ALLIANCEBERNSTEIN HOLDING L.P. - Annual Report: 2007 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
ý
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ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the Fiscal Year Ended December 31, 2007
OR
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 number 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, N.Y.
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10105
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (212) 969-1000
Securities
registered pursuant to Section 12(b) of the Act:
Title
of Class
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Name
of each exchange on which registered
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units
representing assignments of beneficial ownership of limited partnership
interests
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New
York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ý No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No ý
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. Yes ý No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o
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 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 Act). Yes o No ý
The
aggregate market value of the units representing assignments of beneficial
ownership of limited partnership interests held by non-affiliates computed by
reference to the price at which such units were last sold on the New York Stock
Exchange as of June 30, 2007 was approximately $7,249,000,000.
The
number of units representing assignments of beneficial ownership of limited
partnership interests outstanding as of January 31, 2008 was
87,251,925. (This figure 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.)
DOCUMENTS
INCORPORATED BY REFERENCE
This
Form 10-K does not incorporate any document by reference.
TABLE OF CONTENTS
ii
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Part
I
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Item
1.
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Item
1A.
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Item
1B.
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Item
2.
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Item
3.
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Item
4.
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Part
II
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Item
5.
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Item
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Item
7.
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Item
7A.
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Item
8.
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59
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Item
9.
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Item
9A.
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Item
9B.
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Part
III
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Item
10.
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93
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Item
11.
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101
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Item
12.
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111
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Item
13.
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116
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Item
14.
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Part
IV
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Item
15.
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120
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123
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GLOSSARY OF CERTAIN DEFINED TERMS
“AllianceBernstein” —
AllianceBernstein L.P. (Delaware limited partnership formerly known as Alliance
Capital Management L.P., “Alliance Capital”), the
operating partnership, and its subsidiaries and, where appropriate, its
predecessors, Holding and ACMC, Inc. and their respective
subsidiaries.
“AllianceBernstein
Investments”— AllianceBernstein Investments, Inc. (Delaware
corporation), a wholly-owned subsidiary of AllianceBernstein that services
retail clients and distributes company-sponsored mutual funds.
“AllianceBernstein Partnership
Agreement”— the Amended and Restated Agreement of Limited Partnership of
AllianceBernstein.
“AllianceBernstein Units”—
units of limited partnership interest in AllianceBernstein.
“AUM” — assets under management
for clients.
“AXA”— AXA (société anonyme organized
under the laws of France), the holding company for an international group of
insurance and related financial services companies engaged in the financial
protection and wealth management businesses.
“AXA Equitable”— AXA Equitable
Life Insurance Company (New York stock life insurance company), an indirect
wholly-owned subsidiary of AXA Financial, and its subsidiaries other than
AllianceBernstein and its subsidiaries.
“AXA Financial”— AXA
Financial, Inc. (Delaware corporation), a wholly-owned subsidiary of
AXA.
“Bernstein GWM” — Bernstein Global
Wealth Management, a unit of AllianceBernstein that services private
clients.
“Bernstein Transaction”— on
October 2, 2000, AllianceBernstein’s acquisition of the business and assets of
SCB Inc., formerly known as Sanford C. Bernstein Inc. (“Bernstein”), and
assumption of the liabilities of the Bernstein business.
“Exchange Act”— the Securities
Exchange Act of 1934, as amended.
“ERISA” — the Employee
Retirement Income Security Act of 1974, as amended.
“General Partner”—
AllianceBernstein Corporation (Delaware corporation), the general partner of
AllianceBernstein and Holding and a wholly-owned subsidiary of AXA Equitable,
and, where appropriate, ACMC, Inc., its predecessor.
“Holding” — AllianceBernstein
Holding L.P. (Delaware limited partnership).
“Holding Partnership
Agreement”— the Amended and Restated Agreement of Limited Partnership of
Holding.
“Holding Units”— units
representing assignments of beneficial ownership of limited partnership
interests in Holding.
“Investment Advisers Act”— the
Investment Advisers Act of 1940, as amended.
“Investment Company Act”— the
Investment Company Act of 1940, as amended.
“NYSE” — the New York Stock
Exchange, Inc.
“Partnerships”—
AllianceBernstein and Holding together.
“SCB LLC”— Sanford C. Bernstein
& Co., LLC (Delaware limited liability company), a wholly-owned subsidiary
of AllianceBernstein that provides institutional research services in the United
States.
“SCBL”— Sanford C. Bernstein
Limited (U.K. company), a wholly-owned subsidiary of AllianceBernstein that
provides institutional research services primarily in Europe.
“SEC”— the United States
Securities and Exchange Commission.
“Securities Act”— the
Securities Act of 1933, as amended.
PART
I
Item 1.
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Business
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The words
“we” and “our” in this Form 10-K refer collectively to Holding and
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.
We use
“global” in this Form 10-K to refer to all nations, including the United States;
we use “international” or “non-U.S.” to refer to nations other than the United
States.
We use
“emerging markets” in this Form 10-K to refer to countries considered to be
developing countries by the international financial community and countries
included in the MSCI emerging markets index. As of January 31, 2008,
examples of such countries are Argentina, Brazil, Chile, Egypt, India,
Indonesia, Israel, Malaysia, Mexico, the People’s Republic of China, Peru, the
Philippines, Poland, South Africa, South Korea, Taiwan, Thailand, and
Turkey.
We use
the term “hedge funds” in this Form 10-K to refer to private investment
partnerships we sponsor that invest in various alternative strategies such as
leverage, short selling of securities and utilizing forward contracts, currency
options and other derivatives.
General
Clients
AllianceBernstein
provides research, diversified investment management and related services
globally to a broad range of clients, including:
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institutional clients, including
unaffiliated corporate and public employee pension funds, endowment funds,
domestic and foreign institutions and governments, and various
affiliates;
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retail
clients;
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private clients, including
high-net-worth individuals, trusts and estates, charitable foundations,
partnerships, private and family corporations, and other entities;
and
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institutional investors seeking
independent research and related
services.
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We also
provide distribution, shareholder servicing, and administrative services to our
sponsored mutual funds.
Our
primary objective is to have more investment knowledge and to use it better than
our competitors to help our clients achieve their investment goals and financial
peace of mind.
Research
Our
high-quality, in-depth, fundamental research is the foundation of our business.
We believe that our global team of research professionals gives us a competitive
advantage in achieving investment success for our clients.
Our
research disciplines include fundamental research, quantitative research,
economic research, and currency forecasting capabilities. In addition, we have
created several specialized research units, including one unit that examines
global strategic changes that can affect multiple industries and geographies,
and another dedicated to identifying potentially successful innovations within
early-stage companies.
Products
and Services
We offer
a broad range of investment products and services to our clients:
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To our institutional clients, we
offer separately managed accounts, sub-advisory relationships, structured
products, collective investment trusts, mutual funds, hedge funds, and other investment vehicles
(“Institutional Investment
Services”);
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To our retail clients, we offer
retail mutual funds sponsored by AllianceBernstein, our subsidiaries, and
our affiliated joint venture companies, sub-advisory relationships with
mutual funds sponsored by third parties, separately managed account
programs sponsored by various financial intermediaries worldwide
(“Separately Managed Account Programs”), and other investment vehicles
(collectively, “Retail
Services”);
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To our private clients, we offer
diversified investment management services through separately managed
accounts, hedge funds, mutual funds, and other investment vehicles
(“Private Client Services”);
and
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To institutional investors, we
offer independent research, portfolio strategy, and brokerage-related
services (“Institutional Research
Services”).
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These
services are provided by a group of investment professionals with significant
expertise in their respective disciplines. As of December 31, 2007, our 304
buy-side research analysts, located around the world, supported our 180
portfolio managers. Our portfolio managers have an average of 20 years of experience
in the industry and 10 years of experience with AllianceBernstein. Together,
they oversee a number of different types of investment services within various
vehicles and strategies discussed above. As of December 31, 2007, our
60 sell-side research analysts provided the foundation for our Institutional
Research Services.
Our
services include:
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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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Growth equities, generally
targeting stocks with under-appreciated growth
potential;
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Fixed
income securities, including both taxable and tax-exempt
securities;
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Blend strategies, combining
style-pure investment components with systematic
rebalancing;
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Passive
management, including both index and enhanced index
strategies;
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Alternative
investments, such as hedge funds, currency management, and venture
capital; and
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Asset
allocation services, by which we offer specifically-tailored investment
solutions for our clients (e.g., customized target date fund retirement
services for institutional defined contribution
clients).
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We manage
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.
Blend
strategies are an increasingly important component of our product line. As of
December 31, 2007, blend AUM was $175 billion (representing 22% of our
company-wide AUM), an increase of 30% from $134 billion as of December 31, 2006
and 99% from $88 billion as of December 31, 2005.
We market
and distribute our hedge funds globally to high-net-worth clients and, more
recently, to institutional investors. Hedge fund AUM totaled $9.5 billion as of
December 31, 2007, $7.5 billion of which was private client AUM and $2.0 billion of which was
institutional AUM. Our hedge fund AUM constitutes only a small
portion of our company-wide AUM, but can have a disproportionately large effect
on our revenues because of the performance-based fees we are eligible to
earn. For additional information about these fees, see “Revenues” in this Item 1, “Risk
Factors” in Item 1A, and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item
7.
Sub-advisory
client mandates span our investment strategies, including growth, value, fixed
income, and blend. We serve as sub-adviser for retail mutual funds, insurance
products, retirement platforms, and institutional investment
products.
Global
Reach
We serve
clients in major global markets through operations in 48 cities in 25 countries. Our client
base includes investors throughout the Americas, Europe, Asia, Africa, and
Australia. We utilize an integrated global investment platform that provides our
clients with access to local (country-specific), international, and global
research and investment strategies.
Assets
under management by client domicile and investment service as of December 31,
2007, 2006, and 2005 were as follows:
By
Client Domicile
($
in billions):
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![]() |
December
31, 2007
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December
31, 2006
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December
31, 2005
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By
Investment Service
($
in billions):
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December
31, 2007
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December
31, 2006
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December
31, 2005
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As the
above charts indicate, our business continues to become increasingly global. Our
international client base increased by 23% during 2007 and 44% during 2006 and,
likewise, our global and international AUM increased by 27% during 2007 and 50%
during 2006. In addition, approximately 80%, 76%, and 69% of our gross asset
inflows (sales / new accounts) during 2007, 2006, and 2005, respectively, were
invested in global and international investment services.
Revenues
We earn
revenues primarily by charging fees for managing the investment assets of, and
providing research to, our clients.
We
generally calculate investment advisory fees as a percentage of the value of AUM
at a specific point in time or as a percentage of the value of average AUM for
the applicable billing period, with these fees varying by type of investment
service, size of account, and total amount of assets we manage for a particular
client. Accordingly, fee income generally increases or decreases as AUM
increases or decreases. Increases in AUM generally result from market
appreciation, positive investment performance for clients, or net asset inflows
from new and existing clients. Similarly, decreases in AUM generally result from
market depreciation, negative investment performance for clients, or net asset
outflows due to client redemptions, account terminations, or asset
withdrawals.
We are
eligible to earn performance-based fees on hedge fund services, as well as some
Institutional Investment Services. In these situations, we charge a base
advisory fee and are eligible to earn an additional performance-based fee or
incentive allocation that is calculated as either a percentage of absolute
investment results or a percentage of investment results in excess of a stated
benchmark over a specified period of time. In addition, many performance-based
fees include a high-watermark provision, which generally provides that if a
client account underperforms relative to its performance target (whether
absolute or relative to a specified benchmark), it must gain back such
underperformance before we can collect future performance-based
fees. Therefore, if we do not exceed our performance target for a
particular period, we will not earn a performance-based fee for that period and,
for accounts with a high-watermark provision, we will impair our ability to earn
future performance-based fees. Because the portion of our AUM on which we are
eligible to earn performance-based fees has increased, the seasonality and
volatility of our revenues and earnings have become more
significant. Our performance-based fees in 2007 were $81.2 million,
in 2006 were $235.7 million, and in 2005 were $131.9 million. For
additional information about performance-based fees, see “Risk Factors” in Item 1A
and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in
Item 7.
We
sometimes experience periods when the number of new accounts or the amount of
AUM increases or decreases significantly. These shifts result from wide-ranging
factors, including conditions of financial markets, our investment performance
for clients, and changes in our clients’ investment preferences.
We earn
revenues from clients to whom we provide fundamental research and
brokerage-related services generally in the form of transaction fees calculated
as either “cents per share” or a percentage of the value of the securities
traded for these clients.
Our
revenues may fluctuate for a number of reasons; see “Risk Factors” in Item 1A
and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in
Item 7.
Employees
As of
December 31, 2007, we had 5,580 full-time employees located in 25 countries,
including 364 research analysts, 180 portfolio managers, 42 traders, and 31
professionals with other investment-related responsibilities. We have employed
these professionals for an average period of approximately seven years, and
their average investment experience is approximately 16 years. We consider our
employee relations to be good.
Institutional
Investment Services
We serve
our institutional clients primarily through AllianceBernstein Institutional
Investments, a unit of AllianceBernstein, and through other units in our
international subsidiaries and one of our joint ventures (institutional
relationships of less than $25 million are generally serviced by Bernstein GWM,
our Private Client channel). Institutional Investment Services include actively
managed equity accounts (including growth, value, and blend accounts), fixed
income accounts, and balanced accounts (which combine equity and fixed income),
as well as passive management of index and enhanced index accounts. These
services are provided through separately managed accounts, sub-advisory
relationships, structured products, collective investment trusts, mutual funds,
and other investment vehicles. As of December 31, 2007, institutional AUM was
$508 billion, or 63% of our company-wide AUM. For more information concerning
institutional AUM, revenues, and fees, see “Assets Under Management,
Revenues, and Fees” in this Item 1.
Our
institutional client base includes unaffiliated corporate and public employee
pension funds, endowment funds, domestic and foreign institutions and
governments, and certain of our affiliates (AXA and its subsidiaries), as well
as certain sub-advisory relationships with unaffiliated sponsors of various
other investment products. We manage approximately 2,448 mandates for these
clients, which are located in 45 countries. As of December 31, 2007, we managed
employee benefit plan assets for 57 of the Fortune 100
companies, and we managed public pension fund assets for 37 states and/or
municipalities in those states.
Like our
business generally, our Institutional Investment Services are becoming
increasingly global. As of December 31, 2007, our institutional AUM invested in
global and international investment services was $341 billion, or 67% of
institutional AUM, as compared to $270 billion, or 59% of institutional AUM, as
of December 31, 2006, and $172 billion, or 48% of institutional AUM, as of
December 31, 2005. Similarly, as of December 31, 2007, the AUM we invested for
clients domiciled outside the United States was $269 billion, or 53% of
institutional AUM, as compared to $214 billion, or 47% of institutional AUM, as
of December 31, 2006, and $138 billion, or 38% of institutional AUM, as of
December 31, 2005.
Retail Services
We
provide investment management and related services to a wide variety of
individual retail investors, both in the U.S. and internationally, through
retail mutual funds sponsored by our company, our subsidiaries and affiliated
joint venture companies; mutual fund sub-advisory relationships; Separately
Managed Account Programs; and other investment vehicles (“Retail Products and
Services”). As of December 31, 2007, retail AUM, which is determined by
subtracting applicable liabilities from AUM, was $183 billion, or 23% of our
company-wide AUM. For more information concerning retail AUM, revenues, and
fees, see “Assets Under
Management, Revenues, and Fees” in this Item 1.
Our
Retail Products and Services are designed to provide disciplined, research-based
investments that contribute to a well-diversified investment portfolio. We
distribute these products and services through financial intermediaries,
including broker-dealers, insurance sales representatives, banks, registered
investment advisers, and financial planners.
Our
Retail Products and Services are becoming increasingly global. As of December
31, 2007, our retail AUM invested in global and international investment
services was $110 billion, or 60% of retail AUM, as compared to $86 billion, or
52% of retail AUM, as of December 31, 2006, and $65 billion, or 45% of retail
AUM, as of December 31, 2005. As of December 31, 2007, the AUM we invested for
clients domiciled outside the U.S. was $44 billion, or 24% of retail AUM, as
compared to $40 billion, or 24% of retail AUM, as of December 31, 2006, and $39
billion, or 27% of retail AUM, as of December 31, 2005.
Our
Retail Products and Services include open-end and closed-end funds that are
either (i) registered as investment companies under the Investment Company Act
(“U.S. Funds”), or (ii) not registered under the Investment Company Act and
generally not offered to United States persons (“Non-U.S. Funds” and
collectively with the U.S. Funds, “AllianceBernstein Funds”). They provide a
broad range of investment options, including local and global growth equities,
value equities, blend strategies, and fixed income securities. They also include
Separately Managed Account Programs, which are sponsored by financial
intermediaries and generally charge an all-inclusive fee covering investment
management, trade execution, asset allocation, and custodial and administrative
services. We also provide distribution, shareholder servicing, and
administrative services for our Retail Products and Services.
Our U.S.
Funds, which include retail funds, our variable products series fund (a
component of an insurance product), and the Sanford C. Bernstein Funds
(principally Private Client Services products), currently offer 120 different
portfolios to U.S. investors. As of December 31, 2007, retail U.S. Funds AUM was
approximately $66 billion, or 36% of total retail AUM. Because of the way they
are marketed and serviced, we report substantially all of the AUM in the Sanford
C. Bernstein Funds (“SCB Funds”), which totaled $32 billion as of December 31,
2007, as private client AUM.
We offer
the following Retail Products and Services to clients domiciled outside the
United States:
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Internationally-distributed funds
that currently offer 42 different portfolios to non-U.S. investors
distributed by local financial intermediaries by means of distribution
agreements in most major international markets (AUM in these funds was $25
billion as of December 31, 2007);
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Local-market funds that we
distribute in Japan through financial intermediaries
(AUM in these funds was $4 billion as of December 31, 2007);
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Retail
sub-advisory mandates (AUM in these relationships was $14 billion as of
December 31, 2007); and
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Separately
Managed Account Programs distributed by Canadian financial intermediaries
(AUM in these programs was less than $1 billion as of December 31,
2007).
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AllianceBernstein
Investments serves as the principal underwriter and distributor of the U.S.
Funds. AllianceBernstein Investments employs approximately 160 sales
representatives who devote their time exclusively to promoting the sale of U.S.
Funds and certain other Retail Products and Services by financial
intermediaries.
AllianceBernstein
(Luxembourg) S.A. (“AllianceBernstein Luxembourg”), a Luxembourg management
company and one of our wholly-owned subsidiaries, generally serves as the
placing or distribution agent for the Non-U.S. Funds. AllianceBernstein
Luxembourg employs approximately 21 sales representatives who devote their time
exclusively to promoting the sale of Non-U.S. Funds and other Retail Products
and Services by financial intermediaries.
Cash
Management Services
During
June 2005, Federated Investors, Inc. (“Federated”) acquired our retail cash
management services. For additional information, see Note 22 to AllianceBernstein’s
consolidated financial statements in Item 8.
Private Client Services
Bernstein
GWM combines the former private client services group of Bernstein, which has
served private clients for approximately 40 years, and the former private client
group of Alliance Capital. As of December 31, 2007, private client AUM was $109
billion, or 14% of our company-wide AUM. For more information concerning private
client AUM, revenues, and fees, see “Assets Under Management,
Revenues, and Fees” in this Item 1.
Through
Bernstein GWM, we provide Private Client Services to 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. We target investors with
financial assets of $1 million or more, although we have a minimum opening
account size of $500,000.
Our
Private Client Services are built on a sales effort that involves 338 financial advisors.
These advisors do not manage money, but work with private clients and their tax,
legal, and other advisors to assist clients in determining a suitable mix of
U.S. and non-U.S. equity securities and fixed income investments. The
diversified portfolio created for each client is intended to maximize after-tax
investment returns, in light of the client’s individual investment goals, income
requirements, risk tolerance, tax situation, and other relevant factors. In
creating these portfolios, we utilize all of our resources, including research
reports, investment planning services, and our Wealth Management Group, which
has in-depth knowledge of trust, estate, and tax planning
strategies.
Our
financial advisors are based in 18 cities in the U.S.:
New York City, Atlanta, Boston, Chicago, Cleveland, Dallas, Denver, Houston, Los
Angeles, Miami, Minneapolis, Philadelphia, San Diego, San Francisco, Seattle,
Tampa, Washington, D.C., and West Palm Beach. We also have financial advisors
based in London, England. We added 40 financial advisors in 2007, a 13% increase
from 2006; however, we anticipate that growth in the number of financial
advisors will slow in 2008.
Non-U.S.
investment services have become increasingly important in the private client
channel. As of December 31, 2007, our private client AUM invested in global and
international investment services was $38 billion, or 35% of private client AUM,
as compared to $29 billion, or 30% of private client AUM, as of December 31,
2006, and $20 billion, or 26% of private client AUM, as of December 31,
2005.
Institutional Research Services
Institutional
Research Services (“IRS”) consist of independent research, portfolio strategy,
and brokerage-related services provided to institutional investors such as
pension fund, hedge fund, and mutual fund managers, and other institutional
investors. Brokerage-related services are provided by SCB LLC in the United
States and SCBL primarily in Europe. As of December 31, 2007, SCB LLC and SCBL
(together, “SCB”) served approximately 1,350 clients in the U.S. and
approximately 460 clients outside the U.S. For more information concerning the
revenues we derive from IRS, see “Assets Under Management,
Revenues, and Fees” in this Item 1.
SCB
provides fundamental company and industry research along with disciplined
research into securities valuation and factors affecting stock-price movements.
Our analysts are consistently among the highest ranked research analysts in
industry surveys conducted by third-party organizations. Along with quantitative
analysts and portfolio strategists, our IRS research team totals approximately
175 people, including 55 senior analysts.
In 2007,
SCBL launched its European equity program and algorithmic trading capabilities
in London, where SCBL employs 16 published analysts covering industries and
companies in Europe. These product additions complement similar programs rolled
out in the U.S. in 2005 and 2006.
Assets Under Management, Revenues, and Fees
The
following tables summarize our AUM and revenues by distribution
channel:
Assets
Under Management(1)
December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006(2)
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Institutional
Investment Services
|
$ | 508,081 | $ | 455,095 | $ | 358,545 | 11.6 | % | 26.9 | % | ||||||||||
Retail
Services
|
183,165 | 166,928 | 145,134 | 9.7 | 15.0 | |||||||||||||||
Private
Client Services
|
109,144 | 94,898 | 74,873 | 15.0 | 26.7 | |||||||||||||||
Total
|
$ | 800,390 | $ | 716,921 | $ | 578,552 | 11.6 | 23.9 |
(1)
|
Excludes
certain non-discretionary client
relationships.
|
(2)
|
AUM
for 2006 has been increased by $26 million to reflect the assets
associated with existing services not previously included in
AUM.
|
Revenues
Years
Ended December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Institutional
Investment Services
|
$ | 1,481,885 | $ | 1,221,780 | $ | 894,781 | 21.3 | % | 36.5 | % | ||||||||||
Retail
Services
|
1,521,201 | 1,303,849 | 1,188,553 | 16.7 | 9.7 | |||||||||||||||
Private
Client Services
|
960,669 | 882,881 | 673,216 | 8.8 | 31.1 | |||||||||||||||
Institutional
Research Services
|
423,553 | 375,075 | 352,757 | 12.9 | 6.3 | |||||||||||||||
Other(1)
|
332,441 | 354,655 | 199,281 | (6.3 | ) | 78.0 | ||||||||||||||
Total
Revenues
|
4,719,749 | 4,138,240 | 3,308,588 | 14.1 | 25.1 | |||||||||||||||
Less:
Interest Expense
|
194,432 | 187,833 | 95,863 | 3.5 | 95.9 | |||||||||||||||
Net
Revenues
|
$ | 4,525,317 | $ | 3,950,407 | $ | 3,212,725 | 14.6 | 23.0 |
(1)
|
Other
revenues primarily consist of dividend and interest income, investment
gains (losses), and shareholder servicing fees. For additional
information, see
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in Item 7.
|
AXA
Financial, AXA Equitable, and our other affiliates, whose AUM consists primarily
of fixed income investments, together constitute our largest client. Our
affiliates represented approximately 15%, 17%, and 19% of our company-wide AUM
as of December 31, 2007, 2006, and 2005, respectively. We also earned
approximately 5% of our company-wide net revenues from our affiliates for each
of 2007, 2006, and 2005. We manage this AUM as part of our Institutional
Investment Services and our Retail Services.
Institutional
Investment Services
The
following tables summarize our Institutional Investment Services AUM and
revenues:
Institutional
Investment Services Assets Under Management(1)
(by
Investment Service)
December
31
|
%
Change
|
|||||||||||||||||||
2007
|
2006(2)
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 49,235 | $ | 55,562 | $ | 50,556 | (11.4 | )% | 9.9 | % | ||||||||||
Global
and International
|
192,472 | 158,572 | 101,791 | 21.4 | 55.8 | |||||||||||||||
241,707 | 214,134 | 152,347 | 12.9 | 40.6 | ||||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
31,908 | 36,668 | 39,721 | (13.0 | ) | (7.7 | ) | |||||||||||||
Global
and International
|
88,691 | 66,242 | 39,327 | 33.9 | 68.4 | |||||||||||||||
120,599 | 102,910 | 79,048 | 17.2 | 30.2 | ||||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
73,240 | 73,414 | 74,964 | (0.2 | ) | (2.1 | ) | |||||||||||||
Global
and International
|
53,978 | 39,166 | 27,709 | 37.8 | 41.3 | |||||||||||||||
127,218 | 112,580 | 102,673 | 13.0 | 9.6 | ||||||||||||||||
Index
/ Structured:
|
||||||||||||||||||||
U.S.
|
12,426 | 19,942 | 20,908 | (37.7 | ) | (4.6 | ) | |||||||||||||
Global
and International
|
6,131 | 5,529 | 3,569 | 10.9 | 54.9 | |||||||||||||||
18,557 | 25,471 | 24,477 | (27.1 | ) | 4.1 | |||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
166,809 | 185,586 | 186,149 | (10.1 | ) | (0.3 | ) | |||||||||||||
Global
and International
|
341,272 | 269,509 | 172,396 | 26.6 | 56.3 | |||||||||||||||
Total
|
$ | 508,081 | $ | 455,095 | $ | 358,545 | 11.6 | 26.9 |
(1)
|
Excludes certain
non-discretionary client
relationships.
|
(2)
|
AUM
for 2006 has been increased by $26 million to reflect the assets
associated with existing services not previously included in
AUM.
|
Revenues
From Institutional Investment Services
(by
Investment Service)
Years
Ended December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 153,747 | $ | 154,163 | $ | 155,046 | (0.3 | )% | (0.6 | )% | ||||||||||
Global and
International
|
747,957 | 570,185 | 362,181 | 31.2 | 57.4 | |||||||||||||||
901,704 | 724,348 | 517,227 | 24.5 | 40.0 | ||||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
108,691 | 122,132 | 126,894 | (11.0 | ) | (3.8 | ) | |||||||||||||
Global and
International
|
311,727 | 226,293 | 115,403 | 37.8 | 96.1 | |||||||||||||||
420,418 | 348,425 | 242,297 | 20.7 | 43.8 | ||||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
91,144 | 97,452 | 95,585 | (6.5 | ) | 2.0 | ||||||||||||||
Global and
International
|
54,021 | 38,825 | 29,887 | 39.1 | 29.9 | |||||||||||||||
145,165 | 136,277 | 125,472 | 6.5 | 8.6 | ||||||||||||||||
Index
/ Structured:
|
||||||||||||||||||||
U.S.
|
4,441 | 4,993 | 5,159 | (11.1 | ) | (3.2 | ) | |||||||||||||
Global and
International
|
9,865 | 7,177 | 4,197 | 37.5 | 71.0 | |||||||||||||||
14,306 | 12,170 | 9,356 | 17.6 | 30.1 | ||||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
358,023 | 378,740 | 382,684 | (5.5 | ) | (1.0 | ) | |||||||||||||
Global and
International
|
1,123,570 | 842,480 | 511,668 | 33.4 | 64.7 | |||||||||||||||
1,481,593 | 1,221,220 | 894,352 | 21.3 | 36.5 | ||||||||||||||||
Distribution
Revenues
|
292 | 560 | 429 | (47.9 | ) | 30.5 | ||||||||||||||
Total
|
$ | 1,481,885 | $ | 1,221,780 | $ | 894,781 | 21.3 | 36.5 |
As of
December 31, 2007, 2006, and 2005, Institutional Investment Services represented
approximately 63%, 63%, and 62%, respectively, of our company-wide AUM. The fees
we earned from these services represented approximately 33%, 31%, and 28% of our
company-wide net revenues for 2007, 2006, and 2005, respectively.
We manage
assets for AXA and its subsidiaries, which together constitute our largest
institutional client. These assets accounted for approximately 16%, 17%, and 18%
of our total institutional AUM as of December 31, 2007, 2006, and 2005,
respectively, and approximately 7%, 7%, and 8% of our total institutional
revenues for 2007, 2006, and 2005, respectively.
The
institutional AUM we manage for our affiliates, along with our nine other
largest institutional accounts, accounts for approximately 28% of our total
institutional AUM as of December 31, 2007 and approximately 17% of our total
institutional revenues for the year ended December 31, 2007. No single
institutional client other than AXA and its subsidiaries accounted for more than
approximately 1% of our company-wide net revenues for the year ended December
31, 2007.
We manage
the assets of our institutional clients through written investment management
agreements or other arrangements, all of which are generally terminable at any
time or upon relatively short notice by either party. In general, our written
investment management agreements may not be assigned without client
consent.
We are
compensated principally on the basis of investment advisory fees calculated as a
percentage of assets under management. The percentage we charge varies with the
type of investment service, the size of the account, and the total amount of
assets we manage for a particular client.
We are
eligible to earn performance-based fees on approximately 16% of institutional
assets under management, which are primarily invested in equity and fixed income
services rather than hedge funds. Performance-based fees provide for a
relatively low asset-based fee plus an additional fee based on investment
performance. For additional information about performance-based fees,
see “General - Revenues” in
this Item 1 and “Risk
Factors” in Item
1A.
Retail
Services
The
following tables summarize our Retail Services AUM and revenues:
Retail
Services Assets Under Management
(by
Investment Service)
December
31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 33,488 | $ | 35,749 | $ | 32,625 | (6.3 | )% | 9.6 | % | ||||||||||
Global and
International
|
56,560 | 38,797 | 16,575 | 45.8 | 134.1 | |||||||||||||||
90,048 | 74,546 | 49,200 | 20.8 | 51.5 | ||||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
24,637 | 28,587 | 31,193 | (13.8 | ) | (8.4 | ) | |||||||||||||
Global and
International
|
23,530 | 19,937 | 19,523 | 18.0 | 2.1 | |||||||||||||||
48,167 | 48,524 | 50,716 | (0.7 | ) | (4.3 | ) | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
10,627 | 11,420 | 12,053 | (6.9 | ) | (5.3 | ) | |||||||||||||
Global and
International
|
29,855 | 27,614 | 27,648 | 8.1 | (0.1 | ) | ||||||||||||||
40,482 | 39,034 | 39,701 | 3.7 | (1.7 | ) | |||||||||||||||
Index
/ Structured:
|
||||||||||||||||||||
U.S.
|
4,468 | 4,824 | 4,230 | (7.4 | ) | 14.0 | ||||||||||||||
Global and
International
|
— | — | 1,287 | — | (100.0 | ) | ||||||||||||||
4,468 | 4,824 | 5,517 | (7.4 | ) | (12.6 | ) | ||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
73,220 | 80,580 | 80,101 | (9.1 | ) | 0.6 | ||||||||||||||
Global and
International
|
109,945 | 86,348 | 65,033 | 27.3 | 32.8 | |||||||||||||||
Total
|
$ | 183,165 | $ | 166,928 | $ | 145,134 | 9.7 | 15.0 |
Revenues
From Retail Services
(by
Investment Service)
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 129,125 | $ | 123,355 | $ | 119,545 | 4.7 | % | 3.2 | % | ||||||||||
Global and
International
|
262,369 | 133,314 | 64,718 | 96.8 | 106.0 | |||||||||||||||
391,494 | 256,669 | 184,263 | 52.5 | 39.3 | ||||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
119,880 | 143,344 | 140,428 | (16.4 | ) | 2.1 | ||||||||||||||
Global and
International
|
168,817 | 152,883 | 119,173 | 10.4 | 28.3 | |||||||||||||||
288,697 | 296,227 | 259,601 | (2.5 | ) | 14.1 | |||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
39,644 | 43,705 | 88,714 | (9.3 | ) | (50.7 | ) | |||||||||||||
Global and
International
|
224,335 | 186,196 | 156,068 | 20.5 | 19.3 | |||||||||||||||
263,979 | 229,901 | 244,782 | 14.8 | (6.1 | ) | |||||||||||||||
Index
/ Structured:
|
||||||||||||||||||||
U.S.
|
1,868 | 1,673 | 1,507 | 11.7 | 11.0 | |||||||||||||||
Global and
International
|
— | 3,363 | 3,640 | (100.0 | ) | (7.6 | ) | |||||||||||||
1,868 | 5,036 | 5,147 | (62.9 | ) | (2.2 | ) | ||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
290,517 | 312,077 | 350,194 | (6.9 | ) | (10.9 | ) | |||||||||||||
Global and
International
|
655,521 | 475,756 | 343,599 | 37.8 | 38.5 | |||||||||||||||
946,038 | 787,833 | 693,793 | 20.1 | 13.6 | ||||||||||||||||
Distribution Revenues(1)
|
471,031 | 418,780 | 395,402 | 12.5 | 5.9 | |||||||||||||||
Shareholder Servicing
Fees(1)
|
104,132 | 97,236 | 99,358 | 7.1 | (2.1 | ) | ||||||||||||||
Total
|
$ | 1,521,201 | $ | 1,303,849 | $ | 1,188,553 | 16.7 | 9.7 |
(1)
|
For a description of distribution
revenues and shareholder servicing fees, see
below.
|
Investment
advisory fees and distribution fees for our Retail Products and Services are
generally charged as a percentage of average daily AUM. As certain of the U.S.
Funds have grown, we have revised our fee schedules to provide lower incremental
fees above certain asset levels. Fees paid by the U.S. Funds, EQ Advisors Trust
(“EQAT”), AXA Enterprise Multimanager Funds Trust (“AXA Enterprise Trust”), and
AXA Premier VIP Trust are reflected in the applicable investment management
agreement, which generally must be approved annually by the boards of directors
or trustees of those funds, including by a majority of the independent directors
or trustees. Increases in these fees must be approved by fund shareholders;
decreases need not be, including any decreases implemented by a fund’s directors
and trustees. In general, each investment management agreement with
the AllianceBernstein Funds, EQAT, AXA Enterprise Trust, and AXA Premier VIP
Trust provides for termination by either party at any time upon 60
days’ notice.
Fees paid
by Non-U.S. Funds are reflected in investment management agreements that
continue until they are terminated. Increases in these fees must generally be
approved by the relevant regulatory authority depending on the domicile and
structure of the fund, and Non-U.S. Fund shareholders must be given advance
notice of any fee increases.
Our
Retail Products and Services include variable products, which are open-end
mutual funds designed to fund benefits under variable annuity contracts and
variable life insurance policies offered by life insurance companies (“Variable
Products”). We manage the AllianceBernstein Variable Products Series Fund, Inc.,
which serves as the investment vehicle for insurance products offered by
unaffiliated insurance companies, and we sub-advise variable product mutual
funds sponsored by affiliates. As of December 31, 2007, we managed or
sub-advised approximately $59 billion of Variable Product AUM.
The
mutual funds we sub-advise for various affiliates together constitute our
largest retail client. They accounted for approximately 22%, 24%, and 29% of our
total retail AUM as of December 31, 2007, 2006, and 2005, respectively, and
approximately 7%, 7%, and 8% of our total retail revenues for 2007, 2006 and
2005, respectively.
Our
mutual fund distribution system (the “System”) includes a multi-class share
structure that permits open-end AllianceBernstein Funds to offer investors
various options for the purchase of mutual fund shares, including both front-end
load shares and back-end load shares. For front-end load shares,
AllianceBernstein Investments pays sales commissions to financial intermediaries
distributing the funds from the front-end sales charge it receives from
investors at the time of the sale. For back-end load shares, AllianceBernstein
Investments pays sales commissions to financial intermediaries at the time of
sale and also receives higher ongoing distribution services fees from the mutual
funds. In addition, investors who redeem back-end load shares before the
expiration of the minimum holding period (which ranges from one year to four
years) pay a contingent deferred sales charge (“CDSC”) to AllianceBernstein
Investments. We expect to recover deferred sales commissions over periods not
exceeding five and one-half years through receipt of a CDSC and/or the higher
ongoing distribution services fees we receive from holders of back-end load
shares. Payments of sales commissions made to financial intermediaries in
connection with the sale of back-end load shares under the System, net of CDSC
received of $31.1 million, $23.7 million, and $21.4 million, totaled
approximately $84.1 million, $98.7 million, and $74.2 million during 2007, 2006,
and 2005, respectively.
The rules
of the Financial Industry Regulatory Authority, Inc. (“FINRA”), the successor to
the National Association of Securities Dealers, Inc., effectively cap the
aggregate sales charges that may be received from each U.S. Fund by
AllianceBernstein Investments. The cap is 6.25% of cumulative gross sales (plus
interest at the prime rate plus 1% per annum) in each share class of the
open-end U.S. Funds.
Most
open-end U.S. Funds have adopted a plan under Rule 12b-1 of the Investment
Company Act that allows the fund to pay, out of assets of the fund, distribution
and service fees for the distribution and sale of its shares (“Rule 12b-1
Fees”). The open-end AllianceBernstein Funds have entered into agreements with
AllianceBernstein Investments under which they pay a distribution services fee
to AllianceBernstein Investments. AllianceBernstein Investments has entered into
selling and distribution agreements pursuant to which it pays sales commissions
to the financial intermediaries that distribute our open-end U.S. Funds. These
agreements are terminable by either party upon notice (generally not more than
60 days) and do not obligate the financial intermediary to sell any specific
amount of fund shares. A small amount of mutual fund sales is made directly by
AllianceBernstein Investments, in which case AllianceBernstein Investments
retains the entire sales charge.
In
addition to Rule 12b-1 Fees, AllianceBernstein Investments, at its own expense,
currently provides additional payments under distribution services and
educational support agreements to firms that sell shares of our funds, a
practice sometimes referred to as revenue sharing. Although the amount of
payments made to each qualifying firm in any given year may vary, the total
amount paid to a financial intermediary in connection with the sale of shares of
U.S. Funds will generally not exceed the sum of (i) 0.25% of the current year’s
fund sales by that firm, and (ii) 0.10% of average daily net assets attributable
to that firm over the course of the year. These sums may be associated with our
funds’ status on a financial intermediary’s preferred list of funds or may be
otherwise associated with the financial intermediary’s marketing and other
support activities, such as client education meetings and training efforts
relating to our funds.
Financial
intermediaries and record keepers that provide sub-transfer agency or accounting
services with respect to their customers’ investments in AllianceBernstein Funds
may receive specified payments from these funds or from affiliates of
AllianceBernstein, including AllianceBernstein Investor Services, Inc. (one of
our wholly-owned subsidiaries, “AllianceBernstein Investor Services”) and
AllianceBernstein Investments.
During
2007, the 10 financial intermediaries responsible for the largest volume of
sales of open-end AllianceBernstein Funds were responsible for 38% of such
sales. AXA Advisors, LLC (“AXA Advisors”), a wholly-owned subsidiary of AXA
Financial that utilizes members of AXA Equitable’s insurance sales force as its
registered representatives, was responsible for approximately 2%, 2%, and 3% of
total sales of shares of open-end AllianceBernstein Funds in 2007, 2006, and
2005, respectively. AXA Advisors is under no obligation to sell a specific
amount of AllianceBernstein Fund shares and also sells shares of mutual funds
sponsored by other affiliates and unaffiliated organizations.
Merrill
Lynch & Co., Inc. (and its subsidiaries, “Merrill Lynch”) was
responsible for approximately 7%, 6%, and 5% of open-end AllianceBernstein Fund
sales in 2007, 2006, and 2005, respectively. Citigroup Inc. (and its
subsidiaries, “Citigroup”) was responsible for approximately 7% of open-end
AllianceBernstein Fund sales in 2007 and 5% in each of 2006 and 2005. Neither
Merrill Lynch nor Citigroup is under any obligation to sell a specific
amount of AllianceBernstein Fund shares and each also sells shares of mutual
funds that it sponsors and that are sponsored by unaffiliated
organizations.
No dealer
or agent has in any of the last three years accounted for more than 10% of total
sales of shares of our open-end AllianceBernstein Funds.
Based on
industry sales data reported by the Investment Company Institute, our market
share in the U.S. mutual fund industry is 1.2% of total industry assets and we
accounted for 1.0% of total open-end industry sales (and 3.4% of non-proprietary
manager sales) in the U.S. during 2007. The investment performance of the U.S.
Funds is an important factor in the sale of their shares, but there are also
other factors, including the level and quality of shareholder services (see below) and the amounts
and types of distribution assistance and administrative services payments made
to financial intermediaries. We believe that our compensation programs with
financial intermediaries are competitive with others in the
industry.
Each of
the U.S. Funds appointed an independent compliance officer reporting to the
board of directors of each U.S. Fund. The expense of this officer and his staff
is borne by AllianceBernstein.
AllianceBernstein
Investor Services provides transfer agency and related services for each
open-end U.S. Fund and provides shareholder servicing for each open-end U.S.
Fund’s shareholder accounts (approximately 4.1 million accounts in total).
(Transfer agency and related services are provided to the SCB Funds primarily by
Boston Financial Data Services.) As of December 31, 2007, AllianceBernstein
Investor Services employed 258 people. AllianceBernstein Investor Services
operates in San Antonio, Texas, and it receives a monthly fee under each of its
servicing agreements with the open-end U.S. Funds based on the number and type
of shareholder accounts serviced. Each servicing agreement must be approved
annually by the relevant open-end U.S. Fund’s board of directors or trustees,
including a majority of the independent directors or trustees, and may be
terminated by either party without penalty upon 60 days’ notice.
AllianceBernstein
Funds utilize our personnel to perform most legal, clerical, and accounting
services. Payments to us by the U.S. Funds and certain Non-U.S. Funds for these
services must be specifically approved in advance by each fund’s board of
directors or trustees. Currently, AllianceBernstein Investor Services record
revenues for providing these services to the AllianceBernstein Funds at the rate
of approximately $7.0 million per year.
A unit of
AllianceBernstein Luxembourg (“ABIS Lux”) is the transfer agent for
substantially all of the Non-U.S. Funds. As of December 31, 2007, ABIS Lux
employed 77 people. ABIS Lux operates in Luxembourg (and is supported by
operations in Singapore, Hong Kong, and the United States) and receives a
monthly fee for its transfer agency services and a transaction-based fee under
various services agreements with the Non-U.S. Funds for which it provides these
services. Each agreement may be terminated by either party upon 60
days’ notice.
Private
Client Services
The
following tables summarize Private Client Services AUM and
revenues:
Private
Client Services Assets Under Management
(by
Investment Service)
December
31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 25,259 | $ | 27,703 | $ | 23,725 | (8.8 | )% | 16.8 | % | ||||||||||
Global and
International
|
25,497 | 19,091 | 12,959 | 33.6 | 47.3 | |||||||||||||||
50,756 | 46,794 | 36,684 | 8.5 | 27.6 | ||||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
16,004 | 13,237 | 9,986 | 20.9 | 32.6 | |||||||||||||||
Global and
International
|
12,175 | 9,418 | 6,390 | 29.3 | 47.4 | |||||||||||||||
28,179 | 22,655 | 16,376 | 24.4 | 38.3 | ||||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
29,498 | 25,032 | 21,471 | 17.8 | 16.6 | |||||||||||||||
Global and
International
|
676 | 328 | 241 | 106.1 | 36.1 | |||||||||||||||
30,174 | 25,360 | 21,712 | 19.0 | 16.8 | ||||||||||||||||
Index
/ Structured:
|
||||||||||||||||||||
U.S.
|
25 | 80 | 101 | (68.8 | ) | (20.8 | ) | |||||||||||||
Global and
International
|
10 | 9 | — | 11.1 | — | |||||||||||||||
35 | 89 | 101 | (60.7 | ) | (11.9 | ) | ||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
70,786 | 66,052 | 55,283 | 7.2 | 19.5 | |||||||||||||||
Global and
International
|
38,358 | 28,846 | 19,590 | 33.0 | 47.2 | |||||||||||||||
Total
|
$ | 109,144 | $ | 94,898 | $ | 74,873 | 15.0 | 26.7 |
Revenues
From Private Client Services
(by
Investment Service)
Years
Ended December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 322,366 | $ | 293,281 | $ | 256,580 | 9.9 | % | 14.3 | % | ||||||||||
Global and
International
|
233,964 | 260,529 | 161,793 | (10.2 | ) | 61.0 | ||||||||||||||
556,330 | 553,810 | 418,373 | 0.5 | 32.4 | ||||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
164,547 | 134,070 | 93,716 | 22.7 | 43.1 | |||||||||||||||
Global and
International
|
113,379 | 83,615 | 58,308 | 35.6 | 43.4 | |||||||||||||||
277,926 | 217,685 | 152,024 | 27.7 | 43.2 | ||||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
121,895 | 108,418 | 99,868 | 12.4 | 8.6 | |||||||||||||||
Global and
International
|
2,315 | 1,188 | 879 | 94.9 | 35.2 | |||||||||||||||
124,210 | 109,606 | 100,747 | 13.3 | 8.8 | ||||||||||||||||
Index
/ Structured:
|
||||||||||||||||||||
U.S.
|
— | 75 | 103 | (100.0 | ) | (27.2 | ) | |||||||||||||
Global and
International
|
91 | — | — | — | — | |||||||||||||||
91 | 75 | 103 | 21.3 | (27.2 | ) | |||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
608,808 | 535,844 | 450,267 | 13.6 | 19.0 | |||||||||||||||
Global and
International
|
349,749 | 345,332 | 220,980 | 1.3 | 56.3 | |||||||||||||||
958,557 | 881,176 | 671,247 | 8.8 | 31.3 | ||||||||||||||||
Distribution
Revenues
|
2,112 | 1,705 | 1,969 | 23.9 | (13.4 | ) | ||||||||||||||
Total
|
$ | 960,669 | $ | 882,881 | $ | 673,216 | 8.8 | 31.1 |
Private
client accounts are managed pursuant to a written investment advisory agreement
generally among the client, AllianceBernstein and SCB LLC (sometimes between the
client and AllianceBernstein Limited, a wholly-owned subsidiary of ours
organized in the U.K.), which usually is terminable at any time or upon
relatively short notice by any party. In general, these contracts may not be
assigned without the consent of the client. We are compensated under these
contracts by fees calculated as a percentage of AUM at a specific point in time
or as a percentage of the value of average assets under management for the
applicable billing period, with these fees varying based on the type of
portfolio and the size of the account. The aggregate fees we charge for managing
hedge funds may be higher than the fees we charge for managing other assets in
private client accounts because hedge fund fees provide for performance-based
fees, incentive allocations, or carried interests in addition to asset-based
fees. We are eligible to earn performance-based fees on approximately 8% of
private client AUM, substantially all of which is held in hedge
funds.
We
eliminated transaction charges during 2005 on U.S. equity services for most
private clients as part of a management initiative that changed the structure of
investment advisory and services fees charged for our services. The
restructuring eliminated transaction charges for trade execution performed by
SCB LLC for most private clients; the transaction charges were replaced by
higher asset-based fees. This fee structure provides greater transparency and
predictability of asset management costs for our private clients. (The
elimination of transaction charges was not the result of the New York State
Attorney General’s Assurance of Discontinuance dated September 1, 2004 (“NYAG
AoD”) or an agreement with any other regulator; see “Governance” in this Item
1 for additional information.)
Revenues
from Private Client Services represented approximately 21%, 22%, and 21% of our
company-wide net revenues for the years ended December 31, 2007, 2006, and 2005,
respectively.
Institutional
Research Services
The
following table summarizes Institutional Research Services
revenues:
Revenues
From Institutional Research Services
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Transaction
Execution and Research:
|
||||||||||||||||||||
U.S.
Clients
|
$ | 302,721 | $ | 296,736 | $ | 290,511 | 2.0 | % | 2.1 | % | ||||||||||
Non-U.S.
Clients
|
99,182 | 69,279 | 57,870 | 43.2 | 19.7 | |||||||||||||||
401,903 | 366,015 | 348,381 | 9.8 | 5.1 | ||||||||||||||||
Other
|
21,650 | 9,060 | 4,376 | 139.0 | 107.0 | |||||||||||||||
Total
|
$ | 423,553 | $ | 375,075 | $ | 352,757 | 12.9 | 6.3 |
We earn
revenues for providing investment research to, and executing brokerage
transactions for, institutional clients. These clients compensate us principally
by directing SCB to execute brokerage transactions, for which we earn
transaction charges. These services accounted for approximately 9%, 9%, and 11%
of our company-wide net revenues for the years ended December 31, 2007, 2006,
and 2005, respectively.
Fee rates
charged for brokerage transactions have declined significantly in recent years,
but increases in transaction volume in both the U.S. and Europe have more than
offset these decreases. For additional information, see “Risk Factors” in Item 1A and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7.
Custody
and Brokerage
Custody
SCB LLC
acts as custodian for the majority of AllianceBernstein’s
private client AUM and some of AllianceBernstein’s institutional AUM. Other
custodial arrangements are maintained by client-designated banks, trust
companies, brokerage firms or other custodians.
Brokerage
We
generally have the discretion to select the broker-dealers that execute
securities transactions for client accounts. When selecting brokers, we are
required to obtain “best execution”. Although there is no single statutory
definition, SEC releases and other legal guidelines make clear that the duty to
obtain best execution requires us to seek “the most advantageous terms
reasonably available under the circumstances for a customer’s account”. In
addition to commission rate, we take into account such factors as current market
conditions, the broker’s financial strength, and the ability and willingness of
the broker to commit capital by taking positions in order to execute
transactions.
While we
select brokers primarily on the basis of their execution capabilities, we may
also take into consideration the quality and amount of research services a
broker provides to us for the benefit of our clients. These research services,
which are paid for with client commissions and which we purchase to augment our
own research capabilities, are governed by Section 28(e) of the Exchange Act. We
use broker-dealers that provide these services in consideration for commissions
paid for the execution of client trades, subject at all times to our duty to
seek best execution, and with respect to which we reasonably conclude, in good
faith, that the value of the execution and other services we receive from the
broker-dealer is reasonable in relation to the amount of commissions paid. The
commissions charged by these full-service brokers are generally higher than
those charged by electronic trading networks and other “low-touch” trading
venues.
We
sometimes execute client transactions through SCB LLC or SCBL, our affiliated
broker-dealers. We do so only when our clients have consented to our use of
affiliated broker-dealers or we are otherwise permitted to do so, and only when
we can execute these transactions in accordance with applicable law (i.e., our
obligation to obtain best execution). In 2007, we executed approximately $3.3
million in transactions through SCB. We may use brokers to effect client
transactions that sell shares of AllianceBernstein Funds or third party funds we
sub-advise; however, we prohibit our investment professionals who place trades
from considering these other relationships or the sale of fund shares as a
factor when selecting brokers to effect transactions.
Our
Brokerage Allocation Committee has principal oversight responsibility for
evaluating equity-related brokerage matters, including how to use research
services we receive in a manner that is in the best interests of our clients and
consistent with current regulatory requirements.
Service Marks
In
connection with our name changes to AllianceBernstein L.P. and AllianceBernstein
Holding L.P. in February 2006, we have registered a number of service marks with
the U.S. Patent and Trademark Office and various foreign patent offices,
including an “AB” design logo and the combination of such logo with the mark
“AllianceBernstein”.
In
connection with the Bernstein Transaction, we acquired all of the rights and
title in, and to, the Bernstein service marks, including the mark
“Bernstein”.
Governance
We
maintain a robust fiduciary culture and, as a fiduciary, we place the interests
of our clients first and foremost. We are committed to the fair and equitable
treatment of all our clients, and to compliance with all applicable
rules and regulations and internal policies to which our business is subject. We
pursue these goals through education of our employees to promote awareness of
our fiduciary obligations, incentives that align employees’ interests with those
of our clients, and a range of measures, including active monitoring, to ensure
regulatory compliance. Specific steps we have taken to help us achieve these
goals include:
|
•
|
revising our code of ethics to
better align the interests of our employees with those of our
clients;
|
|
•
|
forming two committees composed
primarily of executive management to oversee and resolve code of ethics
and compliance-related
issues;
|
|
•
|
creating an ombudsman office,
where employees and others can voice concerns on a confidential
basis;
|
|
•
|
initiating
firm-wide compliance and ethics training programs;
and
|
|
•
|
appointing
a Conflicts Officer and establishing a Conflicts Committee to identify and
manage conflicts of interest.
|
We
implemented these measures, in part, pursuant to the Order of the Commission
(“SEC Order”) dated December 18, 2003 (amended and restated January 15, 2004)
and the NYAG AoD (together with the SEC Order, “Orders”), which related to
trading practices in the shares of certain of our sponsored mutual
funds. In addition, the Orders required:
|
•
|
establishing a $250 million
restitution fund to compensate fund shareholders for the adverse effects
of market timing (“Restitution
Fund”);
|
|
•
|
reducing by 20% (on a weighted
average basis) the advisory fees on U.S. long-term open-end retail mutual
funds by reducing our advisory fee rates (we are required to maintain
these reduced fee rates for at least the five-year period that commenced
January 1,
2004; we do not
intend to seek to increase our fees at the end of this period);
and
|
|
•
|
agreeing to have an independent
third party perform a comprehensive compliance review
biannually.
|
We
believe that our remedial actions provide reasonable assurance that the
deficiencies in our internal controls related to market timing will not occur
again.
With the
approval of the independent directors of the U.S. Fund Boards and the staff of
the SEC, we retained an Independent Distribution Consultant (“IDC”) to develop a
plan for the distribution of the Restitution Fund. To the extent it is
determined by the IDC and the SEC that the harm to mutual fund shareholders
caused by market timing exceeds $200 million, we will be required to contribute
additional monies to the Restitution Fund. In September 2005, the IDC submitted
to the SEC Staff the portion of his report concerning his methodology for
determining damages and a proposed distribution plan, which addresses the
mechanics of distribution; in February 2006, the final portion of his report was
submitted. The Restitution Fund proceeds will not be distributed
until after the SEC has issued an order approving the distribution plan. Until
then, it is not possible to predict the exact timing, method, or amount of the
distribution.
Regulation
Virtually
all aspects of our business are subject to federal and state laws and
regulations, rules of securities regulators and exchanges, and laws in the
foreign countries in which our subsidiaries conduct business.
AllianceBernstein,
Holding, the General Partner, SCB LLC, AllianceBernstein Global Derivatives
Corporation (a wholly-owned subsidiary of AllianceBernstein, “Global
Derivatives”), and Alliance Corporate Finance Group Incorporated (a wholly-owned
subsidiary of AllianceBernstein) are investment advisers registered under the
Investment Advisers Act. SCB LLC and Global Derivatives are also registered with
the Commodity Futures Trading Commission as commodity pool
operators.
Each U.S.
Fund is registered with the SEC under the Investment Company Act and the shares
of most U.S. Funds are qualified for sale in all states in the United States and
the District of Columbia, except for U.S. Funds offered only to residents of a
particular state. AllianceBernstein Investor Services is registered with the SEC
as a transfer agent.
SCB LLC
and AllianceBernstein Investments are registered with the SEC as broker-dealers,
and both are members of FINRA. SCB LLC is also a member of the NYSE and all
other principal U.S. exchanges. SCBL is a broker regulated by the Financial
Services Authority of the United Kingdom (“FSA”) and is a member of the London
Stock Exchange.
AllianceBernstein
Trust Company, LLC (“ABTC”), a wholly-owned subsidiary of AllianceBernstein, is
a non-depository trust company chartered under New Hampshire law as a limited
liability company. ABTC is authorized to act as trustee, executor, transfer
agent, assignee, receiver, custodian, investment adviser, and in any other
capacity authorized for a trust company under New Hampshire law. As a
state-chartered trust company exercising fiduciary powers, ABTC must comply with
New Hampshire laws applicable to trust company operations (such as New Hampshire
Revised Statutes Annotated Part 392), certain federal laws (such as ERISA and
sections of the Bank Secrecy Act), and the New Hampshire banking laws. The
primary fiduciary activities of ABTC consist of serving as trustee to a series
of collective investment trusts, the investors of which currently are defined
benefit and defined contribution retirement plans.
Many of
our subsidiaries around the world are subject to minimum net capital
requirements by the local laws and regulations to which they are
subject. As of December 31, 2007, each of our subsidiaries subject to
a minimum net capital requirement satisfied the applicable
requirement.
Holding
Units trade publicly on the NYSE under the ticker symbol “AB”. Holding is an
NYSE listed company and, therefore, is subject to the applicable regulations
promulgated by the NYSE.
Our
relationships with AXA and its subsidiaries are subject to applicable provisions
of the insurance laws and regulations of New York and other states. Under such
laws and regulations, the terms of certain investment advisory and other
agreements we enter into with AXA or its subsidiaries are required to be fair
and equitable, charges or fees for services performed must be reasonable, and,
in some cases, are subject to regulatory approval.
All
aspects of our business are subject to various federal and state laws and
regulations, rules of various securities regulators and exchanges, and laws in
the foreign countries in which our subsidiaries and joint ventures conduct
business. These laws and regulations are primarily intended to benefit clients
and fund shareholders and generally grant supervisory agencies broad
administrative powers, including the power to limit or restrict the carrying on
of business for failure to comply with such laws and regulations. In such event,
the possible sanctions that may be imposed include the suspension of individual
employees, limitations on engaging in business for specific periods, the
revocation of the registration as an investment adviser or broker-dealer,
censures, and fines.
Some of
our subsidiaries are subject to the oversight of regulatory authorities in
Europe, including the FSA in the U.K., and in Asia, including the Financial
Services Agency in Japan, the Securities and Futures Commission in Hong Kong and
the Monetary Authority of Singapore. While the requirements of these foreign
regulators are often comparable to the requirements of the SEC and other U.S.
regulators, they are sometimes more restrictive and may cause us to incur
substantial expenditures of time and money in our efforts to
comply.
Taxes
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% (by value) 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 so, as our business increasingly operates in
countries other than the U.S., our effective tax rate continues to
increase.
For
additional information, see
“Risk Factors” in Item 1A.
History and Structure
We have
been in the investment research and management business for more than 35 years.
Alliance Capital was founded in 1971 when the investment management department
of Donaldson, Lufkin & Jenrette, Inc. (since November 2000, a part of Credit
Suisse Group) merged with the investment advisory business of Moody’s Investor
Services, Inc. Bernstein was founded in 1967.
In April
1988, Holding “went public” as a master limited partnership. Holding Units,
which trade under the ticker symbol “AB”, have been listed on the NYSE since
that time.
In
October 1999, Holding reorganized by transferring its business and assets to
AllianceBernstein, a newly-formed operating partnership, in exchange for all of
the AllianceBernstein Units (“Reorganization”). Since the date of the
Reorganization, AllianceBernstein has conducted the business formerly conducted
by Holding and Holding’s activities have consisted of owning AllianceBernstein
Units and engaging in related activities. As stated above, Holding Units trade
publicly; AllianceBernstein Units do not trade publicly and are subject to
significant restrictions on transfer. The General Partner is the general partner
of both AllianceBernstein and Holding.
In
October 2000, our two legacy firms, Alliance Capital and Bernstein, combined,
bringing together Alliance Capital’s expertise in growth equity and corporate
fixed income investing, and its family of retail mutual funds, with Bernstein’s
expertise in value equity and tax-exempt fixed income management, and its
private client and institutional research services businesses. For additional
details about our business combination, see “Principal Security Holders” in
Item 12.
As of
December 31, 2007, the condensed ownership structure of AllianceBernstein was as
follows (for a more complete description of our ownership structure, see “Principal Security Holders” in
Item 12):
![Chart](https://www.sec.gov/Archives/edgar/data/0000825313/000114036108004917/chart.jpg)
(1)
|
Direct and indirect ownership
including unallocated Holding Units held in a trust for our deferred
compensation plans.
|
As of
December 31, 2007, AXA, through certain of its subsidiaries (see “Principal Security Holders” in
Item 12),
beneficially owned approximately 62.8% of the issued and outstanding
AllianceBernstein Units (including those held indirectly through its ownership
of approximately 1.7% of the issued and outstanding Holding Units).
The
General Partner, an indirect wholly-owned subsidiary of AXA, owns 100,000
general partnership units in Holding and a 1% general partnership interest in
AllianceBernstein. Including the general partnership interests in Holding and
AllianceBernstein and its equity interest in Holding, AXA, through certain of
its subsidiaries, had an approximate 63.2% economic interest in
AllianceBernstein as of December 31, 2007.
AXA and
its subsidiaries own all of the issued and outstanding shares of the common
stock of AXA Financial. AXA Financial owns all of the issued and outstanding
shares of AXA Equitable. See
“Principal Security Holders” in Item 12.
AXA, a
société anonyme
organized under the laws of France, is the holding company for an international
group of insurance and related financial services companies engaged in the
financial protection and wealth management businesses. AXA’s operations are
diverse geographically, with major operations in Western Europe, North America,
and the Asia/Pacific regions and, to a lesser extent, in other regions including
the Middle East and Africa. AXA has five operating business segments: life and
savings, property and casualty, international insurance, asset management, and
other financial services.
Competition
The
financial services industry is intensely competitive and new entrants are
continually attracted to it. No single or small group of competitors is dominant
in the industry.
We
compete in all aspects of our business with numerous investment management
firms, mutual fund sponsors, brokerage and investment banking firms, insurance
companies, banks, savings and loan associations, and other financial
institutions that often provide investment products that have similar features
and objectives as those we offer. Our competitors offer a wide range of
financial services to the same customers that we seek to serve. Some of our
competitors are larger, have a broader range of product choices and investment
capabilities, conduct business in more markets, and have substantially greater
resources than we do. These factors may place us at a competitive disadvantage,
and we can give no assurance that our strategies and efforts to maintain and
enhance our current client relationships, and create new ones, will be
successful.
AXA, AXA
Equitable, and certain of their direct and indirect subsidiaries provide
financial services, some of which are competitive with those offered by
AllianceBernstein. The AllianceBernstein Partnership Agreement specifically
allows AXA Financial and its subsidiaries (other than the General Partner) to
compete with AllianceBernstein and to exploit opportunities that may be
available to AllianceBernstein. AXA, AXA Financial, AXA Equitable and certain of
their subsidiaries have substantially greater financial resources than we do and
are not obligated to provide resources to us.
To grow
our business, we must be able to compete effectively for assets under
management. Key competitive factors include:
|
•
|
our commitment to place the
interests of our clients
first;
|
|
•
|
the quality of our
research;
|
|
•
|
our ability to attract, retain,
and motivate highly skilled, and often highly specialized,
personnel;
|
|
•
|
our investment performance for
clients;
|
|
•
|
the array of investment products
we offer;
|
|
•
|
the fees we
charge;
|
|
•
|
our operational
effectiveness;
|
|
•
|
our ability to further develop
and market our brand; and
|
|
•
|
our global
presence.
|
Increased
competition could reduce the demand for our products and services, and that
could have a material adverse effect on our revenues, financial condition,
results of operations, and business prospects.
Competition
is an important risk that our business faces and should be considered along with
the other risk factors we discuss in Item 1A
below.
Other
Information
AllianceBernstein
and Holding file or furnish annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and other reports required to comply with
federal securities laws. The public may read and copy any materials filed with
the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington,
DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet site (http://www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
AllianceBernstein
and Holding maintain an Internet site (http://www.alliancebernstein.com).
The portion of the site at “Investor & Media Relations” and “Reports &
SEC Filings” links to both companies’ annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act. These reports are available through the site free of charge as soon as
reasonably practicable after such material is filed with, or furnished to, the
SEC.
Item 1A.
|
Risk
Factors
|
Please
read this section along with the description of our business in Item 1, the competition
section just above, and AllianceBernstein’s financial information contained in Items 6, 7, and
8. The majority of the risk factors discussed below directly affect
AllianceBernstein. These risk factors also affect Holding because Holding’s
principal source of income and cash flow is attributable to its investment in
AllianceBernstein. See also
“Cautions Regarding
Forward-Looking Statements” in Item 7.
Changes
in financial market levels have a direct and significant impact on our assets
under management; a significant reduction in assets under management could have
a material adverse effect on our revenues, financial condition, results of
operations, and business prospects.
Performance
of financial markets (both domestic and international), global economic
conditions, interest rates, inflation rates, tax regulation changes, and other
factors that are difficult to predict affect the mix, market values, and levels
of assets under management. Investment advisory and services fees, the largest
component of revenues, are generally calculated as a percentage of the value of
assets under management and vary with the type of account managed. Accordingly,
fee income generally increases or decreases as assets under management increase
or decrease and is affected by market appreciation or depreciation, inflow of
new client assets (including purchases of mutual fund shares), and outflow of
client assets (including redemption of mutual fund shares). In addition,
changing market conditions and investment trends, particularly with respect to
retirement savings, may reduce interest in certain of our investment products
and may result in a reduction in assets under management. In addition, a shift
towards fixed income products might result in a related decline in revenues and
income because we generally earn higher revenues from assets invested in our
equity services than in our fixed income services.
Declines
in financial markets or higher redemption levels in company-sponsored mutual
funds, or both, as compared to the assumptions we have used to estimate
undiscounted future cash flows from distribution plan fees, as described in Item 7, could result in
impairment of the deferred sales commission asset. Due to the volatility of
financial markets and changes in redemption rates, we are unable to predict
whether or when a future impairment of the deferred sales commission asset might
occur. The occurrence of an impairment would result in a material charge to our
earnings.
During
the second half of 2007, significant weakness and volatility in global credit
markets, particularly the rapid deterioration of the mortgage markets in the
United States and Europe, spread to broader financial markets and began to
adversely affect global economic growth. These difficulties had an
adverse impact on our 2007 results of operations. Specifically, they
adversely affected the investment performance for clients in most of our equity
and hedge fund services. As a result, the amount of performance-based
fees we earned in 2007 was significantly reduced. The weakness in
global financial markets has continued thus far in 2008, causing a $49 billion
decline in AUM during January 2008. Our 2008 results of operations
would be adversely affected should this trend continue.
Our
business is dependent on investment advisory, selling and distribution
agreements that are subject to termination or non-renewal on short
notice.
We derive
most of our revenues pursuant to written investment management agreements (or
other arrangements) with institutional investors, mutual funds, and private
clients, and selling and distribution agreements between AllianceBernstein
Investments and financial intermediaries that distribute AllianceBernstein
Funds. Generally, the investment management agreements (and other arrangements)
are terminable at any time or upon relatively short notice by either party. The
selling and distribution agreements are terminable by either party upon notice
(generally not more than 60 days) and do not obligate the financial intermediary
to sell any specific amount of fund shares. In addition, investors in
AllianceBernstein Funds can redeem their investments without notice. Any
termination of, or failure to renew, a significant number of these agreements,
or a significant increase in redemption rates, could have a material adverse
effect on our revenues, financial condition, results of operations, and business
prospects.
Our
ability to establish new client relationships and maintain existing ones is
partly dependent on our relationships with various financial intermediaries and
consultants that are not obligated to continue to work with us.
Our
ability to market our Retail Products and Services, sub-advisory services, and
certain other investment services is partly dependent on our access to
securities firms, brokers, banks, and other intermediaries. These intermediaries
generally offer their clients investment products in addition to, and in
competition with, our products. In addition, certain institutional investors
rely on consultants to advise them on the choice of investment adviser, and our
Institutional Investment Services are not always considered among the best
choices by all consultants. Also, our Private Client Services group relies on
referrals from financial planners, registered investment advisers, and other
professionals. We cannot be certain that we will continue to have access to, or
receive referrals from, these third parties. Loss of such access or referrals
could have a material adverse effect on our revenues, financial condition,
results of operations, and business prospects.
We
may be unable to continue to attract and retain key personnel.
Our
business depends on our ability to attract, retain, and motivate highly skilled,
and often highly specialized, technical, managerial, and executive personnel;
there is no assurance that we will be able to do so.
The
market for qualified research analysts, portfolio managers, financial advisers,
traders, and other professionals is extremely competitive and is characterized
by frequent movement of these investment professionals among different firms.
Portfolio managers and financial advisers often maintain strong, personal
relationships with their clients so their departure could cause us to lose
client accounts, which could have a material adverse effect on our revenues,
financial condition, results of operations, and business
prospects.
Investment
performance consistently below client expectations could lead to loss of clients
and a decline in revenues.
Our
ability to achieve investment returns for clients that meet or exceed investment
returns for comparable asset classes and competing investment services is a key
consideration when clients decide to keep their assets with us or invest
additional assets, as well as a prospective client’s decision to invest. Our
inability to meet relevant investment benchmarks could result in clients
withdrawing assets and in prospective clients choosing to invest with
competitors. This could also result in lower investment management fees,
including minimal or no performance-based fees, which could result in a decline
in our revenues.
We
may enter into more performance-based fee arrangements with our clients in the
future, which could cause greater fluctuations in our revenues.
We
sometimes charge our clients performance-based fees. In these situations, we
charge a base advisory fee and are eligible to earn an additional
performance-based fee or incentive allocation that is calculated as either a
percentage of absolute investment results or a percentage of investment results
in excess of a stated benchmark over a specified period of time. In addition,
many performance-based fees include a high-watermark provision, which generally
provides that if a client account underperforms relative to its performance
target (whether absolute or relative to a specified benchmark), it must gain
back such underperformance before we can collect future performance-based
fees. Therefore, if we do not exceed our performance target for a
particular period, we will not earn a performance-based fee for that period and,
for accounts with a high-watermark provision, we will impair our ability to earn
future performance-based fees. For example, for many of our hedge
funds, performance in the fourth quarter of 2007 produced losses and was
significantly below performance targets. With approximately 70%
of our hedge fund assets subject to high-watermarks, we ended 2007 with
approximately 50% of our hedge fund AUM with high-watermarks of 10% or
more. This will make it very difficult for us to earn
performance-based fees in most of our hedge funds in 2008.
We are
eligible to earn performance-based fees on approximately 16% of the assets we
manage for institutional clients and approximately 8% of the assets we manage
for private clients (in total, approximately 11% of our company-wide
AUM). Our performance-based fees in 2007 were $81.2 million, in 2006
were $235.7 million, and in 2005 were $131.9 million. Our
performance-based fees are an increasingly important part of our business, in
particular due to our hedge fund AUM. As the percentage of our AUM subject to
performance-based fees grows, seasonality and volatility of revenue and earnings
are likely to become more significant.
Unpredictable
events, including natural disaster, technology failure, and terrorist attack,
could adversely affect our ability to conduct business.
War,
terrorist attack, power failure, natural disaster, and rapid spread of serious
disease could interrupt our operations by:
|
•
|
causing disruptions in
U.S. or global economic conditions,
thus decreasing investor confidence and making investment products
generally less attractive;
|
|
•
|
inflicting loss of
life;
|
|
•
|
triggering massive technology
failures or delays; and
|
|
•
|
requiring substantial capital
expenditures and operating expenses to remediate damage and restore
operations.
|
Our
operations require experienced, professional staff. Loss of a substantial number
of such persons or an inability to provide properly equipped places for them to
work may, by disrupting our operations, adversely affect our revenues, financial
condition, results of operations, and business prospects.
We
depend on various systems and technologies for our business to function properly
and to safeguard confidential information.
We
utilize software and related technologies throughout our business, including
both proprietary systems and those provided by outside vendors. Although we have
established and tested business continuity plans, we may experience systems
delays and interruptions and it is not possible to predict with certainty all of
the adverse effects that could result from our failure, or the failure of a
third party, to efficiently address these problems. These adverse effects could
include the inability to perform critical business functions or failure to
comply with financial reporting and other regulatory requirements, which could
lead to loss of client confidence, harm to our reputation, exposure to
disciplinary action, and liability to our clients. Accordingly, potential system
failures and the cost necessary to correct those failures could have a material
adverse effect on our revenues, financial condition, results of operations, and
business prospects.
In
addition, we could be subject to losses if we fail to properly safeguard
sensitive and confidential information. As part of our normal operations, we
maintain and transmit confidential information about our clients as well as
proprietary information relating to our business operations. Our systems could
be damaged by unauthorized users or corrupted by computer viruses or other
malicious software code, or authorized persons could inadvertently or
intentionally release confidential or proprietary information. Such disclosure
could, among other things, allow competitors access to our proprietary business
information and require significant time and expense to investigate and
remediate the breach.
A
failure of our operations or those of third parties we rely on, including
failures arising out of human error, could disrupt our business, damage our
reputation, and reduce our revenues.
Weaknesses
or failures in our internal processes or systems could lead to disruption of our
operations, liability to clients, exposure to disciplinary action, or harm to
our reputation. Our business is highly dependent on our ability to process, on a
daily basis, large numbers of transactions, many of which are highly complex,
across numerous and diverse markets. These transactions generally must adhere to
investment guidelines, as well as stringent legal and regulatory
standards.
Despite
the contingency plans and facilities we have in place, our ability to conduct
business may be adversely affected by a disruption in the infrastructure that
supports our operations and the communities in which they are located. This may
include a disruption involving electrical, communications, transportation or
other services used by AllianceBernstein or third parties with which we conduct
business. If a disruption occurs in one location and our employees in that
location are unable to occupy our offices or communicate with or travel to other
locations, our ability to conduct business with and on behalf of our clients may
suffer, and we may not be able to successfully implement contingency plans that
depend on communication or travel.
Our
obligations to clients require us to exercise skill, care, and prudence in
performing our services. Despite our employees being highly trained
and skilled, the large number of transactions we process makes it highly likely
that errors will occasionally occur. Should we make a mistake in
performing our services that cost us or our clients money, we have a duty to act
promptly to put the clients in the position they would have been in had we not
made the error. The occurrence of mistakes, particularly significant
ones, can have a material adverse effect on our reputation, revenues, financial
condition, results of operations, and business prospects.
We
may not accurately value the securities we hold on behalf of our discretionary
clients or our company investments.
In
accordance with applicable regulatory requirements, our obligations under
investment management agreements with our clients, and, if the client is a U.S.
Fund, the approval and direction of the U.S. Fund’s board of directors or
trustees, we employ procedures for the pricing and valuation of securities and
other positions held in client accounts or for company
investments. We have established a Valuation Committee, composed of
senior officers and employees, which oversees pricing controls and valuation
processes. Where market quotations for a security are not readily
available, the Valuation Committee determines a fair value for the
security.
Extraordinary
volatility in financial markets, significant liquidity constraints, or our not
adequately accounting for one or more factors when fair valuing a security could
result in our failing to properly value securities we hold for our clients or
investments accounted for on our balance sheet. Improper valuation
would likely result in our basing fee calculations on inaccurate AUM figures,
our striking incorrect net asset values for company-sponsored mutual funds, or,
in the case of company investments, our inaccurately calculating and reporting
our financial condition and operating results. Although the overall
percentage of our AUM that we fair value is not significant, inaccurate fair
value determinations can harm our clients and create regulatory
issues.
Our
business is based on the trust and confidence of our clients; any damage to that
trust and confidence can cause assets under management to decline and can have a
material adverse effect on our revenues, financial condition, results of
operations, and business prospects.
We are
dedicated to earning and maintaining the trust and confidence of our clients;
the good reputation created thereby is essential to our business. Damage to our
reputation could substantially impair our ability to maintain or grow our
business.
We
may not always successfully manage actual and potential conflicts of interest
that arise in our business.
Our
reputation is one of our most important assets. As our business and client base
expand, we increasingly must manage actual and potential conflicts of interest,
including situations where our services to a particular client conflict, or are
perceived to conflict, with the interests of another client, as well as
situations where certain of our employees have access to material non-public
information that may not be shared with all employees of our firm. Failure to
adequately address potential conflicts of interest could adversely affect our
revenues, financial condition, results of operations, and business
prospects.
We have
procedures and controls that are designed to address and manage conflicts of
interest, including those designed to prevent the improper sharing of
information. However, appropriately managing conflicts of interest is complex
and difficult, and our reputation could be damaged and the willingness of
clients to enter into transactions in which such a conflict might arise may be
affected if we fail, or appear to fail, to deal appropriately with conflicts of
interest. In addition, potential or perceived conflicts could give rise to
litigation or regulatory enforcement actions.
Rates
we charge for brokerage transactions have declined significantly in recent
years, and we expect those declines to continue, which could have an adverse
effect on our revenues.
Fee rates
charged for brokerage transactions have declined significantly in recent years
and this has affected our Institutional Research Services revenues. In 2007,
increases in transaction volume more than offset decreases in rates, but this
may not continue. Brokerage transaction revenues are also affected by the
increasing use of electronic trading systems which charge transaction fees for
execution-only services that are a small fraction of the full service fee rates
traditionally charged by SCB and other brokers for brokerage services and the
provision of proprietary research. Also, regulatory changes in the United
Kingdom and the United States have resulted or will result in investors being
given more information regarding the allocation of amounts they are paying for
brokerage between execution services and research services and this may further
reduce the willingness of investors to pay current rates for full-service
brokerage. All of these factors may result in reductions in per transaction
brokerage fees that SCB charges its clients; we expect these reductions to
continue.
The
costs of insurance are substantial and may increase.
Our
insurance expenses are significant and can fluctuate significantly from year to
year. They increased in 2007, and additional increases in the future
are possible. In addition, certain insurance coverage may not be available or
may only be available at prohibitive costs. As we renew our insurance policies,
we may be subject to additional costs resulting from rising premiums, the
assumption of higher deductibles and/or co-insurance liability, a revised
premium-sharing arrangement with certain U.S. Funds, and, to the extent certain
U.S. Funds purchase separate directors and officers/errors and omissions
liability coverage, an increased risk of insurance companies disputing
responsibility for joint claims. Higher insurance costs and incurred deductibles
reduce our net income.
Our
business is subject to pervasive global regulation, the compliance with which
could involve substantial expenditures of time and money, and the violation of
which could result in material adverse consequences.
Virtually
all aspects of our business are subject to federal and state laws and
regulations, rules of securities regulators and exchanges, and laws in the
foreign countries in which our subsidiaries conduct business. If we violate
these laws or regulations, we could be subject to civil liability, criminal
liability, or sanction, including revocation of our and our subsidiaries’
registrations as investment advisers or broker-dealers, revocation of the
licenses of our employees, censures, fines, or temporary suspension or permanent
bar from conducting business. A regulatory proceeding, even if it does not
result in a finding of wrongdoing or sanction, could require substantial
expenditures of time and money. Any such liability or sanction could have a
material adverse effect on our revenues, financial condition, results of
operations, and business prospects. These laws and regulations generally grant
supervisory agencies and bodies broad administrative powers, including, in some
cases, the power to limit or restrict doing business for failure to comply with
such laws and regulations. Moreover, regulators in non-U.S. jurisdictions could
change their policies or laws in a manner that might restrict or otherwise
impede our ability to market, distribute, or register investment products in
their respective markets. These local requirements could increase the expenses
we incur in a specific jurisdiction without any corresponding increase in
revenues from operating in the jurisdiction.
Due to
the extensive laws and regulations to which we are subject, we devote
substantial time and effort to legal and regulatory compliance issues. In
addition, the regulatory environment in which we operate changes frequently and
regulations have increased significantly in recent years. We may be adversely
affected as a result of new or revised legislation or regulations or by changes
in the interpretation or enforcement of existing laws and
regulations.
The
financial services industry is intensely competitive.
We
compete on the basis of a number of factors, including our array of investment
services, our investment performance for our clients, innovation, reputation,
and price. As our global presence continues to expand, we may face competitors
with more experience and more established relationships with clients, regulators
and industry participants in the relevant market, which could adversely affect
our ability to expand.
We
are involved in various legal proceedings and regulatory matters and may be
involved in such proceedings in the future, any one or combination of which
could have a material adverse effect on our revenues, financial condition,
results of operations, and business prospects.
We are
involved in various matters, including employee arbitrations, regulatory
inquiries, administrative proceedings, and litigation, some of which allege
material damages, and we may be involved in additional matters in the future.
Litigation is subject to significant uncertainties, particularly when plaintiffs
allege substantial or indeterminate damages, or when the litigation is highly
complex or broad in scope. We have described pending material legal proceedings
in Item 3.
Structure-related
Risks
The partnership
structure of Holding and AllianceBernstein limits unitholders’ abilities to
influence the management and operation of AllianceBernstein’s business and is
highly likely to prevent a change in control of Holding and
AllianceBernstein.
The
General Partner, as general partner of both Holding and AllianceBernstein,
generally has the exclusive right and full authority and responsibility to
manage, conduct, control, and operate their respective businesses, except as
otherwise expressly stated in their respective Amended and Restated Agreements
of Limited Partnership. Holding and AllianceBernstein unitholders have more
limited voting rights on matters affecting AllianceBernstein than do holders of
common stock in a corporation. Both Amended and Restated Agreements of Limited
Partnership provide that unitholders do not have any right to vote for directors
of the General Partner and that unitholders can only vote on certain
extraordinary matters (including removal of the General Partner under certain
extraordinary circumstances). Additionally, the AllianceBernstein Partnership
Agreement includes significant restrictions on transfers of AllianceBernstein
Units and provisions that have the practical effect of preventing the removal of
the General Partner, which are highly likely to prevent a change in control of
AllianceBernstein’s management.
AllianceBernstein
Units are illiquid.
There is
no public trading market for AllianceBernstein Units and AllianceBernstein does
not anticipate that a public trading market will ever develop. The
AllianceBernstein Partnership Agreement restricts our ability to participate in
a public trading market or anything substantially equivalent to one by providing
that any transfer which may cause AllianceBernstein to be classified as a
“publicly traded partnership” as defined in Section 7704 of the Code shall
be deemed void and shall not be recognized by AllianceBernstein. In addition,
AllianceBernstein Units are subject to significant restrictions on transfer; all
transfers of AllianceBernstein Units are subject to the written consent of AXA
Equitable and the General Partner pursuant to the AllianceBernstein Partnership
Agreement. Generally, neither AXA Equitable nor the General Partner will permit
any transfer that it believes would create a risk that AllianceBernstein would
be treated as a corporation for tax purposes. AXA Equitable and the General
Partner have implemented a transfer policy that requires a seller to locate a
purchaser, and imposes annual volume restrictions on transfers. You
may request a copy of the transfer program from our corporate secretary
(corporate.secretary@alliancebernstein.com).
Also, we have filed the transfer program as Exhibit 10.11 to this
Form 10-K.
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 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 (“PTP”) for federal
income tax purposes. Holding is also subject to the 4.0% 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% (by value) 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 AllianceBernstein Partnership Agreement 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.
In 2007,
Congress proposed tax legislation that would cause certain PTPs 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 asset manager or investment
management services through its ownership interest in AllianceBernstein.
However, the legislation, in the form proposed, would not affect Holding’s tax
status. 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.
Item
1B.
|
Unresolved
Staff
Comments
|
Neither
AllianceBernstein nor Holding has unresolved comments from the staff of the SEC
to report.
Item 2.
|
Properties
|
Our
principal executive offices at 1345 Avenue of the Americas, New York, New York
are occupied pursuant to a lease which extends until 2029. We currently occupy
approximately 882,770 square feet of space at this location. We also occupy
approximately 312,301 square feet of space at 135 West 50th Street,
New York, New York under a lease expiring in 2029 and approximately 210,756
square feet of space in White Plains, New York under a lease expiring in 2031.
AllianceBernstein Investments and AllianceBernstein Investor Services occupy
approximately 92,067 square feet of space in San Antonio, Texas under a lease
expiring in 2009. We also lease space in 17 other cities in the United
States.
Our
subsidiaries and joint venture companies lease space in 27 cities outside the
United States, the most significant of which are in London, England under leases
expiring in 2013, 2015, and 2016, and in Tokyo, Japan under leases expiring in
2009.
Item 3.
|
Legal Proceedings
|
With
respect to all significant litigation matters, we consider the likelihood of a
negative outcome. If we determine the likelihood of a negative outcome is
probable, and the amount of the loss can be reasonably estimated, we record an
estimated loss for the expected outcome of the litigation as required by
Statement of Financial Accounting Standards No. 5, “Accounting for
Contingencies”, and Financial Accounting Standards Board (“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 indicate 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 significant uncertainties, particularly when
plaintiffs allege substantial or indeterminate damages, or when the litigation
is highly complex or broad in scope.
We have
previously reported the filing of a purported class action complaint entitled
Hindo, et al. v.
AllianceBernstein Growth & Income Fund, et al. and our involvement in
various other market timing-related matters. There have been no
significant developments in these matters since we filed our Form 10-Q for the
quarter ended September 30, 2007, in which these matters are more completely
described. These matters are also described in Note 7 to Holding’s financial
statements in Item 8.
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, we believe 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 revenues, financial condition, results of
operations, or business prospects.
Item 4.
|
Submission of Matters to a Vote of Security
Holders
|
Neither
AllianceBernstein nor Holding submitted a matter to a vote of security holders
during the fourth quarter of 2007.
PART
II
Item 5.
|
Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
|
Market
for Holding Units and AllianceBernstein Units; Cash
Distributions
Holding
Units trade publicly on the NYSE under the ticker symbol “AB”.
There is
no established public trading market for AllianceBernstein Units, which are
subject to significant restrictions on transfer. In general, transfers of
AllianceBernstein Units will be allowed only with the written consent of both
AXA Equitable and the General Partner. Generally, neither AXA Equitable nor the
General Partner will permit any transfer that it believes would create a risk
that AllianceBernstein would be treated as a corporation for tax purposes. AXA
Equitable and the General Partner have implemented a transfer policy, a copy of
which you may request from our corporate secretary (corporate.secretary@alliancebernstein.com).
Also, we have filed the transfer program as Exhibit 10.11 to this Form
10-K.
Each of
Holding and AllianceBernstein distributes on a quarterly basis all of its
Available Cash Flow, as defined in the Holding Partnership Agreement and the
AllianceBernstein Partnership Agreement, to its unitholders and the General
Partner. For additional information concerning distribution of Available Cash
Flow by Holding, see Note 2 to
Holding’s financial statements in Item 8. For additional information
concerning distribution of Available Cash Flow by AllianceBernstein, see Note 2 to AllianceBernstein’s
consolidated financial statements in Item 8.
Holding’s
principal source of income and cash flow is attributable to its limited
partnership interests in AllianceBernstein.
The
tables set forth below provide the distributions of Available Cash Flow made by
AllianceBernstein and Holding during 2007 and 2006 and the high and low sale
prices of Holding Units on the NYSE during 2007 and 2006:
Quarters
Ended 2007
|
Total
|
|||||||||||||||||||
December
31
|
September
30
|
June
30
|
March
31
|
|
||||||||||||||||
Cash
distributions per AllianceBernstein Unit(1)
|
$ | 1.17 | $ | 1.32 | $ | 1.27 | $ | 1.01 | $ |
4.77
|
||||||||||
Cash
distributions per Holding Unit(1)
|
$ | 1.06 | $ | 1.20 | $ | 1.16 | $ | 0.91 | $ |
4.33
|
||||||||||
Holding
Unit prices:
|
||||||||||||||||||||
High
|
$ | 92.87 | $ | 91.66 | $ | 94.94 | $ | 94.33 | ||||||||||||
Low
|
$ | 71.31 | $ | 72.37 | $ | 82.96 | $ | 79.06 |
Quarters
Ended 2006
|
Total
|
|||||||||||||||||||
December
31
|
September
30
|
June
30
|
March
31
|
|
||||||||||||||||
Cash distributions per
AllianceBernstein Unit(1)
|
$ | 1.60 | $ | 0.96 | $ | 0.99 | $ | 0.87 | $ |
4.42
|
||||||||||
Cash distributions per Holding
Unit(1)
|
$ | 1.48 | $ | 0.87 | $ | 0.89 | $ | 0.78 | $ |
4.02
|
||||||||||
Holding
Unit prices:
|
||||||||||||||||||||
High
|
$ | 82.92 | $ | 71.03 | $ | 72.11 | $ | 66.60 | ||||||||||||
Low
|
$ | 68.27 | $ | 56.10 | $ | 55.50 | $ | 56.12 |
(1)
|
Declared and paid during the
following quarter.
|
On
January 31, 2008, the closing price of Holding Units on the NYSE was $66.39 per
Unit and there were approximately 1,099 Holding Unitholders of record for
approximately 120,000 beneficial owners. On January 31, 2008, there were
approximately 498 AllianceBernstein Unitholders of record, and we do not
believe there are substantial additional beneficial owners.
Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
As reported in our Form 10-Q for the
quarter ended March 31,
2005 and our Forms 10-K
for the years ended December 31, 2005 and 2006, on February 25, 2005, we allocated 131,873 Holding Units
with an aggregate value of $5,538,640 for the benefit of certain of our
employees under an employee award plan. An exemption from registration under
Section 4(2) of the Securities Act was available for the allocation of the
Holding Units because these transactions did not involve a public
offering.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
The
following table provides information relating to any Holding Units bought by us
or one of our affiliates in the fourth quarter of the fiscal year covered by
this report:
Issuer
Purchases of Equity Securities
Period
|
(a)
Total
Number
of
Holding Units
Purchased
|
(b)
Average
Price
Paid
Per
Holding
Unit,
net of
Commissions
|
(c)
Total
Number of
Holding
Units
Purchased
as
Part
of Publicly
Announced
Plans
or
Programs
|
(d)
Maximum
Number
(or
Approximate
Dollar
Value) of
Holding
Units that
May
Yet Be
Purchased
Under
the
Plans or
Programs
|
||||||||||||
10/1/07-10/31/07(1)
|
17,859 | $ | 90.88 | — | — | |||||||||||
11/1/07-11/30/07(2)
|
175,000 | 75.81 | 175,000 | — | ||||||||||||
12/1/07-12/31/07(3)(4)
|
345,895 | 81.03 | 325,000 | — | ||||||||||||
Total
|
538,754 | $ | 79.66 | 500,000 | — |
(1)
|
On October 2, 2007, we purchased these Holding
Units from employees to allow them to fulfill statutory withholding tax
requirements at the time of distribution of deferred compensation
awards.
|
(2)
|
In
November 2007, we purchased these Holding Units on the open market to fund
anticipated obligations under certain of our employee deferred
compensation plans.
|
(3)
|
On December 1, 2007, we purchased 20,895 Holding
Units from employees to allow them to fulfill statutory withholding tax
requirements at the time of distribution of deferred compensation
awards.
|
(4)
|
In
December 2007, we purchased 325,000 Holding Units on the open market to
fund anticipated obligations under certain of our employee deferred
compensation plans.
|
The
following table provides information relating to any AllianceBernstein Units
bought by us or one of our affiliates in the fourth quarter of the fiscal year
covered by this report:
Issuer
Purchases of Equity Securities
Period
|
(a)
Total
Number of
AllianceBernstein
Units
Purchased
|
(b)
Average
Price
Paid
Per
AllianceBernstein
Unit,
net of
Commissions
|
(c)
Total
Number of
AllianceBernstein
Units
Purchased
as
Part of Publicly
Announced
Plans
or
Programs
|
(d)
Maximum
Number
(or
Approximate
Dollar
Value) of
AllianceBernstein
Units
that May
Yet
Be Purchased
Under
the Plans
or
Programs
|
||||||||||||
10/1/07-10/31/07
|
— | $ | — | — | — | |||||||||||
11/1/07-11/30/07
|
— | — | — | — | ||||||||||||
12/1/07-12/31/07(1)
|
219,036 | 77.77 | — | — | ||||||||||||
Total
|
219,036 | $ | 77.77 | — | — |
(1)
|
On December 11, 2007, AXA Equitable purchased 219,036
AllianceBernstein Units from an unaffiliated third party in a
private transaction.
|
Item 6.
|
Selected Financial
Data
|
ALLIANCEBERNSTEIN HOLDING L.P.
Selected
Financial Data
Years Ended December 31,
|
||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||||||
INCOME
STATEMENT DATA:
|
||||||||||||||||||||
Equity in earnings of
AllianceBernstein
|
$ | 415,256 | $ | 359,469 | $ | 275,054 | $ | 219,971 | $ | 100,424 | ||||||||||
Income
taxes
|
39,104 | 34,473 | 26,990 | 24,798 | 21,819 | |||||||||||||||
Net income
|
$ | 376,152 | $ | 324,996 | $ | 248,064 | $ | 195,173 | $ | 78,605 | ||||||||||
Basic net income per
unit
|
$ | 4.35 | $ | 3.85 | $ | 3.04 | $ | 2.45 | $ | 1.02 | ||||||||||
Diluted net income per
unit
|
$ | 4.32 | $ | 3.82 | $ | 3.02 | $ | 2.43 | $ | 1.01 | ||||||||||
CASH DISTRIBUTIONS PER UNIT(1)
|
$ | 4.33 | $ | 4.02 | $ | 3.00 | $ | 2.01 | $ | 1.45 | ||||||||||
BALANCE
SHEET DATA AT PERIOD END:
|
||||||||||||||||||||
Total
assets
|
$ | 1,575,234 | $ | 1,568,034 | $ | 1,377,054 | $ | 1,303,446 | $ | 1,166,097 | ||||||||||
Partners’
capital
|
$ | 1,567,460 | $ | 1,559,188 | $ | 1,368,846 | $ | 1,295,670 | $ | 1,158,606 |
(1)
|
Holding
is required to distribute all of its Available Cash Flow, as defined in
the Holding Partnership Agreement, to its
unitholders.
|
ALLIANCEBERNSTEIN L.P.
Selected
Consolidated Financial Data
Years Ended December 31,
|
||||||||||||||||||||
2007
|
2006(1)
|
2005(1)
|
2004(1)
|
2003(1)
|
||||||||||||||||
(in
thousands, except per unit amounts and unless otherwise
indicated)
|
||||||||||||||||||||
INCOME
STATEMENT DATA:
|
||||||||||||||||||||
Revenues:
|
||||||||||||||||||||
Investment
advisory and services fees
|
$ | 3,386,188 | $ | 2,890,229 | $ | 2,259,392 | $ | 1,996,819 | $ | 1,769,562 | ||||||||||
Distribution
revenues
|
473,435 | 421,045 | 397,800 | 447,283 | 436,037 | |||||||||||||||
Institutional
research services
|
423,553 | 375,075 | 352,757 | 420,141 | 380,705 | |||||||||||||||
Dividend
and interest income
|
284,014 | 266,520 | 152,781 | 72,743 | 37,841 | |||||||||||||||
Investment
gains (losses)
|
29,690 | 62,200 | 29,070 | 14,842 | 12,588 | |||||||||||||||
Other
revenues
|
122,869 | 123,171 | 116,788 | 136,401 | 148,610 | |||||||||||||||
Total
revenues
|
4,719,749 | 4,138,240 | 3,308,588 | 3,088,229 | 2,785,343 | |||||||||||||||
Less:
interest expense
|
194,432 | 187,833 | 95,863 | 32,796 | 20,415 | |||||||||||||||
Net
revenues
|
4,525,317 | 3,950,407 | 3,212,725 | 3,055,433 | 2,764,928 | |||||||||||||||
Expenses:
|
||||||||||||||||||||
Employee
compensation and benefits
|
1,833,796 | 1,547,627 | 1,262,198 | 1,085,163 | 914,529 | |||||||||||||||
Promotion
and servicing:
|
||||||||||||||||||||
Distribution
plan payments
|
335,132 | 292,886 | 291,953 | 374,184 | 370,575 | |||||||||||||||
Amortization
of deferred sales commissions
|
95,481 | 100,370 | 131,979 | 177,356 | 208,565 | |||||||||||||||
Other
|
252,468 | 218,944 | 198,004 | 202,327 | 197,079 | |||||||||||||||
General
and administrative
|
591,221 | 583,296 | 384,339 | 426,389 | 339,706 | |||||||||||||||
Interest
on borrowings
|
23,970 | 23,124 | 25,109 | 24,232 | 25,286 | |||||||||||||||
Amortization
of intangible assets
|
20,716 | 20,710 | 20,700 | 20,700 | 20,700 | |||||||||||||||
Charge
for mutual fund matters and legal proceedings
|
— | — | — | — | 330,000 | |||||||||||||||
3,152,784 | 2,786,957 | 2,314,282 | 2,310,351 | 2,406,440 | ||||||||||||||||
Operating
income
|
1,372,533 | 1,163,450 | 898,443 | 745,082 | 358,488 | |||||||||||||||
Non-operating
income
|
15,756 | 20,196 | 34,446 | — | — | |||||||||||||||
Income
before income taxes
|
1,388,289 | 1,183,646 | 932,889 | 745,082 | 358,488 | |||||||||||||||
Income
taxes
|
127,845 | 75,045 | 64,571 | 39,932 | 28,680 | |||||||||||||||
Net
income
|
$ | 1,260,444 | $ | 1,108,601 | $ | 868,318 | $ | 705,150 | $ | 329,808 | ||||||||||
Basic
net income per unit
|
$ | 4.80 | $ | 4.26 | $ | 3.37 | $ | 2.76 | $ | 1.30 | ||||||||||
Diluted
net income per unit
|
$ | 4.77 | $ | 4.22 | $ | 3.35 | $ | 2.74 | $ | 1.29 | ||||||||||
Operating
margin(2)
|
30.3 | % | 29.5 | % | 28.0 | % | 24.4 | % | 13.0 | % | ||||||||||
CASH
DISTRIBUTIONS PER UNIT(3)
|
$ | 4.77 | $ | 4.42 | $ | 3.33 | $ | 2.40 | $ | 1.65 | ||||||||||
BALANCE
SHEET DATA AT PERIOD END:
|
||||||||||||||||||||
Total
assets
|
$ | 9,368,754 | $ | 10,601,105 | $ | 9,490,480 | $ | 8,779,330 | $ | 8,171,669 | ||||||||||
Debt
|
$ | 533,872 | $ | 334,901 | $ | 407,291 | $ | 407,517 | $ | 405,327 | ||||||||||
Partners’
capital
|
$ | 4,541,226 | $ | 4,570,997 | $ | 4,302,674 | $ | 4,183,698 | $ | 3,778,469 | ||||||||||
ASSETS
UNDER MANAGEMENT AT PERIOD END (in millions)(4)
|
$ | 800,390 | $ | 716,921 | $ | 578,552 | $ | 538,764 | $ | 477,267 |
(1)
|
Certain
prior-year amounts have been reclassified to conform to our 2007
presentation. See
Note 2 to AllianceBernstein’s consolidated financial
statements in Item 8 for a discussion of
reclassifications.
|
(2)
|
Operating
income as a percentage of net
revenues.
|
(3)
|
AllianceBernstein
is required to distribute all of its Available Cash Flow, as defined in
the AllianceBernstein Partnership Agreement, to its unitholders and the
General Partner.
|
(4)
|
2006
assets under management have been increased by $26 million to reflect the
assets associated with existing services previously not included in assets
under management.
|
Item
7.
|
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
Holding
Holding’s
principal source of income and cash flow is attributable to its investment in
AllianceBernstein limited partnership interests. The Holding 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.
Results
of Operations
Years
Ended December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
AllianceBernstein
net income
|
$ | 1,260,444 | $ | 1,108,601 | $ | 868,318 | 13.7 | % | 27. 7 | % | ||||||||||
Weighted
average equity ownership interest
|
32.9 | % | 32.4 | % | 31.7 | % | ||||||||||||||
Equity
in earnings of AllianceBernstein
|
$ | 415,256 | $ | 359,469 | $ | 275,054 | 15.5 | 30.7 | ||||||||||||
Net
income of Holding
|
$ | 376,152 | $ | 324,996 | $ | 248,064 | 15.7 | 31.0 | ||||||||||||
Diluted
net income per Holding Unit
|
$ | 4.32 | $ | 3.82 | $ | 3.02 | 13.1 | 26.5 | ||||||||||||
Distribution
per Holding Unit
|
$ | 4.33 | $ | 4.02 | $ | 3.00 | 7.7 | 34.0 |
In 2007
and 2006, net income and diluted net income per unit increased from prior years
due to higher equity in earnings of AllianceBernstein.
During
the fourth quarter of 2006, AllianceBernstein recorded a $56.0 million pre-tax
charge ($54.5 million, net of related income tax benefit) for the estimated cost
of reimbursing certain clients for losses arising out of an error
AllianceBernstein made in processing claims for class action settlement proceeds
on behalf of these clients, which include some AllianceBernstein-sponsored
mutual funds. We believe that most of this cost will ultimately be recovered
from residual settlement proceeds and insurance. Our fourth quarter 2006 cash
distribution was declared by the Board of Directors prior to recognition of this
adjustment. As a result, to the extent that all or a portion of the cost is
recovered in subsequent periods, we do not intend to include recoveries in
Available Cash Flow (as defined in the AllianceBernstein Partnership Agreement),
and would not distribute those amounts to unitholders. During 2007,
AllianceBernstein recorded an additional $0.7 million expense relating to this
matter and paid $45.5 million to clients. As of December 31, 2007,
AllianceBernstein had $11.2 million remaining in accrued expenses.
Proposed
Tax Legislation
See “Risk Factors” in Item
1A.
Capital
Resources and Liquidity
The
following table identifies selected items relating to capital resources and
liquidity:
Years
Ended December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Partners’
capital, as of December 31
|
$ | 1,567.5 | $ | 1,559.2 | $ | 1,368.8 | 0.5 | % | 13.9 | % | ||||||||||
Distributions
received from AllianceBernstein
|
449.3 | 332.0 | 253.2 | 35.3 | 31.1 | |||||||||||||||
Distributions
paid to unitholders
|
(408.7 | ) | (298.5 | ) | (226.7 | ) | 36.9 | 31.6 | ||||||||||||
Proceeds
from exercise of compensatory options
|
50.1 | 100.5 | 42.4 | (50.2 | ) | 136.9 | ||||||||||||||
Investment
in AllianceBernstein with proceeds from exercise of compensatory options
to buy Holding Units
|
(50.1 | ) | (100.5 | ) | (42.4 | ) | (50.2 | ) | 136.9 | |||||||||||
Purchase
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
(50.9 | ) | (22.3 | ) | (33.3 | ) | 127.6 | (32.8 | ) | |||||||||||
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
— | 47.2 | — | (100.0 | ) | n/m | ||||||||||||||
Awards
of Holding Units by AllianceBernstein
|
34.8 | 35.3 | 35.0 | (1.5 | ) | 0.8 | ||||||||||||||
Available
Cash Flow
|
374.3 | 340.3 | 245.4 | 10.0 | 38.7 |
Cash and
cash equivalents were zero as of December 31, 2007 and 2006, and $89,000 as of
December 31, 2005. Cash inflows from AllianceBernstein distributions received
were offset by cash distributions paid to unitholders and income taxes paid.
Holding is required to distribute all of its Available Cash Flow, as defined in
the Holding Partnership Agreement, to its unitholders (including the General
Partner). Management believes that the cash flow realized from its investment in
AllianceBernstein will provide Holding with the resources to meet its financial
obligations. See
“Statements of Changes in
Partners’ Capital and Comprehensive Income” and “Statements of Cash Flows” in
Holding’s financial statements in Item 8.
Commitments
and Contingencies
See Note 7 to the Holding financial statements
in Item 8.
AllianceBernstein
Executive
Overview
Investment
results for clients were mixed in 2007, amid considerable market turbulence.
Investment returns were respectable, averaging 7% across our entire service
suite – a figure close to the performance of the global capital markets. Growth
equity services delivered strong returns and exceeded institutional benchmarks
in all geographies and capitalization categories. In contrast, our
value equity services had a difficult year, with returns falling below
benchmarks. Increased pressure on this style of equity management
compounded this effect in the second half of 2007. Global fixed income results
were respectable, although mandates which focused on corporate and mortgage
credit generally underperformed. Our blend strategies performance was relatively
neutral as the value sleeve of these services was a drag on performance.
Finally, returns for our suite of diversified hedge fund services were decidedly
negative. These performed poorly as risk premiums rose sharply in all segments
of the capital markets in the second half of 2007.
For 2007,
both net inflows and market appreciation contributed to an 11.6% increase in
total AUM. Net inflows for the year were $32.2 billion and represent
38.5% of the increase in AUM. These flows translate into an organic
growth rate of 4.5%, as outflows of $9.1 billion
in index/structured services negatively impacted this metric. Our
Institutional Investment channel accounted for over one-half of total net
inflows, followed by Private Client Services and then Retail Services. Our
Private Client channel delivered the highest organic growth rate for the year at
over 9%, while the organic growth rate for the Institutional Investments channel
was nearly 6%, after adjusting for the aforementioned index mandate
terminations.
Our
success in growing our assets globally continues, as assets from non-U.S. based
clients grew by 23% versus 2006, accounting for 72% of the growth and
representing 40% of total assets. Assets in global and international
services grew by 27% from the end of 2006, or more than double our total AUM
growth rate. Furthermore, assets in U.S.–focused products actually declined by
over 6% from last year, so our year-over-year growth in assets is entirely
attributable to growth in our global and international investment
services. AUM in these services accounted for 61% of our total AUM at
the end of 2007, up from 54% at the end of 2006.
Our hedge
fund AUM was up 31% for the year to $9.5 billion at year-end, a result of
strong first half net inflows and market appreciation which were more than
offset by negative performance in the second half of the year. As negative
performance and continued market turbulence have lessened our clients’ appetite
for risk, we expect net redemptions in the first quarter of 2008. However, we
believe that the turmoil that caused the poor performance in the second half of
2007 has, in fact, created opportunities for these funds to provide strong
returns for our clients in the future.
Looking
at our AUM by investment service for 2007, value equity services record gross
sales of $71.4 billion drove strong net inflows of $32.1 billion. Our fixed
income services net inflows of $12.1 billion were significantly greater than
2006, as the investments we’ve made in these services have led to stronger
performance and have greatly improved our ability to attract new clients. Value
and fixed income inflows were partially offset by outflows of $9.1 billion in
index/structured services and $2.9 billion in growth services.
Our
Institutional Investment Services AUM rose by 11.6%, or $53.0 billion, during
the year to $508.1 billion. For the year, net inflows amounted to
$17.7 billion. Global and international services accounted for approximately 87%
of all new accounts in 2007. Additionally, Blend Strategies accounted for
approximately 28% of all new Institutional accounts in 2007. Finally,
our pipeline of won but unfunded new mandates currently is approximately $13
billion. Our pipeline includes approximately $6 billion in services which
provide new solutions for our clients and are expected to become operational in
the first quarter of 2008 – including $4 billion of defined contribution
mandates and $2 billion of currency mandates. These services have fee structures
higher than our index services but lower than our more traditional actively
managed services.
Our
Retail Services AUM rose by 9.7%, or $16.3 billion, during the year to $183.2
billion. For 2007, growth in U.S. funds more than offset non-U.S.
weakness. Net inflows for U.S. funds during 2007 were more than three times
those in 2006, although the pace did slow in the second half of 2007. Our
“Investment Strategies for Life” had continued success with AUM increasing to
over $24 billion as net inflows more than offset market depreciation. We believe
that these services will be a key driver of success for our Retail
Services.
Our
Private Client Services AUM rose 15.0%, or $14.2 billion, during the year to
$109.1 billion. Net inflows were $8.6 billion for the year, although
only $1.1 billion in the fourth quarter of 2007. Our efforts to grow
our ultra-high-net-worth client base (clients with financial assets of $10
million or more) were quite successful in 2007, as assets from these clients
were up 21% year-over-year and currently represent 53% of total Private Client
Services AUM. Financial Advisor headcount of 338 is up 13% versus the end of
2006 but is down sequentially from 341 at the end of the third quarter of
2007. While we expect to add additional advisors through 2008, we
have, in fact, begun moderating the rate of expansion of this sales
force.
Our
Institutional Research Services revenues were a firm record $423.5 million in
2007, a 12.9% increase from 2006, driven by both U.S. and European businesses.
We have continued to expand our research platform, having launched coverage of
pharmaceuticals in the U.S. and Europe, U.S. broadline retail, and U.S. telecom
services during the fourth quarter of 2007. We ended 2007 with 43 published
senior analysts, the most in the firm’s history. The pipeline of new coverage
for 2008 remains strong.
During
the second half of 2007, significant weakness and volatility in global credit
markets, particularly the rapid deterioration of the mortgage markets in the
United States and Europe, spread to broader financial markets and began to
adversely affect global economic growth. These difficulties had an
adverse impact on our 2007 results of operations. Specifically, they
adversely affected the investment performance for clients in most of our equity
and hedge fund services. As a result, the amount of performance-based
fees we earned in 2007 was significantly reduced. The weakness in
global financial markets has continued thus far in 2008, causing a $49 billion
decline in AUM during January 2008. Our 2008 results of operations
would be adversely affected should this trend continue.
Although
capital market turbulence is unsettling, it brings with it a dramatic widening
in risk premiums, which provides the basis for strong absolute and relative
returns. The year 2008 has begun as an extremely challenging year in the capital
markets but, notwithstanding these market conditions, we are pursuing
initiatives to find new and different ways to improve results for our clients,
which are vital to the firm’s long-term growth.
Assets
Under Management
Assets
under management by distribution channel were as follows:
As of December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Institutional
Investment
|
$ | 508.1 | $ | 455.1 | $ | 358.6 | 11.6 | % | 26.9 | % | ||||||||||
Retail
|
183.2 | 166.9 | 145.1 | 9.7 | 15.0 | |||||||||||||||
Private
Client
|
109.1 | 94.9 | 74.9 | 15.0 | 26.7 | |||||||||||||||
Total
|
$ | 800.4 | $ | 716.9 | $ | 578.6 | 11.6 | 23.9 |
Assets
under management by investment service were as follows:
As of December 31,
|
% Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05 | ||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Equity
|
||||||||||||||||||||
Value:
|
||||||||||||||||||||
U.S.
|
$ | 108.0 | $ | 119.0 | $ | 106.9 | (9.3 | )% | 11.3 | % | ||||||||||
Global &
international
|
274.5 | 216.5 | 131.3 | 26.8 | 64.8 | |||||||||||||||
382.5 | 335.5 | 238.2 | 14.0 | 40.8 | ||||||||||||||||
Growth:
|
||||||||||||||||||||
U.S.
|
72.5 | 78.5 | 80.9 | (7.6 | ) | (3.0 | ) | |||||||||||||
Global &
international
|
124.4 | 95.6 | 65.3 | 30.1 | 46.5 | |||||||||||||||
196.9 | 174.1 | 146.2 | 13.1 | 19.1 | ||||||||||||||||
Total
Equity
|
579.4 | 509.6 | 384.4 | 13.7 | 32.6 | |||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
113.4 | 109.9 | 108.5 | 3.2 | 1.3 | |||||||||||||||
Global &
international
|
84.5 | 67.1 | 55.6 | 25.9 | 20.7 | |||||||||||||||
197.9 | 177.0 | 164.1 | 11.8 | 7.9 | ||||||||||||||||
Index/Structured:
|
||||||||||||||||||||
U.S.
|
16.9 | 24.8 | 25.3 | (31.9 | ) | (1.6 | ) | |||||||||||||
Global &
international
|
6.2 | 5.5 | 4.8 | 10.9 | 14.0 | |||||||||||||||
23.1 | 30.3 | 30.1 | (24.1 | ) | 1.0 | |||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
310.8 | 332.2 | 321.6 | (6.4 | ) | 3.3 | ||||||||||||||
Global &
international
|
489.6 | 384.7 | 257.0 | 27.3 | 49.7 | |||||||||||||||
Total
|
$ | 800.4 | $ | 716.9 | $ | 578.6 | 11.6 | 23.9 |
Changes
in assets under management during 2007 were as follows:
Distribution Channel
|
Investment Service
|
|||||||||||||||||||||||||||||||||||
Institutional
Investment
|
Retail
|
Private
Client
|
Total
|
Value
Equity
|
Growth
Equity
|
Fixed
Income
|
Index/
Structured
|
Total
|
||||||||||||||||||||||||||||
(in
billions)
|
||||||||||||||||||||||||||||||||||||
Balance
as of January 1, 2007
|
$ | 455.1 | $ | 166.9 | $ | 94.9 | $ | 716.9 | $ | 335.5 | $ | 174.1 | $ | 177.0 | $ | 30.3 | $ | 716.9 | ||||||||||||||||||
Long-term
flows:
|
||||||||||||||||||||||||||||||||||||
Sales/new
accounts
|
70.8 | 46.2 | 18.3 | 135.3 | 71.4 | 30.0 | 32.9 | 1.0 | 135.3 | |||||||||||||||||||||||||||
Redemptions/terminations
|
(33.2 | ) | (37.0 | ) | (4.5 | ) | (74.7 | ) | (25.3 | ) | (25.0 | ) | (16.0 | ) | (8.4 | ) | (74.7 | ) | ||||||||||||||||||
Cash
flow/unreinvested dividends
|
(19.9 | ) | (3.3 | ) | (5.2 | ) | (28.4 | ) | (14.0 | ) | (7.9 | ) | (4.8 | ) | (1.7 | ) | (28.4 | ) | ||||||||||||||||||
Net
long-term inflows (outflows)
|
17.7 | 5.9 | 8.6 | 32.2 | 32.1 | (2.9 | ) | 12.1 | (9.1 | ) | 32.2 | |||||||||||||||||||||||||
Transfers
|
(0.2 | ) | (0.5 | ) | 0.7 | — | — | — | — | — | — | |||||||||||||||||||||||||
Market
appreciation
|
35.5 | 10.9 | 4.9 | 51.3 | 14.9 | 25.7 | 8.8 | 1.9 | 51.3 | |||||||||||||||||||||||||||
Net
change
|
53.0 | 16.3 | 14.2 | 83.5 | 47.0 | 22.8 | 20.9 | (7.2 | ) | 83.5 | ||||||||||||||||||||||||||
Balance
as of December 31, 2007
|
$ | 508.1 | $ | 183.2 | $ | 109.1 | $ | 800.4 | $ | 382.5 | $ | 196.9 | $ | 197.9 | $ | 23.1 | $ | 800.4 |
Changes
in assets under management during 2006 were as follows:
Distribution Channel
|
Investment Service
|
|||||||||||||||||||||||||||||||||||
Institutional
|
Private
|
Value
|
Growth
|
Fixed
|
Index/
|
|||||||||||||||||||||||||||||||
Investment
|
Retail
|
Client
|
Total
|
Equity
|
Equity
|
Income
|
Structured
|
Total
|
||||||||||||||||||||||||||||
(in
billions)
|
||||||||||||||||||||||||||||||||||||
Balance
as of January 1, 2006
|
$ | 358.6 | $ | 145.1 | $ | 74.9 | $ | 578.6 | $ | 238.2 | $ | 146.2 | $ | 164.1 | $ | 30.1 | $ | 578.6 | ||||||||||||||||||
Long-term
flows:
|
||||||||||||||||||||||||||||||||||||
Sales/new
accounts
|
53.8 | 44.3 | 14.4 | 112.5 | 54.8 | 33.9 | 22.8 | 1.0 | 112.5 | |||||||||||||||||||||||||||
Redemptions/terminations
|
(18.1 | ) | (31.1 | ) | (2.9 | ) | (52.1 | ) | (15.9 | ) | (17.5 | ) | (15.5 | ) | (3.2 | ) | (52.1 | ) | ||||||||||||||||||
Cash
flow/unreinvested dividends
|
(8.4 | ) | (1.1 | ) | (3.1 | ) | (12.6 | ) | (7.4 | ) | (2.6 | ) | (0.5 | ) | (2.1 | ) | (12.6 | ) | ||||||||||||||||||
Net
long-term inflows (outflows)
|
27.3 | 12.1 | 8.4 | 47.8 | 31.5 | 13.8 | 6.8 | (4.3 | ) | 47.8 | ||||||||||||||||||||||||||
Acquisition
|
0.3 | 0.1 | — | 0.4 | — | 0.3 | 0.1 | — | 0.4 | |||||||||||||||||||||||||||
Transfers
(1)
|
7.9 | (9.1 | ) | 1.2 | — | 0.8 | (0.8 | ) | — | — | — | |||||||||||||||||||||||||
Market
appreciation
|
61.0 | 18.7 | 10.4 | 90.1 | 65.0 | 14.6 | 6.0 | 4.5 | 90.1 | |||||||||||||||||||||||||||
Net
change
|
96.5 | 21.8 | 20.0 | 138.3 | 97.3 | 27.9 | 12.9 | 0.2 | 138.3 | |||||||||||||||||||||||||||
Balance
as of December 31, 2006
|
$ | 455.1 | $ | 166.9 | $ | 94.9 | $ | 716.9 | $ | 335.5 | $ | 174.1 | $ | 177.0 | $ | 30.3 | $ | 716.9 |
(1)
|
Effective
January 1, 2006, we transferred certain client accounts among distribution
channels to reflect changes in the way we service these
accounts.
|
Average
assets under management by distribution channel and investment service were as
follows:
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Distribution
Channel:
|
||||||||||||||||||||
Institutional
Investment
|
$ | 491.1 | $ | 405.6 | $ | 325.9 | 21.1 | % | 24.4 | % | ||||||||||
Retail
|
180.5 | 150.8 | 146.7 | 19.7 | 2.8 | |||||||||||||||
Private
Client
|
104.8 | 84.6 | 68.6 | 23.8 | 23.5 | |||||||||||||||
Total
|
$ | 776.4 | $ | 641.0 | $ | 541.2 | 21.1 | 18.4 | ||||||||||||
Investment
Service:
|
||||||||||||||||||||
Value
Equity
|
$ | 373.3 | $ | 281.1 | $ | 208.9 | 32.8 | % | 34.6 | % | ||||||||||
Growth
Equity
|
186.0 | 160.2 | 128.4 | 16.1 | 24.8 | |||||||||||||||
Fixed
Income
|
188.3 | 169.2 | 174.5 | 11.3 | (3.1 | ) | ||||||||||||||
Index/Structured
|
28.8 | 30.5 | 29.4 | (5.8 | ) | 3.8 | ||||||||||||||
Total
|
$ | 776.4 | $ | 641.0 | $ | 541.2 | 21.1 | 18.4 |
Consolidated
Results of Operations
Years
Ended December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
millions, except per unit amounts)
|
||||||||||||||||||||
Net
revenues
|
$ | 4,525.3 | $ | 3,950.4 | $ | 3,212.7 | 14.6 | % | 23.0 | % | ||||||||||
Expenses
|
3,152.8 | 2,786.9 | 2,314.3 | 13.1 | 20.4 | |||||||||||||||
Operating
income
|
1,372.5 | 1,163.5 | 898.4 | 18.0 | 29.5 | |||||||||||||||
Non-operating
income
|
15.8 | 20.2 | 34.5 | (22.0 | ) | (41.4 | ) | |||||||||||||
Income
before income taxes
|
1,388.3 | 1,183.7 | 932.9 | 17.3 | 26.9 | |||||||||||||||
Income
taxes
|
127.9 | 75.1 | 64.6 | 70.4 | 16.2 | |||||||||||||||
Net
income
|
$ | 1,260.4 | $ | 1,108.6 | $ | 868.3 | 13.7 | 27.7 | ||||||||||||
Diluted
net income per unit
|
$ | 4.77 | $ | 4.22 | $ | 3.35 | 13.0 | 26.0 | ||||||||||||
Distributions
per unit
|
$ | 4.77 | $ | 4.42 | $ | 3.33 | 7.9 | 32.7 | ||||||||||||
Operating
margin(1)
|
30.3 | % | 29.5 | % | 28.0 | % |
(1)
|
Operating income as a percentage
of net revenues.
|
In 2007,
net income increased $151.8 million, or 13.7%, to $1,260.4 million, and net
income per unit increased $0.55, or 13.0%, to $4.77. The increase was due
primarily to higher investment advisory and services fees revenues resulting
from higher assets under management, partially offset by higher employee
compensation and benefits expenses. Our operating margin expanded 0.8% to 30.3%
in 2007, benefiting from the increase in our fee revenues and the moderation of
our growth in expenses.
In 2006,
net income increased $240.3 million, or 27.7%, to $1,108.6 million, and net
income per unit increased $0.87, or 26.0%, to $4.22. The increase was due
primarily to higher investment advisory and services fees, partially offset by
higher employee compensation and benefits expenses and higher general and
administrative expenses. Our operating margin expanded 1.5% to 29.5% in 2006,
benefiting significantly from the increase in our fee revenues and the
moderation of our employee compensation and benefits growth rate.
During
the fourth quarter of 2006, we recorded a $56.0 million pre-tax charge in
general and administrative expenses ($54.5 million, net of related income tax
benefit) for the estimated cost of reimbursing certain clients for losses
arising out of an error we made in processing claims for class action settlement
proceeds on behalf of these clients, which include some
AllianceBernstein-sponsored mutual funds. We believe that most of this cost will
ultimately be recovered from residual settlement proceeds and insurance. Our
fourth quarter 2006 cash distribution was declared by the Board of Directors
prior to recognition of this adjustment. As a result, to the extent that all or
a portion of the cost is recovered in subsequent periods, we do not intend to
include recoveries in Available Cash Flow (as defined in the AllianceBernstein
Partnership Agreement), and would not distribute those amounts to unitholders.
During 2007, we recorded an additional $0.7 million expense related to this
matter and paid $45.5 million to clients. As of December 31, 2007, we had $11.2
million remaining in accrued expenses.
Net
Revenues
The
following table summarizes the components of net revenues:
Years Ended December 31,
|
%
Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Investment
advisory and services fees:
|
||||||||||||||||||||
Institutional
Investment:
|
||||||||||||||||||||
Base
fees
|
$ | 1,416.0 | $ | 1,108.2 | $ | 821.3 | 27.8 | % | 34.9 | % | ||||||||||
Performance-based fees
|
65.6 | 113.0 | 73.1 | (42.0 | ) | 54.7 | ||||||||||||||
1,481.6 | 1,221.2 | 894.4 | 21.3 | 36.5 | ||||||||||||||||
Retail:
|
||||||||||||||||||||
Base
fees
|
946.0 | 787.5 | 693.1 | 20.1 | 13.6 | |||||||||||||||
Performance-based
fees
|
— | 0.3 | 0.7 | (96.0 | ) | (56.8 | ) | |||||||||||||
946.0 | 787.8 | 693.8 | 20.1 | 13.6 | ||||||||||||||||
Private
Client:
|
||||||||||||||||||||
Base
fees
|
943.0 | 758.8 | 613.1 | 24.3 | 23.8 | |||||||||||||||
Performance-based
fees
|
15.6 | 122.4 | 58.1 | (87.3 | ) | 110.5 | ||||||||||||||
958.6 | 881.2 | 671.2 | 8.8 | 31.3 | ||||||||||||||||
Total:
|
||||||||||||||||||||
Base
fees
|
3,305.0 | 2,654.5 | 2,127.5 | 24.5 | 24.8 | |||||||||||||||
Performance-based
fees
|
81.2 | 235.7 | 131.9 | (65.6 | ) | 78.7 | ||||||||||||||
3,386.2 | 2,890.2 | 2,259.4 | 17.2 | 27.9 | ||||||||||||||||
Distribution
revenues
|
473.4 | 421.0 | 397.8 | 12.4 | 5.8 | |||||||||||||||
Institutional
research services
|
423.5 | 375.1 | 352.7 | 12.9 | 6.3 | |||||||||||||||
Dividend
and interest income
|
284.0 | 266.5 | 152.8 | 6.6 | 74.4 | |||||||||||||||
Investment
gains (losses)
|
29.7 | 62.2 | 29.1 | (52.3 | ) | 114.0 | ||||||||||||||
Other
revenues
|
122.9 | 123.2 | 116.8 | (0.2 | ) | 5.5 | ||||||||||||||
Total
revenues
|
4,719.7 | 4,138.2 | 3,308.6 | 14.1 | 25.1 | |||||||||||||||
Less:
Interest expense
|
194.4 | 187.8 | 95.9 | 3.5 | 95.9 | |||||||||||||||
Net
revenues
|
$ | 4,525.3 | $ | 3,950.4 | $ | 3,212.7 | 14.6 | 23.0 |
Investment Advisory and
Services Fees
Investment
advisory and services fees, the largest component of our revenues, consist
primarily of base fees. These fees are generally calculated as a percentage of
the value of assets under management at a point in time, or as a percentage of
the value of average assets under management for the applicable billing period,
and vary with the type of investment service, the size of account, and the total
amount of assets we manage for a particular client. Accordingly, fee income
generally increases or decreases as assets under management increase or decrease
and is therefore affected by market appreciation or depreciation, the addition
of new client accounts or client contributions of additional assets to existing
accounts, withdrawals of assets from and termination of client accounts,
purchases and redemptions of mutual fund shares, and shifts of assets between
accounts or products with different fee structures.
We
sometimes charge our clients performance-based fees. In these situations, we
charge a base advisory fee and are eligible to earn an additional
performance-based fee or incentive allocation that is calculated as either a
percentage of absolute investment results or a percentage of investment results
in excess of a stated benchmark over a specified period of time. In addition,
many performance-based fees include a high-watermark provision, which generally
provides that if a client account underperforms relative to its performance
target (whether absolute or relative to a specified benchmark), it must gain
back such underperformance before we can collect future performance-based
fees. Therefore, if we do not exceed our performance target for a
particular period, we will not earn a performance-based fee for that period and,
for accounts with a high-watermark provision, we will impair our ability to earn
future performance-based fees. For example, for many of our hedge
funds, performance in the fourth quarter of 2007 produced losses and was
significantly below performance targets. With approximately 70%
of our hedge fund assets subject to high-watermarks, we ended 2007 with
approximately 50% of our hedge fund AUM with high-watermarks of 10% or
more. This will make it very difficult for us to earn
performance-based fees in most of our hedge funds in 2008.
We are
eligible to earn performance-based fees on approximately 16% of the assets we
manage for institutional clients and approximately 8% of the assets we manage
for private clients (in total, approximately 11% of our company-wide
AUM). Our performance-based fees in 2007 were $81.2 million, in 2006
were $235.7 million, and in 2005 were $131.9 million. They are an
increasingly important part of our business, in particular due to our hedge fund
AUM. As the percentage of our AUM subject to performance-based fees grows,
seasonality and volatility of revenue and earnings are likely to become more
significant.
Institutional
investment advisory and services fees increased 21.3% in 2007 as a result of an
increase in average assets under management of 21.1%, and a more favorable fee
mix, partially offset by a decrease in performance-based fees of $47.4 million.
The favorable fee mix reflects increases in average assets under management in
our global and international services of 40.4%, where base fee rates are
generally higher than on domestic services. Institutional investments advisory
and services fees increased 36.5% in 2006 as a result of an increase in average
assets under management of 24.4%, a more favorable fee mix, and an increase in
performance-based fees of $39.9 million. The favorable fee mix reflects
increases in average assets under management in our global and international
services of 55.5%.
Retail
investment advisory and services fees increased 20.1% in 2007 due primarily to
an increase of 19.7% in average assets under management. For 2006, these fees
increased 13.6%, due primarily to an increase of 30.5% in global and
international services average assets under management, partially offset by the
disposition of our cash management services during the second quarter of
2005.
Private
Client investment advisory and services fees increased 8.8% in 2007 as a result
of higher base fees from a 15.0% increase in assets under management partially
offset by a $106.8 million, or 87.3%, decrease in performance-based fees, earned
largely from our hedge funds. Any recovery in performance-based fees in 2008
will be affected by the need to overcome high-watermarks in some of our hedge
funds. Private Client investment advisory and services fees increased 31.3% in
2006 as a result of higher base fees from a 26.7% increase in assets under
management and a $64.3 million, or 110.5%, increase in performance-based fees,
earned largely from our hedge funds.
Distribution
Revenues
AllianceBernstein Investments and
AllianceBernstein Luxembourg (both wholly-owned subsidiaries of
AllianceBernstein) act as distributor and/or placing agent of company-sponsored
mutual funds and receive distribution services fees from certain of those funds
as partial reimbursement of the distribution expenses they incur. Distribution
revenues increased 12.4% in 2007, principally due to higher
average mutual fund assets under management. Distribution revenues increased 5.8% in
2006, due primarily to higher non-U.S. and 529 Plan revenues, partially offset
by lower U.S. revenues and the disposition of our
cash management services during the second quarter of 2005.
Institutional Research
Services
Institutional
Research Services revenue consists principally of brokerage transaction charges
received for providing independent research and brokerage-related services to
institutional investors. Revenues from Institutional Research Services increased
12.9% for 2007 due to higher revenues from both European and U.S. operations,
and increased revenues from hard dollar arrangements. Revenues from
Institutional Research Services increased 6.3% in 2006 due to higher U.S. and
Europe revenues. U.S. revenues were higher due to increased market volumes and
higher market share, partly offset by lower pricing. Revenues in Europe were
also higher due to increased market volumes and higher pricing.
Declines
in commission rates charged by broker-dealers are likely to continue and may
accelerate. Increasing use of electronic trading systems and algorithmic trading
strategies (which permit investors to execute securities transactions at a
fraction of typical full-service broker-dealer charges) and pressure exerted by
funds and institutional investors are likely to result in continuing, perhaps
significant, declines in commission rates, which would, in turn, reduce the
revenues generated by our Institutional Research Services. See “Risk Factors” in Item
1A.
Dividend and Interest Income
and Interest Expense
Dividend
and interest income consists of investment income, interest earned on United
States Treasury Bills and interest earned on collateral given for securities
borrowed from brokers and dealers. Interest expense includes interest accrued on
cash balances in customers’ brokerage accounts and on collateral received for
securities loaned. Dividend and interest, net of interest expense,
increased $10.9 million in 2007. The increase was due primarily to increased
brokerage interest due to higher Treasury Bill balances and higher dividends
from our deferred compensation investments. During the fourth quarter of 2007,
we outsourced our hedge fund related prime brokerage operations, resulting in
the elimination of a substantial portion of our stock borrow and stock loan
activity. As a result, interest earned and interest accrued for such
activity will be lower in future years. Dividend and interest, net of
interest expense, increased $21.8 million in 2006. The increase was due
primarily to higher mutual fund dividends and increased stock borrowed income as
a result of higher average customer credit balances and interest rates in
2006.
Investment Gains
(Losses)
Investment
gains (losses), consists primarily of realized and unrealized investment gains
or losses on trading investments related to deferred compensation plan
obligations and investments made in our consolidated venture capital fund,
realized gains or losses on the sale of available-for-sale investments, and
equity in earnings of investments in limited partnership hedge funds that we
sponsor and manage. Investment gains (losses) decreased $32.5 million
in 2007, due primarily to lower mark-to-market gains on investments related to
deferred compensation plan obligations in 2007 as compared to 2006 and equity
losses in 2007 versus gains in 2006 from our investment in hedge funds,
partially offset by mark-to-market gains on investments in our consolidated
venture capital fund. Investment gains (losses) increased $33.1 million in 2006
due primarily to higher mark-to-market gains on investments related to deferred
compensation plan obligations. The impact of these gains on our obligations to
plan participants is amortized over the vesting period of the awards, or
immediately for fully vested awards.
Other
Revenues
Other
revenues consist of fees earned for transfer agency services provided to
company-sponsored mutual funds, fees earned for administration and recordkeeping
services provided to company-sponsored mutual funds and the general accounts of
AXA and its subsidiaries, and other miscellaneous revenues. Other revenues were
essentially flat in 2007 as compared to 2006, and increased 5.5% in 2006,
primarily due to higher brokerage income.
Expenses
The
following table summarizes the components of expenses:
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2007
|
2006
|
2005
|
2007-06
|
2006-05
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Employee
compensation and benefits
|
$ | 1,833.8 | $ | 1,547.6 | $ | 1,262.2 | 18.5 | % | 22.6 | % | ||||||||||
Promotion
and servicing
|
683.1 | 612.2 | 621.9 | 11.6 | (1.6 | ) | ||||||||||||||
General
and administrative
|
591.2 | 583.3 | 384.4 | 1.4 | 51.8 | |||||||||||||||
Interest
|
24.0 | 23.1 | 25.1 | 3.7 | (7.9 | ) | ||||||||||||||
Amortization
of intangible assets
|
20.7 | 20.7 | 20.7 | — | — | |||||||||||||||
Total
|
$ | 3,152.8 | $ | 2,786.9 | $ | 2,314.3 | 13.1 | 20.4 |
Employee Compensation and
Benefits
We had
5,580 full-time employees as of December 31, 2007 compared to 4,914 in 2006 and
4,312 in 2005. Employee compensation and benefits, which represented
approximately 58%, 56%, and 55% of total expenses in 2007, 2006, and 2005,
respectively, includes base compensation, cash and deferred incentive
compensation, commissions, fringe benefits, and other employment
costs.
In 2007,
base compensation, fringe benefits and other employment costs increased $105.8
million, or 19.6%, primarily as a result of increased headcount, annual merit
increases, and higher fringe benefits reflecting increased compensation levels.
Incentive compensation increased $97.5 million, or 15.2%, primarily as a result
of the increase in full-time employees, higher annual bonus payments and higher
deferred compensation expense. Commission expense increased $82.9 million, or
22.6%, reflecting higher sales volumes across all distribution
channels.
In 2006,
base compensation, fringe benefits and other employment costs increased $84.4
million, or 18.5%, primarily as a result of annual merit increases, additional
headcount, and higher fringe benefits reflecting increased compensation levels.
Incentive compensation increased $111.1 million, or 21.0%, primarily due to
higher short-term incentive compensation, reflecting increased headcount and
higher earnings, and higher deferred compensation amortization due to vesting of
prior-year awards. Commission expense increased $89.9 million, or 32.5%,
reflecting higher sales and revenues.
Promotion and
Servicing
Promotion
and servicing expenses, which represented approximately 22%, 22%, and 27% of
total expenses in 2007, 2006, and 2005, respectively, include distribution plan
payments to financial intermediaries for distribution of company-sponsored
mutual funds and cash management services products (in 2005), and amortization
of deferred sales commissions paid to financial intermediaries for the sale of
back-end load shares of company-sponsored mutual funds. See “Capital Resources and
Liquidity” in this Item 7 and Notes 11 and 22 to AllianceBernstein’s
consolidated financial statements in Item 8 for further discussion of
deferred sales commissions and the disposition of cash management services. Also
included in this expense category are costs related to travel and entertainment,
advertising, promotional materials, and investment meetings and seminars for
financial intermediaries that distribute company-sponsored mutual fund
products.
Promotion
and servicing expenses increased 11.6% in 2007 and decreased 1.6% in 2006. The
increase in 2007 was primarily due to higher distribution payments, travel and
entertainment, and transfer fees. The decrease in 2006 was primarily due to a
$31.6 million decrease in amortization of deferred sales commissions as a result
of lower sales of back-end load shares, partly offset by higher travel and
entertainment and promotional materials costs.
General and
Administrative
General
and administrative expenses, which represented approximately 19%, 21%, and 17%
of total expenses in 2007, 2006, and 2005, respectively, are costs related to
operations, including technology, professional fees, occupancy, communications,
minority interests in consolidated subsidiaries, and similar expenses. General
and administrative expenses increased $7.9 million, or 1.4% in 2007, and
increased $198.9 million, or 51.8% in 2006.
The
increase in 2007 was primarily due to higher occupancy costs, technology costs,
and minority interest expenses as a result of mark-to-market gains on
investments in our consolidated venture capital fund. The impact of these higher
costs was partly offset by a $56.0 million charge recorded in 2006 for the
estimated cost of reimbursing certain clients for losses arising out of an error
made in processing claims for class action settlement proceeds on behalf of
these clients and lower legal costs.
The
increase in 2006 was primarily due to the $56.0 million charge we recorded in
2006 for the estimated cost of reimbursing certain clients for losses arising
out of an error we made in processing claims for class action settlement
proceeds on behalf of these clients (see “Consolidated Results of
Operations” in this Item 7 for a discussion of the charge), as well as
higher occupancy and legal costs. Occupancy costs increased as a result of the
expansion of certain private client offices in the U.S., increased office space
in New York, and new office space in London and Hong Kong. Legal costs
increased, reflecting our continued efforts to resolve outstanding litigation in
2006, and the fact that 2005 legal costs were substantially offset by an $18.3
million insurance recovery and a $5.1 million reimbursement of litigation
expenses we received in connection with a securities law claim we brought on
behalf of certain clients. Other increases in general and administrative
expenses include higher market data services and data processing
costs.
Interest on
Borrowings
Interest
on our borrowings for 2007 increased $0.9 million, or 3.7%. The increase in 2007
reflects higher short-term borrowing levels partly offset by lower interest
rates. Interest on borrowings for 2006 decreased $2.0 million, or 7.9%. The
decrease reflects the retirement of our Senior Notes in August 2006, partly
offset by higher short-term borrowing levels in 2006.
Non-operating
Income
Non-operating
income consists of the gains from the disposition of our cash management
services, Indian mutual funds, and South African joint venture interest in 2005,
as well as contingent purchase price payments earned from the disposition of our
cash management services. Non-operating income for 2007 decreased $4.4 million,
or 22.0%. The 2007 decrease reflects the recognition of a $7.5 million gain
during the second quarter of 2006 resulting from the expiration of a “clawback”
provision related to the disposition of our cash management services, partly
offset by lower contingent purchase price payments earned in 2007. Non-operating
income for 2006 decreased $14.3 million, or 41.4%, due to gains on dispositions
in 2005. See Note 22 to
AllianceBernstein’s consolidated financial statements in Item 8 for
information about these dispositions.
Income
Taxes
AllianceBernstein,
a private limited partnership, is not subject to federal or state corporate
income taxes. However, we are subject to the New York City unincorporated
business tax. Our domestic corporate subsidiaries are subject to federal, state
and local income taxes, and are generally included in the filing of a
consolidated federal income tax return. Separate state and local income tax
returns are filed. Foreign corporate subsidiaries are generally subject to taxes
in the foreign jurisdictions where they are located.
The
increase in taxes on income in 2007 reflects increased earnings and a higher
effective tax rate reflecting higher earnings of our foreign subsidiaries
(primarily in the U.K. and Japan). The increase in taxes on income in 2006 is
primarily due to higher pre-tax earnings, partially offset by a lower effective
tax rate.
Earlier
this year, Congress proposed tax legislation that would cause certain
partnerships whose partnership interests are traded in a public market 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.
In its current form, the proposed legislation would not affect
AllianceBernstein, which is a private partnership. For additional information,
see “Risk Factors” in Item 1A.
Capital
Resources and Liquidity
The
following table identifies selected items relating to capital resources and
liquidity:
% Change
|
||||||||||||||||||||
2007
|
2006
|
2005
|
2007- 06
|
2006 - 05
|
||||||||||||||||
(in
millions, except per unit amounts)
|
||||||||||||||||||||
As
of December 31:
|
||||||||||||||||||||
Partners’
capital
|
$ | 4,541.2 | $ | 4,571.0 | $ | 4,302.7 | (0.7 | )% | 6.2 | % | ||||||||||
Cash
and cash equivalents
|
576.4 | 546.8 | 610.2 | 5.4 | (10.4 | ) | ||||||||||||||
For
the years ended December 31:
|
||||||||||||||||||||
Cash
flow from operations
|
1,291.4 | 1,103.9 | 452.1 | 17.0 | 144.2 | |||||||||||||||
Proceeds
from sales (purchases) of investments, net
|
26.5 | (42.0 | ) | 5.3 | n/m | n/m | ||||||||||||||
Capital
expenditures
|
(137.5 | ) | (97.1 | ) | (72.6 | ) | 41.7 | 33.7 | ||||||||||||
Distributions
paid
|
(1,364.6 | ) | (1,025.5 | ) | (800.5 | ) | 33.1 | 28.1 | ||||||||||||
Purchases
of Holding Units
|
(50.9 | ) | (22.3 | ) | (33.3 | ) | 127.6 | (32.8 | ) | |||||||||||
Issuance
of Holding Units
|
— | 47.2 | — | (100.0 | ) | n/m | ||||||||||||||
Additional
investments by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
50.1 | 100.5 | 42.4 | (50.2 | ) | 136.9 | ||||||||||||||
Issuance
(repayment) of commercial paper, net
|
175.8 | 328.1 | (0.2 | ) | (46.4 | ) | n/m | |||||||||||||
Repayment
of long-term debt
|
— | (408.1 | ) | — | (100.0 | ) | n/m | |||||||||||||
Available
Cash Flow
|
1,253.2 | 1,153.4 | 858.7 | 8.7 | 34.3 |
Cash and
cash equivalents increased $29.6 million in 2007 and decreased $63.4 million in
2006. Cash inflows are primarily provided by operations, proceeds from sales of
investments, the issuance of commercial paper, and additional investments by
Holding using proceeds from exercises of compensatory options to buy Holding
Units. Significant cash outflows include cash distributions paid to the General
Partner and unitholders, capital expenditures, purchases of investments, and
purchases of Holding Units to fund deferred compensation plans.
Contingent Deferred Sales
Charge
Our
mutual fund distribution system (the “System”) includes a multi-class share
structure that permits our open-end mutual funds to offer investors various
options for the purchase of mutual fund shares, including both front-end load
shares and back-end load shares. For open-end U.S. Fund front-end load shares,
AllianceBernstein Investments pays sales commissions to financial intermediaries
distributing the funds from the front-end sales charge it receives from
investors at the time of sale. For back-end load shares, AllianceBernstein
Investments pays sales commissions to the financial intermediaries at the time
of sale and also receives higher ongoing distribution services fees from the
mutual funds. In addition, investors who redeem before the expiration of the
minimum holding period (which ranges from one year to four years) pay a
contingent deferred sales charge (“CDSC”) to AllianceBernstein Investments. We
expect to recover deferred sales commissions over periods not exceeding five and
one-half years. Payments of sales commissions made to financial intermediaries
in connection with the sale of back-end load shares under the System, net of
CDSC received of $31.1 million, $23.7 million, and $21.4 million, totaled
approximately $84.1 million, $98.7 million, and $74.2 million during 2007, 2006,
and 2005, respectively.
Debt and Credit
Facilities
Total
committed credit, debt outstanding, and weighted average interest rates as of
December 31, 2007 and 2006 were as follows:
December
31,
|
||||||||||||||||||||||||
2007
|
2006
|
|||||||||||||||||||||||
Committed
Credit
|
Debt
Outstanding
|
Interest
Rate
|
Committed
Credit
|
Debt
Outstanding
|
Interest
Rate
|
|||||||||||||||||||
(in millions)
|
||||||||||||||||||||||||
Commercial
paper(1)
|
$ | — | $ | 533.9 | 4.3 | % | $ | — | $ | 334.9 | 5.3 | % | ||||||||||||
Revolving
credit facility(1)
|
1,000.0 | — | — | 800.0 | — | — | ||||||||||||||||||
Total
|
$ | 1,000.0 | $ | 533.9 | 4.3 | $ | 800.0 | $ | 334.9 | 5.3 |
(1)
|
Our
revolving credit facility supports our commercial paper program; amounts
borrowed under the commercial paper program reduce amounts
available for other purposes under the revolving credit facility on a
dollar-for-dollar basis.
|
In
February 2006, we entered into an $800 million five-year revolving credit
facility with a group of commercial banks and other lenders. The revolving
credit facility is intended to provide back-up liquidity for our $800 million
commercial paper program. Under the revolving credit facility, the interest
rate, at our option, is a floating rate generally based upon a defined prime
rate, a rate related to the London Interbank Offered Rate (“LIBOR”) or the
Federal Funds rate. On November 2, 2007, we increased the revolving credit
facility by $200 million to $1.0 billion. We also increased our commercial paper
program by $200 million to $1.0 billion. The revolving credit facility contains
covenants which, among other things, require us to meet certain financial
ratios. We were in compliance with the covenants as of December 31, 2007. To
supplement this revolving credit facility, in January 2008 we entered into a
$100 million uncommitted line of credit with a major bank which expires in March
2008.
In August
2001, we issued $400 million 5.625% Notes (“Senior Notes”) pursuant to a shelf
registration statement that originally permitted us to issue up to $600 million
in senior debt securities. The Senior Notes matured in August 2006 and were
retired using cash flow from operations and proceeds from the issuance of
commercial paper. We currently have $200 million available under the shelf
registration statement for future issuances.
In 2006,
SCB LLC entered into four separate uncommitted line of credit facility
agreements with various banks, each for $100 million. During January and
February of 2007, SCB LLC increased three of the agreements to $200 million each
and entered into an additional agreement for $100 million with a new
bank. As of December 31, 2007, no amounts were outstanding under these
credit facilities.
In
January 2008, SCB LLC entered into a $950 million three-year revolving credit
facility with a group of commercial banks to fund its obligations resulting from
engaging in certain securities trading and other customer activities. Under the
revolving credit facility, the interest rate, at the option of SCB LLC, is a
floating rate generally based upon a defined prime rate, a rate related to the
LIBOR or the Federal Funds rate.
Our
substantial capital base and access to public and private debt, at competitive
terms, should provide adequate liquidity for our general business needs.
Management believes that cash flow from operations and the issuance of debt and
AllianceBernstein Units or Holding Units will provide us with the resources to
meet our financial obligations.
Off-Balance
Sheet Arrangements and Aggregate Contractual Obligations
We have
no off-balance sheet arrangements other than the guarantees and contractual
obligations that are discussed below.
Guarantees
In
February 2002, AllianceBernstein signed a $125 million agreement with a
commercial bank, under which we guaranteed certain obligations in the ordinary
course of business of SCBL. In the event SCBL is unable to meet its obligations
in full when due, AllianceBernstein will pay the obligations within three days
of being notified of SCBL’s failure to pay. This agreement is continuous and
remains in effect until payment in full of any such obligation has been made by
SCBL. During 2007, we were not required to perform under the agreement and as of
December 31, 2007 had no liability outstanding in connection with the
agreement.
In
January 2008, AllianceBernstein and AXA executed guarantees in regard to
the $950 million SCB LLC facility. In the event SCB LLC is unable to meet its
obligations, AllianceBernstein or AXA will pay the obligations when due or on
demand. AllianceBernstein will reimburse AXA to the extent AXA must pay on its
guarantee. This agreement is continuous and remains in effect until the later of
payment in full of any such obligation has been made or the maturity
date.
Aggregate Contractual
Obligations
The
following table summarizes our contractual obligations as of December 31,
2007:
Contractual
Obligations
|
||||||||||||||||||||
Total
|
Less
than
1
Year
|
1-3
Years
|
3-5
Years
|
More
than
5
Years
|
||||||||||||||||
(in millions)
|
||||||||||||||||||||
Commercial
paper
|
$ | 533.9 | $ | 533.9 | $ | — | $ | — | $ | — | ||||||||||
Operating
leases, net of sublease commitments
|
2,329.5 | 113.8 | 226.2 | 232.0 | 1,757.5 | |||||||||||||||
Accrued
compensation and benefits
|
438.9 | 273.5 | 95.7 | 36.2 | 33.5 | |||||||||||||||
Unrecognized
tax liabilities
|
19.0 | — | 19.0 | — | — | |||||||||||||||
Total
|
$ | 3,321.3 | $ | 921.2 | $ | 340.9 | $ | 268.2 | $ | 1,791.0 |
Accrued
compensation and benefits amounts above exclude our accrued pension obligation.
Any amounts reflected on the consolidated balance sheet as payables (to
broker-dealers, brokerage clients, and company-sponsored mutual funds) and
accounts payable and accrued expenses are excluded from the table
above.
Certain
of our deferred compensation plans provide for election by participants to have
their deferred compensation awards invested notionally in Holding Units and in
company-sponsored investment services. Since January 1, 2008, we have made
purchases of mutual funds and hedge funds totaling $261.2 million to fund our
future obligations resulting from participant elections with respect to 2007
awards. We also allocated Holding Units with an aggregate value of approximately
$72.4 million within our deferred compensation trust to fund our future
obligations that resulted from participant elections with respect to 2007
awards. To fund this allocation, we used $55.1 million of units existing in the
trust and issued $17.3 million of new units.
We expect
to make contributions to our qualified profit sharing plan of approximately
$30.0 million in each of the next four years. We currently expect to contribute
an estimated $3.5 million to our qualified, noncontributory, defined benefit
plan during 2008.
Acquisitions
See Note 21 to AllianceBernstein’s
consolidated financial statements in Item 8 for a discussion of our
acquisition in 2006.
Dispositions
See Note 22 to AllianceBernstein’s
consolidated financial statements in Item 8 for a discussion of
dispositions in 2005.
Contingencies
See Note 11 to AllianceBernstein’s
consolidated financial statements in Item 8 for a discussion of our
mutual fund distribution system and related deferred sales commission asset and
certain legal proceedings to which we are a party.
Critical
Accounting Estimates
The
preparation of the consolidated financial statements and notes to consolidated
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, and
expenses.
Management
believes that the critical accounting policies and estimates discussed below
involve significant management judgment due to the sensitivity of the methods
and assumptions used.
Deferred Sales Commission
Asset
Management
tests the deferred sales commission asset for recoverability quarterly.
Significant assumptions utilized to estimate the company’s future average assets
under management and undiscounted future cash flows from back-end load shares
include expected future market levels and redemption rates. Market assumptions
are selected using a long-term view of expected average market returns based on
historical returns of broad market indices. As of December 31, 2007, management
used average market return assumptions of 5% for fixed income and 8% for equity
to estimate annual market returns. Higher actual average market returns would
increase undiscounted future cash flows, while lower actual average market
returns would decrease undiscounted future cash flows. Future redemption rate
assumptions, determined by reference to actual redemption experience over the
five-year, three-year, and one-year periods ended December 31, 2007, and
calculated as a percentage of the company’s average assets under management
represented by back-end load shares, ranged from 21% to 25% for U.S. fund shares
and 23% to 31% for non-U.S. fund shares. An increase in the actual rate of
redemptions would decrease undiscounted future cash flows, while a decrease in
the actual rate of redemptions would increase undiscounted future cash flows.
These assumptions are reviewed and updated quarterly. Estimates of undiscounted
future cash flows and the remaining life of the deferred sales commission asset
are made from these assumptions and the aggregate undiscounted future cash flows
are compared to the recorded value of the deferred sales commission asset.
Management determined that the deferred sales commission asset was not impaired
as of December 31, 2007. If management determines in the future that the
deferred sales commission asset is not recoverable, an impairment condition
would exist and a loss would be measured as the amount by which the recorded
amount of the asset exceeds its estimated fair value. Estimated fair value is
determined using management’s best estimate of future cash flows discounted to a
present value amount.
Goodwill
As a
result of the adoption of Statement of Financial Accounting Standards No. 142
(“SFAS No. 142”), “Goodwill
and Other Intangible Assets”, goodwill is tested at least annually, as of
September 30, for impairment. Significant assumptions are required in performing
goodwill impairment tests. Such tests include determining whether the estimated
fair value of AllianceBernstein, the reporting unit, exceeds its book value.
There are several methods of estimating AllianceBernstein’s fair value, which
includes valuation techniques such as market quotations and discounted expected
cash flows. In developing estimated fair value using a discounted cash flow
valuation technique, business growth rate assumptions are applied over the
estimated life of the goodwill asset and the resulting expected cash flows are
discounted to arrive at a present value amount that approximates fair value.
These assumptions consider all material events that have impacted, or that we
believe could potentially impact, future discounted expected cash flows. The
impairment test indicated that goodwill was not impaired as of September 30,
2007. Management believes that goodwill was also not impaired as of December 31,
2007. However, future tests may be based upon different assumptions which may or
may not result in an impairment of this asset. Any impairment could reduce
materially the recorded amount of the goodwill asset with a corresponding charge
to our earnings.
Intangible
Assets
Acquired
intangibles are recognized at fair value and amortized over their estimated
useful lives of twenty years. Intangible assets are evaluated for impairment
quarterly. A present value technique is applied to management’s best estimate of
future cash flows to estimate the fair value of intangible assets. Estimated
fair value is then compared to the recorded book value to determine whether an
impairment is indicated. The estimates used include estimating attrition factors
of customer accounts, asset growth rates, direct expenses and fee rates. We
choose assumptions based on actual historical trends that may or may not occur
in the future. Management believes that intangible assets were not impaired as
of December 31, 2007. However, future tests may be based upon different
assumptions which may or may not result in an impairment of this asset. Any
impairment could reduce materially the recorded amount of intangible assets with
a corresponding charge to our earnings.
Retirement
Plan
We
maintain a qualified, noncontributory, defined benefit retirement plan covering
current and former employees who were employed by the company in the United
States prior to October 2, 2000. The amounts recognized in the consolidated
financial statements related to the retirement plan are determined from
actuarial valuations. Inherent in these valuations are assumptions including
expected return on plan assets, discount rates at which liabilities could be
settled, rates of annual salary increases, and mortality rates. The assumptions
are reviewed annually and may be updated to reflect the current environment. A
summary of the key economic assumptions are described in Note 14 to
AllianceBernstein’s consolidated financial statements in Item 8. In
accordance with U.S. generally accepted accounting principles, actual results
that differ from those assumed are accumulated and amortized over future periods
and, therefore, affect expense recognized and liabilities recorded in future
periods.
In
developing the expected long-term rate of return on plan assets of 8.0%, we
considered the historical returns and future expectations for returns for each
asset category, as well as the target asset allocation of the portfolio. The
expected long-term rate of return on assets is based on weighted average
expected returns for each asset class. We assumed a target allocation weighting
of 50% to 70% for equity securities, 20% to 40% for debt securities, and 0% to
10% for real estate investment trusts. Exposure of the total portfolio to cash
equivalents on average should not exceed 5% of the portfolio’s value on a market
value basis. The plan seeks to provide a rate of return that exceeds applicable
benchmarks over rolling five-year periods. The benchmark for the plan’s large
cap domestic equity investment strategy is the S&P 500 Index; the small cap
domestic equity investment strategy is measured against the Russell 2000 Index;
the international equity investment strategy is measured against the MSCI EAFE
Index; and the fixed income investment strategy is measured against the Lehman
Brothers Aggregate Bond Index. The actual rate of return on plan assets was
4.1%, 9.0%, and 13.7% in 2007, 2006, and 2005, respectively. A 25 basis point
adjustment, up or down, in the expected long-term rate of return on plan assets
would have decreased or increased the 2007 net pension charge of $3.7 million by
approximately $0.1 million.
The
objective of our discount rate assumption was to reflect the rate at which the
pension benefits could be effectively settled. In making this determination, we
took into account the timing and amount of benefits that would be available
under the plan’s lump sum option. To that effect, our methodology for selecting
the discount rate as of December 31, 2007 was to match the plan’s cash flows to
that of a yield curve that provides the equivalent yields on zero-coupon
corporate bonds for each maturity. Benefit cash flows due in a particular year
can be “settled” theoretically by “investing” them in the zero-coupon bond that
matures in the same year. The discount rate is the single rate that produces the
same present value of cash flows. The selection of the 6.55% discount rate as of
December 31, 2007 represents the approximate mid-point (to the nearest five
basis points) of the single rates determined under two independently constructed
yield curves, one of which, prepared by Mercer Human Resources, produced a rate
of 6.58%; the other, prepared by Citigroup, produced a rate of 6.48%. The
discount rate as of December 31, 2006 was 5.90%, which was used in developing
the 2007 net pension charge. A lower discount rate increases pension expense and
the present value of benefit obligations. A 25 basis point adjustment, up or
down, in the discount rate (along with a corresponding adjustment in the assumed
lump sum interest rate) would have decreased or increased the 2007 net pension
charge of $3.7 million by approximately $0.5 million.
Loss
Contingencies
Management
continuously reviews with legal counsel the status of regulatory matters and
pending or threatened litigation. We evaluate the likelihood that a loss
contingency exists in accordance with Statement of Financial Accounting
Standards No. 5, “Accounting
for Contingencies”, which requires a loss contingency to be recorded if
it is probable and reasonably estimable as of the date of the financial
statements. See Note 11 to AllianceBernstein’s
consolidated financial statements in Item 8.
Accounting
Pronouncements
See Note 23 to AllianceBernstein’s
consolidated financial statements in Item 8.
Cautions
Regarding Forward-Looking Statements
Certain
statements provided by management in this report 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 Item 1A. Any or all of the forward-looking statements
that we make in this Form 10-K 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:
|
·
|
our belief that
financial market turmoil in the second half of 2007 and thus far in 2008
has created opportunities for our hedge funds to provide strong returns
for our clients in the future: The actual performance of the
capital markets and other factors beyond our control will affect our
investment success for clients and asset inflows. In addition, for
many of our hedge funds, performance in the fourth quarter of 2007
produced losses and was significantly below performance targets; this will
make it very difficult for us to earn performance-based fees in
2008.
|
|
·
|
our institutional
pipeline including approximately $6 billion in services which are expected
to become operational in the first quarter of
2008: Before they are funded, institutional mandates do
not represent legally binding commitments to fund and, accordingly, the
possibility exists that not all mandates will be funded in the amounts and
at the times we currently
anticipate.
|
|
·
|
our intention to
proceed with initiatives in 2008 to provide new and different ways to
improve results for our clients: Some or all of our initiatives may
not be realized due to management’s subsequent determination that other
activities are a better use of company resources and/or unanticipated
changes in global regulatory and economic
environments.
|
|
·
|
the effect on future
earnings of the disposition of our cash management services to Federated
Investors, Inc.: The
effect of this disposition on future earnings, resulting from contingent
payments to be received in future periods, will depend on the amount of
net revenue earned by Federated Investors, Inc. during these periods on
assets under management maintained in Federated’s funds by our former cash
management clients. The amount of gain ultimately realized from this
disposition depends on whether we receive a final contingent payment
payable on the fifth anniversary of the closing of the transaction (see Note 22 to
AllianceBernstein’s consolidated financial statements in Item
8).
|
|
·
|
our
estimate of what it will cost us to reimburse certain of our clients for
losses arising out of an error we made in processing class
action claims, and
our ability to recover most of this cost: Our estimate of the cost to
reimburse clients is based on our review to date; as we continue our
review, our estimate and the ultimate cost we incur may change. Our
ability to recover most of the cost of the error depends, in part, on the
availability of funds from the related class-action settlement funds, the
amount of which is not known, and the willingness of our insurers to
reimburse us under existing
policies.
|
|
·
|
the outcome of
litigation: Litigation is inherently unpredictable, and excessive
damage awards do occur. Though we have stated that we do not expect
certain legal proceedings to have a material adverse effect on our results
of operations or financial condition, any settlement or judgment with
respect to a legal proceeding could be significant, and could have a
material adverse effect on our results of operations or financial
condition.
|
Item
7A.
|
Quantitative and Qualitative Disclosures about Market
Risk
|
Holding
Market
Risk, Risk Management and Derivative Financial Instruments
Holding’s
sole investment is AllianceBernstein Units. Holding did not own, nor was it a
party to any derivative financial instruments during the years ended December
31, 2007, 2006, and 2005.
AllianceBernstein
Market
Risk, Risk Management and Derivative Financial Instruments
AllianceBernstein’s
investments consist of trading and available-for-sale investments, and other
investments. Trading and available-for-sale investments, include United States
Treasury Bills and equity and fixed income mutual funds investments. Trading
investments are purchased for short-term investment, principally to fund
liabilities related to deferred compensation plans. Although available-for-sale
investments, are purchased for long-term investment, the portfolio strategy
considers them available-for-sale from time to time due to changes in market
interest rates, equity prices and other relevant factors. Other investments
include investments in hedge funds sponsored by AllianceBernstein and other
private investment vehicles.
Trading
and Non-Trading Market Risk Sensitive Instruments
Investments with Interest
Rate Risk—Fair Value
The table
below provides our potential exposure with respect to our fixed income
investments, measured in terms of fair value, to an immediate 100 basis point
increase in interest rates at all maturities from the levels prevailing as of
December 31, 2007 and 2006. Such a fluctuation in interest rates is a
hypothetical rate scenario used to calibrate potential risk and does not
represent our view of future market changes. While these fair value measurements
provide a representation of interest rate sensitivity of our investments in
fixed income mutual funds and fixed income hedge funds, they are based on our
exposures at a particular point in time and may not be representative of future
market results. These exposures will change as a result of ongoing changes in
investments in response to our assessment of changing market conditions and
available investment opportunities:
As of December 31,
|
||||||||||||||||
2007
|
2006
|
|||||||||||||||
Effect
of +100
|
Effect
of +100
|
|||||||||||||||
Basis
Point
|
Basis
Point
|
|||||||||||||||
Fair Value
|
Change
|
Fair Value
|
Change
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Fixed
Income Investments:
|
||||||||||||||||
Trading
|
$ | 106,152 | $ | (5,117 | ) | $ | 31,669 | $ | (1,435 | ) | ||||||
Available-for-sale
and other investments
|
28,368 | (1,367 | ) | 31,957 | (1,448 | ) |
Investments with Equity
Price Risk—Fair Value
Our
investments also include investments in equity mutual funds and equity hedge
funds. The following table provides our potential exposure with respect to our
equity investments, measured in terms of fair value, to an immediate 10% drop in
equity prices from those prevailing as of December 31, 2007 and 2006. A 10%
decrease in equity prices is a hypothetical scenario used to calibrate potential
risk and does not represent our view of future market changes. While these fair
value measurements provide a representation of equity price sensitivity of our
investments in equity mutual funds and equity hedge funds, they are based on our
exposures at a particular point in time and may not be representative of future
market results. These exposures will change as a result of ongoing portfolio
activities in response to our assessment of changing market conditions and
available investment opportunities:
As of December 31,
|
||||||||||||||||
2007
|
2006
|
|||||||||||||||
Effect of -10%
|
Effect of -10%
|
|||||||||||||||
Equity Price
|
Equity Price
|
|||||||||||||||
Fair Value
|
Change
|
Fair Value
|
Change
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Equity
Investments:
|
||||||||||||||||
Trading
|
$ | 466,085 | $ | (46,609 | ) | $ | 432,133 | $ | (43,213 | ) | ||||||
Available-for-sale
and other investments
|
314,476 | (31,448 | ) | 251,844 | (25,184 | ) |
Item 8.
|
Financial Statements and Supplementary
Data
|
ALLIANCEBERNSTEIN HOLDING L.P.
Statements
of Financial Condition
December 31,
|
||||||||
2007
|
2006
|
|||||||
(in thousands, except unit
amounts)
|
||||||||
ASSETS
|
||||||||
Investment
in AllianceBernstein
|
$ | 1,574,512 | $ | 1,567,733 | ||||
Other
assets
|
722 | 301 | ||||||
Total
assets
|
$ | 1,575,234 | $ | 1,568,034 | ||||
LIABILITIES
AND PARTNERS’ CAPITAL
|
||||||||
Liabilities:
|
||||||||
Payable
to AllianceBernstein
|
$ | 7,460 | $ | 7,149 | ||||
Other
liabilities
|
314 | 1,697 | ||||||
Total
liabilities
|
7,774 | 8,846 | ||||||
Commitments
and contingencies (See
Note 7)
|
||||||||
Partners’
capital:
|
||||||||
General
Partner: 100,000 general partnership units issued and
outstanding
|
1,698 | 1,739 | ||||||
Limited
partners: 86,848,149 and 85,568,171 limited partnership units issued and
outstanding
|
1,548,212 | 1,546,598 | ||||||
Accumulated
other comprehensive income
|
17,550 | 10,851 | ||||||
Total
partners’ capital
|
1,567,460 | 1,559,188 | ||||||
Total
liabilities and partners’ capital
|
$ | 1,575,234 | $ | 1,568,034 |
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Income
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in thousands, except per unit
amounts)
|
||||||||||||
Equity
in earnings of AllianceBernstein
|
$ | 415,256 | $ | 359,469 | $ | 275,054 | ||||||
Income
taxes
|
39,104 | 34,473 | 26,990 | |||||||||
Net
income
|
$ | 376,152 | $ | 324,996 | $ | 248,064 | ||||||
Net
income per unit:
|
||||||||||||
Basic
|
$ | 4.35 | $ | 3.85 | $ | 3.04 | ||||||
Diluted
|
$ | 4.32 | $ | 3.82 | $ | 3.02 |
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Changes in Partners’ Capital and Comprehensive Income
Accumulated
|
||||||||||||||||
General
|
Limited
|
Other
|
Total
|
|||||||||||||
Partner’s
|
Partners’
|
Comprehensive
|
Partners’
|
|||||||||||||
Capital
|
Capital
|
Income
|
Capital
|
|||||||||||||
(in thousands, except per unit
amounts)
|
||||||||||||||||
Balance
as of December31, 2004
|
$ | 1,687 | $ | 1,293,983 | $ | — | $ | 1,295,670 | ||||||||
Comprehensive
income:
|
||||||||||||||||
Net
income
|
304 | 247,760 | — | 248,064 | ||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||
Unrealized
gain (loss) on investments
|
— | — | 1,253 | 1,253 | ||||||||||||
Foreign
currency translation adjustment
|
— | — | 6,410 | 6,410 | ||||||||||||
Comprehensive
income
|
304 | 247,760 | 7,663 | 255,727 | ||||||||||||
Cash
distributions to unitholders ($2.80 per unit)
|
(280 | ) | (226,451 | ) | — | (226,731 | ) | |||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
— | (33,253 | ) | — | (33,253 | ) | ||||||||||
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
— | 35,028 | — | 35,028 | ||||||||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
— | 42,405 | — | 42,405 | ||||||||||||
Balance
as of December31, 2005
|
1,711 | 1,359,472 | 7,663 | 1,368,846 | ||||||||||||
Comprehensive
income:
|
||||||||||||||||
Net
income
|
384 | 324,612 | — | 324,996 | ||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||
Unrealized
gain (loss) on investments
|
— | — | 1,735 | 1,735 | ||||||||||||
Foreign
currency translation adjustment
|
— | — | 3,718 | 3,718 | ||||||||||||
Comprehensive
income
|
384 | 324,612 | 5,453 | 330,449 | ||||||||||||
Adjustment
to initially apply FASB Statement No. 158, net
|
— | — | (2,265 | ) | (2,265 | ) | ||||||||||
Cash
distributions to unitholders ($3.56 per unit)
|
(356 | ) | (298,094 | ) | — | (298,450 | ) | |||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
— | (22,345 | ) | — | (22,345 | ) | ||||||||||
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
— | 47,161 | — | 47,161 | ||||||||||||
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
— | 35,323 | — | 35,323 | ||||||||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
— | 100,469 | — | 100,469 | ||||||||||||
Balance
as of December31, 2006
|
1,739 | 1,546,598 | 10,851 | 1,559,188 | ||||||||||||
Comprehensive
income:
|
||||||||||||||||
Net
income
|
434 | 375,718 | — | 376,152 | ||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||
Unrealized
gain (loss) on investments
|
— | — | (2,897 | ) | (2,897 | ) | ||||||||||
Foreign
currency translation adjustment
|
— | — | 6,309 | 6,309 | ||||||||||||
Changes
in retirement plan related items
|
— | — | 3,287 | 3,287 | ||||||||||||
Comprehensive
income
|
434 | 375,718 | 6,699 | 382,851 | ||||||||||||
Cash
distributions to unitholders ($4.75 per unit)
|
(475 | ) | (408,248 | ) | — | (408,723 | ) | |||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
— | (50,853 | ) | — | (50,853 | ) | ||||||||||
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
— | 34,801 | — | 34,801 | ||||||||||||
Impact
of initial adoption of FIN 48
|
— | 145 | — | 145 | ||||||||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
— | 50,051 | — | 50,051 | ||||||||||||
Balance
as of December31, 2007
|
$ | 1,698 | $ | 1,548,212 | $ | 17,550 | $ | 1,567,460 |
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Cash Flows
Years Ended December 31 ,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in
thousands)
|
||||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 376,152 | $ | 324,996 | $ | 248,064 | ||||||
Adjustments
to reconcile net income to net cash used in operating
activities:
|
||||||||||||
Equity
in earnings of AllianceBernstein
|
(415,256 | ) | (359,469 | ) | (275,054 | ) | ||||||
Changes
in assets and liabilities:
|
||||||||||||
(Increase)
decrease in other assets
|
(421 | ) | 161 | 175 | ||||||||
Increase
(decrease) in payable to AllianceBernstein
|
311 | (48 | ) | (467 | ) | |||||||
(Decrease)
increase in other liabilities
|
(1,383 | ) | 686 | 899 | ||||||||
Net
cash used in operating activities
|
(40,597 | ) | (33,674 | ) | (26,383 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Investment
in AllianceBernstein with proceeds from exercise of compensatory options
to buy Holding Units
|
(50,051 | ) | (100,469 | ) | (42,405 | ) | ||||||
Cash
distributions received from AllianceBernstein
|
449,320 | 332,035 | 253,203 | |||||||||
Net
cash provided by investing activities
|
399,269 | 231,566 | 210,798 | |||||||||
Cash
flows from financing activities:
|
||||||||||||
Cash
distributions to unitholders
|
(408,723 | ) | (298,450 | ) | (226,731 | ) | ||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
50,051 | 100,469 | 42,405 | |||||||||
Net
cash used in financing activities
|
(358,672 | ) | (197,981 | ) | (184,326 | ) | ||||||
Net
(decrease) increase in cash and cash equivalents
|
— | (89 | ) | 89 | ||||||||
Cash
and cash equivalents as of beginning of the year
|
— | 89 | — | |||||||||
Cash
and cash equivalents as of end of the year
|
$ | — | $ | — | $ | 89 | ||||||
Cash
paid:
|
||||||||||||
Income
taxes
|
$ | 41,422 | $ | 33,662 | $ | 25,969 | ||||||
Non-cash
investing activities:
|
||||||||||||
Change
in accumulated other comprehensive income
|
6,699 | 3,188 | 7,663 | |||||||||
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
— | 47,161 | — | |||||||||
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
34,801 | 35,323 | 35,028 | |||||||||
Non-cash
financing activities:
|
||||||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
(50,853 | ) | (22,345 | ) | (33,253 | ) |
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Notes
to Financial Statements
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.
|
Business
Description and Organization
|
Holding’s
principal source of income and cash flow is attributable to its investment in
AllianceBernstein limited partnership interests.
AllianceBernstein
provides research, diversified investment management, and related services
globally to a broad range of clients. Its principal services
include:
|
•
|
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, collective
investment
trusts, mutual funds, hedge
funds, and
other investment vehicles.
|
|
•
|
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 sponsored by financial intermediaries
worldwide, and other investment
vehicles.
|
|
•
|
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.
|
|
•
|
Institutional Research
Services - servicing institutional investors seeking independent research,
portfolio strategy, and brokerage-related
services.
|
AllianceBernstein
also provides distribution, shareholder servicing, and administrative services
to the mutual funds it sponsors.
AllianceBernstein
provides a broad range of services with expertise in:
|
•
|
Value equities,
generally targeting stocks that
are out of favor and that may trade at bargain
prices;
|
|
•
|
Growth equities,
generally targeting stocks with
under-appreciated growth
potential;
|
|
•
|
Fixed income
securities, including both taxable and tax-exempt
securities;
|
|
•
|
Blend strategies,
combining style-pure investment
components with systematic
rebalancing;
|
|
•
|
Passive management,
including both index and enhanced index
strategies;
|
|
•
|
Alternative
investments, such as hedge funds,
currency management, and venture capital;
and
|
|
•
|
Asset
allocation services, by which AllianceBernstein offers
specifically-tailored investment solutions for its clients (e.g.,
customized target date fund retirement services for institutional defined
contribution clients).
|
AllianceBernstein
manages these services using various investment disciplines, including market
capitalization (e.g., large-, mid-, and small-cap equities), term (e.g., long-,
intermediate-, and short-duration debt securities), and geographic location
(e.g., U.S., international, global, and emerging markets), as well as local and
regional disciplines in major markets around the world.
AllianceBernstein’s
independent research is the foundation of its
business. AllianceBernstein’s research disciplines include
fundamental research, quantitative research, economic research, and currency
forecasting capabilities. In addition, AllianceBernstein has created several
specialized research units, including one unit that examines global strategic
changes that can affect multiple industries and geographies, and another
dedicated to identifying potentially successful innovations within early-stage
companies.
As of
December 31, 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 units
representing assignments of beneficial ownership of limited partnership
interests in Holding (“Holding Units”).
As of
December 31, 2007, the ownership structure of AllianceBernstein, as a percentage
of general and limited partnership interests, was as follows:
AXA
and its subsidiaries
|
62.6 | % | ||
Holding
|
33.1 | |||
SCB
Partners Inc. (a wholly-owned subsidiary of SCB Inc., formerly known as
Sanford C. Bernstein Inc.)
|
3.1 | |||
Other
|
1.2 | |||
100.0 | % |
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 December 31, 2007, AXA and its subsidiaries had an approximate
63.2% economic interest in AllianceBernstein.
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of the
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 financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
Holding’s
financial statements and notes should be read in conjunction with the
consolidated financial statements and notes of AllianceBernstein.
AllianceBernstein’s consolidated financial statements and notes and management’s
discussion and analysis of financial condition and results of operations are
included in Holding’s Form 10-K.
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
January 23, 2008, the General Partner declared a distribution of $92.2 million,
or $1.06 per unit, representing Available Cash Flow for the three months ended
December 31, 2007. Each general partnership unit in Holding is entitled to
receive distributions equal to those received by each Holding Unit. The
distribution was paid on February 14, 2008 to holders of record at the close of
business on February 4, 2008.
Compensatory
Option Plans
AllianceBernstein
maintains certain compensation plans under which options to buy Holding Units
have been, or may be, granted to employees of AllianceBernstein and independent
directors of the General Partner. 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. As of December 31, 2007, there were 7,273,621
options for Holding Units outstanding, of which 3,526,342 were
exercisable.
3.
|
Net
Income Per Unit
|
Basic net
income per unit is derived by dividing net income by the basic weighted average
number of units outstanding for each year. 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 year.
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Net
income—basic
|
$ | 376,152 | $ | 324,996 | $ | 248,064 | ||||||
Additional
allocation of equity in earnings of AllianceBernstein resulting from
assumed dilutive effect of compensatory options
|
5,146 | 5,430 | 3,326 | |||||||||
Net
income-diluted
|
$ | 381,298 | $ | 330,426 | $ | 251,390 | ||||||
Weighted
average units outstanding—basic
|
86,460 | 84,325 | 81,489 | |||||||||
Dilutive
effect of compensatory options
|
1,807 | 2,243 | 1,714 | |||||||||
Weighted
average units outstanding—diluted
|
88,267 | 86,568 | 83,203 | |||||||||
Basic
net income per unit
|
$ | 4.35 | $ | 3.85 | $ | 3.04 | ||||||
Diluted
net income per unit
|
$ | 4.32 | $ | 3.82 | $ | 3.02 |
As of
December 31, 2007 and 2005, we excluded 1,678,985 and 3,950,100 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), respectively, from the diluted
net income per unit computation due to their anti-dilutive effect. As of
December 31, 2006, there were no out-of-the-money options.
4.
Investment in AllianceBernstein
Holding’s
investment in AllianceBernstein for the years ended December 31, 2007 and 2006
was as follows:
2007
|
2006
|
|||||||
(in thousands)
|
||||||||
Investment
in AllianceBernstein as of January 1,
|
$ | 1,567,733 | $ | 1,376,503 | ||||
Equity
in earnings of AllianceBernstein
|
415,256 | 359,469 | ||||||
Additional
investment with proceeds from exercises of compensatory options to buy
Holding Units
|
50,051 | 100,469 | ||||||
Change
in accumulated other comprehensive income
|
6,699 | 3,188 | ||||||
Cash
distributions received from AllianceBernstein
|
(449,320 | ) | (332,035 | ) | ||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
(50,853 | ) | (22,345 | ) | ||||
Impact
of initial adoption of FIN 48
|
145 | — | ||||||
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
— | 47,161 | ||||||
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
34,801 | 35,323 | ||||||
Investment
in AllianceBernstein as of December 31,
|
$ | 1,574,512 | $ | 1,567,733 |
5. Units
Outstanding
The
following table summarizes the activity in units:
Outstanding
as of December 31, 2005
|
82,231,027
|
|||
Options
exercised
|
2,567,017
|
|||
Units
awarded
|
37,868
|
|||
Issuance
of units
|
834,864
|
|||
Units
forfeited
|
(2,605
|
)
|
||
Outstanding
as of December 31, 2006
|
85,668,171
|
|||
Options
exercised
|
1,234,917
|
|||
Units
awarded
|
46,777
|
|||
Units
forfeited
|
(1,716
|
)
|
||
Outstanding
as of December 31, 2007
|
86,948,149
|
Units
awarded and units forfeited pertain to Restricted Unit awards to independent
members of the Board of Directors and Century Club Plan unit awards to
AllianceBernstein mutual fund sales personnel. In 2006, AllianceBernstein issued
units to certain deferred compensation plan participants due to conversion of a
deferred compensation plan feature.
6.
|
Income
Taxes
|
Holding
is a publicly traded partnership for federal tax purposes and, accordingly, is
not subject to federal or state corporate income taxes. However, Holding is
subject to the 4.0% New York City unincorporated business tax (“UBT”), net of
credits for UBT paid by AllianceBernstein, and to a 3.5% federal tax on
partnership gross income from the active conduct of a trade or business.
Holding’s partnership gross income is derived from its interest in
AllianceBernstein.
The
principal reasons for the difference between Holding’s effective tax rates and
the UBT statutory tax rate of 4.0% are as follows:
Years Ended December 31,
|
||||||||||||||||||||||||
2007
|
2006
|
2005
|
||||||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||
UBT
statutory rate
|
$ | 16,610 | 4.0 | % | $ | 14,379 | 4.0 | % | $ | 11,002 | 4.0 | % | ||||||||||||
Federal
tax on partnership gross business income income
|
39,104 | 9.4 | 34,473 | 9.6 | 26,990 | 9.8 | ||||||||||||||||||
Credit
for UBT paid by AllianceBernstein
|
(16,610 | ) | (4.0 | ) | (14,379 | ) | (4.0 | ) | (11,002 | ) | (4.0 | ) | ||||||||||||
Income
tax expense (all currently payable) and effective tax rate
|
$ | 39,104 | 9.4 | $ | 34,473 | 9.6 | $ | 26,990 | 9.8 |
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 “Business - Taxes” in Item
1 and “Risk Factors” in Item 1A.
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 December 31,
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.
We are 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.
7.
|
Commitments
and Contingencies
|
Legal and
regulatory matters described below pertain to AllianceBernstein and are included
here due to their potential significance to Holding’s investment in
AllianceBernstein.
Legal
Proceedings
With
respect to all significant litigation matters, we consider the likelihood of a
negative outcome. If we determine the likelihood of a negative outcome is
probable, and the amount of the loss can be reasonably estimated, we record an
estimated loss for the expected outcome of the litigation as required by
Statement of Financial Accounting Standards No. 5, “Accounting for
Contingencies”, and FASB Interpretation No. 14, “Reasonable Estimation of the Amount
of a Loss – an interpretation of FASB Statement No. 5”. If the
likelihood of a negative outcome is reasonably possible and we are able to
determine an estimate of the possible loss or range of loss, we disclose that
fact together with the estimate of the possible loss or range of loss. However,
it is difficult to predict the outcome or estimate a possible loss or range of
loss because litigation is subject to inherent uncertainties, particularly when
plaintiffs allege substantial or indeterminate damages, or when the litigation
is highly complex or broad in scope.
On
October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein
Growth & Income Fund, et al.
(“Hindo Complaint”) was filed against, among others, AllianceBernstein, Holding,
and the General Partner. The Hindo Complaint alleges that certain defendants
failed to disclose that they improperly allowed certain hedge funds and other
unidentified parties to engage in “late trading” and “market timing” of certain
of our U.S. mutual fund securities, violating various securities
laws.
Following
October 2, 2003, additional lawsuits making factual allegations generally
similar to those in the Hindo Complaint were filed in various federal and state
courts against AllianceBernstein and certain other defendants. On
September 29, 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of Holding; and claims
brought under the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) by participants in the Profit Sharing Plan for Employees of
AllianceBernstein.
On
April 21, 2006, AllianceBernstein and attorneys for the plaintiffs in the
mutual fund shareholder claims, mutual fund derivative claims, and ERISA claims
entered into a confidential memorandum of understanding containing their
agreement to settle these claims. The agreement will be documented by a
stipulation of settlement and will be submitted for court approval at a later
date. The settlement amount ($30 million), which we previously 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.
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.
Claims
Processing Contingency
During
the fourth quarter of 2006, AllianceBernstein recorded a $56.0 million pre-tax
charge ($54.5 million, net of related income tax benefit) for the estimated cost
of reimbursing certain clients for losses arising out of an error
AllianceBernstein made in processing claims for class action settlement proceeds
on behalf of these clients, which include some AllianceBernstein-sponsored
mutual funds. We believe that most of this cost will ultimately be recovered
from residual settlement proceeds and insurance. Our fourth quarter 2006 cash
distribution was declared by the Board of Directors prior to recognition of this
adjustment. As a result, to the extent that all or a portion of the cost is
recovered in subsequent periods, we do not intend to include recoveries in
Available Cash Flow (as defined in the AllianceBernstein Partnership Agreement),
and would not distribute those amounts to unitholders. During 2007,
AllianceBernstein recorded an additional $0.7 million expense relating to this
matter and paid $45.5 million to clients. As of December 31, 2007,
AllianceBernstein had $11.2 million remaining in accrued
expenses.
8.
Quarterly Financial Data (Unaudited)
Quarters
Ended 2007
|
||||||||||||||||
December
31
|
September
30
|
June
30
|
March
31
|
|||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||
Equity
in earnings of AllianceBernstein
|
$ | 102,299 | $ | 114,856 | $ | 110,267 | $ | 87,834 | ||||||||
Net
income
|
$ | 92,152 | $ | 104,828 | $ | 100,647 | $ | 78,525 | ||||||||
Basic
net income per unit(1)
|
$ | 1.06 | $ | 1.21 | $ | 1.17 | $ | 0.91 | ||||||||
Diluted
net income per unit(1)
|
$ | 1.06 | $ | 1.20 | $ | 1.16 | $ | 0.91 | ||||||||
Cash
distributions per unit(2)
|
$ | 1.06 | $ | 1.20 | $ | 1.16 | $ | 0.91 |
Quarters
Ended 2006
|
||||||||||||||||
December
31
|
September
30
|
June
30
|
March
31
|
|||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||
Equity
in earnings of AllianceBernstein
|
$ | 119,763 | $ | 82,028 | $ | 84,514 | $ | 73,164 | ||||||||
Net
income(3)
|
$ | 109,429 | $ | 74,003 | $ | 76,005 | $ | 65,559 | ||||||||
Basic
net income per unit(1)
(3)
|
$ | 1.28 | $ | 0.88 | $ | 0.90 | $ | 0.79 | ||||||||
Diluted
net income per unit(1)
(3)
|
$ | 1.27 | $ | 0.87 | $ | 0.89 | $ | 0.78 | ||||||||
Cash
distributions per unit(2)
(3)
|
$ | 1.48 | $ | 0.87 | $ | 0.89 | $ | 0.78 |
(1)
|
Basic
and diluted net income per unit are computed independently for each of the
periods presented. Accordingly, the sum of the quarterly net
income per unit amounts may not agree to the total for the
year.
|
(2)
|
Declared
and paid during the following
quarter.
|
(3)
|
During
the fourth quarter of 2006, AllianceBernstein recorded a $56.0 million
pre-tax charge ($54.5 million, net of related income tax benefit) for the
estimated cost of reimbursing certain clients for losses arising out of an
error AllianceBernstein made in processing claims for class action
settlement proceeds on behalf of these clients, which include some
AllianceBernstein-sponsored mutual funds. The effect of the charge and
related income tax benefit on Holding’s 2006 results of operations was a
decrease in net income and net income per unit of $17.8 million and $0.20,
respectively. We believe that most of this cost will ultimately be
recovered from residual settlement proceeds and insurance. Our fourth
quarter 2006 cash distribution was declared by the Board of Directors
prior to recognition of this adjustment. As a result, to the extent that
all or a portion of the cost is recovered in subsequent periods, we do not
intend to include recoveries in Available Cash Flow (as defined in the
AllianceBernstein Partnership Agreement), and would not distribute those
amounts to unitholders.
|
Report
of Independent Registered Public Accounting Firm
To the
General Partner and Unitholders
AllianceBernstein
Holding L.P.:
In our
opinion, the accompanying statement of financial condition and the related
statements of income, changes in partners' capital and comprehensive income and
cash flows present fairly, in all material respects, the financial position of
AllianceBernstein Holding L.P. (“AllianceBernstein Holding”) at December 31,
2007 and 2006, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, AllianceBernstein Holding maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). AllianceBernstein Holding's management is
responsible for these financial statements and for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Management's Report on Internal
Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements and on
AllianceBernstein Holding’s internal control over financial reporting based on
our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
New York,
New York
February
22, 2008
Report
of Independent Registered Public Accounting Firm
The
General Partner and Unitholders
AllianceBernstein
Holding L.P.:
We have
audited the accompanying statements of income, changes in partners’ capital and
comprehensive income and cash flows for the year ended December 31, 2005 of
AllianceBernstein Holding L.P. (“AllianceBernstein Holding”), formerly Alliance
Capital Management Holding L.P. These financial statements are the
responsibility of the management of the General Partner. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of AllianceBernstein
Holding for the year ended December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
/s/
KPMG LLP
|
|
New
York, New York
|
|
February
24, 2006
|
ALLIANCEBERNSTEIN L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Financial Condition
December 31,
|
||||||||
2007
|
2006
|
|||||||
(in
thousands, except unit amounts)
|
||||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 576,416 | $ | 546,777 | ||||
Cash
and securities segregated, at market (cost $2,366,925 and
$2,009,014)
|
2,370,019 | 2,009,838 | ||||||
Receivables,
net:
|
||||||||
Brokers
and dealers
|
493,873 | 2,445,552 | ||||||
Brokerage
clients
|
410,074 | 485,446 | ||||||
Fees,
net
|
729,636 | 557,280 | ||||||
Investments
|
620,275 | 543,653 | ||||||
Furniture,
equipment and leasehold improvements, net
|
367,279 | 288,575 | ||||||
Goodwill,
net
|
2,893,029 | 2,893,029 | ||||||
Intangible
assets, net
|
264,209 | 284,925 | ||||||
Deferred
sales commissions, net
|
183,571 | 194,950 | ||||||
Other
investments
|
294,806 | 203,950 | ||||||
Other
assets
|
165,567 | 147,130 | ||||||
Total
assets
|
$ | 9,368,754 | $ | 10,601,105 | ||||
LIABILITIES
AND PARTNERS’ CAPITAL
|
||||||||
Liabilities:
|
||||||||
Payables:
|
||||||||
Brokers
and dealers
|
$ | 161,387 | $ | 661,790 | ||||
Brokerage
clients
|
2,728,271 | 3,988,032 | ||||||
AllianceBernstein
mutual funds
|
408,185 | 266,849 | ||||||
Accounts
payable and accrued expenses
|
389,300 | 333,007 | ||||||
Accrued
compensation and benefits
|
458,861 | 392,014 | ||||||
Debt
|
533,872 | 334,901 | ||||||
Minority
interests in consolidated subsidiaries
|
147,652 | 53,515 | ||||||
Total
liabilities
|
4,827,528 | 6,030,108 | ||||||
Commitments
and contingencies (See
Note 11)
|
||||||||
Partners’
capital:
|
||||||||
General
Partner
|
45,932 | 46,416 | ||||||
Limited
partners: 260,341,992 and 259,062,014 units issued and
outstanding
|
4,526,126 | 4,584,200 | ||||||
4,572,058 | 4,630,616 | |||||||
Capital
contributions receivable from General Partner
|
(26,436 | ) | (29,590 | ) | ||||
Deferred
compensation expense
|
(57,501 | ) | (63,196 | ) | ||||
Accumulated
other comprehensive income
|
53,105 | 33,167 | ||||||
Total
partners’ capital
|
4,541,226 | 4,570,997 | ||||||
Total
liabilities and partners’ capital
|
$ | 9,368,754 | $ | 10,601,105 |
See
Accompanying Notes to Consolidated Financial Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Income
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Revenues:
|
||||||||||||
Investment
advisory and services fees
|
$ | 3,386,188 | $ | 2,890,229 | $ | 2,259,392 | ||||||
Distribution
revenues
|
473,435 | 421,045 | 397,800 | |||||||||
Institutional
research services
|
423,553 | 375,075 | 352,757 | |||||||||
Dividend
and interest income
|
284,014 | 266,520 | 152,781 | |||||||||
Investment
gains (losses)
|
29,690 | 62,200 | 29,070 | |||||||||
Other
revenues
|
122,869 | 123,171 | 116,788 | |||||||||
Total
revenues
|
4,719,749 | 4,138,240 | 3,308,588 | |||||||||
Less:
Interest expense
|
194,432 | 187,833 | 95,863 | |||||||||
Net
revenues
|
4,525,317 | 3,950,407 | 3,212,725 | |||||||||
Expenses:
|
||||||||||||
Employee
compensation and benefits
|
1,833,796 | 1,547,627 | 1,262,198 | |||||||||
Promotion
and servicing:
|
||||||||||||
Distribution
plan payments
|
335,132 | 292,886 | 291,953 | |||||||||
Amortization
of deferred sales commissions
|
95,481 | 100,370 | 131,979 | |||||||||
Other
|
252,468 | 218,944 | 198,004 | |||||||||
General
and administrative
|
591,221 | 583,296 | 384,339 | |||||||||
Interest
on borrowings
|
23,970 | 23,124 | 25,109 | |||||||||
Amortization
of intangible assets
|
20,716 | 20,710 | 20,700 | |||||||||
3,152,784 | 2,786,957 | 2,314,282 | ||||||||||
Operating
income
|
1,372,533 | 1,163,450 | 898,443 | |||||||||
Non-operating
income
|
15,756 | 20,196 | 34,446 | |||||||||
Income
before income taxes
|
1,388,289 | 1,183,646 | 932,889 | |||||||||
Income
taxes
|
127,845 | 75,045 | 64,571 | |||||||||
Net
income
|
$ | 1,260,444 | $ | 1,108,601 | $ | 868,318 | ||||||
Net
income per unit:
|
||||||||||||
Basic
|
$ | 4.80 | $ | 4.26 | $ | 3.37 | ||||||
Diluted
|
$ | 4.77 | $ | 4.22 | $ | 3.35 |
See
Accompanying Notes to Consolidated Financial Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Changes in Partners’ Capital and Comprehensive Income
General
Partner’s
Capital
|
Limited
Partners’
Capital
|
Capital
Contributions
Receivable
|
Deferred
Compensation
Expense
|
Accumulated
Other
Comprehensive
Income
|
Total
Partners’
Capital
|
|||||||||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||||||||||
Balance
as of December 31, 2004
|
$ | 42,917 | $ | 4,220,753 | $ | (33,053 | ) | $ | (89,019 | ) | $ | 42,100 | $ | 4,183,698 | ||||||||||
Comprehensive
income (loss):
|
||||||||||||||||||||||||
Net
income
|
8,683 | 859,635 | — | — | — | 868,318 | ||||||||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||
Unrealized
gain (loss) on investments
|
— | — | — | — | 1,985 | 1,985 | ||||||||||||||||||
Foreign
currency translation adjustment
|
— | — | — | — | (20,013 | ) | (20,013 | ) | ||||||||||||||||
Comprehensive
income (loss)
|
8,683 | 859,635 | — | — | (18,028 | ) | 850,290 | |||||||||||||||||
Cash
distributions to General Partner and unitholders ($3.11 per
unit)
|
(8,005 | ) | (792,504 | ) | — | — | — | (800,509 | ) | |||||||||||||||
Capital
contributions from General Partner
|
— | — | 4,191 | — | — | 4,191 | ||||||||||||||||||
Purchases
of Holding Units to fund deferred compensation plans, net
|
16 | (733 | ) | — | (32,536 | ) | — | (33,253 | ) | |||||||||||||||
Compensatory
Holding Unit options expense
|
— | 2,192 | — | — | — | 2,192 | ||||||||||||||||||
Amortization
of deferred compensation awards
|
— | — | — | 53,660 | — | 53,660 | ||||||||||||||||||
Compensation
plan accrual
|
29 | 2,884 | (2,913 | ) | — | — | — | |||||||||||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
425 | 41,980 | — | — | — | 42,405 | ||||||||||||||||||
Balance
as of December 31, 2005
|
44,065 | 4,334,207 | (31,775 | ) | (67,895 | ) | 24,072 | 4,302,674 | ||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||
Net
income
|
11,086 | 1,097,515 | — | — | — | 1,108,601 | ||||||||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||
Unrealized
gain (loss) on investments
|
— | — | — | — | 5,198 | 5,198 | ||||||||||||||||||
Foreign
currency translation adjustment
|
— | — | — | — | 10,821 | 10,821 | ||||||||||||||||||
Comprehensive
income
|
11,086 | 1,097,515 | — | — | 16,019 | 1,124,620 | ||||||||||||||||||
Adjustment
to initially apply FASB Statement No. 158, net
|
— | — | — | — | (6,924 | ) | (6,924 | ) | ||||||||||||||||
Cash
distributions to General Partner and unitholders ($3.94 per
unit)
|
(10,255 | ) | (1,015,206 | ) | — | — | — | (1,025,461 | ) | |||||||||||||||
Capital
contributions from General Partner
|
— | — | 4,303 | — | — | 4,303 | ||||||||||||||||||
Purchases
of Holding Units to fund deferred compensation plans, net
|
23 | 16,734 | — | (39,102 | ) | — | (22,345 | ) | ||||||||||||||||
Additional
investment by Holding through issuance of Holding Units in exchange for
cash awards made under the Partners Compensation Plan
|
471 | 46,690 | — | — | — | 47,161 | ||||||||||||||||||
Compensatory
Holding Unit options expense
|
— | 2,699 | — | — | — | 2,699 | ||||||||||||||||||
Amortization
of deferred compensation awards
|
— | — | — | 43,801 | — | 43,801 | ||||||||||||||||||
Compensation
plan accrual
|
21 | 2,097 | (2,118 | ) | — | — | — | |||||||||||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
1,005 | 99,464 | — | — | — | 100,469 | ||||||||||||||||||
Balance
as of December 31, 2006
|
46,416 | 4,584,200 | (29,590 | ) | (63,196 | ) | 33,167 | 4,570,997 | ||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||
Net
income
|
12,605 | 1,247,839 | — | — | — | 1,260,444 | ||||||||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||
Unrealized
gain (loss) on investments
|
— | — | — | — | (8,859 | ) | (8,859 | ) | ||||||||||||||||
Foreign
currency translation adjustment
|
— | — | — | — | 18,757 | 18,757 | ||||||||||||||||||
Changes
in retirement plan related items
|
— | — | — | — | 10,040 | 10,040 | ||||||||||||||||||
Comprehensive
income
|
12,605 | 1,247,839 | — | — | 19,938 | 1,280,382 | ||||||||||||||||||
Cash
distributions to General Partner and unitholders ($5.20 per
unit)
|
(13,646 | ) | (1,350,965 | ) | — | — | — | (1,364,611 | ) | |||||||||||||||
Capital
contributions from General Partner
|
— | — | 4,854 | — | — | 4,854 | ||||||||||||||||||
Purchases
of Holding Units to fund deferred compensation plans, net
|
35 | (12,566 | ) | — | (38,322 | ) | — | (50,853 | ) | |||||||||||||||
Compensatory
Holding Unit options expense
|
— | 5,947 | — | — | — | 5,947 | ||||||||||||||||||
Amortization
of deferred compensation awards
|
— | — | — | 44,017 | — | 44,017 | ||||||||||||||||||
Compensation
plan accrual
|
17 | 1,683 | (1,700 | ) | — | — | — | |||||||||||||||||
Impact
of initial adoption of FIN 48
|
4 | 438 | — | — | — | 442 | ||||||||||||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
501 | 49,550 | — | — | — | 50,051 | ||||||||||||||||||
Balance
as of December 31, 2007
|
$ | 45,932 | $ | 4,526,126 | $ | (26,436 | ) | $ | (57,501 | ) | $ | 53,105 | $ | 4,541,226 |
See
Accompanying Notes to Consolidated Financial Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in
thousands)
|
||||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 1,260,444 | $ | 1,108,601 | $ | 868,318 | ||||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
Amortization
of deferred sales commissions
|
95,481 | 100,370 | 131,979 | |||||||||
Amortization
of non-cash deferred compensation
|
49,815 | 46,500 | 55,852 | |||||||||
Depreciation
and other amortization
|
102,394 | 72,445 | 67,980 | |||||||||
Other,
net
|
31,484 | (19,898 | ) | (14,774 | ) | |||||||
Changes
in assets and liabilities:
|
||||||||||||
(Increase)
in segregated cash and securities
|
(360,181 | ) | (245,077 | ) | (239,934 | ) | ||||||
Decrease
(increase) in receivable from brokers and dealers
|
1,955,260 | (324,640 | ) | (605,389 | ) | |||||||
Decrease
(increase) in receivable from brokerage clients
|
77,052 | (31,974 | ) | (90,453 | ) | |||||||
(Increase)
in fees receivable, net
|
(161,174 | ) | (135,821 | ) | (65,861 | ) | ||||||
(Increase)
in trading investments
|
(144,443 | ) | (125,121 | ) | (135,121 | ) | ||||||
(Increase)
in deferred sales commissions
|
(84,101 | ) | (98,679 | ) | (74,161 | ) | ||||||
(Increase)
in other investments
|
(67,466 | ) | (115,317 | ) | (23,045 | ) | ||||||
(Increase)
in other assets
|
(14,648 | ) | (9,638 | ) | (27,645 | ) | ||||||
(Decrease)
increase in payable to brokers and dealers
|
(500,869 | ) | (422,492 | ) | 279,926 | |||||||
(Decrease)
increase in payable to brokerage clients
|
(1,266,050 | ) | 1,035,367 | 268,608 | ||||||||
Increase
in payable to AllianceBernstein mutual funds
|
141,336 | 126,236 | 14,966 | |||||||||
Increase
in accounts payable and accrued expenses
|
25,370 | 41,290 | 15,225 | |||||||||
Increase
in accrued compensation and benefits
|
75,477 | 69,330 | 33,512 | |||||||||
Increase
(decrease) in minority interests in consolidated
subsidiaries
|
76,249 | 32,454 | (7,883 | ) | ||||||||
Net
cash provided by operating activities
|
1,291,430 | 1,103,936 | 452,100 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of investments
|
(25,932 | ) | (54,803 | ) | (7,380 | ) | ||||||
Proceeds
from sales of investments
|
52,393 | 12,812 | 12,717 | |||||||||
Additions
to furniture, equipment and leasehold improvements
|
(137,547 | ) | (97,073 | ) | (72,586 | ) | ||||||
Purchase
of business, net of cash acquired
|
— | (16,086 | ) | — | ||||||||
Net
cash used in investing activities
|
(111,086 | ) | (155,150 | ) | (67,249 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Issuance
(repayment) of commercial paper, net
|
175,750 | 328,119 | (150 | ) | ||||||||
Repayment
of long-term debt
|
— | (408,149 | ) | — | ||||||||
Increase
(decrease) in overdrafts payable
|
23,321 | (1,575 | ) | (184 | ) | |||||||
Cash
distributions to General Partner and unitholders
|
(1,364,611 | ) | (1,025,461 | ) | (800,509 | ) | ||||||
Capital
contributions from General Partner
|
4,854 | 4,303 | 4,191 | |||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
50,051 | 100,469 | 42,405 | |||||||||
Purchases
of Holding Units to fund deferred compensation plans, net
|
(50,853 | ) | (22,345 | ) | (33,253 | ) | ||||||
Net
cash used in financing activities
|
(1,161,488 | ) | (1,024,639 | ) | (787,500 | ) | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
10,783 | 12,414 | (12,872 | ) | ||||||||
Net
increase (decrease) in cash and cash equivalents
|
29,639 | (63,439 | ) | (415,521 | ) | |||||||
Cash
and cash equivalents as of beginning of the period
|
546,777 | 610,216 | 1,025,737 | |||||||||
Cash
and cash equivalents as of end of the period
|
$ | 576,416 | $ | 546,777 | $ | 610,216 | ||||||
Cash
paid:
|
||||||||||||
Interest
|
$ | 218,398 | $ | 229,009 | $ | 122,152 | ||||||
Income
taxes
|
87,329 | 59,704 | 56,521 | |||||||||
Non-cash
financing activities:
|
||||||||||||
Additional
investment by Holding through issuance of Holding Units in exchange for
cash awards made under the Partners Compensation Plan
|
— | 47,161 | — |
See
Accompanying Notes to Consolidated Financial Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
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.
|
Business Description and
Organization
|
AllianceBernstein
provides research, diversified investment management, and related services
globally to a broad range of clients. Its principal services
include:
|
•
|
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, collective investment
trusts, mutual funds, hedge funds, and other investment
vehicles.
|
|
•
|
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 sponsored by financial intermediaries worldwide, and
other investment vehicles.
|
|
•
|
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.
|
|
•
|
Institutional Research Services -
servicing institutional investors seeking independent research, portfolio
strategy, and brokerage-related
services.
|
We also
provide distribution, shareholder servicing, and administrative services to the
mutual funds we sponsor.
We
provide a broad range of services with expertise in:
|
•
|
Value
equities, generally targeting stocks that are out of favor and that may
trade at bargain prices;
|
|
•
|
Growth equities, generally
targeting stocks with under-appreciated growth
potential;
|
|
•
|
Fixed income securities,
including both taxable and tax-exempt
securities;
|
|
•
|
Blend strategies, combining
style-pure investment components with systematic
rebalancing;
|
|
•
|
Passive
management, including both index and enhanced index
strategies;
|
|
•
|
Alternative
investments, such as hedge funds, currency management, and venture
capital; and
|
|
•
|
Asset
allocation, by which we offer specifically-tailored investment solutions
for our clients (e.g., customized target date fund retirement services for
institutional defined contribution
clients).
|
We manage
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.
Our
independent research is the foundation of our business. Our research disciplines
include fundamental research, quantitative research, economic research, and
currency forecasting capabilities. In addition, we have created several
specialized research units, including one unit that examines global strategic
changes that can affect multiple industries and geographies, and another
dedicated to identifying potentially successful innovations within early-stage
companies.
As of
December 31, 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 units
representing assignments of beneficial ownership of limited partnership
interests in Holding (“Holding Units”).
As of
December 31, 2007, the ownership structure of AllianceBernstein, as a percentage
of general and limited partnership interests, was as follows:
AXA
and its subsidiaries
|
62.6
|
%
|
||
Holding
|
33.1
|
|||
SCB
Partners Inc. (a wholly-owned subsidiary of SCB Inc.; formerly known as
Sanford C. Bernstein Inc.)
|
3.1
|
|||
Other
|
1.2
|
|||
100.0
|
%
|
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 December 31, 2007, AXA and its subsidiaries had an approximate
63.2% economic interest in AllianceBernstein.
2.
|
Summary of Significant Accounting
Policies
|
Basis
of Presentation
The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Principles
of Consolidation
The
consolidated financial statements include AllianceBernstein and its
majority-owned and/or controlled subsidiaries. All significant inter-company
transactions and balances among the consolidated entities have been
eliminated.
Variable
Interest Entities
In
accordance with Financial Accounting Standards Board (“FASB”) Interpretation No.
46 (revised December 2003) (“FIN 46-R”), “Consolidation of Variable Interest
Entities”, management reviews quarterly its management agreements and its
investments in, and other financial arrangements with, certain entities that
hold client assets under management to determine the entities that the company
is required to consolidate under FIN 46-R. These include certain mutual fund
products, hedge funds, structured products, group trusts, collective investment
trusts, and limited partnerships.
We earn
investment management fees on client assets under management of these entities,
but we derive no other benefit from these assets and cannot use them in our
operations.
As of
December 31, 2007, we have significant variable interests in certain structured
products and hedge funds with approximately $180.3 million in client assets
under management. However, these variable interest entities do not require
consolidation because management has determined that we are not the primary
beneficiary of the expected losses or expected residual returns of these
entities. Our maximum exposure to loss in these entities is limited to our
investment of $0.2 million in these entities.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash on hand, demand deposits, money market accounts,
overnight commercial paper, and highly liquid investments with actual maturities
of three months or less. Due to the short-term nature of these instruments, the
recorded value has been determined to approximate fair value.
Fees
Receivable, Net
Fees
receivable are shown net of allowances. An allowance for doubtful accounts
related to investment advisory and services fees is determined through an
analysis of the aging of receivables, assessments of collectibility based on
historical trends and other qualitative and quantitative factors, including the
following: our relationship with the client, the financial health (or ability to
pay) of the client, current economic conditions, and whether the account is
closed or active.
Collateralized
Securities Transactions
Customers’
securities transactions are recorded on a settlement date basis, with related
commission income and expenses reported on a trade date basis. Receivables from
and payables to customers include amounts due on cash and margin transactions.
Securities owned by customers are held as collateral for receivables; collateral
is not reflected in the consolidated financial statements. Principal securities
transactions and related expenses are recorded on a trade date
basis.
Sanford
C. Bernstein & Co., LLC (“SCB LLC”) and Sanford C. Bernstein Limited
(“SCBL”), both wholly-owned subsidiaries, account for transfers of financial
assets in accordance with Statement of Financial Accounting Standards No. 140,
“Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities”.
Securities borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received in connection with the transaction and are
included in receivables from and payables to brokers and dealers in the
consolidated statements of financial condition. Securities borrowed transactions
require SCB LLC and SCBL to deposit cash collateral with the lender. With
respect to securities loaned, SCB LLC and SCBL receive cash collateral from the
borrower. The initial collateral advanced or received approximates or is greater
than the fair value of securities borrowed or loaned. SCB LLC and SCBL monitor
the fair value of the securities borrowed and loaned on a daily basis and
request additional collateral or return excess collateral, as appropriate.
Income or expense is recognized over the life of the transactions.
Investments
Investments,
principally investments in United States Treasury Bills and unconsolidated
company-sponsored mutual funds, are classified as either trading or
available-for-sale securities. The trading investments are stated at fair value,
based on quoted market prices, with unrealized gains and losses reported in
net income. Available-for-sale investments are stated at fair value, based on
quoted market prices, with unrealized gains and losses reported as a
separate component of accumulated other comprehensive income in partners’
capital. Realized gains and losses on the sale of investments are included in
income in the current period. The specific identified cost method is used to
determine the realized gain or loss on investments sold.
The
valuation of non-public private equity investments, held by a consolidated
venture capital fund we sponsor, requires significant management judgment due to
the absence of quoted market prices, inherent lack of liquidity, and the
long-term nature of such investments. Private equity investments are
valued initially based on transaction price. The carrying values of
private equity investments are adjusted either up or down from the transaction
price to reflect expected exit values as evidenced by financing and sale
transactions with third parties, or when determination of a valuation adjustment
is confirmed through our ongoing review in accordance with our valuation
policies and procedures. A variety of factors are reviewed and
monitored to assess positive and negative changes in valuation including current
operating performance and future expectations of the investment, industry
valuations of comparable public companies, changes in market outlook, and the
third party financing environment over time. In determining valuation
adjustments resulting from the investment review process, emphasis is placed on
current company performance and market conditions. These
investments are included in other investments on the consolidated
statements of financial condition and are stated at fair value with unrealized
gains and losses reported in investment gains and losses on the consolidated
statements of income.
The
equity method of accounting is used for unconsolidated joint ventures and, in
accordance with Emerging Issues Task Force D-46, “Accounting for Limited Partnership
Investments”, for investments made in limited partnership hedge funds
that we sponsor and manage. These investments are included in other investments
on the consolidated statements of financial position. Our equity in
earnings of the unconsolidated joint ventures are included in other revenues,
and our equity in earnings related to our limited partnership hedge fund
investments are included in investment gains and losses on the consolidated
statements of income.
Furniture,
Equipment and Leasehold Improvements, Net
Furniture,
equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation is recognized on a straight-line
basis over the estimated useful lives of eight years for furniture and three to
six years for equipment and software. Leasehold improvements are amortized on a
straight-line basis over the lesser of their estimated useful lives or the terms
of the related leases.
Goodwill,
Net
On
October 2, 2000, AllianceBernstein acquired the business and assets of SCB
Inc., an investment research and management company formerly known as Sanford C.
Bernstein Inc. (“Bernstein”), and assumed the liabilities of Bernstein
(“Bernstein Transaction”). The purchase price consisted of a cash payment of
approximately $1.5 billion and 40.8 million newly-issued units of limited
partnership interest in AllianceBernstein (“AllianceBernstein
Units”).
The
Bernstein Transaction was accounted for under the purchase method and the cost
of the acquisition was allocated on the basis of the estimated fair value of the
assets acquired and the liabilities assumed. The excess of the purchase price
over the fair value of identifiable assets acquired resulted in the recognition
of goodwill of approximately $3.0 billion.
In
accordance with Statement of Financial Accounting Standards No. 142 (“SFAS No.
142”), “Goodwill and Other
Intangible Assets”, we test goodwill at least annually, as of September
30, for impairment. As of September 30, 2007, the impairment test indicated that
goodwill was not impaired. Also, as of December 31, 2007, management believes
that goodwill was not impaired.
Intangible
Assets, Net
Intangible
assets consist primarily of costs assigned to investment management contracts of
SCB Inc., less accumulated amortization. Intangible assets are being amortized
over the estimated useful life of approximately 20 years. The gross carrying
amount of intangible assets subject to amortization totaled $414.3 million as of
December 31, 2007 and 2006, and accumulated amortization was $150.1 million
as of December 31, 2007 and $129.4 million as of December 31, 2006,
resulting in the net carrying amount of intangible assets subject to
amortization of $264.2 million as of December 31, 2007 and $284.9 million as of
December 31, 2006. Amortization expense was $20.7 million for each of the
years ended December 31, 2007, 2006, and 2005, and estimated amortization
expense for each of the next five years is approximately $20.7 million.
Management tests intangible assets for impairment quarterly. Management believes
that intangible assets were not impaired as of December 31, 2007.
Deferred
Sales Commissions, Net
We pay
commissions to financial intermediaries in connection with the sale of shares of
open-end company-sponsored mutual funds sold without a front-end sales charge
(“back-end load shares”). These commissions are capitalized as deferred sales
commissions and amortized over periods not exceeding five and one-half years for
U.S. fund shares and four years for non-U.S. fund shares, the periods of time
during which deferred sales commissions are generally recovered. We recover
these commissions from distribution services fees received from those funds and
from contingent deferred sales commissions (“CDSC”) received from shareholders
of those funds upon the redemption of their shares. CDSC cash recoveries are
recorded as reductions of unamortized deferred sales commissions when received.
Management tests the deferred sales commission asset for recoverability
quarterly and determined that the balance as of December 31, 2007 was not
impaired.
Loss
Contingencies – Legal Proceedings
With
respect to all significant litigation matters, we consider the likelihood of a
negative outcome. If we determine the likelihood of a negative outcome is
probable, and the amount of the loss can be reasonably estimated, we record an
estimated loss for the expected outcome of the litigation as required by
Statement of Financial Accounting Standards No. 5, “Accounting for
Contingencies”, and FASB Interpretation No. 14, “Reasonable Estimation of the Amount
of a Loss - an interpretation of FASB Statement No. 5”. If the likelihood of a
negative outcome is reasonably possible and we are able to determine an estimate
of the possible loss or range of loss, we disclose that fact together with the
estimate of the possible loss or range of loss. However, it is difficult to
predict the outcome or estimate a possible loss or range of loss because
litigation is subject to inherent uncertainties, particularly when plaintiffs
allege substantial or indeterminate damages, or when the litigation is highly
complex or broad in scope.
Revenue
Recognition
Investment
advisory and services base fees, generally calculated as a percentage of assets
under management, are recorded as revenue as the related services are performed.
Certain investment advisory contracts, including those with hedge funds, provide
for a performance-based fee, in addition to or in lieu of a base fee, which is
calculated as either a percentage of absolute investment results or a percentage
of investment results in excess of a stated benchmark over a specified period of
time. Performance-based fees are recorded as revenue at the end of each
measurement period (generally year-end).
Institutional research services revenue
consists of brokerage transaction charges received by SCB LLC and SCBL for in-depth research and
brokerage-related services provided to institutional investors. Brokerage
transaction charges earned and related expenses are recorded on a trade date
basis. Distribution revenues, shareholder servicing fees, and interest income
are accrued as earned.
Mutual
Fund Underwriting Activities
Purchases
and sales of shares of company-sponsored mutual funds in connection with the
underwriting activities of our subsidiaries, including related commission
income, are recorded on trade date. Receivables from brokers and dealers for
sale of shares of company-sponsored mutual funds are generally realized within
three business days from trade date, in conjunction with the settlement of the
related payables to company-sponsored mutual funds for share purchases.
Distribution plan and other promotion and servicing payments are recognized as
an expense when incurred.
Deferred
Compensation Plans
We
maintain several unfunded, non-qualified deferred compensation plans under which
annual awards to employees are generally made in the fourth quarter.
Participants allocate their awards among notional investments in Holding Units,
certain of the investment services we provide to our clients, or a money market
fund, or investments in options to buy Holding Units. We typically purchase the
investments that are notionally elected by the participants and hold such
investments, which are classified as trading securities, in a consolidated rabbi
trust. Vesting periods for annual awards range from four years to immediate,
depending on the terms of the individual awards, the age of the participants,
or, in the case of our Chairman and CEO, the terms of his employment agreement.
Upon vesting, awards are distributed to participants unless they have 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 of 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.
Compensation
expense for awards under the plans, including changes in participant account
balances resulting from gains and losses on notional investments (other than in
Holding Units), is recognized on a straight-line basis over the applicable
vesting periods. Mark-to-market gains or losses on notional investments (other
than in Holding Units) are recognized currently as investment gains (losses) in
the consolidated statements of income. In addition, our equity in the earnings
of investments in limited partnership hedge funds is recognized currently as
investment gains (losses) in the consolidated statements of income.
Compensatory
Option Plans
In
December 2004, the FASB issued Statement of Financial Accounting Standards No.
123 (revised 2004) (“SFAS No. 123-R”), “Share Based Payment”. SFAS
No. 123-R requires that compensation cost related to share-based payments, based
on the fair value of the equity instruments issued, be recognized in financial
statements. SFAS No. 123-R supersedes Accounting Principles Board Opinion No. 25
(“APB No. 25”), “Accounting
for Stock Issued to Employees”, and its related implementation guidance.
We adopted SFAS No. 123-R effective January 1, 2006 utilizing the modified
prospective method. Prior period amounts have not been restated.
Prior to
January 1, 2006, we utilized the fair value method of recording compensation
expense (including a straight-line amortization policy), related to compensatory
option awards of Holding Units granted subsequent to 2001, as permitted by
Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based
Compensation”, as amended by Statement of Financial Accounting Standards
No. 148, “Accounting for
Stock-Based Compensation—Transition and Disclosure”. Under the fair value
method, compensation expense is measured at the grant date based on the
estimated fair value of the award (determined using the Black-Scholes option
valuation model) and is recognized over the vesting period.
For
compensatory option awards granted prior to 2002, we applied the provisions of
APB No. 25, under which compensation expense is recognized only if the market
value of the underlying Holding Units exceeds the exercise price at the date of
grant. We did not record compensation expense for compensatory option awards
made prior to 2002 because those options were granted with exercise prices equal
to the market value of the underlying Holding Units on the date of grant. Had we
recorded compensation expense for those options based on their fair value at
grant date under SFAS No. 123, net income for the year ended December 31, 2005
would have been reduced to the pro forma amounts indicated below (in thousands,
except per unit amounts):
SFAS
No. 123 pro forma net income:
|
||||
Net
income as reported
|
$
|
868,318
|
||
Add:
stock-based compensation expense included in net income, net of
tax
|
2,040
|
|||
Deduct:
total stock-based compensation expense determined under fair value method
for all awards, net of tax
|
(3,918
|
)
|
||
SFAS
No. 123 pro forma net income
|
$
|
866,440
|
||
Net
income per unit:
|
||||
Basic
net income per unit as reported
|
$
|
3.37
|
||
Basic
net income per unit pro forma
|
$
|
3.37
|
||
Diluted
net income per unit as reported
|
$
|
3.35
|
||
Diluted
net income per unit pro forma
|
$
|
3.34
|
Foreign
Currency Translation
Assets
and liabilities of foreign subsidiaries are translated into United States
dollars (“US$”) at exchange rates in effect at the balance sheet dates, and
related revenues and expenses are translated into US$ at average exchange rates
in effect during each period. Net foreign currency gains and losses resulting
from the translation of assets and liabilities of foreign operations into US$
are reported as a separate component of accumulated other comprehensive income
in the consolidated statements of changes in partners’ capital and comprehensive
income. Net realized foreign currency transaction gains (losses) were $7.1
million, ($0.2) million, and $(0.7) million for 2007, 2006, and 2005,
respectively.
Cash
Distributions
AllianceBernstein
is required to distribute all of its Available Cash Flow, as defined in the
Amended and Restated Agreement of Limited Partnership of AllianceBernstein
(“AllianceBernstein Partnership Agreement”), to its unitholders and to the
General Partner. Available Cash Flow can be summarized as the cash flow received
by AllianceBernstein from operations minus such amounts as the General Partner
determines, in its sole discretion, should be retained by AllianceBernstein for
use in its business.
The
General Partner computes cash flow received from operations by determining the
sum of:
|
•
|
net cash provided by operating
activities of
AllianceBernstein,
|
|
•
|
proceeds from borrowings and from
sales or other dispositions of assets in the ordinary course of business,
and
|
|
•
|
income from investments in
marketable securities, liquid investments, and other financial instruments
that are acquired for investment purposes and that have a value that may
be readily established,
|
and then
subtracting from this amount the sum of:
|
•
|
payments in respect of the
principal of borrowings, and
|
|
•
|
amounts
expended for the purchase of assets in the ordinary course of
business.
|
On
January 23, 2008, the General Partner declared a distribution of $307.7 million,
or $1.17 per AllianceBernstein Unit, representing a distribution of Available
Cash Flow for the three months ended December 31, 2007. The General
Partner, as a result of its 1% general partnership interest, is entitled to
receive 1% of each distribution. The distribution was paid on February 14,
2008 to holders of record as of February 4, 2008.
|
Comprehensive
Income
|
We report
all changes in comprehensive income in the consolidated statements of changes in
partners’ capital and comprehensive income. Comprehensive income includes net
income, as well as unrealized gains and losses on investments classified as
available-for-sale, foreign currency translation adjustments, and unrecognized
actuarial net losses, prior service cost and transition assets, all net of
tax.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current year
presentation. These include reclassifications: (i) within cash
provided by operating activities, amounts from accrued compensation and
benefits, relating to non-cash deferred compensation, to amortization of
non-cash deferred compensation, (ii) within cash provided by operating
activities, amounts from accounts payable and accrued expenses to minority
interests in consolidated subsidiaries, (iii) changes in overdrafts payable from
cash provided by operating activities to financing activities, (iv) amounts
from other revenues in the consolidated statements of income, primarily related
to deferred compensation investments, to investment gains (losses), and (v)
the reclassification of several special bank accounts for the exclusive benefit
of customers from cash and cash equivalents to cash and securities
segregated.
3.
|
Cash and Securities Segregated
Under Federal Regulations and Other
Requirements
|
As of
December 31, 2007 and 2006, $2.2 billion and $1.9 billion, respectively, of
United States Treasury Bills were segregated in a special reserve bank custody
account for the exclusive benefit of brokerage customers of SCB LLC under Rule
15c3-3 of the Securities Exchange Act of 1934, as amended (“Exchange Act”).
During the first week of January 2008, we deposited an additional $0.2 billion
in United States Treasury Bills in this special account pursuant to Rule 15c3-3
requirements.
AllianceBernstein
Investments, Inc. (“AllianceBernstein Investments”), a wholly-owned subsidiary
of AllianceBernstein and the distributor of company-sponsored mutual funds,
maintains several special bank accounts for the exclusive benefit of
customers. As of December 31, 2007 and 2006, $133.2 million and
$145.9 million, respectively, were segregated in these bank
accounts.
4. Net Income Per Unit
Basic net
income per unit is derived by reducing net income for the 1% general partnership
interest and dividing the remaining 99% by the basic weighted average number of
units outstanding for each year. Diluted net income per unit is derived by
reducing net income for the 1% general partnership interest and dividing the
remaining 99% by the total of the basic weighted average number of units
outstanding and the dilutive unit equivalents resulting from outstanding
compensatory options as follows:
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in thousands, except per unit amounts)
|
||||||||||||
Net
income
|
$ | 1,260,444 | $ | 1,108,601 | $ | 868,318 | ||||||
Weighted
average units outstanding—basic
|
259,854 | 257,719 | 254,883 | |||||||||
Dilutive
effect of compensatory options
|
1,807 | 2,243 | 1,714 | |||||||||
Weighted
average units outstanding—diluted
|
261,661 | 259,962 | 256,597 | |||||||||
Basic
net income per unit
|
$ | 4.80 | $ | 4.26 | $ | 3.37 | ||||||
Diluted
net income per unit
|
$ | 4.77 | $ | 4.22 | $ | 3.35 |
As of
December 31, 2007 and 2005, we excluded 1,678,985 and 3,950,100 out-of-the-money
options (i.e., options to buy Holding Units with an exercise price greater than
the weighted average closing price of a unit for the relevant period),
respectively, from the diluted net income per unit computation due to their
anti-dilutive effect. As of December 31, 2006, there were no out-of-the-money
options.
5. Receivables, Net and
Payables
Receivables,
net are comprised of:
December 31,
|
||||||||
2007
|
2006
|
|||||||
(in
thousands)
|
||||||||
Brokers
and dealers:
|
||||||||
Collateral
for securities borrowed (fair value $77,997 in 2007 and $2,117,885 in
2006)
|
$ | 79,848 | $ | 2,182,167 | ||||
Other
|
414,025 | 263,385 | ||||||
Total
brokers and dealers
|
493,873 | 2,445,552 | ||||||
Brokerage
clients
|
410,074 | 485,446 | ||||||
Fees,
net:
|
||||||||
AllianceBernstein
mutual funds
|
173,746 | 180,260 | ||||||
Unaffiliated
clients (net of allowance of $1,792 in 2007 and $1,113 in
2006)
|
545,787 | 369,690 | ||||||
Affiliated
clients
|
10,103 | 7,330 | ||||||
Total
fees receivable, net
|
729,636 | 557,280 | ||||||
Total
receivables, net
|
$ | 1,633,583 | $ | 3,488,278 |
Payables
are comprised of:
December 31,
|
||||||||
2007
|
2006
|
|||||||
(in
thousands)
|
||||||||
Brokers
and dealers:
|
||||||||
Collateral
for securities loaned (fair value $114 in 2007 and $470,798 in
2006)
|
$ | 122 | $ | 489,093 | ||||
Other
|
161,265 | 172,697 | ||||||
Total
brokers and dealers
|
161,387 | 661,790 | ||||||
Brokerage
clients
|
2,728,271 | 3,988,032 | ||||||
AllianceBernstein
mutual funds
|
408,185 | 266,849 | ||||||
Total
payables
|
$ | 3,297,843 | $ | 4,916,671 |
During
the fourth quarter of 2007, we outsourced our hedge fund related prime brokerage
operations, resulting in the elimination of a substantial portion of our
securities borrowing and securities lending activity.
6.
|
Investments
|
As of
December 31, 2007 and 2006, investments consisted of investments
available-for-sale, principally company-sponsored mutual funds, and trading
investments, principally United States Treasury Bills and company-sponsored
mutual funds. As of December 31, 2007 and 2006, United States Treasury Bills
with a fair market value of $89.3 million and $17.0 million, respectively, were
on deposit with various clearing organizations, which are included in fixed
income trading investments.
The
following is a summary of the cost and fair value of investments as of December
31, 2007 and 2006:
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
December
31, 2007:
|
||||||||||||||||
Available-for-sale:
|
||||||||||||||||
Equity
investments
|
$ | 27,492 | $ | 697 | $ | (8,519 | ) | $ | 19,670 | |||||||
Fixed income
investments
|
29,337 | 275 | (1,244 | ) | 28,368 | |||||||||||
$ | 56,829 | $ | 972 | $ | (9,763 | ) | 48,038 | |||||||||
Trading:
|
||||||||||||||||
Equity
investments
|
$ | 481,989 | $ | 7,845 | $ | (23,749 | ) | 466,085 | ||||||||
Fixed income
investments
|
105,331 | 910 | (89 | ) | 106,152 | |||||||||||
$ | 587,320 | $ | 8,755 | $ | (23,838 | ) | 572,237 | |||||||||
Total
|
$ | 620,275 | ||||||||||||||
December
31, 2006:
|
||||||||||||||||
Available-for-sale:
|
||||||||||||||||
Equity
investments
|
$ | 39,232 | $ | 8,665 | $ | (3 | ) | $ | 47,894 | |||||||
Fixed income
investments
|
31,476 | 486 | (5 | ) | 31,957 | |||||||||||
$ | 70,708 | $ | 9,151 | $ | (8 | ) | 79,851 | |||||||||
Trading:
|
||||||||||||||||
Equity
investments
|
$ | 407,790 | $ | 34,264 | $ | (9,921 | ) | 432,133 | ||||||||
Fixed income
investments
|
31,155 | 517 | (3 | ) | 31,669 | |||||||||||
$ | 438,945 | $ | 34,781 | $ | (9,924 | ) | 463,802 | |||||||||
Total
|
$ | 543,653 | ||||||||||||||
Proceeds
from sales of investments available-for-sale were approximately $52.4 million,
$12.8 million, and $12.7 million in 2007, 2006, and 2005, respectively. Realized
gains from our sales of available-for-sale investments were $8.5 million, $1.0
million, and $1.6 million in 2007, 2006, and 2005, respectively. Realized losses
from our sales of available-for-sale investments were zero in 2007 and 2006, and
$0.7 million in 2005.
We assess
valuation declines to determine the extent to which such declines are
fundamental to the underlying investment or attributable to market-related
factors. Based on this assessment, we do not believe the declines are other than
temporary.
7.
|
Furniture, Equipment and
Leasehold Improvements, Net
|
Furniture,
equipment and leasehold improvements, net are comprised of:
December
31,
|
||||||||
2007
|
2006
|
|||||||
(in thousands)
|
||||||||
Furniture
and equipment
|
$ | 495,669 | $ | 426,848 | ||||
Leasehold
improvements
|
306,908 | 254,421 | ||||||
802,577 | 681,269 | |||||||
Less:
Accumulated depreciation and amortization
|
(435,298 | ) | (392,694 | ) | ||||
Furniture,
equipment and leasehold improvements, net
|
$ | 367,279 | $ | 288,575 |
Depreciation
and amortization expense on furniture equipment and leasehold improvements were
$58.4 million, $43.8 million, and $45.8 million for the years ended December 31,
2007, 2006, and 2005, respectively.
8.
|
Deferred Sales Commissions,
Net
|
The
components of deferred sales commissions, net for the years ended December 31,
2007 and 2006 were as follows:
December
31,(1)
|
||||||||
2007
|
2006
|
|||||||
(in thousands)
|
||||||||
Carrying amount of deferred sales
commissions
|
$ | 478,504 | $ | 530,231 | ||||
Less: Accumulated
amortization
|
(215,664 | ) | (250,626 | ) | ||||
Cumulative CDSC
received
|
(79,269 | ) | (84,655 | ) | ||||
Deferred sales commissions,
net
|
$ | 183,571 | $ | 194,950 |
(1) Excludes
amounts related to fully amortized deferred sales commissions.
Amortization
expense was $95.5 million, $100.4 million, and $132.0 million for the years
ended December 31, 2007, 2006, and 2005, respectively. Estimated future
amortization expense related to the December 31, 2007 net asset balance,
assuming no additional CDSC is received in future periods, is as follows (in
thousands):
2008
|
$
|
75,562
|
||
2009
|
53,187
|
|||
2010
|
34,234
|
|||
2011
|
15,553
|
|||
2012
|
4,557
|
|||
2013
|
478
|
|||
$
|
183,571
|
9.
|
Other
Investments
|
Other
investments consist primarily of investments in limited partnership hedge funds
that we sponsor and manage, investments held by a consolidated venture capital
fund we sponsor, and investments in unconsolidated joint ventures. The
components of other investments as of December 31, 2007 and 2006 were as
follows:
December
31,
|
||||||||
2007
|
2006
|
|||||||
(in thousands)
|
||||||||
Investments
in limited partnership hedge funds
|
$ | 156,678 | $ | 166,412 | ||||
Investments
held by a consolidated venture capital fund
|
135,601 | 33,996 | ||||||
Investments
in unconsolidated joint ventures and other investments
|
2,527 | 3,542 | ||||||
Other
investments
|
$ | 294,806 | $ | 203,950 |
The
underlying investments of the hedge funds include long and short positions in
equity securities, fixed income securities (including various agency and
non-agency asset-based securities), currencies, commodities, and derivatives
(including various swaps and forward contracts). Such investments are
valued at quoted market prices or, where quoted market prices are not available,
are fair valued based on the pricing policies and procedures of the underlying
funds.
10.
|
Debt
|
Total
committed credit, debt outstanding, and weighted average interest rates as of
December 31, 2007 and 2006 were as follows:
December 31,
|
||||||||||||||||||||||||
2007
|
2006
|
|||||||||||||||||||||||
Committed
Credit
|
Debt
Outstanding
|
Interest
Rate
|
Committed
Credit
|
Debt
Outstanding
|
Interest
Rate
|
|||||||||||||||||||
(in millions)
|
||||||||||||||||||||||||
Commercial
paper(1)
|
$ | — | $ | 533.9 | 4.3 | % | $ | — | $ | 334.9 | 5.3 | % | ||||||||||||
Revolving
credit facility(1)
|
1,000 | — | — | 800.0 | — | — | ||||||||||||||||||
Total
|
$ | 1,000 | $ | 533.9 | 4.3 | $ | 800.0 | $ | 334.9 | 5.3 |
(1)
|
Our revolving credit facility
supports our commercial paper program; amounts borrowed under the
commercial paper program reduce amounts available for other purposes under
the revolving credit facility on a dollar-for-dollar
basis.
|
In
February 2006, we entered into an $800 million five-year revolving credit
facility with a group of commercial banks and other lenders. The revolving
credit facility is intended to provide back-up liquidity for our $800 million
commercial paper program. Under the revolving credit facility, the interest
rate, at our option, is a floating rate generally based upon a defined prime
rate, a rate related to the London Interbank Offered Rate (“LIBOR”) or the
Federal Funds rate. On November 2, 2007, we increased the revolving credit
facility by $200 million to $1.0 billion. We also increased our commercial paper
program by $200 million to $1.0 billion. The revolving credit facility contains
covenants which, among other things, require us to meet certain financial
ratios. We were in compliance with the covenants as of December 31, 2007. To
supplement this revolving credit facility, in January 2008 we entered into a
$100 million uncommitted line of credit with a major bank which expires in March
2008.
In August
2001, we issued $400 million 5.625% Notes (“Senior Notes”) pursuant to a shelf
registration statement that originally permitted us to issue up to $600 million
in senior debt securities. The Senior Notes matured in August 2006 and were
retired using cash flow from operations and proceeds from the issuance of
commercial paper. We currently have $200 million available under the shelf
registration statement for future issuances.
In 2006,
SCB LLC entered into four separate uncommitted line of credit facility
agreements with various banks, each for $100 million. During January and
February of 2007, SCB LLC increased three of the agreements to $200 million each
and entered into an additional agreement for $100 million with a new bank. As of
December 31, 2007, no amounts were outstanding under these credit
facilities.
In
January 2008, SCB LLC entered into a $950 million three-year revolving credit
facility with a group of commercial banks to fund its obligations resulting from
engaging in certain securities trading and other customer activities. Under the
revolving credit facility, the interest rate, at the option of SCB LLC, is a
floating rate generally based upon a defined prime rate, a rate related to the
LIBOR or the Federal Funds rate.
In
January 2008, AllianceBernstein and AXA executed guarantees in regard to
the $950 million SCB LLC facility. In the event SCB LLC is unable to meet its
obligations, AllianceBernstein or AXA will pay the obligations when due or on
demand. AllianceBernstein will reimburse AXA to the extent AXA must pay on its
guarantee. This agreement is continuous and remains in effect until the later of
payment in full of any such obligation has been made or the maturity
date.
Our
substantial capital base and access to public and private debt, at competitive
terms, should provide adequate liquidity for our general business needs.
Management believes that cash flow from operations and the issuance of debt
and AllianceBernstein Units or Holding Units will provide us with the
resources to meet our financial obligations.
11.
|
Commitments and
Contingencies
|
Operating
Leases
We lease
office space, furniture, and office equipment under various operating leases.
The future minimum payments under non-cancelable leases, sublease commitments,
and payments, net of sublease commitments as of December 31, 2007 are as
follows:
Payments
|
Sublease
|
Net
Payments
|
||||||||||
(in millions)
|
||||||||||||
2008
|
$ | 117.1 | $ | 3.3 | $ | 113.8 | ||||||
2009
|
115.0 | 3.0 | 112.0 | |||||||||
2010
|
117.2 | 3.0 | 114.2 | |||||||||
2011
|
117.5 | 3.0 | 114.5 | |||||||||
2012
|
120.7 | 3.2 | 117.5 | |||||||||
2013 and
thereafter
|
1,770.4 | 12.9 | 1,757.5 | |||||||||
Total future minimum
payments
|
$ | 2,357.9 | $ | 28.4 | $ | 2,329.5 |
Office
leases contain escalation clauses that provide for the pass through of increases
in operating expenses and real estate taxes. Rent expense, which is amortized on
a straight-line basis over the life of the lease, was $106.8 million, $99.7
million, and $76.0 million, respectively, for the years ended December 31, 2007,
2006, and 2005, respectively, net of sublease income of $3.4 million, $3.7
million, and $5.9 million for the years ended December 31, 2007, 2006, and 2005,
respectively.
Deferred
Sales Commission Asset
Payments
of sales commissions made by AllianceBernstein Investments to financial
intermediaries in connection with the sale of back-end load shares under our
mutual fund distribution system (the “System”) are capitalized as deferred sales
commissions (“deferred sales commission asset”) and amortized over periods not
exceeding five and one-half years for U.S. fund shares and four years for
non-U.S. fund shares, the periods of time during which the deferred sales
commission asset is expected to be recovered. CDSC cash recoveries are recorded
as reductions of unamortized deferred sales commissions when received. The
amount recorded for the net deferred sales commission asset was $183.6 million
and $195.0 million as of December 31, 2007 and 2006, respectively. Payments of
sales commissions made by AllianceBernstein Investments to financial
intermediaries in connection with the sale of back-end load shares under the
System, net of CDSC received of $31.1 million, $23.7 million, and $21.4 million,
totaled approximately $84.1 million, $98.7 million, and $74.2 million during
2007, 2006, and 2005, respectively.
Management
tests the deferred sales commission asset for recoverability quarterly.
Significant assumptions utilized to estimate the company’s future average assets
under management and undiscounted future cash flows from back-end load shares
include expected future market levels and redemption rates. Market assumptions
are selected using a long-term view of expected average market returns based on
historical returns of broad market indices. As of December 31, 2007, management
used average market return assumptions of 5% for fixed income and 8% for equity
to estimate annual market returns. Higher actual average market returns would
increase undiscounted future cash flows, while lower actual average market
returns would decrease undiscounted future cash flows. Future redemption rate
assumptions range from 21% to 25% for U.S. fund shares and 23% to 31% for
non-U.S. fund shares, determined by reference to actual redemption experience
over the five-year, three-year, and one-year periods ended December 31, 2007,
calculated as a percentage of the company’s average assets under management
represented by back-end load shares. An increase in the actual rate of
redemptions would decrease undiscounted future cash flows, while a decrease in
the actual rate of redemptions would increase undiscounted future cash flows.
These assumptions are reviewed and updated quarterly. Estimates of undiscounted
future cash flows and the remaining life of the deferred sales commission asset
are made from these assumptions and the aggregate undiscounted future cash flows
are compared to the recorded value of the deferred sales commission asset. As of
December 31, 2007, management determined that the deferred sales commission
asset was not impaired. If management determines in the future that the deferred
sales commission asset is not recoverable, an impairment condition would exist
and a loss would be measured as the amount by which the recorded amount of the
asset exceeds its estimated fair value. Estimated fair value is determined using
management’s best estimate of future cash flows discounted to a present value
amount.
During
2007, U.S. equity markets increased by approximately 5.5% as measured by the
change in the Standard & Poor’s 500 Stock Index and U.S. fixed income
markets increased by approximately 7.0% as measured by the change in the Lehman
Brothers’ Aggregate Bond Index. The redemption rate for domestic back-end load
shares was 21.0% in 2007. Non-U.S. capital markets increases ranged from 9.0% to
39.4% as measured by the MSCI World, Emerging Market, and EAFE Indices. The
redemption rate for non-U.S. back-end load shares was 30.8% in 2007. Declines in
financial markets or higher redemption levels, or both, as compared to the
assumptions used to estimate undiscounted future cash flows, as described above,
could result in the impairment of the deferred sales commission asset. Due to
the volatility of the capital markets and changes in redemption rates,
management is unable to predict whether or when a future impairment of the
deferred sales commission asset might occur. Any impairment would reduce
materially the recorded amount of the deferred sales commission asset with a
corresponding charge to earnings.
Legal
Proceedings
On
October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein
Growth & Income Fund, et al.
(“Hindo Complaint”) was filed against, among others, AllianceBernstein, Holding,
and the General Partner. The Hindo Complaint alleges that certain defendants
failed to disclose that they improperly allowed certain hedge funds and other
unidentified parties to engage in “late trading” and “market timing” of certain
of our U.S. mutual fund securities, violating various securities
laws.
Following
October 2, 2003, additional lawsuits making factual allegations generally
similar to those in the Hindo Complaint were filed in various federal and state
courts against AllianceBernstein and certain other defendants. On
September 29, 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of Holding; and claims
brought under the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) by participants in the Profit Sharing Plan for Employees of
AllianceBernstein.
On
April 21, 2006, AllianceBernstein and attorneys for the plaintiffs in the
mutual fund shareholder claims, mutual fund derivative claims, and ERISA claims
entered into a confidential memorandum of understanding containing their
agreement to settle these claims. The agreement will be documented by a
stipulation of settlement and will be submitted for court approval at a later
date. The settlement amount ($30 million), which we previously 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.
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.
Claims
Processing Contingency
During
the fourth quarter of 2006, we recorded a $56.0 million pre-tax charge in
general and administrative expenses ($54.5 million, net of related income tax
benefit) for the estimated cost of reimbursing certain clients for losses
arising out of an error we made in processing claims for class action settlement
proceeds on behalf of these clients, which include some
AllianceBernstein-sponsored mutual funds. We believe that most of this cost will
ultimately be recovered from residual settlement proceeds and insurance. Our
fourth quarter 2006 cash distribution was declared by the Board of Directors
prior to recognition of this adjustment. As a result, to the extent that all or
a portion of the cost is recovered in subsequent periods, we do not intend to
include recoveries in Available Cash Flow (as defined in the AllianceBernstein
Partnership Agreement), and would not distribute those amounts to unitholders.
During 2007, we recorded an additional $0.7 million expense related to this
matter and paid $45.5 million to clients. As of December 31, 2007, we had $11.2
million remaining in accrued expenses.
12.
|
Net
Capital
|
SCB LLC,
a broker-dealer and a member organization of the New York Stock Exchange
(“NYSE”), is subject to the Uniform Net Capital Rule 15c3-1 of the Exchange Act.
SCB LLC computes its net capital under the alternative method permitted by the
rule, which requires that minimum net capital, as defined, equal the greater of
$1 million, or two percent of aggregate debit items arising from customer
transactions, as defined. As of December 31, 2007, SCB LLC had net capital of
$138.0 million, which was $128.2 million in excess of the minimum net capital
requirement of $9.8 million. Advances, dividend payments and other equity
withdrawals by SCB LLC are restricted by the regulations of the U.S. Securities
and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority,
Inc., and other securities agencies. As of December 31, 2007, $24.6 million was
not available for payment of cash dividends and advances.
SCBL is a
member of the London Stock Exchange. As of December 31, 2007, SCBL was subject
to financial resources requirements of $19.4 million imposed by the Financial
Services Authority of the United Kingdom and had aggregate regulatory financial
resources of $40.8 million, an excess of $21.4 million.
AllianceBernstein
Investments serves as distributor and/or underwriter for certain
company-sponsored mutual funds. AllianceBernstein Investments is registered as a
broker-dealer under the Exchange Act and is subject to the minimum net capital
requirements imposed by the SEC. AllianceBernstein Investments’ net capital as
of December 31, 2007 was $67.0 million, which was $52.7 million in excess of its
required net capital of $14.3 million.
13.
|
Counterparty
Risk
|
Customer
Activities
In the
normal course of business, brokerage activities involve the execution,
settlement, and financing of various customer securities trades, which may
expose SCB LLC and SCBL to off-balance sheet risk by requiring SCB LLC and SCBL
to purchase or sell securities at prevailing market prices in the event the
customer is unable to fulfill its contracted obligations.
SCB LLC’s
customer securities activities are transacted on either a cash or margin basis.
In margin transactions, SCB LLC extends credit to the customer, subject to
various regulatory and internal margin requirements. These transactions are
collateralized by cash or securities in the customer’s account. In connection
with these activities, SCB LLC may execute and clear customer transactions
involving the sale of securities not yet purchased. SCB LLC seeks to control the
risks associated with margin transactions by requiring customers to maintain
collateral in compliance with the aforementioned regulatory and internal
guidelines. SCB LLC monitors required margin levels daily and, pursuant to such
guidelines, requires customers to deposit additional collateral, or reduce
positions, when necessary. A majority of SCB LLC’s customer margin accounts are
managed on a discretionary basis whereby AllianceBernstein maintains control
over the investment activity in the accounts. For these discretionary accounts,
SCB LLC’s margin deficiency exposure is minimized through maintaining a
diversified portfolio of securities in the accounts and by virtue of
AllianceBernstein’s discretionary authority and SCB LLC’s role as
custodian.
SCB LLC
may enter into forward foreign currency contracts on behalf of accounts for
which SCB LLC acts as custodian. SCB LLC minimizes credit risk associated with
these contracts by monitoring these positions on a daily basis, as well as by
virtue of AllianceBernstein’s discretionary authority and SCB LLC’s role as
custodian.
In
accordance with industry practice, SCB LLC and SCBL record customer transactions
on a settlement date basis, which is generally three business days after trade
date. SCB LLC and SCBL are exposed to risk of loss on these transactions in the
event of the customer’s or broker’s inability to meet the terms of their
contracts, in which case SCB LLC and SCBL may have to purchase or sell financial
instruments at prevailing market prices. The risks assumed by SCB LLC and SCBL
in connection with these transactions are not expected to have a material effect
upon AllianceBernstein’s, SCB LLC’s or SCBL’s financial condition or results of
operations.
Other
Counterparties
SCB LLC
and SCBL are engaged in various brokerage activities in which counterparties
primarily include broker-dealers, banks and other financial institutions. In the
event counterparties do not fulfill their obligations, SCB LLC and SCBL may be
exposed to risk. The risk of default depends on the creditworthiness of the
counterparty or issuer of the instrument. It is SCB LLC’s and SCBL’s policy to
review, as necessary, the credit standing of each counterparty.
In
connection with SCB LLC’s security borrowing and lending arrangements, SCB LLC
enters into collateralized agreements which may result in credit exposure in the
event the counterparty to a transaction is unable to fulfill its contractual
obligations. Security borrowing arrangements require SCB LLC to deposit cash
collateral with the lender. With respect to security lending arrangements, SCB
LLC receives collateral in the form of cash in amounts generally in excess of
the market value of the securities loaned. SCB LLC minimizes credit risk
associated with these activities by establishing credit limits for each broker
and monitoring these limits on a daily basis. Additionally, security borrowing
and lending collateral is marked to market on a daily basis, and additional
collateral is deposited by or returned to SCB LLC as necessary. During the
fourth quarter of 2007, SCB LLC outsourced its hedge fund related prime
brokerage operations, resulting in the elimination of a substantial portion
of its security borrowing and security lending activity.
14. Qualified Employee Benefit
Plans
We
maintain a qualified profit sharing plan (the “Profit Sharing Plan”) covering
U.S. employees and certain foreign employees. Employer contributions are
discretionary and generally limited to the maximum amount deductible for federal
income tax purposes. Aggregate contributions for 2007, 2006, and 2005 were $29.4
million, $25.3 million, and $22.0 million, respectively.
We
maintain several defined contribution plans for foreign employees in the United
Kingdom, Australia, New Zealand, Japan and other foreign
entities. Employer contributions are generally consistent with
regulatory requirements and tax limits. Defined contribution expense
for foreign entities was $8.3 million, $5.9 million, and $4.9 million in 2007,
2006, and 2005, respectively.
We
maintain a qualified, noncontributory, defined benefit retirement plan
(“Retirement Plan”) covering current and former employees who were employed by
AllianceBernstein in the United States prior to October 2, 2000. Benefits are
based on years of credited service, average final base salary (as defined), and
primary Social Security benefits. Our policy is to satisfy our funding
obligation for each year in an amount not less than the minimum required by
ERISA and not greater than the maximum amount we can deduct for federal income
tax purposes.
The
Retirement Plan’s projected benefit obligation, fair value of plan assets, and
funded status (amounts recognized in the consolidated statements of financial
condition) were as follows:
Years Ended December 31,
|
||||||||
2007
|
2006
|
|||||||
(in thousands)
|
||||||||
Change
in projected benefit obligation:
|
||||||||
Projected
benefit obligation at beginning of year
|
$ | 84,683 | $ | 83,815 | ||||
Service
cost
|
3,446 | 4,048 | ||||||
Interest
cost
|
4,769 | 4,578 | ||||||
Actuarial
gains
|
(8,280 | ) | (4,916 | ) | ||||
Plan
amendment
|
(4,365 | ) | — | |||||
Benefits
paid
|
(3,522 | ) | (2,842 | ) | ||||
Projected
benefit obligation at end of year
|
76,731 | 84,683 | ||||||
Change
in plan assets:
|
||||||||
Plan
assets at fair value at beginning of year
|
53,315 | 47,406 | ||||||
Actual
return on plan assets
|
2,193 | 4,414 | ||||||
Employer
contribution
|
4,800 | 4,337 | ||||||
Benefits
paid
|
(3,522 | ) | (2,842 | ) | ||||
Plan
assets at fair value at end of year
|
56,786 | 53,315 | ||||||
Funded
status
|
$ | (19,945 | ) | $ | (31,368 | ) |
As a
result of the Pension Protection Act of 2006 (“PPA”), we changed our basis for
lump sums effective January 1, 2008. The change in the lump sum
basis, considered a plan amendment, resulted in a decrease in our projected
obligation of $4.4 million. As a prior service credit, the decrease
in costs will be recognized into income over the next 11 years.
The
amounts included in accumulated other comprehensive income (loss) as of December
31, 2007 and 2006 were as follows:
2007
|
2006
|
|||||||
(in
thousands)
|
||||||||
Unrecognized
net loss from experience different from that assumed and effects of
changes and assumptions
|
$ | (1,438 | ) | $ | (7,430 | ) | ||
Unrecognized
prior service cost
|
3,844 | (343 | ) | |||||
Unrecognized
net plan assets as of January 1, 1987 being recognized over 26.3
years
|
710 | 849 | ||||||
Accumulated
other comprehensive income (loss)
|
$ | 3,116 | $ | (6,924 | ) |
The
estimated initial plan assets and prior service cost for the Retirement Plan
that will be amortized from accumulated other comprehensive income over the next
year is $143,000 and $427,000, respectively.
The
accumulated benefit obligation for the plan was $65.0 million and $68.4 million
as of December 31, 2007 and 2006, respectively. The accumulated benefit
obligation differs from the projected benefit obligation in that it includes no
assumption about future compensation levels. We currently estimate we will
contribute $3.5 million to the plan during 2008. Contribution estimates, which
are subject to change, are based on regulatory requirements, future market
conditions and assumptions used for actuarial computations of the Retirement
Plan’s obligations and assets. Management, at the present time, is unable to
determine the amount, if any, of additional future contributions that may be
required.
Actuarial
computations used to determine benefit obligations as of December 31, 2007 and
2006 (measurement dates) were made utilizing the following weighted-average
assumptions:
2007
|
2006
|
||||||
Discount
rate on benefit obligations
|
6.55
|
%
|
5.90
|
%
|
|||
Annual
salary increases
|
3.14
|
%
|
3.50
|
%
|
The
Retirement Plan’s asset allocation percentages consisted of:
December 31,
|
||||||||
2007
|
2006
|
|||||||
Equity
securities
|
69 | % | 69 | % | ||||
Debt
securities
|
21 | 22 | ||||||
Real
estate
|
10 | 9 | ||||||
100 | % | 100 | % |
The
following benefit payments, which reflect expected future service, are expected
to be paid as follows (in thousands):
2008
|
$
|
1,849
|
||
2009
|
2,717
|
|||
2010
|
3,395
|
|||
2011
|
3,200
|
|||
2012
|
5,727
|
|||
2013-2017
|
25,487
|
Net
expense under the Retirement Plan was comprised of:
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in thousands)
|
||||||||||||
Service
cost
|
$ | 3,447 | $ | 4,048 | $ | 4,268 | ||||||
Interest
cost on projected benefit obligations
|
4,769 | 4,578 | 4,274 | |||||||||
Expected
return on plan assets
|
(4,310 | ) | (3,800 | ) | (3,225 | ) | ||||||
Amortization
of prior service credit
|
(59 | ) | (59 | ) | (59 | ) | ||||||
Amortization
of transition asset
|
(143 | ) | (143 | ) | (143 | ) | ||||||
Amortization
of loss
|
— | 280 | 501 | |||||||||
Net
pension charge
|
$ | 3,704 | $ | 4,904 | $ | 5,616 |
Actuarial
computations used to determine net periodic costs were made utilizing the
following weighted-average assumptions:
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Discount
rate on benefit obligations
|
5.90 | % | 5.65 | % | 5.75 | % | ||||||
Expected
long-term rate of return on plan assets
|
8.00 | % | 8.00 | % | 8.00 | % | ||||||
Annual
salary increases
|
3.14 | % | 3.50 | % | 3.35 | % |
In
developing the expected long-term rate of return on plan assets of 8.0%,
management considered the historical returns and future expectations for returns
for each asset category, as well as the target asset allocation of the
portfolio. The expected long-term rate of return on assets is based on weighted
average expected returns for each asset class. We assumed a target allocation
weighting of 50% to 70% for equity securities, 20% to 40% for debt securities,
and 0% to 10% for real estate investment trusts. Exposure of the total portfolio
to cash equivalents on average should not exceed 5% of the portfolio’s value on
a market value basis. The plan seeks to provide a rate of return that exceeds
applicable benchmarks over rolling five-year periods. The benchmark for the
plan’s large cap domestic equity investment strategy is the S&P 500 Index;
the small cap domestic equity investment strategy is measured against the
Russell 2000 Index; the international equity investment strategy is measured
against the MSCI EAFE Index; and the fixed income investment strategy is
measured against the Lehman Brothers Aggregate Bond Index.
Variances
between actuarial assumptions and actual experience are amortized over the
estimated average remaining service lives of employees participating in the
Retirement Plan.
We
provide postretirement medical benefits which allow retirees between the ages of
55 and 65 meeting certain service requirements, at their election, to continue
to participate in our group medical program by paying 100% of the applicable
group premium. Retirees older than 65 may also continue to
participate in our group medical program, but are required to pay the full
expected cost of benefits. To the extent that retirees’ medical costs exceed
premiums paid, we incur the cost of providing a postretirement medical
benefit. During 2007, our net periodic benefit cost was $0.4 million,
and our aggregate benefit obligation as of December 31, 2007 is $3.4
million.
15.
|
Deferred Compensation
Plans
|
We
maintain an unfunded, non-qualified deferred compensation plan known as the
Capital Accumulation Plan and also have assumed obligations under contractual
unfunded deferred compensation arrangements covering certain executives
(“Contractual Arrangements”). The Capital Accumulation Plan was frozen on
December 31, 1987 and no additional awards have been made. The Board of
Directors of the General Partner (“Board”) may terminate the Capital
Accumulation Plan at any time without cause, in which case our liability would
be limited to benefits that have vested. Payment of vested benefits under both
the Capital Accumulation Plan and the Contractual Arrangements will generally be
made over a ten-year period commencing at retirement age. The General Partner is
obligated to make capital contributions to AllianceBernstein in amounts equal to
benefits paid under the Capital Accumulation Plan and the Contractual
Arrangements. Amounts included in employee compensation and benefits expense for
the Capital Accumulation Plan and the Contractual Arrangements for the years
ended December 31, 2007, 2006, and 2005 were $1.7 million, $2.1 million, and
$2.9 million, respectively.
In
connection with the Bernstein Transaction, we adopted an unfunded, non-qualified
deferred compensation plan, known as the SCB Deferred Compensation Award Plan
(“SCB Plan”), under which we agreed to invest $96 million per annum for three
years to fund notional investments in Holding Units or a company-sponsored money
market fund, to be awarded for the benefit of certain individuals who were
stockholders or principals of Bernstein or who were hired to replace them. The
awards vest ratably over three years and are amortized as employee compensation
expense over the vesting period. Awards are payable to participants when fully
vested, but participants may elect to defer receipt of vested awards to future
dates. The amounts charged to employee compensation and benefits expense for the
years ended December 31, 2007, 2006, and 2005 were $0.6 million, $3.6 million,
and $29.1 million, respectively.
We
maintain an unfunded, non-qualified deferred compensation plan known as the
Amended and Restated AllianceBernstein Partners Compensation Plan (the “Partners
Plan”) under which annual awards may be granted to eligible
employees.
•
|
Awards made in 1995 vested
ratably over three years; awards made from 1996 through 1998 generally
vested ratably over eight
years.
|
|
•
|
Until distributed, liability for
the 1995 through 1998 awards increased or decreased through December 31, 2005 based on our earnings growth
rate.
|
|
•
|
Prior to January 1, 2006, payment of vested 1995 through
1998 benefits was generally made in cash over a five-year period
commencing at retirement or termination of employment although, under
certain circumstances, partial lump sum payments were
made.
|
|
•
|
Effective January 1, 2006, participant accounts were
converted to notional investments in Holding Units or a money market fund,
or a combination of both, at the election of the participant, in lieu of
being subject to the earnings-based calculation. Each participant elected
a distribution date, which could be no earlier than January 2007. Holding
issued 834,864 Holding Units in January 2006 in connection with this
conversion, with a market value on that date of approximately $47.2
million.
|
•
|
Awards made for 1999 and 2000 are
notionally invested in Holding
Units.
|
|
•
|
A subsidiary of AllianceBernstein
purchases Holding Units to fund the related
benefits.
|
|
•
|
The vesting periods for 1999 and
2000 awards range from eight years to immediate depending on the age of
the participant.
|
•
|
For
2001, participants were required to allocate at least 50% of their awards
to notional investments in Holding Units and could allocate the remainder
to notional investments in certain of our investment
services.
|
•
|
For 2002 awards, participants
elected to allocate their awards in a combination of notional investments
in Holding Units and notional investments in certain of our investment
services.
|
•
|
Beginning with 2003 awards,
participants may elect to allocate their awards in a combination of
notional investments in Holding Units (up to 50%) and notional investments
in certain of our investment
services.
|
•
|
Beginning with 2006 awards,
selected senior officers may elect to allocate up to a specified portion
of their awards to investments in options to buy Holding Units (“Special
Option Program”); the firm matches this allocation on a two-for-one basis
(for additional information about the Special Option Program, see Note
16).
|
Beginning
with 2001 awards, vesting periods range from four years to immediate depending
on the age of the participant. Upon vesting, awards are distributed to
participants unless a voluntary election to defer receipt has been made.
Quarterly cash distributions on unvested Holding Units for which a deferral
election has not been made are paid currently to participants. Quarterly cash
distributions on vested and unvested Holding Units for which a deferral election
has been made and income earned on notional investments in company-sponsored
mutual funds are reinvested and distributed as elected by
participants.
The
Partners Plan may be terminated at any time without cause, in which case our
liability would be limited to vested benefits. We made awards in 2007, 2006, and
2005 aggregating $314.6 million, $228.7 million, $202.0 million, respectively.
The 2007 and 2006 awards are net of $9.9 million and $9.8 million, respectively,
allocated to the December 2007 and January 2007 Special Option Program’s awards.
The amounts charged to employee compensation and benefits expense for the years
ended December 31, 2007, 2006, and 2005 were $227.2 million, $191.9 million, and
$133.1 million, respectively.
During
2003, we established the AllianceBernstein Commission Substitution Plan
(“Commission Substitution”), an unfunded, non-qualified incentive plan.
Employees whose principal duties are to sell or market the products or services
of AllianceBernstein and whose compensation is entirely or mostly
commission-based are eligible for an award under this plan. Participants
designate the percentage of their awards to be allocated to notional investments
in Holding Units or notional investments in certain of our investment services.
Awards vest ratably over a three-year period and are amortized as employee
compensation expense. The Commission Substitution plan was terminated in 2007
and no awards have been made since 2006. We made awards totaling $40.1 million
in 2006, and $31.8 million in 2005. The amounts charged to employee compensation
and benefits expense for the years ended December 31, 2007, 2006, and 2005 were
$31.9 million, $27.0 million, and $15.8 million, respectively.
Effective
August 1, 2005, we established the AllianceBernstein Financial Advisor Wealth
Accumulation Plan (“Wealth Accumulation Plan”), an unfunded, non-qualified
deferred compensation plan. The Wealth Accumulation Plan was established in
order to create a compensation program to attract and retain eligible employees
expected to make significant contributions to the future growth and success of
Bernstein Global Wealth Management, a unit of AllianceBernstein. Participants
designate the percentage of their awards to be notionally invested in Holding
Units or certain of our investment services. No more than 50% of the award may
be notionally invested in Holding Units. All awards vest annually on a pro rata basis over the term
of the award. We made awards totaling $23.5 million in 2007, $14.5 million in
2006, and $14.1 million in 2005. The amounts charged to employee compensation
and benefits expense for the years ended December 31, 2007, 2006, and 2005 were
$8.0 million, $4.2 million, and $0.5 million, respectively.
In
accordance with the terms of the employment agreement between Mr. Sanders,
Chairman and CEO, and AllianceBernstein dated October 26, 2006 (and the terms of
Mr. Sanders’s prior employment agreement), Mr. Sanders is entitled to receive a
deferred compensation award of not less than 1% of AllianceBernstein’s
consolidated operating income before incentive compensation for each calendar
year during the employment term, beginning with 2004. The 2005 award of $14.8
million vested 67% in December 2006 and 33% in June 2007. The 2006 award of
$19.0 million vests 65% in December 2007 and 35% in December 2008. The 2007
award of $21.5 million vests 75% in December 2008 and 25% in December 2009. The
amounts charged to employee compensation and benefits expense for the years
ended December 31, 2007, 2006, and 2005 were $19.7 million, $15.0 million, and
$4.8 million, respectively. At year-end 2007, Mr. Sanders was required to
allocate his 2007 award in a manner that would result in his aggregate deferred
balance as of December 31, 2007 being 50% invested in Holding Units and 50% in
investment services offered to clients by AllianceBernstein. In future years,
50% of each award must be allocated to notional investments in each of Holding
Units and investment services offered to clients.
16.
|
Compensatory Unit Award and
Option Plans
|
In 1988,
we established an employee unit option plan (the “Unit Option Plan”), under
which options to buy Holding Units were granted to certain key employees.
Options were granted for terms of up to 10 years and each option had an exercise
price of not less than the fair market value of Holding Units on the date of
grant. Options were exercisable at a rate of 20% of the Holding Units subject to
such options on each of the first five anniversary dates of the date of grant.
No options have been granted under the Unit Option Plan since it expired in
1999. There were no options awarded under the Unit Option Plan that
were outstanding as of December 31, 2007 and 2006.
In 1993,
we established the 1993 Unit Option Plan (“1993 Plan”), under which options to
buy Holding Units were granted to key employees and independent directors of the
General Partner for terms of up to 10 years. Each option has an exercise price
of not less than the fair market value of Holding Units on the date of grant.
Options are exercisable at a rate of 20% of the Holding Units subject to such
options on each of the first five anniversary dates of the date of grant. No
options or other awards have been granted under the 1993 Plan since it
expired in 2003.
In 1997,
we established the 1997 Long Term Incentive Plan (“1997 Plan”), under which
options to buy Holding Units, restricted Holding Units and phantom restricted
Holding Units, performance awards, and other Holding Unit-based awards may be
granted to key employees and independent directors of the General Partner for
terms established at the time of grant (generally 10 years). Options granted to
employees are generally exercisable at a rate of 20% of the Holding Units
subject to such options on each of the first five anniversary dates of the date
of grant (except for certain options awarded under the Special Option Program,
which are described below); options granted to independent directors are
generally exercisable at a rate of 33.3% of the Holding Units subject to such
options on each of the first three anniversary dates of the date of grant. The
aggregate number of Holding Units that can be the subject of options granted or
that can be awarded under the 1997 Plan may not exceed 41,000,000 Holding Units.
As of December 31, 2007, options to buy 14,485,555 Holding Units, net of
forfeitures, had been granted and 1,080,298 Holding Units, net of forfeitures,
were subject to other unit awards made under the 1997 Plan (as described below). Holding
Unit-based awards (including options) in respect of 25,434,147 Holding Units
were available for grant as of December 31, 2007.
On
January 26, 2007, the Compensation Committee of the Board approved the Special
Option Program, under which selected senior officers voluntarily allocate a
specified portion of their Partners Plan award to options to buy Holding Units
and the company matches this allocation on a two-for-one basis. Also on January
26, 2007, and pursuant to the Special Option Program, the Compensation Committee
granted two separate awards of options to buy Holding Units to 67 participants.
The exercise price for both awards is $90.65, the closing price of Holding Units
on the grant date. The first grant, with a fair value of $17.69 per option,
awarded options to buy 555,985 Holding Units, vesting in equal increments on
each of the first five anniversaries of the grant date and expiring in 10 years.
The second grant, with a fair value of $17.67 per option, awarded options to buy
1,113,220 Holding Units, vesting in equal annual increments on each of the sixth
through tenth anniversaries of the grant date and expiring in 11
years.
On
December 7, 2007, the Compensation Committee granted two separate awards of
options to buy Holding Units to 68 participants under the Special Option
Program. The exercise price for both awards is $80.46, the closing price of
Holding Units on the grant date. The first grant, with a fair value of $13.30
per option, awarded options to buy 740,633 Holding Units, vesting in equal
increments on each of the first five anniversaries of the grant date and
expiring in 10 years. The second grant, with a fair value of $15.28 per option,
awarded options to buy 1,289,321 Holding Units, vesting in equal annual
increments on each of the sixth through tenth anniversaries of the grant date
and expiring in 11 years. Since we do not have sufficient history of issuing
options to selected officers under the Special Option Program, the expected
terms were calculated using the “simplified” method, in accordance with SFAS No.
123-R and SEC Staff Accounting Bulletin No. 107.
Options
to buy Holding Units were granted as follows: 3,708,939 options were
granted during 2007; 9,712 options were granted during 2006; and 17,604 options
were granted during 2005. The weighted average fair value of options
to buy Holding Units granted during 2007, 2006, and 2005 was $15.96, $12.35, and
$7.04, respectively, on the date of grant, determined using the Black-Scholes
option valuation model with the following assumptions:
2007
|
2006
|
2005
|
||||||||||
Risk-free
interest rate
|
3.5 – 4.9 | % | 4.9 | % | 3.7 | % | ||||||
Expected
cash distribution yield
|
5.6 – 5.7 | % | 6.0 | % | 6.2 | % | ||||||
Historical
volatility factor
|
27.7 – 30.8 | % | 31.0 | % | 31.0 | % | ||||||
Expected
term
|
6.0
– 9.5 years
|
6.5
years
|
3
years
|
The
following table summarizes the activity in options under our various option
plans:
Holding
Units
|
Weighted
Average
Exercise
Price
Per
Holding
Unit
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Outstanding
as of December 31, 2006
|
4,819,099 | $ | 41.62 | |||||||||||||
Granted
|
3,708,939 | 85.07 | ||||||||||||||
Exercised
|
(1,234,917 | ) | 39.25 | |||||||||||||
Forfeited
|
(19,500 | ) | 33.18 | |||||||||||||
Outstanding
as of December 31, 2007
|
7,273,621 | 64.20 | 6.9 | $ | 80,374 | |||||||||||
Exercisable
as of December 31, 2007
|
3,526,342 | 42.52 | 3.5 | 115,417 | ||||||||||||
Expected
to vest as of December 31, 2007
|
3,562,321 | 84.59 | 10.2 | (33,272 | ) |
The total
intrinsic value of options exercised during 2007, 2006, and 2005 was $58.8
million, $79.0 million, and $40.6 million, respectively.
Under the
fair value method, compensation expense is measured at the grant date based on
the estimated fair value of the options awarded (determined using the
Black-Scholes option valuation model) and is recognized over the vesting period.
We recorded compensation expense relating to the option plans of $5.9 million,
$2.7 million, and $2.2 million, respectively, for the years ended December 31,
2007, 2006, and 2005. As of December 31, 2007, there was $55.1 million of
compensation cost related to unvested share-based compensation arrangements
granted under the option plans not yet recognized. That cost is expected to be
recognized over a weighted average period of 7.8 years.
Other
Unit Awards
Restricted
Units
In 2007,
2006, and 2005, restricted Holding Units (“Restricted Units”) were awarded to
the independent directors of the General Partner. The Restricted Units give the
directors, in most instances, all the rights of other Holding Unitholders
subject to such restrictions on transfer as the Board may impose. We awarded
1,705, 1,848, and 2,644 Restricted Units in 2007, 2006, and 2005, respectively,
with grant date fair values of $87.98, $65.02, and $45.45 per Holding Unit,
respectively. All of the Restricted Units vest on the third anniversary of grant
date or immediately upon a director’s resignation. We fully expensed these
awards on the grant date. As of December 31, 2007, 4,875 Restricted
Units, net of distributions made upon retirement of two directors, were
outstanding. We recorded compensation expense of $178,000, $164,000, and $48,000
in 2007, 2006, and 2005, respectively, related to Restricted Units.
The
following table summarizes the activity of unvested Restricted Units during
2007:
Holding
Units
|
Weighted Average
Grant Date
Fair
Value
|
|||||||
Unvested
as of January 1, 2007
|
3,170 | $ | 56.86 | |||||
Granted
|
1,705 | 87.98 | ||||||
Vested
|
— | — | ||||||
Forfeited
|
— | — | ||||||
Unvested
as of December 31, 2007
|
4,875 | 67.74 |
Century Club
Plan
In 1993,
we established the Century Club Plan, under which employees of AllianceBernstein
whose primary responsibilities are to assist in the distribution of
company-sponsored mutual funds and who meet certain sales targets, are eligible
to receive an award of Holding Units. Awards vest ratably over three years and
are amortized as employee compensation expense. We awarded 45,072, 36,020, and
33,800 Holding Units in 2007, 2006, and 2005, respectively, with grant date fair
values of $82.37, $63.82, and $46.60 per Holding Unit,
respectively.
The
following table summarizes the activity of unvested Century Club units during
2007:
Holding
Units
|
Weighted Average
Grant Date
Fair
Value
|
|||||||
Unvested
as of January 1, 2007
|
60,692 | $ | 55.01 | |||||
Granted
|
45,072 | 82.37 | ||||||
Vested
|
(30,058 | ) | 52.04 | |||||
Forfeited
|
(1,716 | ) | 65.76 | |||||
Unvested
as of December 31, 2007
|
73,990 | 72.63 |
The total
fair value of units that vested during 2007, 2006, and 2005 was $2.5 million,
$1.7 million, and $1.2 million, respectively.
We
recorded compensation expense relating to the Century Club Plan of $2.3 million,
$1.5 million, and $1.1 million, respectively, for the years ended December 31,
2007, 2006, and 2005. As of December 31, 2007, there was $3.5 million of
compensation cost related to unvested share-based compensation arrangements
granted under the Century Club Plan not yet recognized. That cost is expected to
be recognized over a weighted average period of 1.6 years.
Awards
under the Century Club Plan and those of Restricted Units reduce the number of
options to acquire Holding Units available for grant under the 1997 Plan and
forfeitures under the Century Club Plan and those of Restricted Units increase
them.
17.
|
Units
Outstanding
|
The
following table summarizes the activity in units:
Outstanding
as of December 31, 2005
|
255,624,870 | |||
Options
exercised
|
2,567,017 | |||
Units
awarded
|
37,868 | |||
Issuance
of units
|
834,864 | |||
Units
forfeited
|
(2,605 | ) | ||
Outstanding
as of December 31, 2006
|
259,062,014 | |||
Options
exercised
|
1,234,917 | |||
Units
awarded
|
46,777 | |||
Units
forfeited
|
(1,716 | ) | ||
Outstanding
as of December 31, 2007
|
260,341,992 |
Units
awarded and units forfeited pertain to Restricted Unit awards to independent
members of the Board of Directors and Century Club Plan unit awards to
company-sponsored mutual fund sales personnel, see Note 16. In
2006, we issued units to certain Partners Plan participants, see Note 15.
18.
|
Income
Taxes
|
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 a 4.0% New York City unincorporated business tax
(“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 in the foreign 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 AllianceBernstein Partnership Agreement 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’s net income would be subject to federal and state corporate
income tax. Furthermore, 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 which would reduce materially Holding’s
net income and its quarterly distributions to Holding Unitholders.
Earnings
before income taxes and income tax expense are comprised of:
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in thousands)
|
||||||||||||
Earnings
before income taxes:
|
||||||||||||
United
States
|
$ | 1,096,529 | $ | 1,050,212 | $ | 812,450 | ||||||
Foreign
|
291,760 | 133,434 | 120,439 | |||||||||
Total
|
$ | 1,388,289 | $ | 1,183,646 | $ | 932,889 | ||||||
Income
tax expense:
|
||||||||||||
Partnership
UBT
|
$ | 30,219 | $ | 23,696 | $ | 16,365 | ||||||
Corporate
subsidiaries:
|
||||||||||||
Federal
|
6,852 | 4,901 | 7,100 | |||||||||
State
and local
|
2,733 | 374 | 1,236 | |||||||||
Foreign
|
87,494 | 41,061 | 35,676 | |||||||||
Current
tax expense
|
127,298 | 70,032 | 60,377 | |||||||||
Deferred
tax expense
|
547 | 5,013 | 4,194 | |||||||||
Income
tax expense
|
$ | 127,845 | $ | 75,045 | $ | 64,571 |
The
principal reasons for the difference between the effective tax rates and the UBT
statutory tax rate of 4.0% are as follows:
Years Ended December 31,
|
||||||||||||||||||||||||
2007
|
2006
|
2005
|
||||||||||||||||||||||
(in
thousands)
|
||||||||||||||||||||||||
UBT
statutory rate
|
$ | 55,532 | 4.0 | % | $ | 47,346 | 4.0 | % | $ | 37,315 | 4.0 | % | ||||||||||||
Corporate
subsidiaries’ federal, state, local, and foreign income
taxes
|
83,195 | 6.0 | 40,708 | 3.4 | 37,114 | 3.9 | ||||||||||||||||||
Other
non-deductible and permanent items, primarily income not taxable resulting
from use of UBT business apportionment factors
|
(10,882 | ) | (0.8 | ) | (13,009 | ) | (1.1 | ) | (9,858 | ) | (1.0 | ) | ||||||||||||
Income
tax expense and effective tax rate
|
$ | 127,845 | 9.2 | $ | 75,045 | 6.3 | $ | 64,571 | 6.9 |
Effective
January 1, 2007, we adopted the provisions of 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. As a result of adopting FIN 48, we recognized a $442,000
decrease in the liability for unrecognized tax benefits, which was accounted for
as a cumulative-effect adjustment to the January 1, 2007 balance of partners’
capital. The adjustment reflects the difference between the net amount of
liabilities recognized in our consolidated statement of financial position prior
to the application of FIN 48 and the net amount of liabilities recognized as a
result of applying the provisions of FIN 48.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):
Balance
as of January 1, 2007
|
$
|
17,862
|
||
Additions
for prior year tax positions
|
2,000
|
|||
Reductions
for prior year tax positions
|
(1,452
|
)
|
||
Additions
for current year tax positions
|
3,317
|
|||
Reductions
for current year tax positions
|
(303
|
)
|
||
Reductions
related to settlements with tax authorities/closed years
|
(2,408
|
)
|
||
Balance
as of December 31, 2007
|
$
|
19,016
|
During
the year 2007, unrecognized tax benefits with respect to certain tax positions
taken in the prior years have been adjusted resulting in a net increase to the
reserve totaling $0.5 million. As described below, settlements with taxing
authorities resulted in a $2.4 million reduction to the reserve. The amount of
unrecognized tax benefits as of December 31, 2007, when recognized, will be
recorded as a reduction to income tax expense and affect the company’s effective
tax rate.
Interest
and penalties, if any, relating to tax positions are recorded in income tax
expense on the consolidated statements of income. The total amount of accrued
interest recorded on the consolidated statement of financial condition as of
January 1, 2007, the date of adoption of FIN 48, was $1.7 million. As of
December 31, 2007, the amount is $2.2 million. There were no accrued penalties
as of January 1, 2007 or December 31, 2007.
The
company is generally no longer subject to U.S federal, or state and local income
tax examinations by tax authorities for any year prior to 2004. However, by
agreement, the year 2003 remains open in connection with the New York City tax
examinations that are discussed below. The Internal Revenue Service (“IRS”)
commenced an examination of our domestic corporate subsidiaries’ federal tax
returns for 2003 and 2004 in the second quarter of 2006. This examination was
settled during the third quarter of 2007 resulting in a tax payment to the U.S.
Treasury in the amount of $0.4 million and a reduction to the reserve for
unrecorded tax benefits in the amount of $2.2 million. The IRS recently notified
us of their intention to examine our aforementioned federal tax returns for the
year 2005, for which we do not believe an increase for unrecognized tax benefits
is necessary. In addition, examinations of AllianceBernstein’s New York City
Partnership and corporate subsidiary tax returns for 2003 through 2005 commenced
in the second quarter of 2007. These examinations remain in the preliminary
stage and we do not currently believe that an increase in the reserve for
unrecognized tax benefits is necessary. Adjustment to the reserve could occur in
light of changing facts and circumstances. Subject to the results of the
examinations for the tax years 2003-2005, under our existing policy for
determining whether a tax position is effectively settled for purposes of
recognizing previously unrecognized tax benefits, there is the possibility that
recognition of unrecognized tax benefits of approximately $14.5 million
including accrued interest could occur over the next twelve months.
During the fourth quarter of 2007, the
Japanese National Tax Agency commenced an examination of our corporate
subsidiary located in Japan. The examination is substantially
complete resulting in a settlement of approximately $0.5 million which has been recorded in the
books of the company.
Currently, there are no other income tax
examinations at our significant non-U.S. subsidiaries. Years that remain open
and may be subject to examination vary under local law, and range from one to
seven years.
Under
Statement of Financial Accounting Standards No. 109 (“SFAS No. 109”), “Accounting for Income Taxes”,
deferred income taxes reflect the net tax effect of temporary difference between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The tax effect of significant
items comprising the net deferred tax (liability) asset is as
follows:
December 31,
|
||||||||
2007
|
2006
|
|||||||
(in thousands)
|
||||||||
Deferred tax asset:
|
||||||||
Differences
between book and tax basis:
|
||||||||
Deferred
compensation plans
|
$ | 10,252 | $ | 9,768 | ||||
Intangible
assets
|
401 | 512 | ||||||
Charge
for mutual fund matters, legal proceedings, and claims processing
contingency
|
4,179 | 5,612 | ||||||
Other,
primarily revenues taxed upon receipt and accrued expenses deductible when
paid
|
3,909 | 2,452 | ||||||
18,741 | 18,344 | |||||||
Valuation
allowance
|
— | (1,761 | ) | |||||
Deferred
tax asset, net of valuation allowance
|
18,741 | 16,583 | ||||||
Deferred
tax liability:
|
||||||||
Differences
between book and tax basis:
|
||||||||
Furniture,
equipment and leasehold improvements
|
301 | 848 | ||||||
Investment
partnerships
|
1,634 | 3,136 | ||||||
Intangible
assets
|
14,889 | 12,427 | ||||||
Translation
adjustment
|
5,694 | 2,106 | ||||||
Other,
primarily undistributed earnings of certain foreign
subsidiaries
|
2,359 | 2,686 | ||||||
24,877 | 21,203 | |||||||
Net
deferred tax (liability) asset
|
$ | (6,136 | ) | $ | (4,620 | ) |
The
deferred tax asset is included in other assets. Management has determined that
realization of the deferred tax asset is more likely than not based on
anticipated future taxable income.
The
company provides income taxes on the undistributed earnings of non-U.S.
corporate subsidiaries except to the extent that such earnings are permanently
invested outside the United States. As of December 31, 2007, $334.9 million of
accumulated undistributed earnings of non-U.S. corporate subsidiaries were
permanently invested. At existing applicable income tax rates, additional taxes
of approximately $17.0 million would need to be provided if such earnings were
remitted.
On
October 22, 2004, the American Jobs Creation Act of 2004 (“AJCA”) was signed
into law. The AJCA contained a one-time foreign dividend repatriation provision,
which provided for a special deduction with respect to certain qualifying
dividends from foreign subsidiaries until December 31, 2005. In December 2005,
our foreign subsidiaries distributed $42.7 million of previously unremitted
earnings which qualified for the special deduction under the AJCA. The company
incurred income taxes of less than $0.5 million as a result of these
distributions.
19.
|
Business
Segment Information
|
We
adopted Statement of Financial Accounting Standards No. 131 (“SFAS No. 131”),
“Disclosures about Segments of
an Enterprise and Related Information”, in 1999. SFAS
No. 131 establishes standards for reporting information about operating segments
in annual and interim financial statements. It also establishes standards for
disclosures about products and services, geographic areas and major customers.
Generally, financial information is required to be reported consistent with the
basis used by management to allocate resources and assess
performance.
Management
has assessed the requirements of SFAS No. 131 and determined that, because we
utilize a consolidated approach to assess performance and allocate resources, we
have only one operating segment. Enterprise-wide disclosures as of, and for the
years ended, December 31, 2007, 2006, and 2005 were as follows:
Services
Net
revenues derived from our various research, investment management and related
services were as follows:
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in millions)
|
||||||||||||
Institutional
investment
|
$ | 1,482 | $ | 1,222 | $ | 895 | ||||||
Retail
|
1,521 | 1,304 | 1,189 | |||||||||
Private
client
|
961 | 883 | 673 | |||||||||
Institutional
research services
|
424 | 375 | 353 | |||||||||
Other
|
332 | 354 | 199 | |||||||||
Total
revenues
|
4,720 | 4,138 | 3,309 | |||||||||
Less:
Interest expense
|
195 | 188 | 96 | |||||||||
Net
revenues
|
$ | 4,525 | $ | 3,950 | $ | 3,213 |
Geographic
Information
Net
revenues and long-lived assets, related to our U.S. and international
operations, as of and for the years ended December 31, were:
2007
|
2006
|
2005
|
||||||||||
(in millions)
|
||||||||||||
Net
revenues:
|
||||||||||||
United
States
|
$ | 3,013 | $ | 2,733 | $ | 2,376 | ||||||
International
|
1,512 | 1,217 | 837 | |||||||||
Total
|
$ | 4,525 | $ | 3,950 | $ | 3,213 | ||||||
Long-lived
assets:
|
||||||||||||
United
States
|
$ | 3,656 | $ | 3,619 | $ | 3,597 | ||||||
International
|
52 | 42 | 18 | |||||||||
Total
|
$ | 3,708 | $ | 3,661 | $ | 3,615 |
Major
Customers
Company-sponsored
mutual funds are distributed to individual investors through broker-dealers,
insurance sales representatives, banks, registered investment advisers,
financial planners and other financial intermediaries. AXA Advisors, LLC (“AXA
Advisors”), a wholly-owned subsidiary of AXA Financial that uses members of the
AXA Equitable insurance agency sales force as its registered representatives,
has entered into a selected dealer agreement with AllianceBernstein Investments
and has been responsible for 2%, 2%, and 3% of our open-end mutual fund sales in
2007, 2006, and 2005, respectively. Subsidiaries of Merrill Lynch & Co.,
Inc. (“Merrill Lynch”) were responsible for approximately 7%, 6%, and 5% of
our open-end mutual fund sales in 2007, 2006, and 2005, respectively. Citigroup,
Inc. and its subsidiaries (“Citigroup”), was responsible for approximately 7%,
5%, and 5% of our open-end mutual fund sales in 2007, 2006, and 2005,
respectively. AXA Advisors, Merrill Lynch and Citigroup are under no obligation
to sell a specific amount of shares of company-sponsored mutual funds, and each
also sells shares of mutual funds that it sponsors and that are sponsored by
unaffiliated organizations (in the case of Merrill Lynch and
Citigroup).
AXA and
the general and separate accounts of AXA Equitable (including investments by the
separate accounts of AXA Equitable in the funding vehicle EQ Advisors Trust)
accounted for approximately 5% of total revenues for each of the years ended
December 31, 2007, 2006, and 2005. No single institutional client other than AXA
and its subsidiaries accounted for more than 1% of total revenues for the years
ended December 31, 2007, 2006, and 2005, respectively.
20.
|
Related Party
Transactions
|
Mutual
Funds
Investment
management, distribution, shareholder and administrative, and brokerage services
are provided to individual investors by means of retail mutual funds sponsored
by our company, our subsidiaries, and our affiliated joint venture companies.
Substantially all of these services are provided under contracts that set forth
the services to be provided and the fees to be charged. The contracts are
subject to annual review and approval by each of the mutual funds’ boards of
directors or trustees and, in certain circumstances, by the mutual funds’
shareholders. Revenues for services provided or related to the mutual funds are
as follows:
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in thousands)
|
||||||||||||
Investment
advisory and services fees
|
$ | 1,025,394 | $ | 840,453 | $ | 728,492 | ||||||
Distribution
revenues
|
473,435 | 421,045 | 397,800 | |||||||||
Shareholder
servicing fees
|
103,604 | 97,236 | 99,358 | |||||||||
Other
revenues
|
6,502 | 6,917 | 8,014 | |||||||||
Institutional
research services
|
1,583 | 1,902 | 3,855 |
AXA
and its Subsidiaries
We
provide investment management and certain administration services to AXA and its
subsidiaries. In addition, AXA and its subsidiaries distribute company-sponsored
mutual funds, for which they receive commissions and distribution payments.
Sales of company-sponsored mutual funds through AXA and its subsidiaries,
excluding cash management products, aggregated approximately $0.5 billion for
each of the years ended December 31, 2007, 2006, and 2005. Also, we are covered
by various insurance policies maintained by AXA subsidiaries and we pay fees for
technology and other services provided by AXA and its subsidiaries that are
included in General and Administrative expenses. Aggregate amounts included in
the consolidated financial statements for transactions with AXA and its
subsidiaries are as follows:
Years Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in thousands)
|
||||||||||||
Revenues:
|
||||||||||||
Investment
advisory and services fees
|
$ | 208,786 | $ | 184,122 | $ | 168,124 | ||||||
Institutional
research services
|
606 | 657 | 2,051 | |||||||||
Other
revenues
|
824 | 736 | 734 | |||||||||
$ | 210,216 | $ | 185,515 | $ | 170,909 | |||||||
Expenses:
|
||||||||||||
Commissions
and distribution payments to financial intermediaries
|
$ | 7,178 | $ | 5,708 | $ | 5,500 | ||||||
Other
promotion and servicing
|
1,409 | 936 | 1,158 | |||||||||
General
and administrative
|
10,219 | 9,533 | 6,665 | |||||||||
$ | 18,806 | $ | 16,177 | $ | 13,323 | |||||||
Balance
Sheet:
|
||||||||||||
Institutional
investment advisory and services fees receivable
|
$ | 10,103 | $ | 7,330 | $ | 7,182 | ||||||
Other
due (to) from AXA and its subsidiaries
|
(506 | ) | (965 | ) | 1,362 | |||||||
$ | 9,597 | $ | 6,365 | $ | 8,544 |
AllianceBernstein
and AXA Asia Pacific Holdings Limited (“AXA Asia Pacific”) maintain two
investment management companies and we include their financial results in our
consolidated results of operations. Investment advisory and services fees earned
by these companies were approximately $77.6 million, $61.1 million, and $44.6
million for the years ended December 31, 2007, 2006, and 2005, respectively, of
which approximately $22.9 million, $21.3 million, and $19.9 million,
respectively, were from AXA affiliates and are included in the table above.
Minority interest recorded for these companies was $11.1 million, $8.8 million,
and $5.9 million for the years ended December 31, 2007, 2006, and 2005,
respectively.
During
the fourth quarter of 2006, AllianceBernstein Venture Fund I, L.P. was
established as an investment vehicle to achieve long-term capital appreciation
through equity and equity-related investments, acquired in private transactions,
in early stage growth companies. One of our subsidiaries is the general partner
of the fund and, as a result, the fund is included in our consolidated financial
statements, with approximately $136 million and $34 million of investments on
the consolidated statement of financial condition as of December 31, 2007 and
2006, respectively. AXA Equitable holds a 10% limited partnership interest in
this fund.
Other
Related Parties
The
consolidated statements of financial condition include a net receivable from
Holding and a net receivable or payable to our unconsolidated joint ventures as
a result of cash transactions for fees and expense reimbursements. The net
balances included in the consolidated statements of financial condition as of
December 31, 2007, 2006, and 2005 are as follows:
December
31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(in thousands)
|
||||||||||||
Due from Holding,
net
|
$ | 7,460 | $ | 7,149 | $ | 7,197 | ||||||
Due from (to) unconsolidated
joint ventures, net
|
$ | 255 | $ | 376 | $ | (2,678 | ) |
21. Acquisition
On May 2,
2006, we purchased the 50% interest in our Hong Kong joint venture (including
its wholly-owned Taiwanese subsidiary) owned by our joint venture partner for
$16.1 million in cash. The effect of this acquisition was not material to our
consolidated financial condition, results of operations or cash
flows.
22.
|
Dispositions
|
Cash
Management Services
In June
2005, AllianceBernstein and Federated Investors, Inc. (“Federated”) completed a
transaction pursuant to which Federated acquired our cash management services.
In the transaction, $19.3 billion in assets under management from 22 of our
third-party distributed money market funds were transitioned into Federated
money market funds.
The total
sales price (much of which is contingent) is estimated to be approximately $95.0
million, which is composed of three parts: (1) an initial cash payment of $25.0
million which was received in the second quarter of 2005, (2) annual contingent
purchase price payments payable over a five-year period ending 2010, which we
estimate will total $60.0 million, and (3) a final contingent $10.0 million
payment, which is based on comparing revenues generated by applicable assets
during the fifth year following the closing of the transaction to the revenues
generated by those assets during a specified period prior to the closing of the
transaction.
The
annual contingent purchase price payments are calculated as a percentage of
revenues, less certain expenses, directly attributed to these assets and certain
other assets of our former cash management clients transferred to Federated.
Income is accrued as earned. The contingent payments received from Federated in
the five years following the closing of the transaction are expected to largely
offset the loss of operating income that would have been earned for managing the
cash in money market fund customer accounts. As a result, this transaction is
not expected to have a material impact on future results of operations, cash
flow or liquidity during that period.
During
2005, we recorded a $19.4 million pre-tax gain as non-operating income, net of
transaction expenses and a “clawback” provision that would have required us to
pay Federated up to $7.5 million if average daily transferred assets for the
six-month period ended June 29, 2006 had fallen below a certain percentage of
initial assets transferred at closing. We were not required to make a payment
under the clawback provision and, accordingly, we recognized a gain of $7.5
million during the second quarter of 2006. In addition, we earned contingent
purchase price payments of $15.8 million and $12.8 million during 2007 and 2006,
respectively.
Indian
Mutual Funds
In the
third quarter of 2005, Alliance Capital Asset Management (India) Pvt. Ltd., 75%
owned by AllianceBernstein, whose principal activity was to sponsor and serve as
the investment advisor to AllianceBernstein mutual funds in India, transferred
those mutual funds and its rights to manage those mutual funds to Birla Sun
Life. During 2005, we recorded a pre-tax gain of $8.1 million from this
transaction, net of related expenses, as non-operating income.
South
African Joint Venture
AllianceBernstein
completed a transaction on December 31, 2005 pursuant to which Investec Asset
Management (Proprietary) Ltd. acquired AllianceBernstein’s interest in Alliance
Capital Management (Proprietary) Ltd., the firm’s South African domestic
investment management subsidiary, including Alliance Capital Management
(Proprietary) Namibia Ltd, its wholly-owned Namibian subsidiary.
In the
fourth quarter of 2005, we recorded a pre-tax gain of $7.0 million as
non-operating income consisting of $8.9 million of cash proceeds, offset by $0.3
million of transaction charges and $1.6 million of payments to former minority
shareholders.
23.
|
Accounting
Pronouncements
|
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157 (“SFAS No. 157”), “Fair
Value Measurements”. Among other requirements, SFAS No. 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. In February 2007, the FASB issued Statement of
Financial Accounting Standards No. 159 (“SFAS No. 159”), “Fair Value Option for Financial
Assets and Financial Liabilities”. SFAS No. 159 expands the use of fair
value measurement by permitting entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. Both SFAS No. 157 and SFAS No. 159 are
effective beginning the first fiscal year that begins after November 15, 2007.
We adopted both standards on January 1, 2008. SFAS No. 157 is
not expected to have a material impact on our consolidated financial statements.
Currently, we have not elected to expand the use of fair value measurements in
our consolidated financial statements as permitted by SFAS No. 159.
In June
2007, the FASB ratified the consensus reached by the Emerging Issues Task Force
(“EITF”) in EITF Issue No. 06-11 (“EITF 06-11”), “Accounting for Income Tax Benefits
of Dividends on Share-Based Payment Awards”. Under EITF 06-11,
a realized income tax benefit from distributions or distribution equivalents
that are charged to partners’ capital and are paid to employees for equity
classified non-vested Units should be recognized as an increase to partners’
capital. The amount recognized in partners’ capital for the realized
income tax benefit from distributions on those awards should be included in the
pool of excess tax benefits available to absorb tax deficiencies on share-based
payment awards. EITF 06-11 is effective January 1, 2008 and is to be
applied prospectively. EITF 06-11 is not expected to have a material impact on
our financial condition or results of operations.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007) (“SFAS No. 141-R”), “Business Combinations”. SFAS
No. 141-R improves the relevance, representational faithfulness, and
comparability regarding business combinations and their effects. Also
in December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160 (“SFAS No. 160”), “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No.
51”. SFAS No. 160 establishes accounting, reporting, and
disclosure standards for the noncontrolling interest, sometimes referred to as a
minority interest, in a subsidiary and for the deconsolidation of the
subsidiary. Both of these standards seek to improve, simplify, and
converge internationally the accounting for business combinations and the
reporting of noncontrolling interests in consolidated financial
statements. Both SFAS No. 141-R and SFAS No. 160 are effective for
fiscal years beginning on or after December 15, 2008. We do not
believe the application of SFAS No. 141-R or SFAS No. 160 will have a material
effect on our future results of operations, liquidity, or capital
resources.
24. Quarterly Financial Data
(Unaudited)
Quarters Ended 2007
|
||||||||||||||||
December 31
|
September 30
|
June 30
|
March 31
|
|||||||||||||
(in thousands, except per unit amounts)
|
||||||||||||||||
Net
revenues
|
$ | 1,169,386 | $ | 1,152,822 | $ | 1,158,773 | $ | 1,044,336 | ||||||||
Net
income
|
$ | 309,732 | $ | 348,082 | $ | 334,929 | $ | 267,701 | ||||||||
Basic
net income per unit(1)
|
$ | 1.18 | $ | 1.33 | $ | 1.28 | $ | 1.02 | ||||||||
Diluted
net income per unit(1)
|
$ | 1.17 | $ | 1.32 | $ | 1.27 | $ | 1.01 | ||||||||
Cash
distributions per unit(2)
|
$ | 1.17 | $ | 1.32 | $ | 1.27 | $ | 1.01 |
Quarters
Ended 2006
|
||||||||||||||||
December
31
|
September
30
|
June
30
|
March
31
|
|||||||||||||
(in thousands, except per unit amounts)
|
||||||||||||||||
Net
revenues
|
$ | 1,186,698 | $ | 934,711 | $ | 933,330 | $ | 895,668 | ||||||||
Net income(3)
|
$ | 366,952 | $ | 252,974 | $ | 261,102 | $ | 227,573 | ||||||||
Basic net income per unit(1)
(3)
|
$ | 1.40 | $ | 0.97 | $ | 1.00 | $ | 0.88 | ||||||||
Diluted net income per unit(1)
(3)
|
$ | 1.39 | $ | 0.96 | $ | 0.99 | $ | 0.87 | ||||||||
Cash distributions per
unit(2)
(3)
|
$ | 1.60 | $ | 0.96 | $ | 0.99 | $ | 0.87 |
(1)
|
Basic and diluted net income per
unit are computed independently for each of the periods presented.
Accordingly, the sum of the quarterly net income per unit amounts may not
agree to the total for the
year.
|
(2)
|
Declared
and paid during the following
quarter.
|
(3)
|
During
the fourth quarter of 2006, we recorded a $56.0 million pre-tax charge for
the estimated cost of reimbursing certain clients for losses arising out
of an error we made in processing claims for class action settlement
proceeds on behalf of these clients, which include some
AllianceBernstein-sponsored mutual funds. The charge and related income
tax benefit decreased 2006 net income and net income per unit by $54.5
million and $0.21, respectively. We believe that most of this cost will
ultimately be recovered from residual settlement proceeds and insurance.
Our fourth quarter 2006 cash distribution was declared by the Board of
Directors prior to recognition of this adjustment. As a result, to the
extent that all or a portion of the cost is recovered in subsequent
periods, we do not intend to include recoveries in Available Cash Flow (as
defined in the AllianceBernstein Partnership Agreement), and would not
distribute those amounts to
unitholders.
|
Report
of Independent Registered Public Accounting Firm
To the General Partner and
Unitholders
AllianceBernstein
L.P.:
In our
opinion, the accompanying consolidated statements of financial condition and the
related consolidated statements of income, changes in partners' capital and
comprehensive income and cash flows present fairly, in all material respects,
the financial position of AllianceBernstein L.P. and its subsidiaries
(“AllianceBernstein”) at December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2007 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, AllianceBernstein maintained,
in all material respects, effective internal control over financial reporting as
of December 31, 2007, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). AllianceBernstein's management is responsible for
these financial statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's Report on Internal
Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements and on
AllianceBernstein's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
New York,
New York
February
22, 2008
Report
of Independent Registered Public Accounting Firm
The
General Partner and Unitholders
AllianceBernstein
L.P.:
We have
audited the accompanying consolidated statements of income, changes in partners’
capital and comprehensive income and cash flows for the year ended December 31,
2005 of AllianceBernstein L.P. and subsidiaries (“AllianceBernstein”), formerly
Alliance Capital Management L.P. These consolidated financial statements are the
responsibility of the management of the General Partner. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
AllianceBernstein for the year ended December 31, 2005, in conformity with U.S.
generally accepted accounting principles.
/s/
KPMG LLP
|
|
New
York, New York
|
|
February
24, 2006
|
Item
9.
|
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
|
Neither
AllianceBernstein nor Holding had any changes in or disagreements with
accountants in respect of accounting or financial disclosure.
Item 9A.
|
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 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 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.
Management’s
Report on Internal Control over Financial Reporting
Management
acknowledges its responsibility for establishing and maintaining adequate
internal control over financial reporting for each of Holding and
AllianceBernstein.
Internal
control over financial reporting is a process designed by, or under the
supervision of, a company’s principal executive officer and principal financial
officers, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles (“GAAP”) and
includes those policies and procedures that:
•
|
Pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the
company;
|
•
|
Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of
the company are being made only in accordance with authorizations of
management and directors of the company;
and
|
•
|
Provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the company’s assets that could have a material effect
on the financial statements.
|
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those internal control systems determined to be
effective can provide only reasonable assurance with respect to the reliability
of financial statement preparation and presentation. Because of these inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness of internal
control to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of each of Holding’s and AllianceBernstein’s internal
control over financial reporting as of December 31, 2007. In making its
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework (“COSO criteria”).
Based on
its assessment, management concluded that, as of December 31, 2007, each of
Holding and AllianceBernstein maintained effective internal control over
financial reporting based on the COSO criteria.
PricewaterhouseCoopers
LLP, the independent registered public accounting firm that audited the 2007
financial statements included in this Form 10-K, has issued an attestation
report on the effectiveness of each of Holding’s and AllianceBernstein’s
internal control over financial reporting as of December 31, 2007. These reports
can be found in Item
8.
Changes
in Internal Control Over Financial Reporting
No change
in our internal control over financial reporting occurred during the fourth
quarter of 2007 that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item
9B. Other Information
Both
AllianceBernstein and Holding reported all information required to be disclosed
on Form 8-K during the fourth quarter of 2007.
PART
III
Item 10.
|
Directors, Executive Officers and Corporate
Governance
|
General
Partner
The
Partnerships’ activities are managed and controlled by the General Partner; the
Board of Directors of the General Partner (“Board”) acts as the Board of each of
the Partnerships. The General Partner has agreed that it will conduct no active
business other than managing the Partnerships, although it may make certain
investments for its own account. Neither AllianceBernstein Unitholders nor
Holding Unitholders have any rights to manage or control the Partnerships, or to
elect directors of the General Partner. The General Partner is an indirect,
wholly-owned subsidiary of AXA.
The
General Partner does not receive any compensation from AllianceBernstein or
Holding for services rendered to them as their general partner. The General
Partner holds a 1% general partnership interest in AllianceBernstein and 100,000
units of general partnership interest in Holding. Each general partnership unit
in Holding is entitled to receive distributions equal to those received by each
limited partnership unit.
The
General Partner is entitled to reimbursement by AllianceBernstein for any
expenses it incurs in carrying out its activities as general partner of the
Partnerships, including compensation paid by the General Partner to its
directors and officers (to the extent such persons are not compensated directly
by AllianceBernstein).
|
Directors
and Executive Officers
|
As of
January 31, 2008, the directors and executive officers of the General Partner
were as follows (officers of the General Partner also serve as officers of
AllianceBernstein and Holding):
Name
|
Age
|
Position
|
||
Lewis A. Sanders
|
61
|
Chairman
of the Board and Chief Executive Officer
|
||
Dominique Carrel-Billiard
|
41
|
Director
|
||
Henri de
Castries
|
53
|
Director
|
||
Christopher M. Condron
|
60
|
Director
|
||
Denis Duverne
|
54
|
Director
|
||
Richard S. Dziadzio
|
44
|
Director
|
||
Peter Etzenbach
|
40
|
Director
|
||
Deborah S. Hechinger
|
57
|
Director
|
||
Weston
M. Hicks
|
51
|
Director
|
||
Gerald M. Lieberman
|
61
|
Director,
President and Chief Operating Officer
|
||
Lorie A. Slutsky
|
55
|
Director
|
||
A.W.
(Pete) Smith, Jr.
|
64
|
Director
|
||
Peter J. Tobin
|
63
|
Director
|
||
Lawrence
H. Cohen
|
46
|
Executive
Vice President
|
||
Laurence E. Cranch
|
61
|
Executive
Vice President and General Counsel
|
||
Edward J. Farrell
|
47
|
Senior
Vice President and Controller
|
||
Sharon E. Fay
|
47
|
Executive
Vice President
|
||
Marilyn G. Fedak
|
61
|
Executive
Vice President
|
||
James A. Gingrich
|
49
|
Executive
Vice President
|
||
Mark R. Gordon
|
54
|
Executive
Vice President
|
||
Thomas S. Hexner
|
51
|
Executive
Vice President
|
||
Robert H. Joseph,
Jr.
|
60
|
Senior
Vice President and Chief Financial Officer
|
||
Mark R. Manley
|
45
|
Senior
Vice President, Deputy General Counsel and Chief Compliance
Officer
|
||
Seth J. Masters
|
48
|
Executive
Vice President
|
||
Marc O. Mayer
|
50
|
Executive
Vice President
|
||
Douglas J. Peebles
|
42
|
Executive
Vice President
|
||
Jeffrey S. Phlegar
|
41
|
Executive
Vice President
|
||
James G. Reilly
|
46
|
Executive
Vice President
|
||
Lisa A. Shalett
|
44
|
Executive
Vice President
|
||
David A. Steyn
|
48
|
Executive
Vice President
|
||
Gregory J. Tencza
|
41
|
Executive
Vice President
|
||
Christopher M. Toub
|
48
|
Executive
Vice President
|
Biographies
Mr. Sanders
was elected Chairman of the Board of the General Partner effective January 1,
2005 and Chief Executive Officer of AllianceBernstein effective July 1, 2003.
Before taking on his current roles, he had served as Vice Chairman and Chief
Investment Officer since the Bernstein Transaction in 2000. Prior to the
Bernstein Transaction, Mr. Sanders had served as Chairman and Chief
Executive Officer of Bernstein since 1992; he began his career with Bernstein in
1968 as a research analyst. Mr. Sanders is the Chairman and Chief Executive
Officer of SCB Inc.
Mr. Carrel-Billiard
was elected a Director of the General Partner in July 2004. He has been Chief
Executive Officer of AXA Investment Managers, a subsidiary of AXA
(“AXA IM”), since June 13, 2006. Mr. Carrel-Billiard joined AXA on
June 1, 2004 as the Senior Vice President-Business Support and Development in
charge of AXA Financial, asset management and reinsurance. Prior to joining AXA,
Mr. Carrel-Billiard was a Partner of McKinsey and Company where he
specialized in the financial services industry. During the 12 years he spent at
McKinsey, Mr. Carrel-Billiard worked on a broad array of topics (including
insurance, asset gathering and management, and corporate and investment banking)
for the top management of international banks, insurance companies, including
AXA, and other financial services groups. Mr. Carrel-Billiard also led the
European Retail Savings and Life Insurance practice, with focus on distribution
issues for asset gathering products to retail investors.
Mr. de
Castries was elected a Director of the General Partner in October 1993. Since
May 3, 2000, he has been Chairman of the Management Board of AXA. Prior thereto,
he served AXA in various capacities, including Vice Chairman of the AXA Group
Management Board; Senior Executive Vice President-Financial Services and Life
Insurance Activities in the United States, Germany, the United Kingdom, and
Benelux from 1996 to 2000; Executive Vice President-Financial Services and Life
Insurance Activities from 1993 to 1996; General Secretary from 1991 to 1993; and
Central Director of Finances from 1989 to 1991. He is also a director or officer
of AXA Financial, AXA Equitable, and various other subsidiaries and affiliates
of the AXA Group. Mr. de Castries was elected Vice Chairman of AXA
Financial on February 14, 1996 and was elected Chairman of AXA Financial,
effective April 1, 1998.
Mr. Condron
was elected a Director of the General Partner in May 2001. He has been Director,
President and Chief Executive Officer of AXA Financial since May 2001. He is
Chairman of the Board, Chief Executive Officer and President of AXA Equitable
and a member of the AXA Group Management Board. In addition, Mr. Condron is
Chairman of the Board, President and Chief Executive Officer of MONY Life
Insurance Company, which AXA Financial acquired in July 2004. Prior to joining
AXA Financial, Mr. Condron served as both President and Chief Operating
Officer of Mellon Financial Corporation (“Mellon”), from 1999, and as Chairman
and Chief Executive Officer of The Dreyfus Corporation, a subsidiary of Mellon,
from 1995. Mr. Condron is a member of the Board of Directors of KBW, Inc.,
a full-service investment bank and broker-dealer. He also serves as Chairman of
KBW’s compensation committee and as a member of its audit committee and its
corporate governance and nominating committee. Mr. Condron is
also a member of the Board of Directors of The American Council of Life Insurers
and the Financial Services Round Table (“FSR”); he is the 2008 Chairman–Elect of
the FSR.
Mr. Duverne
was elected a Director of the General Partner in February 1996. He has been
Chief Financial Officer of AXA since May 2003 and a member of the AXA Group
Management Board since February 2003. From January 2000 to May 2003,
Mr. Duverne served as Group Executive Vice President-Finance, Control
and Strategy. Mr. Duverne joined AXA as Senior Vice President in 1995. He
is a Director of AXA Financial, AXA Equitable, and various other subsidiaries
and affiliates of the AXA Group.
Mr. Dziadzio
was re-elected a Director of the General Partner in May 2007. (He had
previously served on the Board from February 2001 to May 2004.) He is
Executive Vice President and Chief Financial Officer of AXA Financial. He joined
the AXA Group in 1994 as a senior analyst in the corporate finance department,
working primarily on mergers and acquisitions. In 1997, he was promoted to
corporate finance officer, handling corporate finance activities for the group
in insurance and asset management in the U.S. and U.K. In 1998,
Mr. Dziadzio became head of finance and administration for AXA Real Estate
Investment Managers, a subsidiary of AXA. From February 2001 to June 2004, he
was responsible for business support and development for AXA Financial,
AllianceBernstein, and AXA IM. Mr. Dziadzio joined AXA Financial in
July 2004, and was elected Executive Vice President of AXA Equitable in
September 2004. He became Executive Vice President and Deputy Chief Financial
Officer of AXA Financial and AXA Equitable in September 2005.
Mr. Etzenbach
was elected a Director of the General Partner in May 2006. He is Senior Vice
President-Business Support and Development of AXA in charge of AXA Equitable,
asset management, and reinsurance. He joined the AXA Group in 2005 as a lead
strategic auditor in the AXA Group Audit Department. Prior to joining AXA,
Mr. Etzenbach was an Executive Director of Goldman Sachs in investment
banking and equity capital markets. During the 13 years he spent at
Goldman Sachs, Mr. Etzenbach held various management roles, including
Business Unit Manager for the European Investment Banking Division (2001 to
2002) and Chief Operating Officer for the Sovereign Effort, a position which
reported to the Vice Chairman of Goldman Sachs International
(2004).
Ms. Hechinger
was elected a Director of the General Partner in May 2007. Currently an
independent consultant on non-profit governance, she was President and Chief
Executive Officer of BoardSource, a leading governance resource for non-profit
organizations, from 2003 to 2007. From 2004 to 2007, Ms. Hechinger also
served as co-convener of the Governance and Fiduciary Responsibilities work
group, one of the five groups established by the Panel on the Nonprofit Sector
to make recommendations to Congress on ways to improve the governance and
accountability of non-profit organizations. She also served on the Advisory
Board for the Center for Effective Philanthropy and was a Member of the Ethics
and Accountability Committee at Independent Sector. Prior to joining
BoardSource, Ms. Hechinger was the Executive Vice President of the World
Wildlife Fund, a large, global conservation organization, where she oversaw all
fundraising, communication and operations activities. She has also served as
Deputy Comptroller and Director of the Securities and Corporate Practices
Division at the Office of the Comptroller of the Currency and has held senior
executive positions in the Division of Enforcement at the
SEC.
Mr. Hicks
was elected a Director of the General Partner in July 2005. He has been a
Director and the President and chief executive officer of Alleghany Corporation
(“Alleghany”), an insurance and diversified financial services holding company,
since December 2004 and was Executive Vice President of Alleghany from October
2002 until December 2004. From March 2001 through October 2002, Mr. Hicks
was Executive Vice President and Chief Financial Officer of The Chubb
Corporation.
Mr. Lieberman
was elected a Director of the General Partner and the Chief Operating Officer of
AllianceBernstein in November 2003 and was elected President of
AllianceBernstein in November 2004, when he was also elected a member of AXA’s
Executive Committee. Mr. Lieberman joined AllianceBernstein in October 2000
and served as Executive Vice President - Finance and Operations of
AllianceBernstein from November 2000 to November 2003. Prior to the Bernstein
Transaction, Mr. Lieberman served as a Senior Vice President, Finance and
Administration of Bernstein, which he joined in 1998, and was a member of
Bernstein’s Board of Directors. Mr. Lieberman is a Director of SCB
Inc.
Ms. Slutsky
was elected a Director of the General Partner in July 2002. Since January 1990,
she has been President and Chief Executive Officer of The New York Community
Trust, a $2 billion community foundation which annually grants more than $150
million. Ms. Slutsky has been a Director of AXA Financial, AXA Equitable,
and certain other subsidiaries of AXA Financial since September
2006.
Mr. Smith
was elected a Director of the General Partner in July 2005. The former CEO of
Watson Wyatt Worldwide, he was also President of the Private Sector Council, a
non-profit public service organization dedicated to improving the efficiency of
the federal government, from September 2000 until May 2005. Mr. Smith has
been President of Smith Consulting since June 2005.
Mr. Tobin
was elected a Director of the General Partner in May 2000. From September 2003
to June 2005, he was Special Assistant to the President of St. John’s
University. Prior thereto, Mr. Tobin served as Dean of the Tobin College of
Business of St. John’s University from August 1998 to September 2003. As
Dean, Mr. Tobin was the chief executive and academic leader of the College
of Business. Mr. Tobin was Chief Financial Officer at The Chase Manhattan
Corporation from 1996 to 1997. Prior thereto, he was Chief Financial Officer of
Chemical Bank (which merged with Chase in 1996) from 1991 to 1996 and Chief
Financial Officer of Manufacturers Hanover Trust (which merged with Chemical in
1991) from 1985 to 1991. Mr. Tobin is on the Boards of Directors of The
H.W. Wilson Co. and CIT Group Inc. He has been a Director of AXA Financial since
March 1999.
Mr. Cohen
has been Executive Vice President and Chief Technology Officer since joining
AllianceBernstein in 2004. In this role, he is responsible for technology
strategy, application development, and infrastructure services throughout
AllianceBernstein. Prior to joining AllianceBernstein, Mr. Cohen held
executive IT positions at UBS, Goldman Sachs, Morgan Stanley, and
Fidelity Investments.
Mr. Cranch
has been Executive Vice President and General Counsel since joining
AllianceBernstein in 2004. Prior to joining AllianceBernstein, Mr. Cranch
was a partner of Clifford Chance, an international law firm.
Mr. Cranch joined Clifford Chance in 2000 when Rogers & Wells, a
New York law firm of which he was Managing Partner, merged with
Clifford Chance.
Mr. Farrell
has been Senior Vice President and Controller since joining AllianceBernstein in
2003. He also serves as the Chief Financial Officer of SCB LLC. From 1994
through 2003, Mr. Farrell worked at Nomura Securities International, where
he was a Managing Director and a member of the senior management committee. He
also held various financial positions including Controller and Chief Financial
Officer.
Ms. Fay
joined Bernstein in 1990 as a research analyst in investment management,
following the airlines, lodging, trucking, and retail industries, and has been
Executive Vice President and Chief Investment Officer-Global Value Equities of
AllianceBernstein since 2003, overseeing all portfolio management and research
activities relating to cross-border and non-U.S. value investment portfolios and
chairing the Global Value Investment Policy Group. Until January 2006,
Ms. Fay was Co-Chief Investment Officer-European and U.K. Value Equities, a
position she assumed with Bernstein in 1999. Between 1997 and 1999, she
was Chief Investment Officer-Canadian Value Equities with Bernstein. Prior to
that, she had been a senior portfolio manager of International Value Equities
since 1995.
Ms. Fedak,
a Chartered Financial Analyst, joined Bernstein in 1984 as a senior portfolio
manager. An Executive Vice President of AllianceBernstein since 2000, she is
Head of Global Value Equities and Chair of the U.S. Large Cap Value Equity
Investment Policy Group. From 1993 through 2003, Ms. Fedak was Chief
Investment Officer for U.S. Value Equities; in 2003, she named a Co-CIO.
Ms. Fedak is the President of Sanford C. Bernstein Fund,
Inc. She is also a Director of SCB Inc.
Mr. Gingrich
joined Bernstein in 1999 as a senior research analyst covering the U.S.
household and personal products industry. He became an Executive Vice President
of AllianceBernstein and the Chairman and Chief Executive Officer of SCB LLC in
February 2007. Prior to becoming Chairman and CEO of SCB LLC, Mr. Gingrich
served as Global Director of Research. Mr. Gingrich was elected a Senior
Vice President of AllianceBernstein in 2002.
Mr. Gordon,
a Chartered Financial Analyst, joined Bernstein in 1983 and currently serves as
Director of Global Quantitative Research of AllianceBernstein, co-head of
Alternative Investments, and Chief Investment Officer for the Global Diversified
Funds. He was elected an Executive Vice President of AllianceBernstein in
February 2004. Mr. Gordon previously served as Bernstein’s Head of Risk
Management, Director of Product Development, and Director of Quantitative
Research.
Mr. Hexner
joined Bernstein in 1986 as a financial advisor. An Executive Vice President of
AllianceBernstein since 2000, he is Head of Bernstein GWM and oversees the
firm’s private client business worldwide. Mr. Hexner has been responsible
for the firm’s private client business since 1996. He was named President of
Bernstein Investment Research and Management, a unit of AllianceBernstein, in
2000, and Head of Bernstein GWM in 2006 in recognition of the global expansion
of the private client business. Mr. Hexner is a Director of SCB
Inc.
Mr. Joseph
joined AllianceBernstein in 1984 and held various financial positions until his
election as Senior Vice President and Chief Financial Officer in 1994. Before
joining AllianceBernstein, Mr. Joseph was a Senior Audit Manager with Price
Waterhouse for 13 years.
Mr.
Manley joined AllianceBernstein in 1984 and currently serves as Senior Vice
President, Deputy General Counsel and Chief Compliance Officer. Mr. Manley
served as Acting General Counsel from July 2003 through July 2004 and has served
as the company’s Chief Compliance Officer since 1988. From February 1998 through
June 2003, Mr. Manley was Senior Vice President and Assistant General
Counsel. From February 1992 through February 1998, he was Vice President and
Counsel.
Mr. Masters
joined Bernstein in 1991 as a research analyst covering banks, insurance
companies, and other financial firms. He currently heads the AllianceBernstein
Blend Strategies team and is Chief Investment Officer for Style Blend, roles he
has held since 2002. Mr. Masters was named Executive Vice President of
AllianceBernstein in 2004 and Senior Vice President in 2000. Between 1994 and
2002, Mr. Masters was Chief Investment Officer of Emerging Markets Value
Equities, a service he took the lead in designing.
Mr. Mayer
joined Bernstein in 1989 as a research analyst and later became research
director in the institutional research services
group. He has been an Executive Vice President of
AllianceBernstein since 2000 and was elected Executive Managing Director of
AllianceBernstein Investments in November 2003. Mr. Mayer had
been Head of AllianceBernstein Institutional Investments from 2001 until that
time. Prior to 2001, Mr. Mayer was Head of SCB LLC. Mr. Mayer is
President of the U.S. Funds (other than the SCB Funds), and he is a Director of
SCB Inc.
Mr. Peebles
joined AllianceBernstein in 1987 and has been an Executive Vice President of
AllianceBernstein and Co-Chief Investment Officer of Fixed Income since 2004. He
is Co-Chairman of the Fixed Income Investment Strategy Committee. He is also
Director of Global Fixed Income, with investment responsibility for the
institutional and retail global fixed income portfolios managed by
AllianceBernstein. His responsibilities include formulating daily
portfolio management and risk decisions. From February 1998 until
April 2004, Mr. Peebles served as a Senior Vice President in Global Fixed
Income.
Mr. Phlegar
joined AllianceBernstein in 1993 and has been an Executive Vice President of
AllianceBernstein and Co-Chief Investment Officer of Fixed Income since 2004. He
is Co-Chairman of the Fixed Income Investment Strategy
Committee. Mr. Phlegar oversees the portfolio managers and
research analysts responsible for Fixed Income AUM across AllianceBernstein’s
three distribution channels, Institutional Investments, Retail, and Private
Client, worldwide. He served as a Senior Vice President in U.S.
Investment Grade Fixed Income from 1998 until 2004. Prior to joining
AllianceBernstein, Mr. Phlegar managed high grade securities for regulated
insurance entities at Equitable Capital Management Corporation, which
AllianceBernstein acquired in 1993.
Mr. Reilly
joined AllianceBernstein in 1985 as a Vice President and quantitative and
fundamental research analyst covering airlines and railroads, and is currently
the U.S. Large Cap Growth team leader. He has been an Executive Vice President
since 1999 and a portfolio manager with AllianceBernstein’s large cap growth
team since 1988. Mr. Reilly was a Senior Vice President of
AllianceBernstein from 1993 until 1999.
Ms. Shalett
joined Bernstein in 1995 and has been Executive Vice President of
AllianceBernstein since November 2002. In February 2007, she joined the
management team of Alliance Growth Equities as the Global Research Director and
was named Global Head of Growth Equities in January 2008. For the four years
prior, Ms. Shalett was Chair and Chief Executive Officer of SCB LLC, the
firm’s institutional research brokerage business. Previously, Ms. Shalett
served as Director of Global Research for the sell-side and served as a senior
research analyst covering capital goods and diversified
industrials.
Mr. Steyn
joined Bernstein in 1999, having been the founding co-Chief Executive Officer of
Bernstein’s London office, and has been Executive Vice President and Global Head
of Client Service and Marketing since April 2007. In this role, the
Heads of AllianceBernstein’s three distribution channels, Institutional
Investments, Retail and Private Client, report to him. Prior to
serving in this role, Mr. Steyn had been Executive Vice President and Head
of AllianceBernstein Institutional Investments since November 2003.
Mr. Steyn was elected a Senior Vice President of AllianceBernstein
in 2000.
Mr. Tencza
joined Bernstein in 1997 as Director of Consultant Relations for Institutions
and has been Executive Vice President and Head of Institutional Investments
since May 2007, overseeing AllianceBernstein’s institutional business worldwide.
From May 2006 until assuming his most recent post, he was senior managing
director and Head of Global Sales and Client Service. Previously,
Mr. Tencza was Head of Institutional Global Business Development and
Consultant Relations, after having served as product manager for Global Value
Equities between 2000 and 2002.
Mr. Toub
joined AllianceBernstein in 1992 as a portfolio manager with the Disciplined
Growth group. He has been an Executive Vice President of AllianceBernstein since
1999 and Head of Global/International Growth Equities since 1998. Mr. Toub
became Chief Executive Officer of AllianceBernstein Limited, a London-based
wholly-owned subsidiary of AllianceBernstein, in April 2005. He served as
Director of Research—Global Growth Equities from 1998 through
2000.
Corporate
Governance
Board
of Directors
The Board
holds quarterly meetings, generally in February, May, July or August, and
November of each year, and holds special meetings or takes action by unanimous
written consent as circumstances warrant. The Board has standing Executive,
Audit, Corporate Governance, and Compensation Committees, each of which is
described in further detail below. Of the directors, only Mr. Dziadzio
attended fewer than 75% of the aggregate of all Board and committee meetings
which he was entitled to attend in 2007.
Committees of the
Board
The
Executive Committee of the Board (“Executive Committee”) is composed of Ms.
Slutsky and Messrs. Condron, Duverne, Lieberman, Sanders (Chair), and Tobin. The
Executive Committee exercises all of the powers and authority of the Board (with
limited exceptions) when the Board is not in session, or when it is impractical
to assemble the Board. The Executive Committee held five meetings in
2007.
The
Corporate Governance Committee of the Board (“Governance Committee”) is composed
of Mr. Condron, Ms. Hechinger, Mr. Sanders, and Ms. Slutsky
(Chair). The Governance Committee assists the Board in (i) identifying and
evaluating qualified individuals to become Board members; (ii) determining the
composition of the Board and its committees; (iii) developing and monitoring a
process to assess Board effectiveness; (iv) developing and implementing our
corporate governance guidelines; and (v) reviewing our policies and programs
that relate to matters of corporate responsibility of the General Partner and
the Partnerships. The Governance Committee held three meetings in
2007.
The Audit
Committee of the Board (“Audit Committee”) is composed of Messrs. Hicks,
Smith, and Tobin (Chair). The primary purposes of the Audit Committee are to:
(i) assist the Board in its oversight of (1) the integrity of the financial
statements of the Partnerships, (2) the Partnerships’ status and system of
compliance with legal and regulatory requirements and business conduct, (3) the
independent registered public accounting firm’s qualification and independence,
and (4) the performance of the Partnerships’ internal audit function; and (ii)
oversee the appointment, retention, compensation, evaluation, and termination of
the Partnerships’ independent registered public accounting firm. Consistent with
this function, the Audit Committee encourages continuous improvement of, and
fosters adherence to, the Partnerships’ policies, procedures, and practices at
all levels. With respect to these matters, the Audit Committee provides an open
avenue of communication among the independent registered public accounting firm,
senior management, the Internal Audit Department, and the Board. The Audit
Committee held nine meetings in 2007.
The
functions of each of the committees discussed above are more fully described in
the respective committee’s charter, each of which is available on our Internet
site (http://www.alliancebernstein.com).
The
Compensation Committee of the Board (“Compensation Committee”) is composed of
Mr. Condron (Chair), Mr. Sanders, Ms. Slutsky and Mr. Smith.
For additional information about the Compensation Committee, see “Executive Compensation -
Compensation Discussion & Analysis” in Item 11.
In 2003,
the Board appointed a Special Committee, now consisting of Ms. Slutsky and
Mr. Tobin (Chair), to oversee a number of matters relating to
investigations by the NYAG, the SEC, and other regulators. The Special Committee
remains responsible for overseeing the handling of a related unitholder
derivative suit and the distribution of the Restitution Fund (for additional
information, see “Business -
Regulation” in Item 1). The members of the Special Committee do not
receive any additional compensation for their service on the Special Committee,
apart from the ordinary meeting fees described in “Executive Compensation
- Director Compensation” in Item 11. The Special Committee did not meet
during 2007.
Audit
Committee Financial Experts
In
January 2007 and January 2008, the Governance Committee, after reviewing
materials prepared by management, recommended that the Board determine that each
of Weston M. Hicks and Peter J. Tobin is an “audit committee financial expert”
within the meaning of Item 401(h) of Regulation S-K. The Board so determined at
its regular meeting in February 2007 and February 2008. The Board also
determined at these meetings that each member of the Audit Committee
(Messrs. Hicks, Smith, and Tobin) is financially literate and possesses
accounting or related financial management expertise, as contemplated by Section
303A.07(a) of the NYSE Listed Company Manual.
Independence
of Certain Directors
In
January 2007, the Governance Committee, after reviewing materials prepared by
management, recommended that the Board determine that each of Mr. Hicks,
Ms. Slutsky, Mr. Smith, and Mr. Tobin is “independent” within the
meaning of Section 303A.02 of the NYSE Listed Company Manual. The Board
considered immaterial relationships of Mr. Hicks (relating to Alleghany
Corporation being a client of SCB LLC and Mr. Hicks being a former employee of
Bernstein), and Ms. Slutsky (relating to contributions made by AllianceBernstein
to The New York Community Trust, of which she is President and Chief Executive
Officer) and then determined, at its February 2007 regular meeting, that each of
Mr. Hicks, Ms. Slutsky, Mr. Smith, and Mr. Tobin is independent within the
meaning of the relevant rules.
In
January 2008, the Governance Committee, after reviewing materials prepared by
management, recommended that the Board determine that each of
Ms. Hechinger, Mr. Hicks, Ms. Slutsky, Mr. Smith, and
Mr. Tobin is “independent” within the meaning of Section 303A.02 of the
NYSE Listed Company Manual. The Board considered immaterial relationships of Ms.
Hechinger (relating to her service as an executive officer of BoardSource
concurrently with Ms. Slutsky serving as that company’s Chairperson), Mr. Hicks
(relating to Alleghany Corporation being a client of SCB LLC and Mr. Hicks
having been employed by Bernstein from 1991 to 1999), and Ms. Slutsky (relating
to contributions made by AllianceBernstein to The New York Community Trust, of
which she is President and Chief Executive Officer) and then determined, at its
February 2008 regular meeting, that each of Ms. Hechinger, Mr. Hicks, Ms.
Slutsky, Mr. Smith, and Mr. Tobin is independent within the meaning of the
relevant rules.
Code
of Ethics and Related Policies
All of
our directors, officers and employees are subject to our Code of Business
Conduct and Ethics. The code is intended to comply with Section 303A.10 of the
NYSE Listed Company Manual, Rule 204A-1 under the Investment Advisers Act and
Rule 17j-1 under the Investment Company Act and with recommendations issued by
the Investment Company Institute regarding, among other things, practices and
standards with respect to securities transactions of investment professionals.
The Code of Business Conduct and Ethics establishes certain guiding principles
for all of our employees, including sensitivity to our fiduciary obligations and
ensuring that we meet those obligations. Our Code of Business Conduct and Ethics
may be found in the “Corporate Governance” portion of our Internet site (http://www.alliancebernstein.com).
We have
adopted a Code of Ethics for the Chief Executive Officer and Senior Financial
Officers, which is intended to comply with Section 406 of the Sarbanes-Oxley Act
of 2002 (“Item 406 Code”). The Item 406 Code was adopted on October 28, 2004 by
the Executive Committee. We intend to satisfy the disclosure requirements under
Item 5.05 of Form 8-K regarding certain amendments to, or waivers from,
provisions of the Item 406 Code that apply to the Chief Executive Officer, Chief
Financial Officer and Controller by posting such information on our Internet
site (http://www.alliancebernstein.com). To
date, there have been no such amendments or waivers.
NYSE
Governance Matters
Section
303A.00 of the NYSE Listed Company Manual exempts limited partnerships from
compliance with the following sections of the Manual: Section 303A.01
(board must have a majority of independent directors), 303A.04 (corporate
governance committee must have only independent directors as its members), and
303A.05 (compensation committee must have only independent directors as its
members). Holding is a limited partnership (as is AllianceBernstein). In
addition, because the General Partner is a wholly-owned subsidiary of AXA, and
the General Partner controls Holding (and AllianceBernstein), we believe we
would also qualify for the “controlled company” exemption. Notwithstanding the
foregoing, the Board has adopted a Corporate Governance Committee Charter that
complies with Section 303A.04 and a Compensation Committee Charter that complies
with Section 303A.05. However, not all members
of these committees are independent.
Our
Corporate Governance Guidelines (“Guidelines”) promote the effective functioning
of the Board and its committees, promote the interests of the Partnerships’
respective unitholders, with appropriate regard to the Board’s duties to the
sole stockholder of the General Partner, and set forth a common set of
expectations as to how the Board, its various committees, individual directors,
and management, should perform their functions. The Guidelines may be found in
the “Corporate Governance” portion of our Internet site (http://www.alliancebernstein.com).
The
Corporate Governance Committee is responsible for considering any request for a
waiver under the Code of Business Conduct and Ethics, the Item 406 Code, the AXA
Code of Business Conduct, and AXA Financial Policy Statement on Ethics from any
director or executive officer of the General Partner. Any such waiver that has
been granted would be set forth in the “Corporate Governance” portion of our
Internet site (http://www.alliancebernstein.com).
Peter J. Tobin
has been chosen to preside at all executive sessions of non-management and
independent directors. Interested parties wishing to communicate directly with
Mr. Tobin may send an e-mail, with “confidential” in the subject line, to
corporate.secretary@alliancebernstein.com.
Upon receipt, our Corporate Secretary will promptly forward all such e-mails to
Mr. Tobin. Interested parties may also address mail to Mr. Tobin in
care of Corporate Secretary, AllianceBernstein Corporation, 1345 Avenue of the
Americas, New York, NY 10105, and the Corporate Secretary will promptly
forward such mail to Mr. Tobin. We have posted this information in the
“Corporate Governance” portion of our Internet site (http://www.alliancebernstein.com).
Our
Internet site (http://www.alliancebernstein.com),
under the heading “Contact our Directors”, provides an e-mail address for any
interested party, including unitholders, to communicate with the Board of
Directors. Our Corporate Secretary reviews e-mails sent to that address and has
some discretion in determining how or whether to respond, and in determining to
whom such e-mails should be forwarded. In our experience, substantially all of
the e-mails received are ordinary client requests for administrative assistance
that are best addressed by management or solicitations of various
kinds.
The 2007
Certification by our Chief Executive Officer under NYSE Listed Company Manual
Section 303A.12(a) was submitted to the NYSE on March 26, 2007.
Certifications
by our Chief Executive Officer and Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 have been furnished as exhibits to this
Form 10-K.
Holding
Unitholders and AllianceBernstein Unitholders may request a copy of any
committee charter, the Guidelines, the Code of Business Conduct and Ethics, and
the Item 406 Code by contacting the Corporate Secretary of AllianceBernstein
(corporate.secretary@alliancebernstein.com).
The charters and memberships of the Executive, Audit, Corporate Governance, and
Compensation Committees, may be found in the “Corporate Governance” portion of
our Internet site (http://www.alliancebernstein.com).
Management
Committees
The
Management Executive Committee is composed of Messrs. Cohen, Cranch, Gingrich,
Gordon, Hexner, Lieberman, Manley, Masters, Mayer, Peebles, Phlegar, Reilly,
Sanders, Steyn, Tencza and Toub, and Mses. Fay, Fedak, and Shalett, who together
are the group of key executives responsible for managing AllianceBernstein,
enacting strategic initiatives, and allocating resources to our company’s
various departments. Mr. Sanders serves ex-officio as Chairman of the
Management Executive Committee. The Management Executive Committee meets on a
regular basis and at such other times as circumstances warrant.
The Code
of Ethics Oversight Committee (“Ethics Committee”), composed of each member of
the Management Executive Committee and certain other senior executives, oversees
all matters relating to issues arising under the AllianceBernstein Code of
Business Conduct and Ethics. The Ethics Committee, which was created pursuant to
the SEC Order (see “Business -
Regulation” in Item 1), meets on a quarterly basis and at such other
times as circumstances warrant.
The
Internal Compliance Controls Committee (“Compliance Committee”), also composed
of each member of the Management Executive Committee and certain other senior
executives, reviews compliance issues throughout our company, endeavors to
develop solutions to those issues as they may arise from time to time, and
oversees implementation of those solutions. The Compliance Committee, which was
created pursuant to the SEC Order (see “Business - Regulation” in Item
1), meets on a quarterly basis and at such other times as circumstances
warrant.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires directors of the General Partner and
executive officers of the Partnerships, and persons who own more than 10% of the
Holding Units or AllianceBernstein Units, to file with the SEC initial reports
of ownership and reports of changes in ownership of Holding Units or
AllianceBernstein Units. To the best of management’s knowledge, during 2007: (i)
all Section 16(a) filing requirements relating to Holding were complied with,
except that a Form 3 was filed late for Mr. Dziadzio in respect of his election
to the Board in May 2007, a Form 4 was filed late for Mr. Cohen in respect of
his January 2007 award under the Special Option Program (the Special Option
Program is more fully discussed below in “Compensation Discussion and
Analysis” in Item
11), a Form 4
was filed late for Ms. Slutsky in respect of a gift of Holding Units she made in
March 2006, and a Form 4 was filed late for Mr. Toub in respect of the Holding
Units withheld from his December 2007 employee deferred compensation
distribution to pay a portion of applicable withholding taxes; and (ii) all Section
16(a) filing requirements relating to AllianceBernstein were complied with,
except that a Form 3 was filed late for Mr. Dziadzio in respect of his election
to the Board. You can find our Section 16 filings under “Investor & Media
Relations” / “Reports & SEC Filings” on our Internet site (http://www.alliancebernstein.com).
Item 11.
|
Executive
Compensation
|
Compensation
Discussion and Analysis (“CD&A”)
Overview
of Compensation Philosophy and Program
Our
employees’ intellectual capital is collectively the most important asset of our
firm. We invest in people - we hire qualified people, train them, encourage them
to give their best thinking to the firm and our clients, and compensate them in
a manner designed to motivate and retain them. As a result, the costs of
employee compensation and benefits are significant, comprising approximately 58%
of our operating expenses and representing approximately 41% of our net revenues
for 2007. These percentages are not unusual for companies in the
financial services industry. The magnitude of this expense also requires that it
be monitored by management, and overseen by the Board, with the particular
attention of the Compensation Committee.
We
believe that the quality, skill, and dedication of our executive officers are
critical to enhancing the long-term value of our company. Our key compensation
goals are to attract highly-qualified executive talent, provide rewards for the
past year’s performance, provide incentives for future performance, align our
executives’ long-term interests with those of our clients and Unitholders, and
retain our key leaders. We believe that fundamental success in achieving good
results for the firm, and for our Unitholders, must flow from achieving
investment success for our clients. Accordingly, in recent years, our deferred
incentive compensation program has encouraged our executives to allocate their
awards on a notional basis to the investment products we offer to our clients,
in addition to notional investments in Holding Units and, in certain cases
(see below),
investments in options to buy Holding Units.
Historically,
we have used a variety of compensation elements to achieve the goals described
above. Currently, we use base salary, annual cash bonuses, a deferred
compensation plan (the Amended and Restated AllianceBernstein Partners
Compensation Plan, “Partners Plan”), a defined contribution plan, and Holding
Unit options, all of which are discussed in more detail below.
We do not
set firm-wide financial performance targets (such as earnings per unit, market
capitalization, net income or organic growth) and, therefore, management efforts
are not directed at meeting any such specific targets. Estimates are developed
for budgeting and strategic planning purposes, but employee and officer
compensation is not directly tied to “hitting” or “missing” financial
performance targets. Some salespeople do have compensation incentives
based on sales levels.
Our
incentive compensation, consisting of annual cash bonuses and awards of deferred
compensation, is intended to encourage our officers to remain with the
firm. Annual cash bonuses provide a shorter-term incentive to remain
through year-end because such bonuses are typically paid during the last week of
the year. Deferred awards encourage longer-term retention because
such awards vest over time and are subject to forfeiture; recipients are
therefore discouraged from leaving.
The gross
amount of incentive compensation – that is, the “bonus pool” available to pay
annual cash bonuses and make deferred awards – is a function of our overall
financial performance. The bonus pool is based on formula-driven
calculations (with separate calculations for cash bonuses and deferred awards)
using annual operating income and institutional research services
revenues. It may be increased or decreased in the discretion of
management, subject to the approval of the Compensation Committee, to maintain
appropriate levels of compensation. This results in an “adjusted
bonus pool” (discussed
below). In the past three years, we granted incentive
compensation awards that, in the aggregate, were significantly less than the
bonus pool calculation permitted.
Decisions
about executive officer compensation are based primarily on our assessment of
each executive’s leadership, operational performance, and potential to enhance
investment returns and service for our clients and, in doing so, contribute to
long-term Unitholder value. We rely upon our judgment about each executive’s
performance — rather than utilizing quantitative formulas — in determining the
amount and mix of compensation elements and whether each particular payment or
award provides an appropriate reward for the current year’s performance. Key
factors that we consider include: performance compared to the operational and
strategic goals established for the executive at the beginning of the year;
nature, scope, and level of responsibilities; contribution of the executive’s
business unit to the company’s commitment to create and maintain a fiduciary
culture in which clients’ interests are paramount; and contribution to our
overall financial results.
We also
consider each executive’s current salary, and prior-year cash bonus and deferred
award, the appropriate balance between incentives for long-term and short-term
performance, and the compensation paid to the executive’s peers within the
company. In addition, we review information provided by McLagan Partners,
compensation consultants retained by management, about compensation levels at
other companies. In general, we believe
that key employees should be well-compensated, but that significant portions of
compensation should be deferred and earned for service in future periods, which
provides an incentive for key employees to remain with the firm.
In
addition to the benefits of aligning the interests of employees and clients, we
recognize that there are benefits to aligning the interests of employees and
Unitholders. Our CEO’s employment agreement was amended in 2007 to
require that half of his unvested balance be allocated to Holding Units and that
half of his future awards be allocated to Holding Units (in each case, the other
half must be allocated to investment services offered to clients by
AllianceBernstein). Before this amendment, the agreement did not
permit Mr. Sanders to allocate any portion of his deferred awards to
Holding Units. In addition, there is a small group of senior officers
to whom we wish to provide additional financial incentives to remain with
AllianceBernstein because executive management believes they constitute the next
generation of firm leadership or because of their exceptional individual
contributions to the company’s success. Accordingly, in January 2007, the
Compensation Committee approved the Special Option Program (“Special Option
Program”). The Special Option Program permits selected senior officers to
voluntarily allocate up to a specified portion of their annual deferred
compensation award to options to buy Holding Units (“Allocated Award Options”);
the firm matches this allocation on a two-for-one basis (“Match Options”).
Members of the Management Executive Committee generally do not receive awards
under the Special Option Program.
The value
allocated to each option granted under the Special Option Program equals the
Black-Scholes value of the option calculated on the option grant date. The
exercise price for each option is equal to the price of a Holding Unit as
reported for NYSE composite transactions at the close of trading on the option
grant date. The option grant date is the date of the meeting of the Compensation
Committee at which it approved the granting of the options. Allocated Award
Options have a 10-year term and vest in equal annual increments on each of the
first five anniversaries of the grant date; Match Options have an 11-year term
and vest in equal annual increments on each of the sixth through tenth
anniversaries of the grant date.
Options
granted on January 26, 2007 pursuant to the Special Option Program represent the
first Holding Unit options granted to employees as part of their year-end
compensation packages since December 2002. Independent directors receive annual
grants of Holding Unit options and Restricted Units (for additional information
about these awards, see
“Director Compensation” below).
Compensation
Elements for Executive Officers
Below we
describe the major elements of our executive compensation.
1. Base Salary. Base
salaries make up a small portion of executive officers’ total compensation and
are maintained at low levels relative to salaries of executives at peer firms;
except for the CEO and amounts reflecting foreign exchange rates related to
service in non-U.S. locations, no executive officers at the firm were paid a
base salary greater than $200,000. Within the relatively narrow range of base
salaries paid to executive officers, we consider individual experience,
responsibilities and tenure with the firm. The salaries we paid during 2007 to
our chief executive officer, chief financial officer, and our three most highly
compensated executive officers (the “named executive officers”) are shown in
column (c) of the Summary Compensation Table.
2. Cash Bonus. We pay
annual cash bonuses in late December from the cash portion of the bonus pool to
reward individual performance for the year. These bonuses are based on
management’s evaluation (subject to the Compensation Committee’s review and
approval) of each executive’s performance during the year, and the performance
of the executive’s business unit or function, compared to business and
operational goals established at the beginning of the year, and in the context
of our overall financial performance. The aggregate amount of cash bonuses
awarded to all employees is limited by the size of the cash portion of the
adjusted bonus pool. The cash bonuses we awarded in 2007 to our named
executive officers are shown in column (d) of the Summary Compensation
Table.
In 2007,
the calculations described above resulted in a larger bonus pool than in 2006,
and total cash incentive compensation in 2007 was therefore higher than in the
prior year, primarily due to higher headcount. However, turbulence in
the global financial markets during the second half of the year adversely
affected our firm’s financial results, in particular our performance-based
investment management fees (for additional information about these fees, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item
7). Given these results, and in light of our increased
headcount, we determined generally to award senior officers cash bonuses equal
to those received in 2006, while increasing appropriately the amount of their
deferred awards.
3. Deferred
Compensation. The Partners Plan is an unfunded, non-qualified deferred
compensation plan under which awards may be granted to eligible employees. Since
2001, participants have been permitted to allocate their Partners Plan awards in
a combination of notional investments in certain of our investment services
offered to clients and notional investments in Holding Units. Since 2003, no
more than 50% of an annual award may be allocated to Holding Units. As described
above, we have created a Special Option Program which permits a limited number
of senior officers to allocate a portion of their Partners Plan award to options
to buy Holding Units. A participant’s allocation to options is subject to this
50% limitation. The aggregate amount of all deferred compensation
available for award to employees is limited by the size of the deferred portion
of the adjusted bonus pool. The 2007 deferred compensation awards
granted to our named executive officers are shown in column (i) of the Summary
Compensation Table and column (c) of the Non-Qualified Deferred Compensation
Table.
The value
used for Holding Units to effect a participant’s allocation to Holding Units
(excluding Holding Unit options) is the closing price as reported for NYSE
composite transactions on a day shortly following the release of fourth quarter
earnings. If the trust does not hold a sufficient number of Holding Units to
fulfill the aggregate amount of participant allocations, the company issues the
needed amount of Holding Units under an existing equity compensation plan,
effective as of this same day.
Since
2001, vesting periods for Partners Plan awards have ranged from four years to
immediate, depending on the age of the participant; all awards fully vest if a
participant remains in our employ through December 1 in the year during which he
or she turns 65. Upon vesting, awards are distributed to participants unless the
participant has, in advance, voluntarily elected to defer receipt to future
periods. Quarterly cash distributions on unvested Holding Units for which a
deferral election has not been made are paid currently to participants.
Quarterly cash distributions on vested and unvested Holding Units for which a
voluntary deferral election has been made, and earnings credited on investment
services, are reinvested and distributed as elected by participants. These are
shown as “earnings” in column (d) of the Non-Qualified Deferred Compensation
Table.
4. Special Option
Program. As discussed above, in January 2007 the Compensation Committee
approved the Special Option Program, which provides for a select group of senior
officers recommended by management and approved by the Compensation Committee to
allocate a portion of their Partners Plan awards to options to buy Holding
Units, and to receive a two-for-one match of such allocated amount. Because the
Special Option Program is designed to retain individuals whom we believe will
constitute the next
generation of the firm’s leadership, our named executive officers were not
selected to participate in the Special Option Program.
5. Defined Contribution
Plan. All employees are eligible to participate in the Amended and
Restated Profit Sharing Plan for Employees of AllianceBernstein L.P. (“Profit
Sharing Plan”), a tax-qualified plan. The Compensation Committee determines the
amount of company contributions (both the level of annual matching by the firm
of an employee’s pre-tax salary deferral contributions and the annual company
profit sharing contribution). In recent years, we have matched employee deferral
contributions on a one-to-one basis up to five percent of eligible compensation;
profit sharing contributions have been an additional five percent of eligible
compensation. Company contributions to the Profit Sharing Plan on
behalf of the named executive officers are shown in column (i) of the Summary
Compensation Table.
6. CEO
Arrangements. Mr. Sanders, our chief executive officer,
is compensated in accordance with the October 2006 employment agreement, as
amended, between himself and our company (“Employment
Agreement”). The Employment Agreement is described below under “Other
Information regarding Compensation of Named Executive
Officers”. The Employment Agreement sets minimum amounts of
annual base salary ($275,000) and of deferred compensation awards (one percent
of the firm’s adjusted consolidated operating income). The
Compensation Committee may award amounts in excess of each minimum; they did not
do so at year-end 2007. Mr. Sanders is not paid a cash
bonus. Substantially all of the compensation paid to Mr. Sanders
under the Employment Agreement vests on a deferred basis in accordance with the
terms of the Employment Agreement and is distributed to Mr. Sanders upon
vesting. The deferral of such awards, and the notional investments available for
such awards, are designed to serve the same retention function as the deferral
of Partners Plan awards. At year-end 2007, Mr. Sanders was required to
allocate his 2007 award in a manner that would result in his aggregate deferred
balance being 50% invested in Holding Units and 50% in investment services
offered to clients by AllianceBernstein. In future years, 50% of each
award must be allocated to notional investments in each of Holding Units and
investment services offered to clients.
Compensation
Committee
The
Compensation Committee is composed of Mr. Condron (Chair),
Mr. Sanders, Ms. Slutsky and Mr. Smith. As discussed elsewhere
(see “Directors, Executive
Officers and Corporate Governance - NYSE Governance Matters” in Item 10),
because it is a limited partnership, Holding is exempt from NYSE rules that
require public companies to have a compensation committee made up solely of
independent directors. Because AXA owns, indirectly, an approximate 63.2%
economic interest in AllianceBernstein, and because compensation expense is such
a significant factor in our financial results, Mr. Condron, President and
Chief Executive Officer of AXA Financial, serves as chairman of the Compensation
Committee.
The
Compensation Committee has general oversight of compensation and
compensation-related matters, including, but not limited to: (i) determining
cash bonuses; (ii) determining contributions and awards under incentive plans or
other compensation arrangements (whether qualified or non-qualified) for
employees of AllianceBernstein and its subsidiaries, and amending or terminating
such plans or arrangements or any welfare benefit plan or arrangement or making
recommendations to the Board with respect to adopting any new incentive
compensation plan, including equity-based plans; (iii) reviewing and approving
corporate goals and objectives relevant to the compensation of our chief
executive officer, evaluating his performance in light of those goals and
objectives, and determining and approving his compensation level based on this
evaluation (Mr. Sanders recuses himself from voting on his own compensation);
and (iv) reviewing the CD&A, and recommending to the Board its inclusion in
the Partnerships’ Forms 10-K. In December 2007, the Compensation Committee
delegated responsibility for managing AllianceBernstein’s non-qualified plans to
the Omnibus Committee for Non-Qualified Plans, a newly-formed committee whose
five members are senior officers of AllianceBernstein. The Compensation
Committee held three meetings in 2007, including the approval of the Special
Option Program and related awards on January 26, 2007.
The
Compensation Committee’s year-end process has generally focused on the cash
bonus and deferred awards granted to senior management, including awards to
Mr. Sanders under the Employment Agreement. Mr. Sanders plays an
active role in the work of the Compensation Committee. Messrs. Lieberman
and Sanders, working with other members of senior management, provide
recommendations of awards to the Compensation Committee for their consideration.
Management periodically retains McLagan Partners to assist in providing industry
benchmarking data to the Compensation Committee. The Compensation Committee has
not retained its own consultants.
The
Compensation Committee’s functions are more fully described in the committee’s
charter, which is available online at our Internet site (http://www.alliancebernstein.com).
Other
Compensation-Related Matters
AllianceBernstein
and Holding are, respectively, private and public limited partnerships, and are
subject to taxes other than federal and state corporate income tax. (See “Business - Taxes” in Item
1.) Accordingly, Section 162(m) of the Code, which limits tax deductions
relating to executive compensation otherwise available to entities taxed as
corporations, is not applicable to either AllianceBernstein or
Holding.
We have
amended our qualified and non-qualified plans to the extent necessary to comply
with the requirements of Section 409A of the Code.
All
compensation awards that involve the issuance of Holding Units are made under
the Amended and Restated 1997 Long Term Incentive Plan (“1997 Plan”), which
Holding Unitholders initially approved in 1997. Holding Unitholders approved
amendments to the 1997 Plan (increasing the number of Holding Units that may be
issued thereunder, and extending its life) in 2000. No more than 41 million
Holding Units may be awarded under the 1997 Plan through July 26, 2010. As of
December 31, 2007, 25,434,147 Holding Units were available for future awards
under the 1997 Plan.
Compensation
Committee Interlocks and Insider Participation
Mr. Condron
is the President and Chief Executive Officer of AXA Equitable, the sole
stockholder of the General Partner. AXA Equitable and its affiliates own an
aggregate 63.2% economic interest in AllianceBernstein. Mr. Sanders is
Chairman and Chief Executive Officer of the General Partner, and, accordingly,
also serves in those positions for AllianceBernstein and Holding. No executive
officer of AllianceBernstein served as a member of a compensation committee or a
director of another entity, an executive officer of which served as a member of
AllianceBernstein’s Compensation Committee or Board.
Compensation
Committee Report
The
members of the Compensation Committee reviewed and discussed with management the
Compensation Discussion and Analysis set forth above and, based on such review
and discussion, recommended its inclusion in this Form 10-K.
Christopher M. Condron
(Chair) Lewis A. Sanders
Lorie A. Slutsky A.W. (Pete) Smith, Jr.
Summary
Compensation Table
The
following table summarizes the total compensation of our named executive
officers as of the end of 2007 and 2006:
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)
|
Change
in
Pension
Value
and
Nonquali-
fied
Deferred
Compensation
Earnings
($)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
|||||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||||
Lewis A. Sanders
Chairman
& Chief
Executive
Officer
|
2007
2006
|
275,002
275,002
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
21,893,098
19,501,985
|
22,168,100
19,776,987
|
|||||||||||||||||||||||||||
Gerald M. Lieberman
President
& Chief
Operating
Officer
|
2007
2006
|
200,000
200,000
|
4,050,000
4,050,000
|
-
-
|
42,908
61,192
|
-
-
|
-
-
|
7,568,795
6,224,070
|
11,861,703
10,535,262
|
|||||||||||||||||||||||||||
Marilyn G. Fedak
Executive
Vice
President
|
2007
2006
|
160,000
140,769
|
4,000,000
4,000,000
|
-
-
|
-
-
|
-
-
|
-
-
|
7,356,000
6,123,707
|
11,516,000
10,264,476
|
|||||||||||||||||||||||||||
Sharon E. Fay
Executive
Vice
President
|
2007
2006
|
160,000
150,000
|
3,900,000
3,900,000
|
-
-
|
-
-
|
-
-
|
-
-
|
8,370,008
7,284,717
|
12,430,008
11,334,717
|
|||||||||||||||||||||||||||
Robert H. Joseph,
Jr.
Senior
Vice President
&
Chief Financial
Officer
|
2007
2006
|
185,000
175,000
|
1,050,000
1,050,000
|
-
-
|
16,091
22,947
|
-
-
|
18,664
31,041
|
1,088,406
868,726
|
2,358,161
2,147,714
|
Each
named executive officer received a base salary for 2007 and 2006 and, except for
Mr. Sanders, an annual cash bonus at year-end. These amounts are reflected
in columns (c) and (d), respectively. For information about how salary and bonus
relate to total compensation, see “Compensation Elements for
Executive Officers” in this Item 11.
Column
(f) reflects AllianceBernstein’s amortization expense in respect of the vesting
of prior years’ option grants based on the value of those grants on the grant
date. For additional information, see Note 16 to AllianceBernstein’s
consolidated financial statements in Item 8.
Column
(h) reflects the change in pension value for Mr. Joseph, the only named
executive officer who participates in the Amended and Restated Retirement Plan
for Employees of AllianceBernstein L.P. (“Retirement Plan”).
Column
(i) reflects awards under the Partners Plan, Mr. Sanders’s deferred award
under his Employment Agreement, and other items. We report Partners Plan awards
and Mr. Sanders’s award under column (i) because of their nature. They are
designed to provide incentives to recipients, but they cannot be categorized as
having been granted under an “incentive plan” under relevant SEC rules because
there are no specific performance measures that must be met before a participant
may receive his or her award. Also, as noted above, any allocation of awards by
recipients to equity of the firm is voluntary; we do not unilaterally make
awards of Holding Units to employees. In addition, awards under the Partners
Plan are not accounted for under SFAS No. 123-R.
During
2007, we owned fractional interests in two aircraft with an aggregate operating
cost of $3,362,012 (including $1,025,422 in maintenance fees,
$1,651,440 in usage fees, and $685,150 of amortization based on the original
cost of our fractional interests, less estimated residual value). The
unamortized value of the fractional interests as of December 31, 2007 was
$9,958,136.
During
2006, we owned fractional interests in two aircraft with an aggregate operating
cost of $3,277,654 (including $1,175,531 in maintenance fees,
$1,440,963 in usage fees, and $661,160 of amortization based on the original
cost of our fractional interests, less estimated residual value). The
unamortized value of the fractional interests as of December 31, 2006 was
$10,633,385.
Our
interests in aircraft facilitate business travel of members of our management
executive committee. In 2007, we also permitted our Chief Executive Officer, our
President, and our former Chairman to use the aircraft for personal travel; in
2006, in addition to these officers, we also permitted our former Vice Chairman
to use the aircraft for personal travel. Overall, personal travel constituted
approximately 21.1% and 38.1% of our actual use of the aircraft in 2007 and
2006, respectively.
Our
methodology for determining the reported value of personal use of aircraft
includes fees paid to the managers of the aircraft (fees take into account the
aircraft type and weight, number of miles flown, flight time, number of
passengers, and a variable fee), but excludes our fixed costs (amortization of
original cost less estimated residual value, and monthly maintenance fees). We
included such amounts in column (i).
We use
the Standard Industry Fare Level (“SIFL”) methodology to calculate the amount to
include in the taxable income of executives for the personal use of
company-owned aircraft. Using this methodology, which was approved by our
Compensation Committee, limits our ability to deduct the full cost of personal
use of company-owned aircraft by our executive officers. Taxable income for the
twelve months ended October 31, 2007 for personal use imputed to
Mr. Sanders is $55,068 and to Mr. Lieberman is $14,669.
Ms. Fedak, Ms. Fay, and Mr. Joseph did not make personal use of
company-owned aircraft during those 12 months, so no income was imputed to them.
Taxable income for the twelve months ended October 31, 2006 for personal use
imputed to Mr. Sanders is $66,368 and to Mr. Lieberman is $12,958.
Ms. Fedak, Ms. Fay, and Mr. Joseph did not make personal use of
company-owned aircraft during those 12 months, so no income was imputed to
them.
Column
(i) also includes the aggregate incremental cost to our company of certain other
expenses and perquisites, including leased cars, drivers, contributions to the
Profit Sharing Plan, life insurance premiums, disability pay, non-U.S. living
expenses, tax equalization payments, business club dues, and parking, as
applicable.
For 2007,
column (i) includes:
for Mr.
Sanders, $21,472,988 for his 2007 annual deferred award under his Employment
Agreement, $238,916 for personal use of aircraft, $157,506 for personal use of a
car (including lease costs ($25,547), driver salary ($110,579), and other
car-related costs ($21,380) such as parking, gas, tolls, and repairs and
maintenance), a $22,500 contribution to the Profit Sharing Plan, and $1,188 of
life insurance premiums.
for Mr.
Lieberman, $7,350,000 for his 2007 Partners Plan award, $58,395 for personal use
of aircraft, $140,400 for personal use of a car (including lease costs
($25,556), driver salary ($97,504), and other car-related costs ($17,340) such
as parking, gas, tolls, and repairs and maintenance), and a $20,000 contribution
to the Profit Sharing Plan.
for
Ms. Fedak, $7,340,000 for her 2007 Partners Plan award and a $16,000
contribution to the Profit Sharing Plan.
for
Ms. Fay, $7,140,000 for her 2007 Partners Plan award, a $16,000
contribution to the Profit Sharing Plan, $5,500 for tax preparation, and $198 of
life insurance premiums. Column (i) for Ms. Fay also includes
payments and reimbursements under AllianceBernstein’s expatriate assignment
policy (“Expatriate Policy”), which applies to all employees on a temporary
overseas assignment and is designed to eliminate any financial gain or loss to
the employee from his or her assignment. Payments and reimbursements
for 2007 to Ms. Fay include $112,839 for living expenses in London and tax
equalization of approximately $1,095,471.
for Mr.
Joseph, $1,040,000 for his 2007 Partners Plan award, $16,235 for personal use of
a car (including lease costs ($9,515) and other car-related costs ($6,720) such
as parking, gas, and repairs and maintenance), $6,741 in business club dues, an
$18,500 contribution to the Profit Sharing Plan, and $6,930 of life insurance
premiums.
For 2006,
column (i) includes:
for Mr.
Sanders, $19,012,000 for his 2006 annual deferred award under his employment
agreement, $303,935 for personal use of aircraft, $162,862 for personal use of a
car (including lease costs ($38,146), driver salary ($103,339), and other
car-related costs ($21,377) such as parking, gas, tolls, and repairs and
maintenance), a $22,000 contribution to the Profit Sharing Plan, and $1,188 of
life insurance premiums.
for Mr.
Lieberman, $6,050,000 for his 2006 Partners Plan award, $11,234 for personal use
of aircraft, $142,836 for personal use of a car (including lease costs
($27,355), driver salary ($97,719), and other car-related costs ($17,762) such
as parking, gas, tolls, and repairs and maintenance), and a $20,000 contribution
to the Profit Sharing Plan.
for
Ms. Fedak, $6,100,000 for her 2006 Partners Plan award, $8,755 of sick-pay
and short-term disability pay, and a $14,952 contribution to the Profit Sharing
Plan.
for
Ms. Fay, $5,700,000 for her 2006 Partners Plan award, a $15,000
contribution to the Profit Sharing Plan, and $180 of life insurance
premiums. Column (i) for Ms. Fay also includes payments and
reimbursements under our Expatriate Policy. Payments and
reimbursements for 2006 to Ms. Fay include $202,320 for living expenses in
London and tax equalization of approximately $1,367,217 (we reported 2006 tax
equalization as $185,579 last year; we are revising this figure to more
accurately represent the tax equalization cost on an accrued
basis).
for Mr.
Joseph, $825,000 for his 2006 Partners Plan award, $13,869 for personal use of a
car (including lease costs ($6,516) and other car-related costs ($7,353) such as
parking, gas, and repairs and maintenance), $8,100 in business club dues, a
$17,500 contribution to the Profit Sharing Plan, and $4,257 of life insurance
premiums.
Grant
of Plan-based Awards
We have
not granted Holding Units or options to buy Holding Units to the named executive
officers for a number of years, and the Partners Plan cannot be categorized as
an “incentive plan” under relevant SEC rules. Accordingly, we made no grants of
plan-based awards to the named executive officers in 2007, and we have omitted
the related table.
Outstanding
Equity Awards at Fiscal Year-End
The
following table describes any outstanding equity awards as of December 31, 2007
of our named executive officers, if any:
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||||||||||
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($)
|
|||||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||||
Lewis A. Sanders
|
- | - | - | n/a | n/a | - | - | - | - | |||||||||||||||||||||||||||
Gerald M. Lieberman
|
40,000
40,000
|
-
-
|
-
-
|
33.18
50.25
|
12/06/12
12/07/11
|
-
-
|
-
-
|
-
-
|
-
-
|
|||||||||||||||||||||||||||
Marilyn G. Fedak
|
- | - | - | n/a | n/a | - | - | - | - | |||||||||||||||||||||||||||
Sharon E. Fay
|
- | - | - | n/a | n/a | - | - | - | - | |||||||||||||||||||||||||||
Robert H. Joseph,
Jr.
|
15,000
15,000
15,000
50,000
15,000
20,000
|
-
-
-
-
-
-
|
-
-
-
-
-
-
|
33.18
50.25
53.75
48.50
30.25
26.31
|
12/06/12
12/07/11
12/11/10
06/20/10
12/06/09
12/10/08
|
-
-
-
-
-
-
|
-
-
-
-
-
-
|
-
-
-
-
-
-
|
-
-
-
-
-
-
|
Of the
named executive officers, only Messrs. Lieberman and Joseph have been
granted options to buy Holding Units. No named executive officer has been
awarded Holding Units.
Option
Exercises and Stock Vested
None of
our named executive officers exercised options or had Holding Units vest during
2007. Accordingly, we have omitted the table.
Pension
Benefits
The
following table describes the accumulated benefit under our company pension plan
belonging to each of our named executive officers as of December 31, 2007, if
any:
Name
|
Plan
Name
|
Number
of Years
Credited
Service (#)
|
Present
Value of
Accumulated
Benefit ($)
|
Payments
During Last
Fiscal
Year ($)
|
||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||
Lewis A. Sanders
|
n/a
|
-
|
-
|
-
|
||||||||
Gerald M. Lieberman
|
n/a
|
-
|
-
|
|
-
|
|||||||
Marilyn G. Fedak
|
n/a
|
-
|
-
|
-
|
||||||||
Sharon E. Fay
|
n/a
|
-
|
-
|
-
|
||||||||
Robert H. Joseph,
Jr.
|
Retirement
Plan
|
23
|
426,530
|
-
|
Of the
named executive officers, only Mr. Joseph participates in the Retirement
Plan and continues to accrue benefits thereunder. This plan is a qualified,
noncontributory, defined benefit retirement plan covering current and former
employees who were employed in the United States prior to October 2, 2000. Each
participant’s benefits are determined under a formula which takes into account
years of credited service, the participant’s average compensation over
prescribed periods and Social Security covered compensation. The maximum annual
benefit payable under the plan may not exceed the lesser of $100,000 or 100% of
a participant’s average aggregate compensation for the three consecutive years
in which he or she received the highest aggregate compensation from us or such
lower limit as may be imposed by the Code on certain participants by reason of
their coverage under another qualified retirement plan we maintain. A
participant is fully vested after the completion of five years of service. The
plan generally provides for payments to, or on behalf of, each vested employee
upon such employee’s retirement at the normal retirement age provided under the
plan or later, although provision is made for payment of early retirement
benefits on an actuarially reduced basis. Normal retirement age under the plan
is 65. Death benefits are payable to the surviving spouse of an employee who
dies with a vested benefit under the plan. For additional information regarding
interest rates and actuarial assumptions, see Note 14 to AllianceBernstein’s
consolidated financial statements in Item 8.
Non-Qualified
Deferred Compensation
The
following table describes our named executive officers’ non-qualified deferred
compensation contributions, earnings, and distributions during 2007 and their
non-qualified deferred compensation plan balances as of December 31,
2007:
Name
|
Executive
Contributions in
Last
FY ($)
|
Registrant
Contributions in
Last
FY ($)
|
Aggregate
Earnings
in
Last FY ($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance
at
Last FYE ($)
|
|||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|||||||||||||||
Lewis A. Sanders
|
- | 21,472,988 | (943,139) | 12,102,529 | 44,133,908 | |||||||||||||||
Gerald M. Lieberman
|
- | 7,350,000 | 1,128,080 | 7,328,000 | 22,533,870 | |||||||||||||||
Marilyn G. Fedak
|
- | 7,340,000 | 297,595 | - | 29,338,060 | |||||||||||||||
Sharon E. Fay
|
- | 7,140,000 | 650,307 | 5,743,478 | 15,310,922 | |||||||||||||||
Robert H. Joseph,
Jr.
|
- | 1,040,000 | 177,354 | 893,876 | 9,015,515 |
For
Mr. Sanders, the amounts shown reflect his awards under the Employment
Agreement and his former employment agreement. For Mr. Lieberman, the
amounts shown reflect the aggregate of his interest in both the SCB Deferred
Compensation Award Plan (“SCB Deferred Plan”), under which the last awards were
permitted to be made in 2003, and the Partners Plan. For Ms. Fay, the
amounts shown in columns (d) and (e) reflect the aggregate of her interest in
both the SCB Deferred Plan and the Partners Plan, while the amounts in columns
(c) and (f) reflect her interest in only the Partners Plan. (Ms. Fay had a
zero balance in the SCB Deferred Plan as of year-end 2007.) For
Ms. Fedak and Mr. Joseph, amounts shown reflect their respective
interests in the Partners Plan. For additional information about the SCB
Deferred Plan, the Partners Plan, and the Employment Agreement, see Note 15 to AllianceBernstein’s
consolidated financial statements in Item 8. Amounts in column (c) are
also included in column (i) of the Summary Compensation Table. For individuals
with notional investments in Holding Units, amounts of distributions on such
Holding Units are reflected as earnings in column (d) and, to the extent
distributed to the named executive officer, reflected as distributions in column
(e).
Column
(f) includes the value of all notional investments as of the close of business
on December 31, 2007. As of that date, Mr. Lieberman notionally held 37,466
Holding Units in the Partners Plan, and Mr. Joseph notionally held 55,041
Holding Units in the Partners Plan.
Other
Information regarding Compensation of Named Executive Officers
There are
no amounts payable to any of the named executive officers upon a change in
control of the company.
On
October 26, 2006, Lewis A. Sanders and AllianceBernstein entered into
the Employment Agreement, pursuant to which Mr. Sanders shall serve as
Chairman and Chief Executive Officer of the General Partner through
December 31, 2011 (“Employment Term”) unless the Employment Agreement is
terminated in accordance with its terms. Mr. Sanders will be paid a minimum
base salary of $275,000 per year during the Employment Term and, for calendar
year 2006 and each subsequent calendar year during the Employment Term, he is
entitled to receive a deferred compensation award of not less than one percent
(1%) of AllianceBernstein’s consolidated operating income before incentive
compensation (as defined with respect to the calculation of AllianceBernstein’s
bonus pool) for such calendar year. Mr. Sanders is entitled to perquisites
on the same terms as other senior executives through the Employment Term,
including personal use of aircraft and a car and driver (our President is the
only other officer entitled to personal use of aircraft and a car and
driver).
Mr.
Sanders holds an indirect equity interest in AllianceBernstein through his
ownership of a portion of SCB Inc. SCB Inc. must exercise its final
AllianceBernstein Unit put option before it expires in October 2010 and, when it
is exercised, Mr. Sanders will no longer hold this indirect equity interest. At
the December 7, 2007 meeting of the Compensation Committee, Mr. Sanders and the
Committee agreed that it would be appropriate for Mr. Sanders to maintain an
equity exposure to AllianceBernstein as part of his deferred compensation awards
under the Employment Agreement. Accordingly, the Employment Agreement
has been amended to require Mr. Sanders to allocate his 2007 award in a manner
that would result in his aggregate deferred balance being 50% notionally
invested in Holding Units and 50% in investment services offered to clients by
AllianceBernstein. In future years, Mr. Sanders will be required to
allocate 50% of each award under the Employment Agreement to notional
investments in each of Holding Units and investment services offered to
clients.
Mr. Sanders
may receive payments upon termination of his employment pursuant to his
Employment Agreement. During any year in which we terminate Mr. Sanders without
“cause” (as defined below), he is entitled to (i) his annual base salary for
that year, (ii) the deferred compensation award described above calculated as of
his termination date, (iii) all unvested deferred compensation awards, and (iv)
health and welfare benefits for Mr. Sanders, his spouse, and his dependents
through the end of that year. The first three of these elements, assuming 2007
costs, would have resulted in a payment to Mr. Sanders of approximately $44.4
million had he been terminated without cause as of January 1, 2008.
During
any year in which the employment of Mr. Sanders is terminated for “cause”, he is
entitled to (i) the pro rata portion of his annual salary for that year for
services rendered to the date of termination, to the extent not previously paid,
and (ii) all deferred compensation awards described above that have vested prior
to such termination. Mr. Sanders would be entitled to no other payments or
benefits under the Employment Agreement, which defines “cause” as Mr. Sanders’s
(i) willful failure to perform his duties, (ii) engaging in conduct found by a
court to (A) constitute employment disqualification or a felony and which is
materially and demonstrably injurious to our business or reputation, or (B)
materially violate federal or state securities laws, (iii) absent the finding in
clause (ii) above, a good faith determination by the Board that conduct by Mr.
Sanders constitutes such a disqualification, felony or violation, and that his
continued employment would be materially and demonstrably injurious to our
business or reputation, or (iv) breach of the confidentiality or non-competition
covenants contained in the Employment Agreement, which breach is material to our
business.
Director
Compensation
The
following table describes how we compensated our independent directors during
2007:
Name
|
Fees
Earned
or
Paid
in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
|||||||||||||||||||||
Deborah S. Hechinger
|
36,000 | 30,000 | 30,000 | - | - | - | 96,000 | |||||||||||||||||||||
Weston
M. Hicks
|
56,500 | 30,000 | 30,000 | - | - | - | 116,500 | |||||||||||||||||||||
Lorie A. Slutsky
|
68,500 | 30,000 | 30,000 | - | - | - | 128,500 | |||||||||||||||||||||
A.W.
(Pete) Smith, Jr.
|
64,000 | 30,000 | 30,000 | - | - | - | 124,000 | |||||||||||||||||||||
Peter J. Tobin
|
88,000 | 30,000 | 30,000 | - | - | - | 148,000 |
The
General Partner only pays fees, and makes equity awards to, directors who are
not employed by our company or by any of our affiliates. Such fees and awards
consist of:
•
|
an annual retainer of $40,000
(paid quarterly after any quarter during which a director serves on the
Board);
|
•
|
a fee of $1,500 for participating
in a meeting of the Board, or any duly constituted committee of the Board,
whether he or she participates in person or by
telephone;
|
|
•
|
an annual retainer of $15,000 for
acting as Chair of the Audit
Committee;
|
•
|
an annual retainer of $7,500 for
acting as Chair of the Corporate Governance Committee;
and
|
•
|
an annual equity-based grant
under the 1997 Plan consisting
of:
|
|
•
|
restricted Holding Units having a
value of $30,000 based on the closing price of Holding Units on the NYSE
as of the grant date; and
|
|
•
|
options to buy Holding Units with
a value of $30,000 calculated using the Black-Scholes
method.
|
On May
15, 2007, at a regularly scheduled meeting of the Board, 341 restricted Holding
Units and options to buy 1,956 Holding Units at $87.98 per Unit were granted to
Ms. Hechinger, Mr. Hicks, Ms. Slutsky, Mr. Smith and
Mr. Tobin. Such grants have generally been made at the May meeting of the
Board. The date of the meeting was set at a Board meeting in 2006. The exercise
price of the options was the closing price on the NYSE on the grant date. Due to
rounding, directors received slightly more than the value of the grant (but in
no case greater than approximately $103.32). For information about how the
Black-Scholes value was calculated, see Note 16 to AllianceBernstein’s
consolidated financial statements in Item 8. Options granted to
independent directors vest ratably over three years. Restricted Holding Units
granted to independent directors vest after three years. In order to avoid any
perception that our directors’ independence might be impaired, these options and
restricted Holding Units are not forfeitable. Vesting of options continues
following a director’s resignation from the Board. Restricted Holding Units vest
and are distributed immediately following an independent director’s resignation
from the Board.
The
General Partner may reimburse any director for reasonable expenses incurred in
participating in Board meetings. Holding and AllianceBernstein, in turn,
reimburse the General Partner for expenses incurred by the General Partner on
their behalf, including amounts in respect of directors’ fees and expenses.
These reimbursements are subject to any relevant provisions of the Holding
Partnership Agreement and AllianceBernstein Partnership
Agreement.
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management
and Related Stockholder
Matters
|
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table summarizes the Holding Units to be issued pursuant to our equity
compensation plans as of December 31, 2007:
Equity
Compensation Plan Information(1)
Plan Category
|
Number
of
securities to
be
issued
upon
exercise of
outstanding
options, warrants
and rights
(a)
|
Weighted
average
exercise price
of
outstanding
options, warrants
and rights
(b)
|
Number
of
securities
remaining
available for future
issuance
(c)
|
|||||||||
Equity
compensation plans approved by security holders
|
7,273,621 | $ | 64.20 | 25,434,147 | ||||||||
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
Total
|
7,273,621 | $ | 64.20 | 25,434,147 |
(1)
|
The figures in this table do not
include cash awards under certain of AllianceBernstein’s deferred
compensation plans pursuant to which employees (including those employees
who qualify as “named executive officers” see Item
11) may choose to
notionally invest a portion of such awards in Holding Units.
AllianceBernstein satisfies its obligations under these plans by
purchasing Holding Units or issuing new Holding Units under the 1997 Plan.
For additional information concerning such plans, see Note 15
to AllianceBernstein’s consolidated financial statements in Item
8.
|
There are
no AllianceBernstein Units to be issued pursuant to an equity compensation
plan.
For
information about our equity compensation plans (1993 Unit Option Plan, 1997
Long Term Incentive Plan, Century Club Plan), see Note 16 to AllianceBernstein’s
consolidated financial statements in Item 8.
Principal
Security Holders
As of
January 31, 2008, we had no information that any person beneficially owned more
than 5% of the outstanding Holding Units.
As of
January 31, 2008, we had no information that any person beneficially owned more
than 5% of the outstanding AllianceBernstein Units except (i) AXA and certain of
its wholly-owned subsidiaries as reported on Forms 4 filed with the SEC on
December 12, 2007 pursuant to the Exchange Act, (ii) AXA and certain of its
wholly-owned subsidiaries as reported on Schedule 13D/A filed with the SEC on
March 7, 2007 pursuant to the Exchange Act, and (iii) SCB Inc. and SCB Partners
Inc. (SCB Partners Inc. is a wholly-owned subsidiary of SCB Inc.) as reported on
Schedule 13D/A filed with the SEC on February 27, 2007 pursuant to the Exchange
Act.
The table
below and the notes following it have been prepared in reliance upon such
filings for the nature of ownership and an explanation of overlapping
ownership.
Name
and Address of Beneficial Owner
|
Amount
and Nature
of
Beneficial
Ownership
Reported
on
Schedule
|
Percent
of Class
|
||||||
AXA(1)(2)(3)(4)(6)
|
||||||||
25
avenue Matignon 75008 Paris, France
|
161,961,745 | 62.1 | % | |||||
SCB
Inc.,(5)(6)
SCB Partners Inc.(5)(6)
|
||||||||
50
Main Street, Suite 1000, White Plains, NY 10606
|
8,160,000 | 3.1 | % |
(1)
|
Based on information provided by
AXA Financial, on December 31, 2007, AXA and certain of its subsidiaries
beneficially owned all of AXA Financial’s outstanding common
stock. For insurance regulatory purposes the shares of common stock of
AXA Financial beneficially owned by
AXA and its subsidiaries have been
deposited into a voting trust (“Voting Trust”), the term of which has been
extended until May
12, 2012. The
trustees of the Voting Trust (the “Voting Trustees”) are Claude Bébéar, Henri de Castries and Denis Duverne, each of whom serves either on
the Management Board or on the Supervisory Board of AXA. The Voting Trustees have agreed
to exercise their voting rights to protect the legitimate economic
interests of AXA, but with a view to ensuring
that certain minority shareholders of AXA do not exercise control over
AXA Financial or certain of its
insurance subsidiaries.
|
(2)
|
Based on information provided by
AXA, as of December 31, 2007, 14.48% of the issued ordinary
shares (representing 21.10% of the voting power) of AXA were owned directly and
indirectly by two French mutual insurance companies (the “Mutuelles AXA”).
|
(3)
|
The Voting Trustees and the
Mutuelles AXA, as a group, may be deemed to be
beneficial owners of all AllianceBernstein Units beneficially owned by
AXA and its subsidiaries. By virtue
of the provisions of the Voting Trust Agreement, AXA may be deemed to have shared
voting power with respect to the AllianceBernstein Units. AXA and its subsidiaries have the
power to dispose or direct the disposition of all shares of the capital
stock of AXA Financial deposited in the
Voting Trust. The Mutuelles AXA, as a group, may be deemed to
share the power to vote or to direct the vote and to dispose or to direct
the disposition of all the AllianceBernstein Units beneficially owned by
AXA and its subsidiaries. The
address of each of AXA and the Voting Trustees is 25
avenue Matignon, 75008 Paris, France. The address of the Mutuelles AXA is 26, rue Drouot, 75009
Paris, France.
|
(4)
|
By reason of their relationships,
AXA, the Voting Trustees, the
Mutuelles AXA, AXA Financial, AXA Equitable, ACMC Inc., and ECMC,
LLC may be deemed to share the power to vote or to direct the vote and to
dispose or direct the disposition of all or a portion of the 161,961,745
AllianceBernstein Units.
|
(5)
|
SCB Partners Inc. is a wholly-owned
subsidiary of SCB Inc. Mr. Sanders is a Director
and the Chairman and Chief Executive Officer of SCB Inc., and is the owner of a
22.13% equity interest in SCB Inc. Mr. Lieberman is a Director
and the Senior Vice President—Finance and Administration of SCB Inc., and is the owner of a less
than 1% equity interest in SCB Inc. Ms. Fedak is a Director and Senior Vice
President of SCB Inc., and is the owner of a
2.67% equity interest in SCB Inc. Ms. Fay is the owner of a
less than 1% equity interest in SCB Inc. Mr. Sanders, Mr. Lieberman, Ms.
Fedak, and Ms. Fay disclaim beneficial ownership of the 8,160,000
AllianceBernstein Units owned by SCB Partners Inc., except to the
extent of their pecuniary interests therein. For additional information
about these pecuniary interests, see
“Management” in this Item 12.
|
(6)
|
In connection with the Bernstein
Transaction, SCB Inc., AllianceBernstein and
AXA Financial entered into a
purchase agreement under which SCB Inc. has the right to sell or
assign up to 2,800,000 AllianceBernstein Units issued in connection with
the Bernstein Transaction at any time. SCB Inc. has the right to sell
(“Put”) to AXA Financial or its designee up to
8,160,000 AllianceBernstein Units issued in connection with the Bernstein
Transaction each year less any AllianceBernstein Units SCB Inc. may have otherwise sold or
assigned that year. The Put rights expire on October 2, 2010. Generally, SCB Inc. may exercise its Put rights
only once per year and SCB Inc. may not deliver an exercise
notice regarding its Put rights until at least nine months after it
delivered its immediately preceding exercise notice. On each of
November 25,
2002, March 5, 2004, December 21, 2004, and February 23, 2007, AXA Financial or certain of its
wholly-owned subsidiaries purchased 8,160,000 AllianceBernstein Units from
SCB Partners Inc., a wholly-owned
subsidiary of SCB Inc., pursuant to exercises of
the Put rights by SCB
Inc.
|
As of
January 31, 2008, Holding was the record owner of 87,251,925, or 33.5%, of the
issued and outstanding AllianceBernstein Units.
Management
The
following table sets forth, as of January 31, 2008, the beneficial ownership of
Holding Units by each director and named executive officer of the General
Partner and by all directors and executive officers as a group:
Name
of Beneficial Owner
|
Number
of
Holding
Units
and
Nature of
Beneficial
Ownership
|
Percent
of Class
|
||||||
Lewis A. Sanders(1)(9)
|
264,095 | * | ||||||
Dominique Carrel-Billiard(1)
|
- | * | ||||||
Henri de
Castries(1)
|
2,000 | * | ||||||
Christopher M. Condron(1)
|
20,000 | * | ||||||
Denis Duverne(1)
|
2,000 | * | ||||||
Richard
S. Dziadzio(1)
|
- | * | ||||||
Peter
Etzenbach(1)
|
- | * | ||||||
Deborah
S. Hechinger
|
341 | * | ||||||
Weston
M. Hicks(2)
|
6,612 | * | ||||||
Gerald
M. Lieberman(1)(3)(9)
|
218,746 | * | ||||||
Lorie A. Slutsky(1)(4)
|
25,367 | * | ||||||
A.W.
(Pete) Smith, Jr.(5)
|
2,647 | * | ||||||
Peter J. Tobin(1)(6)
|
39,207 | * | ||||||
Marilyn G. Fedak(1)
|
- | * | ||||||
Sharon E. Fay(1)(9)
|
28,003 | * | ||||||
Robert H. Joseph,
Jr.(1)(7)(9)
|
216,554 | * | ||||||
All
directors and executive officers of the General Partner as a group (33
persons)(8)(9)
|
2,882,164 | 3.3 | % |
*
|
Number of Holding Units listed
represents less than 1% of the Units
outstanding.
|
(1)
|
Excludes
Holding Units beneficially owned by AXA and its subsidiaries.
Ms. Slutsky and Messrs. Carrel-Billiard, de Castries, Condron,
Duverne, Dziadzio, Etzenbach, Lieberman, and Tobin are directors and/or
officers of AXA, AXA Financial, and/or AXA Equitable. Mses. Fedak and
Fay, and Messrs. Sanders, Lieberman, and Joseph, are directors and/or
officers of the General Partner.
|
(2)
|
Includes
809 Holding Units Mr. Hicks can acquire within 60 days under the 1997
Plan.
|
(3)
|
Includes
80,000 Holding Units Mr. Lieberman can acquire within 60 days under the
1997 Plan.
|
(4)
|
Includes
22,493 Holding Units Ms. Slutsky can acquire within 60 days under the 1997
Plan.
|
(5)
|
Includes
809 Holding Units Mr. Smith can acquire within 60 days under the 1997
Plan.
|
(6)
|
Includes
37,743 Holding Units Mr. Tobin can acquire within 60 days under the 1997
Plan.
|
(7)
|
Includes
130,000 Holding Units Mr. Joseph can acquire within 60 days under
AllianceBernstein option plans.
|
(8)
|
Includes
648,376 Holding Units the directors and executive officers as a group can
acquire within 60 days under AllianceBernstein option
plans.
|
(9)
|
Includes
802,020 Holding Units to which executive officers have allocated their
awards under deferred compensation
arrangements.
|
As of
January 31, 2008, our directors and executive officers beneficially owned
AllianceBernstein Units only to the extent of their respective indirect
pecuniary interests in 8,160,000 AllianceBernstein Units beneficially owned by
SCB Partners Inc. Based on their respective equity interests in SCB Inc. and/or
notional interests in the AllianceBernstein Units through an SCB Partners Inc.
profit sharing plan, the individuals named below may be deemed to own
beneficially and indirectly the number of AllianceBernstein Units set forth
opposite their respective names.
Name of Beneficial Owner
|
Number of
AllianceBernstein
Units and Nature
of
Beneficial
Ownership
|
Percent
of
Class
|
||||||
Lewis A. Sanders
|
1,538,880 | * | ||||||
Gerald M. Lieberman
|
62,688 | * | ||||||
Sharon E. Fay
|
24,418 | * | ||||||
Marilyn G. Fedak
|
184,393 | * | ||||||
Mark R. Gordon
|
104,373 | * | ||||||
Thomas S. Hexner
|
80,114 | * | ||||||
Seth J. Masters
|
34,918 | * | ||||||
Marc O. Mayer
|
48,708 | * | ||||||
Lisa A. Shalett
|
5,266 | * | ||||||
David A. Steyn
|
878 | * | ||||||
All
directors and executive officers of the General Partner as a group (33
persons)
|
2,084,636 | * |
*
|
Number of AllianceBernstein Units
listed represents less than 1% of the outstanding AllianceBernstein
Units.
|
The
following table sets forth, as of January 31, 2008, the beneficial ownership of
the common stock of AXA by each director and named executive officer of the
General Partner and by all directors and executive officers as a
group:
AXA
Common Stock(1)
Name of Beneficial Owner
|
Number
of Shares
and Nature
of
Beneficial
Ownership
|
Percent
of
Class
|
||||||
Lewis A. Sanders
|
- | * | ||||||
Dominique Carrel-Billiard(2)
|
45,744 | * | ||||||
Henri de
Castries(3)
|
6,788,071 | * | ||||||
Christopher M. Condron(4)
|
2,694,625 | * | ||||||
Denis Duverne(5)
|
2,097,144 | * | ||||||
Richard S,
Dziadzio(6)
|
41,431 | * | ||||||
Peter Etzenbach(7)
|
29,042 | * | ||||||
Deborah S. Hechinger
|
- | * | ||||||
Weston
M. Hicks
|
- | * | ||||||
Gerald M. Lieberman
|
- | * | ||||||
Lorie A. Slutsky
|
1,403 | * | ||||||
A.W.
(Pete) Smith, Jr.
|
- | * | ||||||
Peter J. Tobin(8)
|
11,138 | * | ||||||
Marilyn G. Fedak
|
- | * | ||||||
Sharon E. Fay
|
- | * | ||||||
Robert H. Joseph,
Jr.
|
- | * | ||||||
All
directors and executive officers of the General Partner as a group (33
persons)(9)
|
11,708,598 | * |
*
|
Number
of shares listed represents less than 1% of the outstanding AXA common
stock.
|
(1)
|
Holdings
of AXA American Depositary Shares (“ADS”) are expressed as their
equivalent in AXA common stock. Each AXA ADS represents the right to
receive one AXA ordinary share.
|
(2)
|
Includes
34,000 shares Mr. Carrel-Billiard can acquire within 60 days under
option plans.
|
(3)
|
Includes
5,067,759 shares and 162,394 ADSs Mr. de Castries can acquire within 60
days under option plans. Also includes 162,394 tandem stock
appreciation rights.
|
(4)
|
Includes
521,140 shares and 1,576,209 ADSs Mr. Condron can acquire within 60 days
under option plans. Also includes 62,296 performance units, which are paid
out when vested based on the price of ADSs at that time; payout will be
70% in cash and 30% in ADSs.
|
(5)
|
Includes
1,372,344 shares Mr. Duverne can acquire within 60 days under option
plans.
|
(6)
|
Includes
26,550 shares Mr. Dziadzio can acquire within 60 days under option
plans. Also includes 8,721 performance units, which are paid
out when vested based on the price of ADSs at that time; payout will be
70% in cash and 30% in ADSs.
|
(7)
|
Includes
19,150 shares Mr. Etzenbach can acquire within 60 days under options
plans.
|
(8)
|
Includes
2,625 ADSs Mr. Tobin can acquire within 60 days under option
plans.
|
(9)
|
Includes
7,040,943 shares and 1,741,228 ADSs the directors and executive officers
as a group can acquire within 60 days under option
plans.
|
Partnership
Matters
The
General Partner makes all decisions relating to the management of
AllianceBernstein and Holding. The General Partner has agreed that it will
conduct no business other than managing AllianceBernstein and Holding, although
it may make certain investments for its own account. Conflicts of interest,
however, could arise between AllianceBernstein and Holding, the General Partner
and the Unitholders of both
Partnerships.
Section
17-403(b) of the Delaware Revised Uniform Limited Partnership Act (“Delaware
Act”) states in substance that, except as provided in the Delaware Act or the
applicable partnership agreement, a general partner of a limited partnership has
the liabilities of a general partner in a general partnership governed by the
Delaware Uniform Partnership Law (as in effect on July 11, 1999) to the
partnership and to the other partners. Accordingly, while under Delaware law a
general partner of a limited partnership is liable as a fiduciary to the other
partners, those fiduciary obligations may be altered by the terms of the
applicable partnership agreement. The AllianceBernstein Partnership Agreement
and Holding Partnership Agreement both set forth limitations on the duties and
liabilities of the General Partner. Each partnership agreement provides that the
General Partner is not liable for monetary damages for errors in judgment or for
breach of fiduciary duty (including breach of any duty of care or loyalty)
unless it is established that the General Partner’s action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury,
with reckless disregard for the best interests of the Partnerships or with
actual bad faith on the part of the General Partner, or constituted actual
fraud. Whenever the AllianceBernstein Partnership Agreement and the Holding
Partnership Agreement provide that the General Partner is permitted or required
to make a decision (i) in its “discretion”, the General Partner is entitled to
consider only such interests and factors as it desires and has no duty or
obligation to consider any interest of or other factors affecting the
Partnerships or any Unitholder of AllianceBernstein or Holding or (ii) in its
“good faith” or under another express standard, the General Partner will act
under that express standard and will not be subject to any other or different
standard imposed by the AllianceBernstein Partnership Agreement and the Holding
Partnership Agreement or applicable law or in equity or otherwise. The
partnership agreements further provide that to the extent that, at law or in
equity, the General Partner has duties (including fiduciary duties) and
liabilities relating thereto to either Partnership or any partner, the General
Partner acting under the AllianceBernstein Partnership Agreement or the Holding
Partnership Agreement, as applicable, will not be liable to the Partnerships or
any partner for its good faith reliance on the provisions of the partnership
agreement.
In
addition, the AllianceBernstein Partnership Agreement and the Holding
Partnership Agreement grant broad rights of indemnification to the General
Partner and its directors and affiliates and authorize AllianceBernstein and
Holding to enter into indemnification agreements with the directors, officers,
partners, employees and agents of AllianceBernstein and its affiliates and
Holding and its affiliates. The Partnerships have granted broad rights of
indemnification to officers and employees of AllianceBernstein and Holding. The
foregoing indemnification provisions are not exclusive, and the Partnerships are
authorized to enter into additional indemnification arrangements.
AllianceBernstein and Holding have obtained directors and officers/errors and
omissions liability insurance.
The
AllianceBernstein Partnership Agreement and the Holding Partnership Agreement
also allow transactions between AllianceBernstein and Holding and the General
Partner or its affiliates if the transactions are on terms determined by the
General Partner to be comparable to (or more favorable to AllianceBernstein or
Holding than) those that would prevail with an unaffiliated party. The
partnership agreements provide that those transactions are deemed to meet that
standard if such transactions are approved by a majority of those directors of
the General Partner who are not directors, officers or employees of any
affiliate of the General Partner (other than AllianceBernstein, and its
subsidiaries or Holding) or, if in the reasonable and good faith judgment of the
General Partner, the transactions are on terms substantially comparable to (or
more favorable to AllianceBernstein or Holding than) those that would prevail in
a transaction with an unaffiliated party.
The
AllianceBernstein Partnership Agreement and the Holding Partnership Agreement
expressly permit all affiliates of the General Partner (including AXA Equitable
and its other subsidiaries) to compete, directly or indirectly, with
AllianceBernstein and Holding, to engage in any business or other activity and
to exploit any opportunity, including those that may be available to
AllianceBernstein and Holding. AXA, AXA Financial, AXA Equitable and certain of
their subsidiaries currently compete with AllianceBernstein. (See “Business - Competition” in Item
1.) The partnership agreements further provide that, except to the extent
that a decision or action by the General Partner is taken with the specific
intent of providing an improper benefit to an affiliate of the General Partner
to the detriment of AllianceBernstein or Holding, there is no liability or
obligation with respect to, and no challenge of, decisions or actions of the
General Partner that would otherwise be subject to claims or other challenges as
improperly benefiting affiliates of the General Partner to the detriment of the
Partnerships or otherwise involving any conflict of interest or breach of a duty
of loyalty or similar fiduciary obligation.
Section
17-1101(c) of the Delaware Act provides that it is the policy of the Delaware
Act to give maximum effect to the principle of freedom of contract and to the
enforceability of partnership agreements. Further, Section 17-1101(d) of the
Delaware Act provides in part that to the extent that, at law or in equity, a
partner has duties (including fiduciary duties) to a limited partnership or to
another partner, those duties may be expanded, restricted, or eliminated by
provisions in a partnership agreement (provided that a partnership agreement may
not eliminate the implied contractual covenant of good faith and fair
dealing). In addition, Section 17-1101(f) of the Delaware Act
provides that a partnership agreement may limit or eliminate any or all
liability of a partner to a limited partnership or another partner for breach of
contract or breach of duties (including fiduciary duties); provided, however,
that a partnership agreement may not limit or eliminate liability for any act or
omission that constitutes a bad faith violation of the implied contractual
covenant of good faith and fair dealing. Decisions of the Delaware
courts have recognized the right of parties, under the above provisions of the
Delaware Act, to alter by the terms of a partnership agreement otherwise
applicable fiduciary duties and liability for breach of duties. However, the
Delaware Courts have required that a partnership agreement make clear the intent
of the parties to displace otherwise applicable fiduciary duties (the otherwise
applicable fiduciary duties often being referred to as “default” fiduciary
duties). Judicial inquiry into whether a partnership agreement is sufficiently
clear to displace default fiduciary duties is necessarily fact driven and is
made on a case by case basis. Accordingly, the effectiveness of displacing
default fiduciary obligations and liabilities of general partners continues to
be a developing area of the law and it is not certain to what extent the
foregoing provisions of the AllianceBernstein Partnership Agreement and the
Holding Partnership Agreement are enforceable under Delaware law.
Item 13.
|
Certain Relationships and Related Transactions, and Director
Independence
|
Policies
and Procedures Regarding Transactions with Related Persons
Each of
the Holding Partnership Agreement and the AllianceBernstein Partnership
Agreement expressly permits AXA and its affiliates, which includes AXA Equitable
and its affiliates (collectively, “AXA Affiliates”), to provide services to
AllianceBernstein and Holding if the terms of the transaction are “approved by
the General Partner in good faith as being comparable to (or more favorable to
each such partnership than) those that would prevail in a transaction with an
unaffiliated party”. This requirement is “conclusively presumed to be satisfied
as to any transaction or arrangement that (x) in the reasonable and good faith
judgment of the General Partner”, meets that unaffiliated party standard, “or
(y) has been approved by a majority of those directors of the General Partner
who are not also directors, officers or employees of an Affiliate of the General
Partner”.
In
practice, our management pricing committees review investment advisory
agreements with AXA Affiliates, which is the manner in which the General Partner
reaches a judgment regarding the appropriateness of the fees. Other transactions
with AXA Affiliates are submitted to the Audit Committee for their review and
approval; the unanimous consent of the Audit Committee constitutes the consent
of three of five independent directors on the Board. We are not aware of any
transaction during 2007 between our company and any related person with respect
to which these procedures were not followed.
We do not
have written policies regarding the employment of immediate family members of
any of our related persons. Compensation and benefits for all of our employees,
including employees who are immediate family members of any of our related
persons, is established in accordance with our employment and compensation
practices applicable to employees with equivalent qualifications and
responsibilities who hold similar positions.
Financial
Arrangements with AXA Affiliates
The
General Partner has, in its reasonable and good faith judgment (based on its
knowledge of, and inquiry with respect to, comparable arrangements with or
between unaffiliated parties), approved the following arrangements with AXA
Equitable and its affiliates as being comparable to, or more favorable to
AllianceBernstein than, those that would prevail in a transaction with an
unaffiliated party.
The
following tables summarize transactions between AllianceBernstein and related
persons during 2007. The first table summarizes services we provide to related
persons, and the second table summarizes services our related persons provide to
us:
Amounts
Received
|
||||||
or Accrued for
in
|
||||||
Parties(1)
|
General Description of
Relationship
|
2007
|
||||
EQAT,
AXA Enterprise Trust and AXA Premier VIP Trust
|
We
serve as sub-adviser to these open-end mutual funds, each of which is
sponsored by a subsidiary of AXA Financial.
|
$ | 83,613,000 | |||
AXA Asia
Pacific(2)
|
We
provide investment management services.
|
$ | 52,277,000 | |||
AXA
Equitable(2)
|
We
provide investment management services and ancillary accounting,
valuation, reporting, treasury, and other services to the general and
separate accounts of AXA Equitable and its insurance company
subsidiaries.
|
$
|
35,437,000
(of
which $673,500 relates to the ancillary services) |
|||
MONY
Life Insurance Company and its subsidiaries(2)(3)
|
We
provide investment management services and ancillary accounting
services.
|
$ | 9,503,000 (of which $150,000 relates to the ancillary services) | |||
AXA
Sun Life(2)
|
We
provide investment management services.
|
$ | 8,569,000 | |||
AXA
Group Life Insurance
|
We
provide investment management services.
|
$ | 7,530,000 | |||
AXA
U.K. Group Pension Scheme
|
We
provide investment management services.
|
$ | 3,495,000 | |||
AXA Rosenberg
Investment Management Asia Pacific(2)
|
We
provide investment management services.
|
$ | 2,166,000 | |||
AXA
(Canada)(2)
|
We
provide investment management services.
|
$ | 1,933,000 | |||
AXA France(2)
|
We
provide investment management services.
|
$ | 1,581,000 | |||
AXA Winterthur(2)
|
We
provide investment management services.
|
$ | 1,053,000 | |||
AXA
Corporate Solutions(2)
|
We
provide investment management services.
|
$ | 965,000 | |||
AXA
Reinsurance Company(2)
|
We
provide investment management services.
|
$ | 567,000 | |||
AXA Germany(2)
|
We
provide investment management services.
|
$ | 510,000 | |||
AXA
Investment Managers Limited(2)
|
We
provide investment management services.
|
$ | 472,000 | |||
AXA
Foundation, Inc., a subsidiary of AXA Financial
|
We
provide investment management services.
|
$ | 201,000 | |||
AXA Belgium(2)
|
We
provide investment management services.
|
$ | 151,000 | |||
Other
AXA subsidiaries
|
We
provide investment management services.
|
$ | 193,000 |
(1)
|
AllianceBernstein
is a party to each transaction.
|
(2)
|
This
entity is a subsidiary of AXA. AXA is an indirect parent of
AllianceBernstein.
|
(3)
|
Subsidiaries
include MONY Life Insurance Company of America and U.S. Financial Life
Insurance Company.
|
Parties(1)(2)
|
General
Description of Relationship
|
Amounts
Paid or
Accrued
for in 2007
|
||||
AXA Advisors
|
AXA
Advisors distributes certain of our Retail Products.
|
$
|
7,178,000
|
|||
AXA Equitable
|
AXA
Equitable provides certain data processing services and related
functions.
|
$
|
3,493,000
|
|||
AXA Equitable
|
We
are covered by various insurance policies maintained by AXA
Equitable.
|
$
|
3,040,000
|
|||
AXA Business
Services
|
AXA
Business Services provides data processing services and support for
certain investment operations functions.
|
$
|
1,535,000
|
|||
AXA Advisors
|
AXA
Advisors sells shares of our mutual funds under Distribution Services and
Educational Support agreements.
|
$
|
1,409,000
|
|||
AXA Technology Services India Pvt.
Ltd.
|
AXA
Technology Services India Pvt. Ltd. provides certain data processing
services and functions.
|
$
|
1,279,000
|
|||
GIE Informatique AXA (“GIE”)
|
GIE
provides cooperative technology development and procurement services to us
and to various other subsidiaries of AXA.
|
$
|
962,000
|
(1)
|
AllianceBernstein
is a party to each transaction.
|
(2)
|
Each
entity is a subsidiary of AXA. AXA is an indirect parent of
AllianceBernstein.
|
Additional
Transactions with Related Persons
On
January 25, 2008, a three-year $950 million Revolving Credit Agreement (“SCB
Credit Agreement”) was entered into among SCB LLC, as Borrower,
AllianceBernstein, as U.S. Guarantor, and a group of commercial
banks. As U.S. Guarantor under the SCB Credit Agreement,
AllianceBernstein has agreed to guarantee the obligations of SCB
LLC. AXA has guaranteed the obligations of SCB LLC under the SCB
Credit Agreement. AllianceBernstein will reimburse AXA to the extent AXA must
pay on its guarantee.
On
February 1, 2001, AllianceBernstein and AXA Asia Pacific entered into a
Subscription and Shareholders Agreement under which they established two
investment management companies in Australia and New Zealand named
AllianceBernstein Australia Limited and AllianceBernstein New Zealand Limited,
respectively. AXA Asia Pacific and AllianceBernstein each own fifty percent
(50%) of the equity of each company and have equal representation on the boards.
These companies currently manage approximately $59.6 billion in client assets,
and earned approximately $77.6 million in management fees in 2007 (of which
$22.9 million is included in the table above).
AXA
Advisors was our ninth largest
distributor of U.S. Funds in 2007, for which we paid AXA Advisors sales
concessions on sales of approximately $534 million. Various subsidiaries of AXA
distribute certain of our Non-U.S. Funds, for which such entities received
aggregate distribution payments of approximately $373,000 in 2007.
AXA
Equitable and its affiliates are not obligated to provide funds to us, except
for ACMC Inc.’s and the General Partner’s obligation to fund certain of our
deferred compensation and employee benefit plan obligations. ACMC Inc. and the
General Partner are obligated, subject to certain limitations, to make capital
contributions to AllianceBernstein in an amount equal to the payments
AllianceBernstein is required to make as deferred compensation under the
employment agreements entered into in connection with AXA Equitable’s 1985
acquisition of Donaldson, Lufkin and Jenrette Securities Corporation (since
November 2000, a part of Credit Suisse Group) as well as obligations of
AllianceBernstein to various employees and their beneficiaries under
AllianceBernstein’s Capital Accumulation Plan. In 2007, ACMC Inc. made capital
contributions to AllianceBernstein in the amount of approximately $4.9 million
in respect of these obligations. ACMC Inc.’s obligations to make these
contributions are guaranteed by Equitable Holdings, LLC
(a wholly-owned subsidiary of AXA Equitable), subject to certain limitations.
All tax deductions with respect to these obligations, to the extent funded by
ACMC Inc., the General Partner, or Equitable Holdings, LLC, will be allocated to
ACMC Inc. or the General Partner.
Arrangements
with Immediate Family Members of Related Persons
Two of
our executive officers, one of whom is also a director, have immediate family
members whom we employ. We established the compensation and benefits of each
such family member in accordance with our employment and compensation practices
applicable to employees with equivalent qualifications and responsibilities who
hold similar positions. These employees are three of our 5,580
employees.
Gerald M. Lieberman’s
daughter, Andrea L. Feldman, is employed in AllianceBernstein
Institutional Investments and received 2007 compensation of $155,000 (salary and
bonus). Mr. Lieberman’s son-in-law, Jonathan H. Feldman, Ms. Feldman’s spouse,
is employed in Retail Services and received 2007 compensation of $260,000
(salary, bonus and deferred compensation). Gerald M. Lieberman is
Director of the General Partner and the President and Chief Operating Officer of
AllianceBernstein.
James G.
Reilly’s brother, Michael J. Reilly, is a U.S. Large Cap Growth portfolio
manager and received 2007 compensation of $3,060,000 (salary, bonus, and
deferred compensation). James G. Reilly is an Executive Vice President
of AllianceBernstein and our U.S. Large Cap Growth team leader.
Director
Independence
See “Corporate
Governance – Independence of Certain
Directors” in Item 10.
Item
14. Principal Accountant Fees and Services
The
following tables present fees for professional audit services rendered by
PricewaterhouseCoopers LLP (“PwC”) for the audit of AllianceBernstein’s and
Holding’s annual financial statements for 2007 and 2006, respectively, and fees
for other services rendered by PwC ($ in thousands):
2007
|
2006
|
|||||||
Audit
Fees(1)
|
$ | 7,212 | $ | 7,675 | ||||
Audit
Related Fees(2)
|
2,530 | 2,082 | ||||||
Tax
Fees(3)
|
2,003 | 1,670 | ||||||
All
Other Fees(4)
|
27 | 57 | ||||||
Total
|
$ | 11,772 | $ | 11,484 |
(1)
|
Includes
$105,000 and $175,000, respectively, in respect of 2007 and 2006 audit
services for Holding.
|
(2)
|
Audit
related fees consist principally of fees for audits of financial
statements of certain employee benefit plans, internal control reviews,
and accounting consultation.
|
(3)
|
Tax
fees consist of fees for tax consultation and tax compliance
services.
|
(4)
|
All
other fees in 2007 and 2006 consisted of miscellaneous non-audit
services.
|
On
November 9, 2005, the Audit Committee adopted a policy to pre-approve audit and
non-audit service engagements with the independent registered public accounting
firm. This policy was revised on August 3, 2006. The independent registered
public accounting firm is to provide annually a comprehensive and detailed
schedule of each proposed audit and non-audit service to be performed. The Audit
Committee then affirmatively indicates its approval of the listed engagements.
Engagements that are not listed, but that are of similar scope and size to those
listed and approved, may be deemed to be approved, if the fee for such service
is less than $100,000. In addition, the Audit
Committee has delegated to its chairman the ability to approve any permissible
non-audit engagement where the fees are expected to be less than
$100,000.
PART
IV
Item 15.
|
Exhibits,
Financial Statement
Schedules
|
(a)
|
There is no document filed as
part of this Form 10-K.
|
Financial
Statement Schedules.
Attached
to this Form 10-K is a schedule describing Valuation and Qualifying
Account-Allowance for Doubtful Accounts for the three years ended December 31,
2007, 2006, and 2005. PwC’s report regarding the 2007 and 2006 schedules and
KPMG LLP’s report regarding the 2005 schedule are also attached.
(b)
|
Exhibits.
|
The
following exhibits required to be filed by Item 601 of Regulation S-K are filed
herewith or incorporated by reference herein, as indicated:
Exhibit
|
Description
|
|
2.01
|
Agreement
between Federated Investors, Inc. and Alliance Capital Management L.P.
dated as of October 28, 2004 (incorporated by reference to Exhibit 2.1 to
Form 10-Q for the quarterly period ended September 30, 2004, as filed
November 8, 2004).
|
|
|
||
2.02
|
Acquisition
Agreement dated as of June 20, 2000 and Amended and Restated as of October
2, 2000 among Alliance Capital Management L.P., Alliance Capital
Management Holding L.P., Alliance Capital Management LLC, SCB Inc.,
Bernstein Technologies Inc., SCB Partners Inc., Sanford C. Bernstein &
Co., LLC and SCB LLC (incorporated by reference to Exhibit 2.1 to Form
10-K for the fiscal year ended December 31, 2000, as filed April 2,
2001).
|
|
3.01
|
Amended
and Restated Certificate of Limited Partnership dated February 24, 2006 of
Holding (incorporated by reference to Exhibit 99.06 to Form 8-K, as filed
February 24, 2006).
|
|
3.02
|
Amendment
No. 1 dated February 24, 2006 to Amended and Restated Agreement of Limited
Partnership of Holding (incorporated by reference to Exhibit 3.1 to Form
10-Q for the quarterly period ended September 30, 2006, as filed November
8, 2006).
|
|
3.03
|
Amended
and Restated Agreement of Limited Partnership dated October 29, 1999 of
Alliance Capital Management Holding L.P. (incorporated by reference to
Exhibit 3.2 to Form 10-K for the fiscal year ended December 31, 2003, as
filed March 10, 2004).
|
|
3.04
|
Amended
and Restated Certificate of Limited Partnership dated February 24, 2006 of
AllianceBernstein (incorporated by reference to Exhibit 99.07 to Form 8-K,
as filed February 24, 2006).
|
|
3.05
|
Amendment
No. 1 dated February 24, 2006 to Amended and Restated Agreement of Limited
Partnership of AllianceBernstein (incorporated by reference to Exhibit 3.2
to Form 10-Q for the quarterly period ended September 30, 2006, as filed
November 8, 2006).
|
|
3.06
|
Amended
and Restated Agreement of Limited Partnership dated October 29, 1999 of
Alliance Capital Management L.P. (incorporated by reference to Exhibit 3.3
to Form 10-K for the fiscal year ended December 31, 2003, as filed March
10, 2004).
|
|
3.07
|
Certificate
of Amendment to the Certificate of Incorporation of AllianceBernstein
Corporation (incorporated by reference to Exhibit 99.08 to Form 8-K, as
filed February 24, 2006).
|
|
3.08
|
AllianceBernstein
Corporation By-Laws with amendments through February 24, 2006
(incorporated by reference to Exhibit 99.09 to Form 8-K, as filed February
24, 2006).
|
|
Amended
and Restated AllianceBernstein Partners Compensation Plan, as amended
through November 28, 2007.
|
||
Amended
and Restated 1997 Long Term Incentive Plan, as amended through November
28, 2007.
|
Amended
and Restated AllianceBernstein Commission Substitution Plan, as amended
through November 28, 2007.
|
||
Amended
and Restated AllianceBernstein Century Club Plan.
|
||
Form
of Award Agreement under the Amended and Restated AllianceBernstein
Partners Compensation Plan.
|
||
Forms
of Award Agreement under the Special Option Program.
|
||
Form
of Award Agreement under the AllianceBernstein L.P. Financial Advisor
Wealth Accumulation Plan.
|
||
Revolving
Credit Agreement dated as of January 25, 2008 among Sanford C. Bernstein
& Co., LLC, as Borrower, AllianceBernstein L.P., as U.S. Guarantor,
Citibank, N.A., as Administrative Agent, Citigroup Global Markets Inc., as
Arranger, JPMorgan Chase Bank, N.A. and Bank of America, N.A., as
Co-Syndication Agents, HSBC Bank USA, National Association, as
Documentation Agent, and the financial institutions whose names appear on
the signature pages as “Banks”.
|
||
Uncommitted
Line of Credit Agreement dated as of January 23, 2008 between
AllianceBernstein L.P. and Citibank, N.A.
|
||
Supplement
dated November 2, 2007 to the Revolving Credit Facility (see Exhibit
10.18).
|
||
Guidelines
for Transfer of AllianceBernstein L.P. Units and AllianceBernstein L.P.
Policy Regarding Partners’ Requests for Consent to Transfer of Limited
Partnership Interests to Third Parties.
|
||
10.12
|
Amendment
and Restatement of the Profit Sharing Plan for Employees of
AllianceBernstein L.P., as amended through September 1, 2007 (incorporated
by reference to Exhibit 10.1 to Form 10-Q for the quarter ended September
30, 2007, as filed November 5, 2007).
|
|
10.13
|
Amendment
and Restatement of the Retirement Plan for Employees of AllianceBernstein
L.P., as amended through September 1, 2007 (incorporated by reference to
Exhibit 10.2 to Form 10-Q for the quarterly period ended September 30,
2007, as filed November 5, 2007).
|
|
10.14
|
Amendment
to Letter Agreement entered into by Lewis A. Sanders and
AllianceBernstein L.P. on December 17, 2007 (incorporated by reference to
Exhibit 99.01 to Form 8-K, as filed December 20, 2007).
|
|
10.15
|
Letter
Agreement entered into by Lewis A. Sanders and AllianceBernstein
L.P. on October 26, 2006 (incorporated by reference to
Exhibit 99.31 to Form 8-K, as filed October 31,
2006).
|
|
10.16
|
Amended
and Restated Commercial Paper Dealer Agreement, dated as of May 3, 2006
(incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarterly
period ended March 31, 2006, as filed May 8, 2006).
|
|
10.17
|
Amended
and Restated Issuing and Paying Agency Agreement, dated as of May 3, 2006
(incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarterly
period ended March 31, 2006, as filed May 8, 2006).
|
|
10.18
|
Revolving
Credit Facility dated as of February 17, 2006 among AllianceBernstein, as
Borrower, Bank of America, N.A., as Administrative Agent, Banc of America
Securities LLC, as Arranger, Citibank N.A. and The Bank of New York, as
Co-Syndication Agents, Deutsche Bank Securities Inc. and JPMorgan Chase
Bank, N.A., as Co-Documentation Agents, and The Various Financial
Institutions Whose Names Appear on the Signature Pages as “Banks”
(incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal
year ended December 31, 2005, as filed February 24,
2006).
|
|
10.19
|
AllianceBernstein
L.P. Financial Advisor Wealth Accumulation Plan effective August 1, 2005
(incorporated by reference to Exhibit 99.3 to Form S-8, as filed August 5,
2005).
|
|
10.20
|
Investment
Advisory and Management Agreement for MONY Life (incorporated by reference
to Exhibit 10.4 to Form 10-K for the fiscal year ended December 31, 2004,
as filed March 15, 2005).
|
|
10.21
|
Investment
Advisory and Management Agreement for the General Account of AXA Equitable
(incorporated by reference to Exhibit 10.5 to Form 10-K for the fiscal
year ended December 31, 2004, as filed March 15, 2005).
|
|
|
||
10.22
|
Summary
of AllianceBernstein L.P.’s Lease at 1345 Avenue of the Americas, New
York, New York 10105 (incorporated by reference to Exhibit 10.3 to Form
10-K for the fiscal year ended December 31, 2003, as filed March 10,
2004).
|
10.23
|
Alliance
Capital Management L.P. Partners Plan of Repurchase adopted as of February
20, 2003 (incorporated by reference to Exhibit 10.2 to Form 10-K for the
fiscal year ended December 31, 2002, as filed March 27,
2003).
|
|
10.24
|
Services
Agreement dated as of April 22, 2001 between Alliance Capital Management
L.P. and AXA Equitable (incorporated by reference to Exhibit 10.19 to Form
10-K for the fiscal year ended December 31, 2001, as filed March 28,
2002).
|
|
10.25
|
Registration
Rights Agreement dated as of October 2, 2000 by and among Alliance Capital
Management L.P., SCB Inc. and SCB Partners Inc. (incorporated by reference
to Exhibit 10.17 to Form 10-K for the fiscal year ended December 31, 2000,
as filed April 2, 2001).
|
|
10.26
|
Purchase
Agreement dated as of June 20, 2000 by and among Alliance Capital
Management L.P., AXA Financial and SCB Inc. (incorporated by reference to
Exhibit 10.18 to Form 10-K for the fiscal year ended December 31, 2000, as
filed April 2, 2001).
|
|
10.27
|
Alliance
Capital Management L.P. Annual Elective Deferral Plan (incorporated by
reference to Exhibit 99 to Form S-8, as filed November 6,
2000).
|
|
10.28
|
Extendible
Commercial Notes Dealer Agreement, dated as of December 14, 1999
(incorporated by reference to Exhibit 10.10 to the Form 10-K for the
fiscal year ended December 31, 1999, as filed March 28,
2000).
|
|
10.29
|
Amended
and Restated Investment Advisory and Management Agreement dated January 1,
1999 among Alliance Capital Management Holding L.P., Alliance Corporate
Finance Group Incorporated and AXA Equitable (incorporated by reference to
Exhibit (a)(6) to Form 10-Q/A for the quarterly period ended September 30,
1999, as filed on September 28, 2000).
|
|
10.30
|
Amended
and Restated Accounting, Valuation, Reporting and Treasury Services
Agreement dated January 1, 1999 between Alliance Capital Management
Holding L.P., Alliance Corporate Finance Group Incorporated and AXA
Equitable (incorporated by reference to Exhibit (a)(7) to the Form 10-Q/A
for the quarterly period ended September 30, 1999, as filed September 28,
2000).
|
|
10.31
|
Alliance
Capital Accumulation Plan (incorporated by reference to Exhibit 10.11 to
Form 10-K for the fiscal year ended December 31, 1988, as filed March 31,
1989).
|
|
AllianceBernstein
Consolidated Ratio of Earnings to Fixed Charges in respect of the years
ended December 31, 2007, 2006, and 2005.
|
||
Subsidiaries
of AllianceBernstein.
|
||
Consents
of PricewaterhouseCoopers LLP.
|
||
Consents
of KPMG LLP.
|
||
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.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALLIANCEBERNSTEIN HOLDING
L.P.
|
||
Date:
February 22, 2008
|
By:
|
/s/
Lewis A. Sanders
|
Lewis A. Sanders
|
||
Chairman
of the Board
and
Chief Executive Officer
|
Pursuant
to the requirements of the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Date:
February 22, 2008
|
/s/
Robert H. Joseph, Jr.
|
|
Robert H. Joseph,
Jr.
|
||
Senior
Vice President and
Chief
Financial Officer
|
||
Date: February 22,
2008
|
/s/
Edward J. Farrell
|
|
Edward J. Farrell
|
||
Senior
Vice President and
Chief
Accounting Officer
|
DIRECTORS
/s/
Lewis A. Sanders
|
/s/
Deborah S. Hechinger
|
|
Lewis A. Sanders
|
Deborah S. Hechinger
|
|
Chairman
of the Board
|
Director
|
|
/s/
Dominique Carrel-Billiard
|
/s/
Weston M. Hicks
|
|
Dominique Carrel-Billiard
|
Weston
M. Hicks
|
|
Director
|
Director
|
|
/s/
Christopher M. Condron
|
/s/
Gerald M. Lieberman
|
|
Christopher M. Condron
|
Gerald M. Lieberman
|
|
Director
|
Director
|
|
/s/
Henri de Castries
|
/s/
Lorie A. Slutsky
|
|
Henri de
Castries
|
Lorie A. Slutsky
|
|
Director
|
Director
|
|
/s/
Denis Duverne
|
/s/
A.W. (Pete) Smith, Jr.
|
|
Denis Duverne
|
A.W.
(Pete) Smith, Jr.
|
|
Director
|
Director
|
|
/s/
Richard S. Dziadzio
|
/s/
Peter J. Tobin
|
|
Richard
S. Dziadzio
|
Peter J. Tobin
|
|
Director
|
Director
|
|
/s/
Peter Etzenbach
|
||
Peter
Etzenbach
|
||
Director
|
Schedule
II
AllianceBernstein
L.P.
Valuation
and Qualifying Account - Allowance for Doubtful Accounts
For
the Three Years Ending December 31, 2007, 2006, and 2005
Description
|
Balance
at
Beginning
of
Period
|
Charged
to
Costs
and
Expenses
|
Deductions
|
Balance
at
End
of
Period
|
||||||||||||
(in
thousands)
|
||||||||||||||||
For
the year ended December 31, 2005
|
$ | 1,707 | $ | 55 | $ | 823 | (a) | $ | 939 | |||||||
For
the year ended December 31, 2006
|
$ | 939 | $ | 251 | $ | 77 | (b) | $ | 1,113 | |||||||
For
the year ended December 31, 2007
|
$ | 1,113 | $ | 955 | $ | 276 | (c) | $ | 1,792 |
(a)
Includes accounts written-off as uncollectible of $123 and a net reduction of
the allowance balance of $700.
(b)
Includes accounts written-off as uncollectible of $93 and a net addition to the
allowance balance of $16.
(c)
Includes accounts written-off as uncollectible of $267 and a net reduction of
the allowance balance of $9.
Report
of Independent Registered Public Accounting Firm on
Financial
Statement Schedule
To the
General Partner and Unitholders
AllianceBernstein
L.P.:
Our
audits of the consolidated financial statements and of the effectiveness of
internal control over financial reporting referred to in our report dated
February 22, 2008 appearing in the 2007 Annual Report to Unitholders of
AllianceBernstein L.P. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 15(a) of this Form
10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers
LLP
New York,
New York
February
22, 2008
Report
of Independent Registered Public Accounting Firm
The
General Partner and Unitholders
AllianceBernstein
L.P.:
Under
date of February 24, 2006, we reported on the consolidated statements
of income, changes in partners' capital and comprehensive income and cash
flows of AllianceBernstein L.P. and subsidiaries (“AllianceBernstein”) for
the year ended December 31, 2005, which are included in this Form
10-K. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule referenced in Item 15 (a) of this Form 10-K. This
financial statement schedule is the responsibility of the General Partner’s
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/
KPMG LLP
|
|
New
York, New York
February
24, 2006
|