Holding is a “grandfathered” publicly-traded partnership (“PTP”) for federal tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, AB Holding is subject to the 4.0 % New York City unincorporated business tax (“UBT”), net of credits for UBT paid by AB, and to a 3.5 % federal tax on partnership gross income from the active conduct of a trade or business. AB Holding’s partnership gross income is derived from its interest in AB.
AB Holding’s federal income tax is computed by multiplying certain AB qualifying revenues (primarily U.S. investment advisory fees, research payments and brokerage commissions) by AB Holding’s ownership interest in AB, multiplied by the 3.5 % tax rate. AB Holding Units in AB’s consolidated rabbi trust are not considered outstanding for purposes of calculating AB Holding’s ownership interest in AB.
Three Months Ended June 30,
Six Months Ended
June 30,
2020
2019
% Change
2020
2019
% Change
(in thousands)
Net income attributable to AB Unitholders
$
177,321
$
166,252
6.7
%
$
371,641
$
315,366
17.8
%
Multiplied by: weighted average equity ownership interest
35.6
%
35.5
%
35.8
%
35.4
%
Equity in net income attributable to AB Unitholders
$
63,201
$
59,023
7.1
$
133,115
$
111,661
19.2
AB qualifying revenues
$
586,609
$
643,019
( 8.8
)
$
1,288,949
$
1,229,569
4.8
Multiplied by: weighted average equity ownership interest for calculating tax
29.9
%
29.4
%
30.4
%
29.5
%
Multiplied by: federal tax
3.5
%
3.5
%
3.5
%
3.5
%
Federal income taxes
6,179
6,619
13,694
12,700
State income taxes
96
130
236
248
Total income taxes
$
6,275
$
6,749
( 7.0
)
$
13,930
$
12,948
7.6
Effective tax rate
9.9
%
11.4
%
10.5
%
11.6
%
In order to preserve AB Holding’s status as a “grandfathered” PTP for federal income tax purposes, management ensures that AB Holding does not directly or indirectly (through AB) engage in a substantial new line of business. If AB Holding were to lose its status as a “grandfathered” PTP, it would be subject to corporate income tax, which would reduce materially AB Holding’s net income and its quarterly distributions to AB Holding Unitholders.
10
Index
8.
Commitments and Contingencies
Legal and regulatory matters described below pertain to AB and are included here due to their potential significance to AB Holding's investment in AB.
With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we can determine an estimate of the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages. Such is also the case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose that we are unable to predict the outcome or estimate a possible loss or range of loss.
AB may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which may allege significant damages. It is reasonably possible that AB could incur losses pertaining to these matters, but management cannot currently estimate any such losses.
Management, after consultation with legal counsel, currently believes that the outcome of any individual matter that is pending or threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or liquidity. However, any inquiry, proceeding or litigation has the element of uncertainty; management cannot determine whether further developments relating to any individual matter that is pending or threatened, or all of them combined, will have a material adverse effect on our results of operations, financial condition or liquidity in any future reporting period.
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Index
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.