ALLIANCEBERNSTEIN HOLDING L.P. - Annual Report: 2008 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x
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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,
2008
OR
¨
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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 x No ¨
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 ¨ No x
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 x No ¨
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. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of
the Act. (Check one):
Large
accelerated filer x Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller
reporting company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No x
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, 2008 was approximately $4.544 million.
The
number of units representing assignments of beneficial ownership of limited
partnership interests outstanding as of February 2, 2009 was 91,910,013. (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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1
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1
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2
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5
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5
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6
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6
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7
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15
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15
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15
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16
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17
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17
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19
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19
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Item
1A.
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20
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Item
1B.
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26
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Item
2.
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27
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Item
3.
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28
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Item
4.
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29
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Part
II
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Item
5.
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30
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Item
6.
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32
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32
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33
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Item
7.
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34
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34
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35
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37
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Item
7A.
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51
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51
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51
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Item
8.
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53
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53
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64
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Item
9.
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97
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Item
9A.
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98
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Item
9B.
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99
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Part
III
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Item
10.
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100
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Item
11.
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108
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Item
12.
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122
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Item
13.
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126
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Item
14.
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129
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Part
IV
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Item
15.
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130
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132
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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, dated as of October 29, 1999 and as amended February 24,
2006.
“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, dated as of October 29, 1999 and as amended February 24,
2006.
“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” – SCB LLC and SCBL
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 words
“company” and “firm” refer 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 February 2, 2009, examples of
such countries are Argentina, Brazil, Chile, Columbia, Czech Republic, Egypt,
Hungary, India, Indonesia, Israel, Jordan, Malaysia, Mexico, Pakistan, the
People’s Republic of China, Peru, the Philippines, Poland, Russia, 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.
Recent
Developments
2008
Overview
The
collapse of the U.S. sub-prime mortgage market in the second half of 2007
triggered in 2008 dramatic capital market losses and financial sector
dislocation that led to the loss of tens of trillions of dollars of wealth and
severely impaired the business dynamics of our industry and our firm. Equity
returns across the capital markets were sharply negative in 2008, declining 20%
or more in the fourth quarter. The S&P 500, down 22.6% for the
fourth quarter and 38.5% for the year (excluding reinvested dividends), posted
its worst quarter since the fourth quarter of 1987 and its worst year since
1931. There was little discrimination across styles or geographies in
2008, as the Russell 1000 Value and Russell 1000 Growth indices declined 36.8%
and 38.4% for the year, respectively, and global equities declined more than 40%
for the year. 2008 was the worst year for the MSCI EAFE Index (down
43.4%) since its inception in 1969, while the MSCI World and MSCI Emerging
Markets indices fell 40.7% and 53.3%, respectively.
Within
the capital markets, we have recently seen some signs of improving credit
conditions, as stronger corporate credits have been able to access capital
markets, credit spreads have tightened slightly, and liquidity has improved in
some areas. At the same time, however, economic conditions continue
to deteriorate; housing, credit, employment, GDP levels and retail sales all
continue to show significant weakness. Furthermore, the balance sheets of the
world’s largest banks continue to be under acute financial stress and lending
activities remain sporadic.
Governments
and central banks around the globe are focused on creating demand for goods and
services and stimulating credit. Historically, when governmental
stimulus efforts take hold they produce increased lending
activity. Of course, the timing of any recovery will depend
significantly on when and how government stimulus funds are spent.
At
AllianceBernstein, the financial crisis had a significant adverse effect on our
business in 2008. Our assets under management have declined 42.3% from $800.4
billion at December 31, 2007 to $462.0 billion at December 31,
2008. This decline in assets under management, as well as market
losses on our deferred compensation plan-related investments, were the primary
factors producing a 22.3% decline in net revenues and a 33.4% decline in net
income during 2008. Our unit price declined 72.4%, from $75.25 at the
end of 2007 to $20.79 at the end of 2008.
Change
in Leadership
On
December 19, 2008, the Board of Directors (“Board”) of the General Partner named
Peter S. Kraus Chairman of the Board of the General Partner and Chief Executive
Officer (“CEO”) of the General Partner, AllianceBernstein and
Holding. Mr. Kraus replaced Lewis A. Sanders, former Chairman of the
Board of the General Partner and CEO of the General Partner, AllianceBernstein
and Holding, who announced his retirement on December 19, 2008.
For
additional information about Mr. Kraus, see “Directors and Executive
Officers” in Item 10 and “Compensation Discussion and Analysis (“CD&A”)” in
Item 11.
Clients
AllianceBernstein
provides research, diversified investment management and related services
globally to a broad range of clients, including:
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•
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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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•
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retail
clients;
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•
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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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•
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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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•
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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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•
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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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•
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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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•
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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 (see “Employees” in this Item
1). Our buy-side research analysts, who are located around the world,
support our portfolio managers. Together, they oversee a number of different
types of investment services within various vehicles (discussed above) and
strategies (discussed
below). Our sell-side research analysts provide 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 strategies 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 plan
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 a key component of our product line. As of December 31, 2008,
blend AUM was $85 billion (representing 18% of our company-wide AUM), a decrease
of 52% from $175 billion as of December 31, 2007 and 37% from $134 billion as of
December 31, 2006.
We market
and distribute alternative investment products (which include hedge funds,
venture capital and currency management strategies) globally to high-net-worth
clients and, more recently, to institutional investors. Alternative product AUM
totaled $6.6 billion as of December 31, 2008, $3.3 billion of which was private
client AUM (primarily hedge funds) and $3.3 billion of which was institutional
AUM (primarily currency services). 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 may be 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.
In
addition, in August 2008, we created a new initiative called
AllianceBernstein Defined Contribution Investments (“ABDC”) focused on
expanding our firm’s capabilities in the defined contribution (“DC”) market.
ABDC seeks to provide the most effective DC investment solutions in the industry
as measured by product features, reliability, cost and flexibility to meet
specialized client needs by integrating research and investment design, product
strategy, strategic partnerships (e.g., record-keeper
partnerships and operations collaboration), and client implementation and
service. As of December 31, 2008, our DC assets under management,
which are spread across our three distribution channels, totaled $18.2 billion
and our pipeline of won but unfunded DC mandates was $3.5 billion.
Global
Reach
We serve
clients in major global markets through operations in 47 cities in 25 countries.
Our client base includes investors throughout the Americas, Europe, Asia, Africa
and Australia. We utilize an integrated global investment platform that provides
our clients with access to local (country-specific), international, and global
research and investment strategies.
Assets
under management by client domicile and investment service as of December 31,
2008, 2007 and 2006 were as follows:
By
Client Domicile ($ in billions):
![](https://www.sec.gov/Archives/edgar/data/0000825313/000114036109004725/graph1.jpg)
By
Investment Service ($ in billions):
![](https://www.sec.gov/Archives/edgar/data/0000825313/000114036109004725/graph1a.jpg)
Our
international client base decreased by 43% during 2008 and increased 23% during
2007. Our global and international AUM decreased by 47% during 2008
and increased 27% during 2007. In addition, approximately 76%, 80% and 76% of
our gross asset inflows (sales / new accounts) during 2008, 2007 and 2006,
respectively, were invested in global and international investment services. The
shift in AUM mix towards U.S. assets and away from Global / International
assets, which is the opposite of the trend we had been experiencing in the last
few years, is due to investment performance and
currency fluctuations.
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
long-only services for our institutional clients. 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, some 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 underperform 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. If the percentage of our AUM subject to
performance-based fees grows, seasonality and volatility of revenue and earnings
are likely to become more significant. Our performance-based fees in 2008 were
$13.4 million, in 2007 were $81.2 million and in 2006 were $235.7 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
During
the fourth quarter of 2008, we reduced headcount and announced our intention to
reduce capital outlays in 2009 in order to lower our expense base in light of
declines in assets under management and net revenues. As a result of this
workforce reduction, headcount was 4,997 as of December 31, 2008, compared to a
high of 5,660 (reflecting an 11.7% reduction) as of September 30, 2008, and
5,580 (reflecting a 10.4% reduction) as of December 31, 2007.
Our
firm’s 4,997 full-time employees, who are located in 25 countries, include 325
research analysts, 171 portfolio managers, 44 traders and 31 professionals with
other investment-related responsibilities. We have employed these professionals
for an average period of approximately eight 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 (“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, discussed below).
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, 2008, institutional AUM was $291 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 2,329 mandates for these
clients, which are located in 46 countries. As of December 31, 2008, we managed
employee benefit plan assets for 49 of the Fortune 100
companies, and we managed public pension fund assets for 38 states and /or
municipalities in those states.
As of
December 31, 2008, our institutional AUM invested in global and international
investment services was $180 billion, or 62% of institutional AUM, as compared
to $341 billion, or 67% of institutional AUM, as of December 31, 2007 and $270
billion, or 59% of institutional AUM, as of December 31, 2006. As of December
31, 2008, the AUM we invested for clients domiciled outside the United States
was $152 billion, or 52% of institutional AUM, as compared to $269 billion, or
53% of institutional AUM, as of December 31, 2007 and $214 billion, or 47% of
institutional AUM, as of December 31, 2006.
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, 2008, retail AUM was $102 billion, or 22% 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.
As of
December 31, 2008, our retail AUM invested in global and international
investment services was $61 billion, or 60% of retail AUM, as compared to $110
billion, or 60% of retail AUM, as of December 31, 2007 and $86 billion, or 52%
of retail AUM, as of December 31, 2006. As of December 31, 2008, the AUM we
invested for clients domiciled outside the U.S. was $25 billion, or 24% of
retail AUM, as compared to $44 billion, or 24% of retail AUM, as of December 31,
2007 and $40 billion, or 24% of retail AUM, as of December 31,
2006.
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 106 different
portfolios to U.S. investors. As of December 31, 2008, retail U.S. Funds AUM was
approximately $39 billion, or 38% 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 $21 billion as of December 31,
2008, as private client AUM.
Our
Non-U.S. Funds are distributed internationally by local financial intermediaries
to non-U.S. investors by means of distribution agreements in most major
international markets. As of December 31, 2008, these funds consisted
of 67 different portfolios and AUM in these funds was $11 billion. We
also offer local-market funds that we distribute in Japan through financial
intermediaries. As of December 31, 2008, retail AUM in these funds
was $2 billion.
AllianceBernstein
Investments serves as the principal underwriter and distributor of the U.S.
Funds. AllianceBernstein Investments employs approximately 130 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 66 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.
Private
Client
Services
Bernstein
GWM combines the former private client services group of Bernstein, which has
served private clients for more than 40 years, and the former private client
group of Alliance Capital. As of December 31, 2008, private client AUM was $69
billion, or 15% 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 299 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. As part of our reduction in force (for additional information,
see
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7), we
reduced our financial advisor staff by 9% in 2008. However, we kept
both the best and highest potential professionals that service our private
clients and we intend to begin hiring new financial advisors in
2009.
As of
December 31, 2008, our private client AUM invested in global and international
investment services was $18 billion, or 26% of private client AUM, as compared
to $38 billion, or 35% of private client AUM, as of December 31, 2007 and $29
billion, or 30% of private client AUM, as of December 31, 2006.
Institutional
Research
Services
Institutional
Research Services (“IRS”) consist of fundamental research, quantitative services
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. 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.
Assets Under Management,
Revenues and Fees
The
following tables summarize our AUM and revenues by distribution
channel:
Assets Under
Management(1)
December
31,
|
%
Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Institutional
Investment Services
|
$ | 291,361 | $ | 508,081 | $ | 455,095 | (42.7 | )% | 11.6 | % | ||||||||||
Retail
Services
|
101,643 | 183,165 | 166,928 | (44.5 | ) | 9.7 | ||||||||||||||
Private
Client Services
|
68,947
|
109,144
|
94,898
|
(36.8 | ) | 15.0 | ||||||||||||||
Total
|
$ | 461,951 | $ |
800,390
|
$ | 716,921 | (42.3 | ) | 11.6 |
(1)
|
Excludes
certain non-discretionary client
relationships.
|
Revenues
Years Ended December
31,
|
% Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Institutional
Investment Services
|
$ | 1,240,636 | $ | 1,481,885 | $ | 1,221,780 | (16.3 | )% | 21.3 | % | ||||||||||
Retail
Services
|
1,227,538 | 1,521,201 | 1,303,849 | (19.3 | ) | 16.7 | ||||||||||||||
Private
Client Services
|
849,830 | 960,669 | 882,881 | (11.5 | ) | 8.8 | ||||||||||||||
Institutional
Research Services
|
471,716 | 423,553 | 375,075 | 11.4 | 12.9 | |||||||||||||||
Other(1)
|
(239,037 | ) |
332,441
|
354,655 | n/m | (6.3 | ) | |||||||||||||
Total
Revenues
|
3,550,683 | 4,719,749 | 4,138,240 | (24.8 | ) | 14.1 | ||||||||||||||
Less:
Interest Expense
|
36,524 |
194,432
|
187,833 | (81.2 | ) | 3.5 | ||||||||||||||
Net
Revenues
|
$ | 3,514,159 | $ | 4,525,317 | $ | 3,950,407 | (22.3 | ) | 14.6 |
(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 and
its subsidiaries, whose AUM consists primarily of fixed income investments,
together constitute our largest client. Our affiliates represented approximately
20%, 15% and 17% of our company-wide AUM as of December 31, 2008, 2007 and 2006,
respectively. We also earned approximately 5% of our company-wide net revenues
from our affiliates for each of 2008, 2007 and 2006. 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
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 22,598 | $ | 49,235 | $ | 55,562 | (54.1 | )% | (11.4 | )% | ||||||||||
Global
and International
|
84,787
|
192,472
|
158,572
|
(55.9 | ) | 21.4 | ||||||||||||||
107,385
|
241,707
|
214,134
|
(55.6 | ) | 12.9 | |||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
16,075 | 31,908 | 36,668 | (49.6 | ) | (13.0 | ) | |||||||||||||
Global
and International
|
38,034
|
88,691
|
66,242
|
(57.1 | ) | 33.9 | ||||||||||||||
54,109
|
120,599
|
102,910
|
(55.1 | ) | 17.2 | |||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
66,151 | 73,240 | 73,414 | (9.7 | ) | (0.2 | ) | |||||||||||||
Global
and International
|
51,043
|
53,978
|
39,166
|
(5.4 | ) | 37.8 | ||||||||||||||
117,194
|
127,218
|
112,580
|
(7.9 | ) | 13.0 | |||||||||||||||
Other
(2):
|
||||||||||||||||||||
U.S.
|
6,617 | 12,426 | 19,942 | (46.7 | ) | (37.7 | ) | |||||||||||||
Global
and International
|
6,056 | 6,131 | 5,529 | (1.2 | ) | 10.9 | ||||||||||||||
12,673
|
18,557
|
25,471
|
(31.7 | ) | (27.1 | ) | ||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
111,441 | 166,809 | 185,586 | (33.2 | ) | (10.1 | ) | |||||||||||||
Global
and International
|
179,920
|
341,272
|
269,509
|
(47.3 | ) | 26.6 | ||||||||||||||
Total
|
$ | 291,361 | $ | 508,081 | $ | 455,095 | (42.7 | ) | 11.6 |
(1)
|
Excludes
certain non-discretionary client
relationships.
|
(2)
|
Includes
index, structured and asset allocation
services.
|
Revenues
from Institutional Investment Services
(by
Investment Service)
Years Ended
December 31,
|
%
Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ |
108,921
|
$ | 153,747 | $ | 154,163 | (29.2 | )% | (0.3 | )% | ||||||||||
Global
and International
|
607,431
|
747,957
|
570,185
|
(18.8 | ) | 31.2 | ||||||||||||||
716,352
|
901,704
|
724,348
|
(20.6 | ) | 24.5 | |||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
70,119
|
108,691 | 122,132 | (35.5 | ) | (11.0 | ) | |||||||||||||
Global
and International
|
276,676
|
311,727
|
226,293
|
(11.2 | ) | 37.8 | ||||||||||||||
346,795
|
420,418
|
348,425
|
(17.5 | ) | 20.7 | |||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
85,333 | 91,144 | 97,452 | (6.4 | ) | (6.5 | ) | |||||||||||||
Global
and International
|
78,197
|
54,021
|
38,825
|
44.8 | 39.1 | |||||||||||||||
163,530
|
145,165
|
136,277
|
12.7 | 6.5 | ||||||||||||||||
Other
(1):
|
||||||||||||||||||||
U.S.
|
2,883 | 4,441 | 4,993 | (35.1 | ) | (11.1 | ) | |||||||||||||
Global
and International
|
11,076 |
9,865
|
7,177 | 12.3 | 37.5 | |||||||||||||||
13,959
|
14,306
|
12,170 | (2.4 | ) | 17.6 | |||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
267,256 |
358,023
|
378,740 | (25.4 | ) | (5.5 | ) | |||||||||||||
Global
and International
|
973,380
|
1,123,570
|
842,480
|
(13.4 | ) | 33.4 | ||||||||||||||
1,240,636 | 1,481,593 | 1,221,220 | (16.3 | ) | 21.3 | |||||||||||||||
Distribution
Revenues
|
— | 292 | 560 | (100.0 | ) | (47.9 | ) | |||||||||||||
Total
|
$ |
1,240,636
|
$ |
1,481,885
|
$ | 1,221,780 | (16.3 | ) | 21.3 |
(1)
|
Includes
index, structured and asset allocation
services.
|
As of
December 31, 2008, 2007 and 2006, Institutional Investment Services represented
approximately 63% of our company-wide AUM. The fees we earned from these
services represented approximately 35%, 33% and 31% of our company-wide net
revenues for 2008, 2007 and 2006, respectively.
We manage
assets for AXA and its subsidiaries, which together constitute our largest
institutional client. These assets accounted for approximately 16%, 16% and 17%
of our total institutional AUM as of December 31, 2008, 2007 and 2006,
respectively, and approximately 8%, 7% and 7% of our total institutional
revenues for 2008, 2007 and 2006, respectively.
The
institutional AUM we manage for our affiliates, along with our nine other
largest institutional accounts, accounts for approximately 36% of our total
institutional AUM as of December 31, 2008 and approximately 16% of our total
institutional revenues for the year ended December 31, 2008. 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, 2008.
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 14% of institutional
assets under management, which are primarily invested in long-only 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
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ |
12,086
|
$ |
33,488
|
$ |
35,749
|
(63.9 | )% | (6.3 | )% | ||||||||||
Global
and International
|
28,053
|
56,560
|
38,797
|
(50.4 | ) | 45.8 | ||||||||||||||
40,139
|
90,048
|
74,546
|
(55.4 | ) | 20.8 | |||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
8,494 | 24,637 | 28,587 | (65.5 | ) | (13.8 | ) | |||||||||||||
Global
and International
|
11,544
|
23,530
|
19,937
|
(50.9 | ) | 18.0 | ||||||||||||||
20,038
|
48,167
|
48,524
|
(58.4 | ) | (0.7 | ) | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
9,857 | 10,627 | 11,420 | (7.2 | ) | (6.9 | ) | |||||||||||||
Global
and International
|
20,178
|
29,855
|
27,614
|
(32.4 | ) | 8.1 | ||||||||||||||
30,035
|
40,482
|
39,034
|
(25.8 | ) | 3.7 | |||||||||||||||
Other
(1):
|
||||||||||||||||||||
U.S.
|
9,851 | 4,468 | 4,824 | 120.5 | (7.4 | ) | ||||||||||||||
Global
and International
|
1,580
|
—
|
— | n/m | — | |||||||||||||||
11,431
|
4,468 | 4,824 | 155.8 | (7.4 | ) | |||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
40,288 | 73,220 | 80,580 | (45.0 | ) | (9.1 | ) | |||||||||||||
Global
and International
|
61,355
|
109,945
|
86,348
|
(44.2 | ) | 27.3 | ||||||||||||||
Total
|
$ |
101,643
|
$ |
183,165
|
$ |
166,928
|
(44.5 | ) | 9.7 |
(1)
|
Includes
index, structured and asset allocation
services.
|
Revenues
from Retail Services
(by
Investment Service)
Years Ended
December 31,
|
%
Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 88,394 | $ |
129,125
|
$ |
123,355
|
(31.5 | )% | 4.7 | % | ||||||||||
Global
and International
|
216,561
|
262,369
|
133,314
|
(17.5 | ) | 96.8 | ||||||||||||||
304,955
|
391,494
|
256,669
|
(22.1 | ) | 52.5 | |||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
84,651 | 119,880 | 143,344 | (29.4 | ) | (16.4 | ) | |||||||||||||
Global
and International
|
130,247
|
168,817
|
152,883
|
(22.8 | ) | 10.4 | ||||||||||||||
214,898
|
288,697
|
296,227
|
(25.6 | ) | (2.5 | ) | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
30,888 | 39,644 | 43,705 | (22.1 | ) | (9.3 | ) | |||||||||||||
Global
and International
|
195,373
|
224,335
|
186,196
|
(12.9 | ) | 20.5 | ||||||||||||||
226,261
|
263,979
|
229,901
|
(14.3 | ) | 14.8 | |||||||||||||||
Other
(1):
|
||||||||||||||||||||
U.S.
|
3,702 | 1,868 | 1,673 | 98.2 | 11.7 | |||||||||||||||
Global
and International
|
1,297
|
— | 3,363 | n/m | (100.0 | ) | ||||||||||||||
4,999 | 1,868 | 5,036 | 167.6 | (62.9 | ) | |||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
207,635 | 290,517 | 312,077 | (28.5 | ) | (6.9 | ) | |||||||||||||
Global
and International
|
543,478
|
655,521
|
475,756
|
(17.1 | ) | 37.8 | ||||||||||||||
751,113 | 946,038 | 787,833 | (20.6 | ) | 20.1 | |||||||||||||||
Distribution
Revenues(2)
|
376,372 | 471,031 | 418,780 | (20.1 | ) | 12.5 | ||||||||||||||
Shareholder
Servicing Fees(2)
|
100,053
|
104,132
|
97,236
|
(3.9 | ) | 7.1 | ||||||||||||||
Total
|
$ |
1,227,538
|
$ |
1,521,201
|
$ |
1,303,849
|
(19.3 | ) | 16.7 |
(1)
|
Includes
index, structured and asset allocation
services.
|
(2)
|
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. In the past, as certain
of the U.S. Funds grew, we 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 or 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.
Revenues
from Retail Services represented approximately 35%, 34% and 33% of our
company-wide net revenues for the years ended December 31, 2008, 2007 and 2006,
respectively.
Our
Retail Products and Services include open-end mutual funds designed to fund
benefits under variable annuity contracts and variable life insurance policies
offered by life insurance companies (“Variable Product Series Fund”). 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, 2008, we managed or sub-advised approximately $28
billion of Variable Product Series Fund AUM.
The
mutual funds we sub-advise for AXA and its subsidiaries together constitute our
largest retail client. They accounted for approximately 21%, 22% and 24% of our
total retail AUM as of December 31, 2008, 2007 and 2006, respectively, and
approximately 7% of our total retail revenues for each of 2008, 2007 and
2006.
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 generally 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 sales commissions for
back-end load shares 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 $33.7 million, $31.1 million and $23.7
million, totaled approximately $9.1 million, $84.1 million and $98.7 million
during 2008, 2007 and 2006, respectively. Effective January 31, 2009,
back-end load shares are no longer offered to new investors in U.S.
Funds.
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 30 days) and do
not obligate the financial intermediary to sell any specific amount of fund
shares.
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 result from a financial
intermediary including our funds on its list of preferred 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 accounting or record-keeping
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
2008, the 10 financial intermediaries responsible for the largest volume of
sales of open-end AllianceBernstein Funds were responsible for 43% 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 4%, 2% and 2% of
total sales of shares of open-end AllianceBernstein Funds in 2008, 2007 and
2006, 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”), which has been
acquired by Bank of America Corporation, was responsible for approximately 8%,
7% and 6% of open-end AllianceBernstein Fund sales in 2008, 2007 and 2006,
respectively. Citigroup Inc. (and its subsidiaries, “Citigroup”) was responsible
for approximately 7%, 7% and 5% of open-end AllianceBernstein Fund sales in
2008, 2007 and 2006, respectively. 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 0.1% of total open-end industry sales (and 0.3% of non-proprietary
manager sales) in the U.S. during 2008. 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 4.0 million accounts in total).
(Transfer agency and related services are provided to the SCB Funds primarily by
Boston Financial Data Services.) 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 records
revenues for providing these services to the AllianceBernstein Funds at the rate
of approximately $7 million per year.
A unit of
AllianceBernstein Luxembourg (“ABIS Lux”) is the transfer agent for
substantially all of the Non-U.S. Funds. ABIS Lux, which bases its operations in
Luxembourg and is supported by operations in Singapore, Hong Kong and the United
States, 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
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 13,254 | $ | 25,259 | $ | 27,703 | (47.5 | )% | (8.8 | )% | ||||||||||
Global
and International
|
11,627 | 25,497 | 19,091 | (54.4 | ) | 33.6 | ||||||||||||||
24,881 | 50,756 | 46,794 | (51.0 | ) | 8.5 | |||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
8,425 | 16,004 | 13,237 | (47.4 | ) | 20.9 | ||||||||||||||
Global
and International
|
5,709 | 12,175 | 9,418 | (53.1 | ) | 29.3 | ||||||||||||||
14,134 | 28,179 | 22,655 | (49.8 | ) | 24.4 | |||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
29,287 | 29,498 | 25,032 | (0.7 | ) | 17.8 | ||||||||||||||
Global
and International
|
606 | 676 | 328 | (10.4 | ) | 106.1 | ||||||||||||||
29,893 | 30,174 | 25,360 | (0.9 | ) | 19.0 | |||||||||||||||
Other
(1):
|
||||||||||||||||||||
U.S.
|
21 | 25 | 80 | (16.0 | ) | (68.8 | ) | |||||||||||||
Global
and International
|
18 | 10 | 9 | 80.0 | 11.1 | |||||||||||||||
39 | 35 | 89 | 11.4 | (60.7 | ) | |||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
50,987 | 70,786 | 66,052 | (28.0 | ) | 7.2 | ||||||||||||||
Global
and International
|
17,960 | 38,358 | 28,846 | (53.2 | ) | 33.0 | ||||||||||||||
Total
|
$ | 68,947 | $ | 109,144 | $ | 94,898 | (36.8 | ) | 15.0 |
(1)
|
Includes
index, structured and asset allocation
services.
|
Revenues
from Private Client Services
(by
Investment Service)
Years Ended
December 31,
|
%
Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06 | ||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 270,346 | $ | 322,366 | $ | 293,281 | (16.1 | )% | 9.9 | % | ||||||||||
Global
and International
|
181,665 | 233,964 | 260,529 | (22.4 | ) | (10.2 | ) | |||||||||||||
452,011 | 556,330 | 553,810 | (18.8 | ) | 0.5 | |||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
162,770 | 164,547 | 134,070 | (1.1 | ) | 22.7 | ||||||||||||||
Global
and International
|
98,409 | 113,379 | 83,615 | (13.2 | ) | 35.6 | ||||||||||||||
261,179 | 277,926 | 217,685 | (6.0 | ) | 27.7 | |||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
132,195 | 121,872 | 108,418 | 8.5 | 12.4 | |||||||||||||||
Global
and International
|
2,334 | 2,315 | 1,188 | 0.8 | 94.9 | |||||||||||||||
134,529 | 124,187 | 109,606 | 8.3 | 13.3 | ||||||||||||||||
Other
(1):
|
||||||||||||||||||||
U.S.
|
15 | 23 | 75 | (34.8 | ) | (69.3 | ) | |||||||||||||
Global
and International
|
43 | 91 | — | (52.7 | ) | — | ||||||||||||||
58 | 114 | 75 | (49.1 | ) | 52.0 | |||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
565,326 | 608,808 | 535,844 | (7.1 | ) | 13.6 | ||||||||||||||
Global
and International
|
282,451 | 349,749 | 345,332 | (19.2 | ) | 1.3 | ||||||||||||||
847,777 | 958,557 | 881,176 | (11.6 | ) | 8.8 | |||||||||||||||
Distribution
Revenues
|
2,053 | 2,112 | 1,705 | (2.8 | ) | 23.9 | ||||||||||||||
Total
|
$ | 849,830 | $ | 960,669 | $ | 882,881 | (11.5 | ) | 8.8 |
(1)
|
Includes
index, structured and asset allocation
services.
|
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 5% of
private client AUM, substantially all of which is held in hedge
funds.
Revenues
from Private Client Services represented approximately 24%, 21% and 22% of our
company-wide net revenues for the years ended December 31, 2008, 2007 and 2006,
respectively.
Institutional
Research Services
The
following table summarizes Institutional Research Services
revenues:
Revenues
from Institutional Research Services
Years Ended
December 31,
|
%
Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07 | 2007-06 | ||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Transaction
Execution and Research:
|
||||||||||||||||||||
SCB
LLC
|
$ | 372,067 | $ | 317,892 | $ | 303,204 | 17.0 | % | 4.8 | % | ||||||||||
SCBL
|
99,649
|
105,661
|
71,871
|
(5.7 | ) | 47.0 | ||||||||||||||
Total
|
$ | 471,716 | $ |
423,553
|
$ | 375,075 | 11.4 | 12.9 |
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 13%, 9% and 9%
of our company-wide net revenues for the years ended December 31, 2008, 2007 and
2006, 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
regularly execute transactions for our private clients through SCB LLC or SCBL,
our affiliated broker-dealers, because these clients have generally subscribed
to an all-inclusive package of services that includes brokerage, custody and
investment advice. We sometimes execute institutional client transactions
through SCB LLC or SCBL. 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).
We may
use third-party 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 registered a number of service marks with the
U.S. Patent and Trademark Office and various foreign trademark 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”.
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 in the past 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 New York State Attorney General’s Assurance of Discontinuance dated
September 1, 2004 (“NYAG AoD” and, 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 have not sought to increase our
advisory fees -- an increase would generally require the approval of the
boards of directors and shareholders of our U.S. Funds -- and we do not
intend to do so); 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. The IDC’s calculations
confirmed that our initial contribution to the Restitution Fund was sufficient
to compensate for the harm to mutual fund shareholders from market timing
activities. On May 15, 2008, the SEC approved the IDC’s plan to
distribute the Restitution Fund to appropriate mutual fund
shareholders. The IDC began distributing payments from the
Restitution Fund in February 2009.
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 New Hampshire banking laws. The primary
fiduciary activities of ABTC consist of serving as trustee to a series of
collective investment funds, 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, 2008, each of our subsidiaries subject to a minimum net capital
requirement satisfied the applicable requirement.
Holding
Units are listed on the NYSE and trade publicly under the ticker symbol “AB”. As
an NYSE listed company, Holding is subject to 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.
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
jurisdictions 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, 2008, 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):
![](https://www.sec.gov/Archives/edgar/data/0000825313/000114036109004725/graph2.jpg)
(1)
|
Direct
and indirect ownership including unallocated Holding Units held in a trust
for our deferred compensation
plans.
|
As of
December 31, 2008, AXA, through certain of its subsidiaries (see “Principal Security Holders” in
Item 12), beneficially owned approximately 62.0% of the issued and
outstanding AllianceBernstein Units (including those held indirectly through its
ownership of approximately 1.6% 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 62.4% economic interest in
AllianceBernstein as of December 31, 2008.
On
January 6, 2009, SCB Partners, Inc. sold to AXA America Holdings, Inc. (“AXA
America Holdings”), a wholly-owned subsidiary of AXA, its remaining 8,160,000
AllianceBernstein Units pursuant to an agreement (see Note 5 to the first table in
“Principal Security Holders” in Item 12) entered into in connection with
the Bernstein Transaction. The beneficial ownership of AllianceBernstein Units
discussed in the table and paragraphs above do not reflect this
sale. As a result of the sale, AXA’s ownership of AllianceBernstein
Units increased from 60.8% to 63.9% while SCB Partners’ ownership decreased from
3.1% to zero. Including the general partnership interests in Holding and
AllianceBernstein and its equity interest in Holding, AXA, through certain of
its subsidiaries, had an approximate 65.4% economic interest in
AllianceBernstein immediately following the sale. For additional beneficial
ownership information reflecting the sale, see “Principal Security Holders” in
Item 12.
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. Furthermore, our poor relative investment performance during 2008,
and what may be diminished confidence in our services on the part of clients and
consultants alike, may make it more difficult for us to compete
effectively.
AXA and
its 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 respective 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:
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our
investment performance for clients;
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our
commitment to place the interests of our clients
first;
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the
quality of our research;
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our
ability to attract, retain, and motivate highly skilled, and often highly
specialized, personnel;
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the
array of investment products we
offer;
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the
fees we charge;
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our
operational effectiveness;
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our
ability to further develop and market our brand;
and
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our
global presence.
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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, on official business days during the hours of 10:00 a.m. to 3:00 p.m. 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.
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Risk
Factors
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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 has 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, industry trends, interest rates, inflation rates, tax regulation
changes and other factors that are difficult to predict affect the mix, market
value and level 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 from equity products towards fixed income
products and passive products may 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 or passive
services. The global economic turmoil during the second half of 2008
has caused some investors to shift their focus from equities to fixed income,
passive and money market products (some of which we do not offer), and this
trend may continue or accelerate.
Significant
weakness and volatility in global credit markets, particularly the rapid
deterioration of the mortgage markets in the United States and Europe, during
the second half of 2007 and early in 2008 was followed by global economic
turmoil during the second half of 2008. These conditions have had a significant
adverse affect on our 2008 results of operations. Specifically, they adversely
affected absolute and relative performance for clients in nearly all of our
investment services. As a result, our AUM, revenues and earnings per
unit were down 42.3%, 22.3% and 33.3%, respectively, as compared to year-end
2007 totals and the amount of performance-based fees we earned in 2008 were down
83.4% (for additional information about our firm’s financial and operating
results, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in
Item 7). The weakness in global financial markets has
continued thus far in 2009 and our AUM declined by $33 billion during January
2009. Our 2009 results of operations will continue to be adversely affected
should this trend continue.
Our 2008
results included two quarters during which AUM and revenues were substantially
higher than they are now. If our current level of AUM continues or
declines for most or all of 2009, our revenues and earnings will be
substantially lower in 2009 than they were in 2008.
Prolonged weakness in asset values
may result in impairment of goodwill, intangible assets and the deferred sales
commission asset.
To the
extent that securities valuations remain depressed for prolonged periods of
time and market conditions stagnate or worsen as a result of the global
financial crisis (factors that are beyond our control), our AUM, revenues,
profitability and unit price may be adversely affected. As a result, subsequent
impairment tests may be based on different assumptions and future cash flow
projections which may result in an impairment of goodwill, intangible assets and
the deferred sales commission asset. The occurrence of an impairment
would require a material charge to our earnings. For additional
information about our impairment testing, see Item 7.
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 30 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 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. For example, one or
more investment consultants could advise their clients to move their assets away
from us to other investment advisers, which could result in significant net
outflows. Also, the consolidation among financial intermediaries,
which occurred over the last several months and is likely to continue, will
reduce the number of intermediaries available to distribute our retail products
and is likely to increase the cost of doing business with them as consolidation
reduces competition.
Our
aggressive expense reduction initiatives could adversely affect our ability to
conduct our business.
During
the fourth quarter of 2008, we reduced headcount and announced our intention to
reduce capital outlays in 2009 in order to lower our expense base in light
of substantial declines in AUM and net revenues. Additionally, in
2008 we reduced substantially year-end cash bonuses and deferred compensation
awards and imposed a salary freeze for 2009. These expense reduction
measures and any additional measures we may take in view of continuing adverse
economic conditions could have a significant effect on our ability to conduct
our business and service our clients. We also may be unable to retain
key personnel, the loss of whom could further damage our
business.
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. This may be
particularly difficult in the months ahead as our firm continues to aggressively
manage expenses.
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 with us.
Our inability to meet or exceed 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.
Throughout
2008, we underperformed benchmarks, in some cases by substantial amounts, in
virtually all of our services, particularly in the fourth quarter. In
so doing, we failed to meet client expectations, which contributed to net
outflows across each of our three distribution channels in 2008, with net
outflows accelerating in the fourth quarter. Net outflows continued to
accelerate in January 2009. If we cannot improve our investment
performance, it is likely that our net outflows will continue, which could have
a significantly adverse effect on our revenues, financial condition, results of
operations and business prospects.
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,
some 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 underperform 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, our ability to earn future performance-based fees will
be impaired. We are eligible to earn performance-based fees on approximately 14%
of the assets we manage for institutional clients and approximately 5% of the
assets we manage for private clients (in total, approximately 10% of our
company-wide AUM). If the percentage of our AUM subject to performance-based
fees grows, seasonality and volatility of revenue and earnings are likely to
become more significant. Approximately 80% of our hedge fund AUM is subject to
high-watermarks, and we ended the fourth quarter of 2008 with approximately 67%
of this hedge fund AUM below high-watermarks by 10% or more. This will make it
very difficult for us to earn performance-based fees in most of our hedge funds
in 2009.
Our
performance-based fees were $13.4 million in 2008, $81.2 million in 2007 and
$235.7 million in 2006.
The
individuals, counterparties or issuers on which we rely in the course of
performing services for our clients may be unable or unwilling to honor their
contractual obligations to us.
We rely
on various third party vendors to fulfill their obligations to us, whether
specified by contract, course of dealing or otherwise. Disruptions in
the financial markets and other economic challenges, like those presented by the
ongoing global financial crisis, may cause these vendors to experience
significant cash flow problems or even render them insolvent, which could expose
us to significant costs and reduce our net income. For example,
insurance companies may be unable to pay claims they are otherwise contractually
obligated to pay, which could result in our having to suffer losses that
typically would be covered by insurance.
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:
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causing
disruptions in U.S. or global economic conditions, thus decreasing
investor confidence and making investment products generally less
attractive;
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inflicting
loss of life;
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triggering
massive technology failures or delays;
and
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requiring
substantial capital expenditures and operating expenses to remediate
damage and restore operations.
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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.
Our
own operational failures 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 costs 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 based
on information with limited market observability 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 based on
information with limited market observability is not significant, inaccurate
fair value determinations can harm our clients and create regulatory
issues.
In 2008,
the unprecedented illiquidity experienced in parts of the fixed income markets
made it more difficult to fair value sub-prime mortgage-related assets such as
collateralized debt obligations and mortgage-backed securities. This
difficulty was accompanied by significant write downs of these, and like,
financial instruments under the fair value measurement requirements of Financial
Accounting Standards Board (“FASB”) Statement No. 157, “Fair Value
Measurements”. These factors increase the risk that our fair
value determinations may not reflect the true value of the securities being
valued.
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.
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.
Our
substantial underperformance in virtually all of our investment services during
2008, which resulted in large part from our financial sector investments held
during the fourth quarter of 2008, may have hurt our reputation among many
clients, prospects and consultants. We are focused on improving
investment performance and, in so doing, rebuilding our
reputation. Failure in this endeavor could have a material adverse
effect on our revenues, financial condition, results of operations and business
prospects.
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. In addition, recent
capital markets and economic turmoil may reduce market
volumes. Combined, these two factors could adversely impact SCB’s
revenue.
Electronic,
or “low-touch”, trading approaches represent a growing percentage of buy-side
trading activity and produce transaction fees for execution-only services that
are a small fraction of traditional full service fee rates. As a
result, blended pricing for the industry and SCB has declined in recent
years. In addition, fee rates charged by SCB and other brokers for
traditional brokerage services have also historically experienced price
pressure, and we expect these trends to continue. While increases in transaction
volume have in the past more than offset decreases in rates, this may not
continue. Recent economic and market turmoil has severely impacted
much of SCB's client base, which in the near-term may adversely affect
transaction volume generally.
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 2008, 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 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. By having a global presence, 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. Furthermore, our poor investment performance during 2008, and what may
be diminished confidence in our services on the part of clients and consultants
alike, may make it more difficult for us to compete effectively.
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 financial condition, results of
operations and business prospects.
We are
involved in various matters, including regulatory inquiries, administrative
proceedings and litigation, some of which allege substantial 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 10.10 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 263,083 square feet of
space at One North Lexington, 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 2029. We also lease space in 18 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 between 2010 and 2022, and in Tokyo, Japan under leases expiring in
2009 and 2018.
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 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 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, 2008, 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 regulatory inquiries,
administrative proceedings and litigation, some of which allege substantial
damages. While any inquiry, proceeding or litigation has the element of
uncertainty, management believes that the outcome of any one of the other
regulatory inquiries, administrative proceedings, lawsuits or claims that is
pending or threatened, or all of them combined, will not have a material adverse
effect on our 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 2008.
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 are listed on the NYSE and trade publicly 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 10.10 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 2008 and 2007 and the high and low sale
prices of Holding Units reflected on the NYSE composite transaction tape during
2008 and 2007:
Quarters Ended
2008
|
Total
|
|||||||||||||||||||
December
31
|
September
30
|
June
30
|
March
31
|
|||||||||||||||||
Cash
distributions per AllianceBernstein Unit(1)
|
$ | 0.37 | $ | 0.70 | $ | 1.06 | $ | 0.94 | $ | 3.07 | ||||||||||
Cash
distributions per Holding Unit(1)
|
$ | 0.29 | $ | 0.60 | $ | 0.96 | $ | 0.83 | $ | 2.68 | ||||||||||
Holding
Unit prices:
|
||||||||||||||||||||
High
|
$ | 38.90 | $ | 57.11 | $ | 67.75 | $ | 78.00 | ||||||||||||
Low
|
$ | 11.49 | $ | 32.00 | $ | 54.50 | $ | 53.63 | ||||||||||||
Quarters Ended
2007(2)
|
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 | $ | 94.40 | ||||||||||||
Low
|
$ | 71.31 | $ | 72.33 | $ | 82.90 | $ | 79.06 |
(1)
|
Declared
and paid during the following
quarter.
|
(2)
|
The
low trading price during the quarters ended September 30, 2007 and June
30, 2007, and the high trading price during the quarter ended March 31,
2007, have been updated to reflect the prices on the NYSE composite
transaction tape.
|
On
February 2, 2009, the closing price of a Holding Unit on the NYSE was $16.68 per
Unit and there were approximately 1,149 Holding Unitholders of record for
approximately 87,000 beneficial owners. On February 2, 2009, 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
AllianceBernstein
did not engage in any unregistered sales of its securities during the last three
years.
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
(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
|
|||||||||||||
Period
|
||||||||||||||||
10/1/08-10/31/08(1)
|
3,100 | $ | 34.70 | — | — | |||||||||||
11/1/08-11/30/08(2)
|
900 | 20.13 | — | — | ||||||||||||
12/1/08-12/31/08(3)(4)
|
11,115
|
16.00 |
—
|
—
|
||||||||||||
Total
|
15,115
|
$ |
20.08
|
—
|
—
|
(1)
|
On
October 2, 2008, 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)
|
On
each of November 4, 2008 and November 26, 2008, we purchased 217 Holding
Units and 683 Holding Units, respectively, from employees to allow them to
fulfill statutory withholding tax requirements at the time of distribution
of equity compensation awards.
|
(3)
|
On
December 1, 2008, 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.
|
(4)
|
On
December 17, 2008, ECMC, LLC (“ECMC”), a wholly-owned subsidiary of AXA
Equitable, transferred 722,178 Holding Units to AXA
Equitable. We have not reflected this transaction in the table
because no “purchase” took place.
|
Neither
AllianceBernstein nor any of our affiliates purchased AllianceBernstein Units
during the fourth quarter of the fiscal year covered by this
report. However, during December 2008, the following inter-company
transfers took place among AXA Financial and certain of its
subsidiaries:
|
•
|
On
December 17, 2008, AXA Financial transferred 40,861,854 AllianceBernstein
Units to AXA Financial Services, LLC, a wholly-owned subsidiary of AXA
Financial, which in turn transferred them to AXA Financial (Bermuda) Ltd.
(“AXF Bermuda”), also a wholly-owned subsidiary of AXA
Financial.
|
|
•
|
On
December 17, 2008, ECMC transferred 40,880,637 AllianceBernstein Units to
Equitable Holdings LLC, a wholly-owned subsidiary of AXA Equitable, which
in turn transferred them to AXA
Equitable.
|
|
•
|
On
December 30, 2008, AXA Equitable transferred an aggregate of 20,164,587
AllianceBernstein Units, consisting of: the transfer of 2,452,450
AllianceBernstein Units to MONY Life Insurance Company (“MONY”), a
wholly-owned subsidiary of AXA Financial; the transfer of 1,362,472
AllianceBernstein Units to MONY Life Insurance Company of America, a
wholly-owned subsidiary of MONY; and 16,349,665 AllianceBernstein Units to
AXF Bermuda.
|
Item 6.
|
Selected
Financial Data
|
ALLIANCEBERNSTEIN
HOLDING L.P.
Selected
Financial Data
Years Ended December 31,
|
||||||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||||||
INCOME
STATEMENT DATA:
|
||||||||||||||||||||
Equity
in earnings of AllianceBernstein
|
$ | 278,636 | $ | 415,256 | $ | 359,469 | $ | 275,054 | $ | 219,971 | ||||||||||
Income
taxes
|
33,910 | 39,104 | 34,473 | 26,990 | 24,798 | |||||||||||||||
Net
income
|
$ | 244,726 | $ | 376,152 | $ | 324,996 | $ | 248,064 | $ | 195,173 | ||||||||||
Basic
net income per unit
|
$ | 2.79 | $ | 4.35 | $ | 3.85 | $ | 3.04 | $ | 2.45 | ||||||||||
Diluted
net income per unit
|
$ | 2.79 | $ | 4.32 | $ | 3.82 | $ | 3.02 | $ | 2.43 | ||||||||||
CASH
DISTRIBUTIONS PER UNIT(1)
|
$ | 2.68 | $ | 4.33 | $ | 4.02 | $ | 3.00 | $ | 2.01 | ||||||||||
BALANCE
SHEET DATA AT PERIOD END:
|
||||||||||||||||||||
Total
assets
|
$ | 1,601,442 | $ | 1,575,234 | $ | 1,568,034 | $ | 1,377,054 | $ | 1,303,446 | ||||||||||
Partners’
capital
|
$ | 1,596,155 | $ | 1,567,460 | $ | 1,559,188 | $ | 1,368,846 | $ | 1,295,670 |
(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,
|
||||||||||||||||||||
2008
|
2007(1)
|
2006(1)
|
2005(1)
|
2004(1)
|
||||||||||||||||
(in
thousands, except per unit amounts and unless otherwise
indicated)
|
||||||||||||||||||||
INCOME
STATEMENT DATA:
|
||||||||||||||||||||
Revenues:
|
||||||||||||||||||||
Investment
advisory and services fees
|
$ | 2,839,526 | $ | 3,386,188 | $ | 2,890,229 | $ | 2,259,392 | $ | 1,996,819 | ||||||||||
Distribution
revenues
|
378,425 | 473,435 | 421,045 | 397,800 | 447,283 | |||||||||||||||
Institutional
research services(2)
|
471,716 | 423,553 | 375,075 | 352,757 | 420,141 | |||||||||||||||
Dividend
and interest income
|
91,752 | 284,014 | 266,520 | 152,781 | 72,743 | |||||||||||||||
Investment
gains (losses)
|
(349,172 | ) | 29,690 | 62,200 | 29,070 | 14,842 | ||||||||||||||
Other
revenues
|
118,436 | 122,869 | 123,171 | 116,788 | 136,401 | |||||||||||||||
Total
revenues
|
3,550,683 | 4,719,749 | 4,138,240 | 3,308,588 | 3,088,229 | |||||||||||||||
Less:
interest expense
|
36,524 | 194,432 | 187,833 | 95,863 | 32,796 | |||||||||||||||
Net
revenues
|
3,514,159 | 4,525,317 | 3,950,407 | 3,212,725 | 3,055,433 | |||||||||||||||
Expenses:
|
||||||||||||||||||||
Employee
compensation and benefits
|
1,454,691 | 1,833,796 | 1,547,627 | 1,262,198 | 1,085,163 | |||||||||||||||
Promotion
and servicing:
|
||||||||||||||||||||
Distribution
plan payments
|
274,359 | 335,132 | 292,886 | 291,953 | 374,184 | |||||||||||||||
Amortization
of deferred sales commissions
|
79,111 | 95,481 | 100,370 | 131,979 | 177,356 | |||||||||||||||
Other
|
207,506 | 252,468 | 218,944 | 198,004 | 202,327 | |||||||||||||||
General
and administrative
|
539,198 | 574,506 | 574,904 | 378,856 | 410,240 | |||||||||||||||
Interest
on borrowings
|
13,077 | 23,970 | 23,124 | 25,109 | 24,232 | |||||||||||||||
Amortization
of intangible assets
|
20,716 | 20,716 | 20,710 | 20,700 | 20,700 | |||||||||||||||
Total
expenses
|
2,588,658 | 3,136,069 | 2,778,565 | 2,308,799 | 2,294,202 | |||||||||||||||
Operating
income
|
925,501 | 1,389,248 | 1,171,842 | 903,926 | 761,231 | |||||||||||||||
Non-operating
income
|
18,728 | 15,756 | 20,196 | 34,446 | — | |||||||||||||||
Income
before income taxes and non-controlling interest in earnings of
consolidated entities
|
944,229 | 1,405,004 | 1,192,038 | 938,372 | 761,231 | |||||||||||||||
Income
taxes
|
95,803 | 127,845 | 75,045 | 64,571 | 39,932 | |||||||||||||||
Non-controlling
interest in earnings of consolidated entities, net of tax
|
9,186 | 16,715 | 8,392 | 5,483 | 16,149 | |||||||||||||||
Net
income
|
$ | 839,240 | $ | 1,260,444 | $ | 1,108,601 | $ | 868,318 | $ | 705,150 | ||||||||||
Basic
net income per unit
|
$ | 3.18 | $ | 4.80 | $ | 4.26 | $ | 3.37 | $ | 2.76 | ||||||||||
Diluted
net income per unit
|
$ | 3.18 | $ | 4.77 | $ | 4.22 | $ | 3.35 | $ | 2.74 | ||||||||||
Operating
margin(3)
|
26.1 | % | 30.3 | % | 29.5 | % | 28.0 | % | 24.4 | % | ||||||||||
CASH
DISTRIBUTIONS PER UNIT(4)
|
$ | 3.07 | $ | 4.77 | $ | 4.42 | $ | 3.33 | $ | 2.40 | ||||||||||
BALANCE
SHEET DATA AT PERIOD END:
|
||||||||||||||||||||
Total
assets
|
$ | 8,503,459 | $ | 9,368,754 | $ | 10,601,105 | $ | 9,490,480 | $ | 8,779,330 | ||||||||||
Debt
|
$ | 284,779 | $ | 533,872 | $ | 334,901 | $ | 407,291 | $ | 407,517 | ||||||||||
Partners’
capital
|
$ | 4,317,659 | $ | 4,541,226 | $ | 4,570,997 | $ | 4,302,674 | $ | 4,183,698 | ||||||||||
ASSETS
UNDER MANAGEMENT AT PERIOD END (in millions)
|
$ | 461,951 | $ | 800,390 | $ | 716,921 | $ | 578,552 | $ | 538,764 |
(1)
|
Certain
prior-year amounts have been reclassified to conform to our 2008
presentation. See Note 2
to AllianceBernstein’s
consolidated financial statements in Item 8 for a discussion of
reclassifications.
|
(2)
|
Includes
revenues of $0.3 million, $0.5 million, $1.8 million, $31.5 million and
$116.5 million from brokerage transactions executed on behalf of
AllianceBernstein (acting on behalf of certain of its U.S. asset
management clients that have authorized AllianceBernstein to use SCB for
trade execution) in 2008, 2007, 2006, 2005 and 2004,
respectively. The significant decrease beginning in 2005 is
primarily due to our elimination of transaction charges for most private
clients.
|
(3)
|
Operating
income less non-controlling interest in earnings of consolidated entities
as a percentage of net
revenue.
|
(4)
|
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.
|
Item 7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Executive
Overview
Capital
markets plummeted during the fourth quarter of 2008, following what had already
been a tumultuous year for the global economy, producing sharply negative
investment returns for our clients. Both our absolute and relative investment
performance were poor. Equity returns across capital markets were negative in
2008 across styles, geographies, and capitalizations, as global equities
declined more than 40% for the year. Furthermore, we underperformed benchmarks,
in some cases by substantial amounts, in virtually all of our services,
particularly in the fourth quarter, reflecting our investments in non-U.S.
markets and sectors with exposure to credit risks. In many cases, this
performance adversely affected our long-term track records.
For 2008,
our total assets under management (“AUM”) fell $338.4 billion, or 42.3%, driven
by market depreciation of $294.2 billion and net outflows of $44.2
billion. With AUM at $462.0 billion as of December 31, 2008, we were
at our lowest level since the third quarter of 2003. The decline
occurred mostly in our Institutional Investment Services and Retail Services and
was overwhelmingly due to market depreciation in both value and growth equity
services. Net outflows accelerated in the fourth quarter to $23.2
billion, comprising more than half of the year’s total net outflows. In January
2009, net outflows, which continued to accelerate, and negative investment
performance combined to further reduce AUM to $429.1 billion, our lowest level
since the second quarter of 2003.
Institutional
Investment Services AUM declined during 2008 by $216.7 billion, or 42.7%, with
market depreciation of $191.7 billion and net outflows of $14.4 billion. Tepid
new account sales could not keep pace with the funding of previously awarded
mandates, which caused our pipeline of won but unfunded client mandates to fall
by approximately 43% to $8 billion compared to $14 billion at the end of the
third quarter of 2008. Currently we are managing over $18 billion of
defined contribution AUM, $12 billion of which is in Institutional Investment
Services. Although this is a relatively small part of our business, we consider
the growth of this AUM from less than $1 billion in 2006 to be quite
promising. We have only recently begun discussions with our largest
current and prospective clients about our new flexible Customized Retirement
Strategies platform, which defined contribution plan sponsors can use to create
tailored target date portfolios for their participants. We anticipate
that this part of our business will continue to expand, generating meaningful
incremental asset growth and further strengthening our relationships with some
of our largest and most important clients.
Our
Retail Services AUM declined during 2008 by $81.6 billion, or 44.5%, led by
market depreciation of $67.1 billion and net outflows of $25.1
billion. Nearly three-quarters of the year’s net outflows occurred in
the second half of 2008. To date, there has been little impact within Retail
Services from consolidations among major distributors and it is too early to
assess the opportunities and risks that these transactions present for
us. With that in mind, our Retail Services mandate is to continue our
strategy of aligning research and knowledge with the advice-delivery platforms
of financial institution distributors to improve investment outcomes for the
individual investors that we jointly serve.
Private
Client Services AUM fell during 2008 by $40.1 billion, or 36.8%, primarily as a
result of market depreciation of $35.4 billion. We continue to add new accounts,
albeit at a slower rate, and, despite one of the most turbulent investment
climates in history, our closed account rate for the year was 5.6% versus a
historical rate of 4.3%. This compares quite favorably to our highest closed
account rate of 17.7% in 2000. Although gross cash flow, which represents new
assets from new and existing clients, was down from recent years, it remained at
over $13 billion for the year. We believe this reflects the continued
appeal of our Private Client value proposition. Lastly, although we downsized
our staff levels in 2008, we did so while retaining the best and the highest
potential professionals that service our private clients.
The
events of 2008 not only greatly reduced our total AUM, but materially changed
its composition. We began with three-quarters of our AUM in equities and
one-quarter in fixed income. We ended the year closer to a 60/40
split in favor of equities. To a lesser degree, but not
inconsequential, our mix of U.S. versus global and international services
shifted by five percentage points away from global and
international. These trends have exacerbated the impact of lower AUM
on our revenues as our average fee realization rate decreased from 0.44% as of
December 31, 2007 to 0.42% by the end of 2008. Furthermore, our 2008
results included two quarters during which AUM and revenues were substantially
higher than they are now. If our current level of AUM continues or
declines for most or all of 2009, our revenues and earnings will be
substantially lower in 2009 than they were in 2008.
Institutional
Research Services provided a bright spot in 2008. Its revenues were up 11.4% in
2008 to $471.7 million, with robust growth in the U.S. offsetting a modest
decline in Europe. Revenues in the fourth quarter of 2008 were flat
year-over-year, however, and were down 5.4% sequentially, decelerating in the
latter half of the quarter as market volumes declined
significantly.
Our full
year revenues were down over $1 billion, or 22.3%, led by a $546.7 million, or
16.1%, decline in investment advisory and services fees. The revenue
decline was exacerbated by losses of $325 million on investments related to
employee deferred compensation and lower distribution revenues. Full
year operating expenses declined $547.4 million, or 17.5%, primarily the result
of lower incentive compensation and distribution expenses, the latter driven by
lower assets under management. Accordingly, 2008 diluted net income
per Holding Unit fell to $2.79, or 35.4%, compared to $4.32 for
2007. As we anticipated, our workforce reduction efforts were nearly
complete by the end of 2008. We ended the year with 4,997 employees,
which is 10.4% less than at the beginning of 2008, and down 11.7% versus the
peak at the end of the third quarter of 2008. This workforce
reduction will generate annual savings in excess of $70 million, mostly from
lower salaries and fringe benefits. In view of the continuing adverse economic
and capital markets conditions, we are considering additional expense reduction
measures.
Some
areas we specifically addressed in 2008 and on which we will continue to focus
in 2009 as a result of the global financial crisis are(1):
•
|
Client
satisfaction – Our ability to understand and articulate what has happened,
to describe the lessons learned and the enhancements we have put in place,
and to communicate substantial opportunities we perceive, are all critical
to retaining client confidence in our ability to recover lost
performance.
|
•
|
Investment
performance – We underperformed benchmarks, in some cases by substantial
amounts, in virtually all of our services. We owe our clients
and unitholders much better performance and we will strive to provide
it.
|
•
|
Operational
cost savings – We reduced headcount from 5,580 at December 31, 2007 to
4,997 at December 31, 2008 and imposed a salary freeze for 2009 as part of
our initiative to lower operating costs. We are seeking
additional operational cost savings to counteract potential continuing
declines in revenues.
|
•
|
Capital
spending – Capital spending projects are being prioritized by business
need, with lower priority projects being delayed or
canceled.
|
•
|
Liquidity
– We currently have sufficient liquidity and financial flexibility (i.e., practically no
troubled investments or derivatives on our balance sheet, $4.3 billion of
partners’ capital, a $1.0 billion committed credit facility, only $0.3
billion of debt, and strong credit ratings). However,
additional sources of liquidity are being explored in the case of further
significant deterioration of capital and credit
markets.
|
•
|
Asset
impairment – We are more frequently monitoring the possibility that the
goodwill, intangible assets or deferred sales commissions recorded on our
balance sheet could become impaired, or that our debt covenants may not be
met, if financial conditions continue to deteriorate and AUM and
corresponding revenues continue to
decline.
|
•
|
Counterparty
risk – We are mindful of the possibility that counterparties in our
financial transactions, or suppliers of some of our services, will be
unable to perform as a result of their own deteriorating financial
conditions.
|
Our
balance sheet is strong, our intellectual capital is intact, and our expenses
and capital outlays are being aggressively managed while we continue to invest
in our most important strategic initiatives. Our task remains what it
has been throughout our history – apply deep and objective research as we assess
securities for our clients’ portfolios in the pursuit of long-term investing
success. We are confident about three important traits that
differentiate our firm: our financial strength and flexibility; the consistency
and caliber of our leadership team; and our research driven
culture. It is these core characteristics that we believe give us a
competitive edge to grow our business. Although we have confidence
that our core characteristics will lead to improved investment performance and
benefits for our clients, employees and unitholders alike, real challenges to
the global economy remain that will impact the re-emergence of investor
confidence and eventual recovery. Yet the deep fear that has overtaken investors
has also resulted in potentially historic investment opportunities across the
capital markets. We are evaluating today’s extreme dislocations,
attempting to have sufficient exposure to securities that are well-positioned to
outperform as markets anticipate the eventual resolution of this crisis and the
inevitable, though perhaps not imminent, improvement in the global
economy.
(1)
|
Many
of these items are discussed in greater detail later in this Item 7
(including “Cautions
Regarding Forward-Looking Statements”), “Risk Factors” (see Item 1A) or other
sections of this Form 10-K.
|
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
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07 | 2007-06 | ||||||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||||||
AllianceBernstein
net income
|
$ | 839,240 | $ | 1,260,444 | $ | 1,108,601 | (33.4 | )% | 13.7 | % | ||||||||||
Weighted
average equity ownership interest
|
33.2 | % | 32.9 | % | 32.4 | % | ||||||||||||||
Equity
in earnings of AllianceBernstein
|
$ | 278,636 | $ | 415,256 | $ | 359,469 | (32.9 | ) | 15.5 | |||||||||||
Net
income of Holding
|
$ | 244,726 | $ | 376,152 | $ | 324,996 | (34.9 | ) | 15.7 | |||||||||||
Diluted
net income per Holding Unit
|
$ | 2.79 | $ | 4.32 | $ | 3.82 | (35.4 | ) | 13.1 | |||||||||||
Distribution
per Holding Unit
|
$ | 2.68 | $ | 4.33 | $ | 4.02 | (38.1 | ) | 7.7 |
In 2008,
net income and diluted net income per unit decreased from 2007 due to lower
equity in earnings of AllianceBernstein. In 2007, net income and diluted net
income per unit increased from the prior year due to higher equity in earnings
of AllianceBernstein.
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, or $0.21 per unit) 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. During the third quarter of 2008,
AllianceBernstein recorded approximately $35.3 million in insurance
recoveries relating to this error. AllianceBernstein’s and Holding’s fourth
quarter 2006 cash distributions were based on net income as calculated prior to
AllianceBernstein recording the charge. Accordingly, the insurance
recoveries ($0.13 per unit) were not included in AllianceBernstein’s or
Holding’s cash distribution to unitholders for the third quarter of 2008. As of
December 31, 2008, AllianceBernstein had $7.8 million remaining in accrued
liabilities related to the $56.0 million pre-tax charge, some of which
AllianceBernstein hopes to recover for its clients in future periods from
related class action settlement funds, the amount of which is not
known. To the extent AllianceBernstein is unable to recover amounts
its clients would have received were it not for the claims processing error,
AllianceBernstein will reimburse these clients for the unrecovered
amount.
Expense
Reduction
During
the fourth quarter of 2008, AllianceBernstein reduced headcount and announced
its intention to reduce capital outlays in 2009 in order to lower its expense
base in light of declines in assets under management and net revenues. As a
result of the workforce reduction, headcount was 4,997 as of December 31, 2008,
compared to a high of 5,660 (reflecting an 11.7% reduction) as of September 30,
2008, and 5,580 (reflecting a 10.4% reduction) as of December 31, 2007.
AllianceBernstein recorded a pre-tax charge to earnings of $42.7 million in the
fourth quarter of 2008 for severance and severance-related items. This workforce
reduction is expected to generate annual savings in excess of $70 million,
primarily from lower salaries and fringe benefits. AllianceBernstein’s capital
expenditures were reduced by approximately 50% below its original 2008 capital
spending plan and its 2009 capital spending plan includes an approximate 10%
reduction from 2008 expenditure levels. In view of the continuing adverse
economic and market conditions, AllianceBernstein is considering additional
expense reduction measures.
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
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Partners’
capital, as of December 31
|
$ | 1,596.2 | $ | 1,567.5 | $ | 1,559.2 | 1.8 | % | 0.5 | % | ||||||||||
Distributions
received from AllianceBernstein
|
338.4 | 449.3 | 332.0 | (24.7 | ) | 35.3 | ||||||||||||||
Distributions
paid to unitholders
|
(301.4 | ) | (408.7 | ) | (298.5 | ) | (26.3 | ) | 36.9 | |||||||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
13.5 | 50.1 | 100.5 | (73.0 | ) | (50.2 | ) | |||||||||||||
Investment
in AllianceBernstein with proceeds from exercise of compensatory options
to buy Holding Units
|
(13.5 | ) | (50.1 | ) | (100.5 | ) | (73.0 | ) | (50.2 | ) | ||||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
(21.0 | ) | (50.9 | ) | (22.3 | ) | (58.8 | ) | 127.6 | |||||||||||
Issuance
of Holding Units to fund CEO’s Restricted Units award(1)
|
52.3 | — | — | 100.0 | — | |||||||||||||||
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
— | — | 47.2 | — |
(100.0
|
) | ||||||||||||||
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
63.9 | 34.8 | 35.3 | 83.7 | (1.5 | ) | ||||||||||||||
Available
Cash Flow
|
235.1 | 374.3 | 340.3 | (37.2 | ) | 10.0 |
(1)
|
See Note 16 to
AllianceBernstein’s consolidated financial statements in Item
8.
|
Cash and
cash equivalents were zero as of December 31, 2008, 2007 and 2006. 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 Holding’s financial
statements in Item 8.
AllianceBernstein
Assets
Under Management
Assets
under management by distribution channel were as follows:
As of December 31,
|
% Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07 | 2007-06 | ||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Institutional
Investments
|
$ | 291.4 | $ | 508.1 | $ | 455.1 | (42.7 | )% | 11.6 | % | ||||||||||
Retail
|
101.6 | 183.2 | 166.9 | (44.5 | ) | 9.7 | ||||||||||||||
Private
Client
|
69.0 | 109.1 | 94.9 | (36.8 | ) | 15.0 | ||||||||||||||
Total
|
$ | 462.0 | $ | 800.4 | $ | 716.9 | (42.3 | ) | 11.6 |
Assets
under management by investment service were as follows:
As of December 31,
|
% Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07 | 2007-06 | ||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Equity
|
||||||||||||||||||||
Value:
|
||||||||||||||||||||
U.S.
|
$ | 47.9 | $ | 108.0 | $ | 119.0 | (55.6 | )% | (9.3 | )% | ||||||||||
Global &
international
|
124.5 | 274.5 | 216.5 | (54.7 | ) | 26.8 | ||||||||||||||
172.4 | 382.5 | 335.5 | (54.9 | ) | 14.0 | |||||||||||||||
Growth:
|
||||||||||||||||||||
U.S.
|
33.0 | 72.5 | 78.5 | (54.5 | ) | (7.6 | ) | |||||||||||||
Global &
international
|
55.3 | 124.4 | 95.6 | (55.6 | ) | 30.1 | ||||||||||||||
88.3 | 196.9 | 174.1 | (55.2 | ) | 13.1 | |||||||||||||||
Total
Equity
|
260.7 | 579.4 | 509.6 | (55.0 | ) | 13.7 | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
105.3 | 113.4 | 109.9 | (7.1 | ) | 3.2 | ||||||||||||||
Global &
international
|
71.8 | 84.5 | 67.1 | (15.0 | ) | 25.9 | ||||||||||||||
177.1 | 197.9 | 177.0 | (10.5 | ) | 11.8 | |||||||||||||||
Other
(1):
|
||||||||||||||||||||
U.S.
|
16.5 | 16.9 | 24.8 | (2.5 | ) | (31.9 | ) | |||||||||||||
Global &
international
|
7.7 | 6.2 | 5.5 | 24.6 | 10.9 | |||||||||||||||
24.2 | 23.1 | 30.3 | 4.7 | (24.1 | ) | |||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
202.7 | 310.8 | 332.2 | (34.8 | ) | (6.4 | ) | |||||||||||||
Global &
international
|
259.3 | 489.6 | 384.7 | (47.0 | ) | 27.3 | ||||||||||||||
Total
|
$ | 462.0 | $ | 800.4 | $ | 716.9 | (42.3 | ) | 11.6 |
(1)
|
Includes
index, structured and asset allocation
services.
|
Changes
in assets under management during 2008 were as follows:
Distribution Channel
|
Investment Service
|
|||||||||||||||||||||||||||||||||||
Institutional
Investments
|
Retail
|
Private
Client
|
Total
|
Value
Equity
|
Growth
Equity
|
Fixed
Income
|
Other
(1)
|
Total
|
||||||||||||||||||||||||||||
(in
billions)
|
||||||||||||||||||||||||||||||||||||
Balance
as of December 31, 2007
|
$ | 508.1 | $ | 183.2 | $ | 109.1 | $ | 800.4 | $ | 382.5 | $ | 196.9 | $ | 197.9 | $ | 23.1 | $ | 800.4 | ||||||||||||||||||
Long-term
flows:
|
||||||||||||||||||||||||||||||||||||
Sales/new
accounts
|
38.5 | 23.3 | 11.0 | 72.8 | 30.9 | 16.3 | 21.8 | 3.8 | 72.8 | |||||||||||||||||||||||||||
Redemptions/terminations
|
(34.9 | ) | (39.8 | ) | (8.3 | ) | (83.0 | ) | (41.1 | ) | (23.0 | ) | (18.6 | ) | (0.3 | ) | (83.0 | ) | ||||||||||||||||||
Cash
flow/unreinvested dividends
|
(18.0 | ) | (8.6 | ) | (7.4 | ) | (34.0 | ) | (19.1 | ) | (11.5 | ) | (10.6 | ) | 7.2 | (34.0 | ) | |||||||||||||||||||
Net
long-term (outflows) inflows
|
(14.4 | ) | (25.1 | ) | (4.7 | ) | (44.2 | ) | (29.3 | ) | (18.2 | ) | (7.4 | ) | 10.7 | (44.2 | ) | |||||||||||||||||||
Transfers
|
(10.6 | ) | 10.6 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Market
depreciation
|
(191.7 | ) | (67.1 | ) | (35.4 | ) | (294.2 | ) | (180.8 | ) | (90.4 | ) | (13.4 | ) | (9.6 | ) | (294.2 | ) | ||||||||||||||||||
Net
change
|
(216.7 | ) | (81.6 | ) | (40.1 | ) | (338.4 | ) | (210.1 | ) | (108.6 | ) | (20.8 | ) | 1.1 | (338.4 | ) | |||||||||||||||||||
Balance
as of December 31, 2008
|
$ | 291.4 | $ | 101.6 | $ | 69.0 | $ | 462.0 | $ | 172.4 | $ | 88.3 | $ | 177.1 | $ | 24.2 | $ | 462.0 |
(1)
|
Includes
index, structured and asset allocation
services.
|
Changes
in assets under management during 2007 were as follows:
Distribution Channel
|
Investment Service
|
|||||||||||||||||||||||||||||||||||
Institutional
Investments
|
Retail
|
Private
Client
|
Total
|
Value
Equity
|
Growth
Equity
|
Fixed
Income
|
Other
(1)
|
Total
|
||||||||||||||||||||||||||||
(in
billions)
|
||||||||||||||||||||||||||||||||||||
Balance
as of December 31, 2006
|
$ | 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 |
(1)
|
Includes
index, structured and asset allocation
services.
|
Average
assets under management by distribution channel and investment service were as
follows:
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07 | 2007-06 | ||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Distribution
Channel:
|
||||||||||||||||||||
Institutional
Investments
|
$ | 426.5 | $ | 491.1 | $ | 405.6 | (13.1 | )% | 21.1 | % | ||||||||||
Retail
|
145.4 | 180.5 | 150.8 | (19.4 | ) | 19.7 | ||||||||||||||
Private
Client
|
93.2 | 104.8 | 84.6 | (11.1 | ) | 23.8 | ||||||||||||||
Total
|
$ | 665.1 | $ | 776.4 | $ | 641.0 | (14.3 | ) | 21.1 |
Investment
Service:
|
||||||||||||||||||||
Value
Equity
|
$ | 297.9 | $ | 373.3 | $ | 281.1 | (20.2 | )% | 32.8 | % | ||||||||||
Growth
Equity
|
152.6 | 186.0 | 160.2 | (17.9 | ) | 16.1 | ||||||||||||||
Fixed
Income
|
193.2 | 188.3 | 169.2 | 2.6 | 11.3 | |||||||||||||||
Other(1)
|
21.4 | 28.8 | 30.5 | (25.6 | ) | (5.8 | ) | |||||||||||||
Total
|
$ | 665.1 | $ | 776.4 | $ | 641.0 | (14.3 | ) | 21.1 |
(1)
|
Includes
index, structured and asset allocation
services.
|
Consolidated
Results of Operations
Years
Ended December 31,
|
%
Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07 | 2007-06 | ||||||||||||||||
(in
millions, except per unit amounts)
|
||||||||||||||||||||
Net
revenues
|
$ | 3,514.2 | $ | 4,525.3 | $ | 3,950.4 | (22.3 | )% | 14.6 | % | ||||||||||
Expenses
|
2,588.7 | 3,136.1 | 2,778.6 | (17.5 | ) | 12.9 | ||||||||||||||
Operating
income
|
925.5 | 1,389.2 | 1,171.8 | (33.4 | ) | 18.6 | ||||||||||||||
Non-operating
income
|
18.7 | 15.8 | 20.2 | 18.9 | (22.0 | ) | ||||||||||||||
Income
before income taxes and non-controlling interest in earnings of
consolidated entities
|
944.2 | 1,405.0 | 1,192.0 | (32.8 | ) | 17.9 | ||||||||||||||
Income
taxes
|
95.8 | 127.9 | 75.0 | (25.1 | ) | 70.4 | ||||||||||||||
Non-controlling
interest in earnings of consolidated entities, net of tax
|
9.2 | 16.7 | 8.4 | (45.0 | ) | 99.2 | ||||||||||||||
Net
income
|
$ | 839.2 | $ | 1,260.4 | $ | 1,108.6 | (33.4 | ) | 13.7 | |||||||||||
Diluted
net income per unit
|
$ | 3.18 | $ | 4.77 | $ | 4.22 | (33.3 | ) | 13.0 | |||||||||||
Distributions
per unit
|
$ | 3.07 | $ | 4.77 | $ | 4.42 | (35.6 | ) | 7.9 | |||||||||||
Operating
margin(1)
|
26.1 | % | 30.3 | % | 29.5 | % |
(1)
|
Operating income less
non-controlling interest in earnings of consolidated entities as a
percentage of net revenues.
|
In 2008,
net income declined $421.2 million, or 33.4%, to $839.2 million, and net income
per unit decreased $1.59, or 33.3%, to $3.18. The decrease was due primarily to
lower investment advisory and services fees revenues resulting from lower assets
under management and significant mark-to-market losses on investments related to
deferred compensation plan obligations, partially offset by lower employee
compensation and benefits expenses.
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.
Claims
Processing Contingency
During
the fourth quarter of 2006, we recorded in general and administrative expenses a
$56.0 million pre-tax charge ($54.5 million, net of related income tax benefit,
or $0.21 per unit) 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. During the third quarter of 2008, we
recorded as a reduction of general and administrative expenses approximately
$35.3 million in insurance recoveries relating to this error. Our fourth
quarter 2006 cash distributions were based on net income as calculated prior to
recording the charge. Accordingly, the insurance recoveries ($0.13 per
unit) were not included in our cash distribution to unitholders for the
third quarter of 2008. As of December 31, 2008, we had $7.8 million
remaining in accrued liabilities related to the $56.0 million pre-tax charge,
some of which we hope to recover for our clients in future periods from related
class action settlement funds, the amount of which is unknown. To the extent we
are unable to recover amounts our clients would have received were it not for
the claims processing error, we will reimburse these clients for the unrecovered
amount.
Expense
Reduction
During
the fourth quarter of 2008, we reduced headcount and announced our intention to
reduce capital outlays in 2009 in order to lower our expense base in light of
declines in assets under management and net revenues. As a result of this
workforce reduction, headcount was 4,997 as of December 31, 2008, compared to a
high of 5,660 (reflecting an 11.7% reduction) as of September 30, 2008, and
5,580 (reflecting a 10.4% reduction) as of December 31, 2007. We recorded a
pre-tax charge to earnings of $42.7 million in the fourth quarter of 2008 for
severance and severance-related items. This workforce reduction is expected to
generate annual savings in excess of $70 million, primarily from salaries and
fringe benefits. Our capital expenditures were reduced by approximately 50%
below our original 2008 capital spending plan and our 2009 capital spending plan
includes an approximate 10% reduction from 2008 expenditure levels. In view of
the continuing adverse economic and market conditions, we are considering
additional expense reduction measures.
Impairment
Analysis
As of
December 31, 2008, management tested goodwill, intangible assets, and the
deferred sales commission asset for impairment and determined that these assets
were not impaired. See
“Critical Accounting Estimates” in this Item 7 for a discussion of our
impairment testing methodology.
To the
extent that securities valuations remain depressed for prolonged periods of time
and market conditions stagnate or worsen as a result of the global financial
crisis, our assets under management, revenues, profitability, and unit price may
be adversely affected. As a result, subsequent impairment tests may be based
upon different assumptions and future cash flow projections which may result in
an impairment of goodwill, intangible assets and the deferred sales commission
asset. In the current environment, we anticipate testing these assets for
impairment (typically tested annually) on a more frequent basis.
Net
Revenues
The
following table summarizes the components of net revenues:
Years Ended December 31,
|
%
Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07 | 2007-06 | ||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Investment
advisory and services fees:
|
||||||||||||||||||||
Institutional
Investments:
|
||||||||||||||||||||
Base
fees
|
$ | 1,229.1 | $ | 1,416.0 | $ | 1,108.2 | (13.2 | )% | 27.8 | % | ||||||||||
Performance-based
fees
|
11.5 | 65.6 | 113.0 | (82.4 | ) | (42.0 | ) | |||||||||||||
1,240.6 | 1,481.6 | 1,221.2 | (16.3 | ) | 21.3 | |||||||||||||||
Retail:
|
||||||||||||||||||||
Base
fees
|
751.0 | 946.0 | 787.5 | (20.6 | ) | 20.1 | ||||||||||||||
Performance-based
fees
|
0.1 | — | 0.3 | n/m | (96.0 | ) | ||||||||||||||
751.1 | 946.0 | 787.8 | (20.6 | ) | 20.1 | |||||||||||||||
Private
Client:
|
||||||||||||||||||||
Base
fees
|
846.0 | 943.0 | 758.8 | (10.3 | ) | 24.3 | ||||||||||||||
Performance-based
fees
|
1.8 | 15.6 | 122.4 | (88.3 | ) | (87.3 | ) | |||||||||||||
847.8 | 958.6 | 881.2 | (11.6 | ) | 8.8 | |||||||||||||||
Total:
|
||||||||||||||||||||
Base
fees
|
2,826.1 | 3,305.0 | 2,654.5 | (14.5 | ) | 24.5 | ||||||||||||||
Performance-based
fees
|
13.4 | 81.2 | 235.7 | (83.4 | ) | (65.6 | ) | |||||||||||||
2,839.5 | 3,386.2 | 2,890.2 | (16.1 | ) | 17.2 | |||||||||||||||
Distribution
revenues
|
378.4 | 473.4 | 421.0 | (20.1 | ) | 12.4 | ||||||||||||||
Institutional
research services
|
471.7 | 423.5 | 375.1 | 11.4 | 12.9 | |||||||||||||||
Dividend
and interest income
|
91.8 | 284.0 | 266.5 | (67.7 | ) | 6.6 | ||||||||||||||
Investment
gains (losses)
|
(349.2 | ) | 29.7 | 62.2 | n/m | (52.3 | ) | |||||||||||||
Other
revenues
|
118.5 | 122.9 | 123.2 | (3.6 | ) | (0.2 | ) | |||||||||||||
Total
revenues
|
3,550.7 | 4,719.7 | 4,138.2 | (24.8 | ) | 14.1 | ||||||||||||||
Less:
Interest expense
|
36.5 | 194.4 | 187.8 | (81.2 | ) | 3.5 | ||||||||||||||
Net
revenues
|
$ | 3,514.2 | $ | 4,525.3 | $ | 3,950.4 | (22.3 | ) | 14.6 |
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 as of a specified date, 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 average 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
calculate AUM using our standard fair valuation methodologies, including market
based valuation methods and fair valuation methods. Market based valuation
methods include: last sale/settle prices from an exchange for
actively traded listed equities, options and futures; evaluated bid prices
from standard pricing vendors for fixed income, asset-backed or mortgage-backed
issues; mid prices from standard pricing vendors and brokers for credit default
swaps; and quoted bids or spreads from pricing vendors and brokers for other
derivative products. Fair valuation methods include discounted cash
flow models, evaluation of assets vs. liabilities or any other methodology
that is validated and approved by our Valuation Committee (“Committee”). Fair
valuation methods are used only where AUM cannot be valued using market based
valuation methods, such as in the case of private equity or illiquid securities.
Fair valued investments typically make up less than 1% of our total
AUM. Recent market volatility has not had a significant effect on our
ability to acquire market data and, accordingly, our ability to use market based
valuation methods.
The
Committee, which is composed of senior officers and employees and is chaired by
our Chief Risk Officer, is responsible for overseeing the pricing and valuation
of all investments held in client portfolios. The Committee has
adopted a Statement of Pricing Policies describing principles and policies that
apply to pricing and valuing investments held in client
portfolios. We have also established a Pricing Group, which reports
to the Committee. The Committee has delegated to the Pricing Group
responsibility for monitoring the pricing process for all investments held
in client portfolios.
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,
some 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 underperform 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, our ability to earn future performance-based fees will
be impaired. We are eligible to earn performance-based fees on approximately 14%
of the assets we manage for institutional clients and approximately 5% of the
assets we manage for private clients (in total, approximately 10% of our
company-wide AUM). If the percentage of our AUM subject to performance-based
fees grows, seasonality and volatility of revenue and earnings are likely to
become more significant. Approximately 80% of our hedge fund AUM is subject to
high-watermarks, and we ended 2008 with approximately 67% of this hedge fund AUM
below high-watermarks by 10% or more. This will make it very
difficult for us to earn performance-based fees in most of our hedge funds in
2009.
Our
investment advisory and services fees decreased 16.1% in 2008, primarily due to
a decrease of 14.3% in average assets under management. For 2007,
investment advisory and services fees increased 17.2%, primarily due to a 21.1%
increase in average assets under management.
Institutional
investment advisory and services fees decreased 16.3% in 2008 as a result of a
decrease in average assets under management of 13.1%, and a decrease in
performance-based fees of $54.1 million. 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
reflected increases in average assets under management in our global and
international services of 40.4%, where base fee rates are generally higher than
for domestic services.
Retail
investment advisory and services fees decreased 20.6% in 2008 due primarily to a
decrease of 19.4% in average assets under management. For 2007, these fees
increased 20.1% due primarily to an increase of 19.7% in average assets under
management.
Private
Client investment advisory and services fees decreased 11.6% in 2008 as a result
of lower base fees from a 7.4% decrease in billable assets under management and
the impact of a change in product mix. 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.
Distribution Revenues
AllianceBernstein Investments and
AllianceBernstein (Luxembourg) S.A. (each a wholly-owned subsidiary 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 decreased 20.1% in 2008, principally due to lower average mutual fund
assets under management. The decline in revenues and assets under management was
approximately an even split between U.S. and non-U.S.
services. Distribution revenues increased 12.4% in 2007, principally
due to higher average mutual fund assets under management.
Institutional Research Services
Institutional
Research Services revenue consists principally of brokerage transaction charges
received for providing equity research and brokerage-related services to
institutional investors. Revenues from Institutional Research Services increased
11.4% for 2008 due to significantly higher revenues from U.S. operations offset
by a decline in Europe. Revenues from Institutional Research Services increased
12.9% for 2007 due to higher revenues from both European and U.S.
operations.
Dividend and Interest Income and Interest
Expense
Dividend
and interest income consists of investment income, interest earned on U.S.
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,
decreased $34.3 million, or 38.3%, in 2008. The decrease was due primarily to
lower dividends from our deferred compensation-related investments as well as
lower interest earned on our stock borrow and loan activity resulting from the
outsourcing of our hedge fund prime brokerage operations in the fourth quarter
of 2007. 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-related investments.
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 $378.9
million in 2008, due primarily to significant realized and unrealized losses on
investments related to deferred compensation plan obligations in 2008 of $325.0
million as compared to gains in 2007 of $4.8 million, as well as realized and
unrealized losses on the sales of other investments. 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.
Other Revenues, Net
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
decreased 3.6% in 2008, due primarily to lower shareholder servicing fees as a
result of fewer accounts. Other revenues were essentially flat in 2007 as
compared to 2006.
Expenses
The
following table summarizes the components of expenses:
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2008
|
2007
|
2006
|
2008-07
|
2007-06
|
||||||||||||||||
(in millions)
|
||||||||||||||||||||
Employee compensation and
benefits
|
$ | 1,454.7 | $ | 1,833.8 | $ | 1,547.6 | (20.7 | )% | 18.5 | % | ||||||||||
Promotion and
servicing
|
561.0 | 683.1 | 612.2 | (17.9 | ) | 11.6 | ||||||||||||||
General and
administrative
|
539.2 | 574.5 | 574.9 | (6.1 | ) | (0.1 | ) | |||||||||||||
Interest
|
13.1 | 24.0 | 23.2 | (45.4 | ) | 3.7 | ||||||||||||||
Amortization of intangible
assets
|
20.7 | 20.7 | 20.7 | — | — | |||||||||||||||
Total
|
$ | 2,588.7 | $ | 3,136.1 | $ | 2,778.6 | (17.5 | ) | 12.9 |
Employee Compensation and Benefits
We had
4,997 full-time employees as of December 31, 2008 compared to 5,580 in 2007
and 4,914 in 2006. Employee compensation and benefits, which represented
approximately 56%, 58% and 56% of total expenses in 2008, 2007 and 2006,
respectively, include base compensation (including severance), cash and deferred
incentive compensation, commissions, fringe benefits, and other employment costs
(including recruitment, training, temporary help and meals).
In 2008,
base compensation, fringe benefits and other employment costs increased $69.9
million, or 10.8%, primarily as a result of higher salaries from higher
headcount throughout most of the year and $42.7 million in severance and
severance-related items due to the workforce reduction, partially offset by
lower recruitment costs and lower payroll taxes as a result of lower incentive
compensation. Incentive compensation decreased $370.6 million, or 50.2%,
primarily as a result of lower annual bonus payments and lower deferred
compensation expense resulting from mark-to-market losses on related
investments. Commission expense decreased $78.4 million, or 17.4%, reflecting
lower sales volumes across our Institutional Investments, Retail and Private
Client distribution channels.
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.
Promotion and Servicing
Promotion
and servicing expenses, which represented approximately 22% of total expenses in
2008, 2007 and 2006, include distribution plan payments to financial
intermediaries for distribution of company-sponsored mutual funds, 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 Note 11 to AllianceBernstein’s consolidated
financial statements in Item 8 for further discussion of deferred sales
commissions. 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 our mutual fund
products.
Promotion
and servicing expenses decreased 17.9% in 2008 and increased 11.6% in 2007. The
decrease in 2008 was primarily due to lower distribution plan payments
(resulting from lower average Retail Services assets under management), lower
amortization of deferred sales commissions, and lower travel and entertainment
expenses. The increase in 2007 was primarily due to higher distribution
payments, travel and entertainment, and transfer fees.
General and Administrative
General
and administrative expenses, which represented approximately 21%, 18% and 21% of
total expenses in 2008, 2007 and 2006, respectively, are costs related to
operations, including technology, professional fees, occupancy, communications
and similar expenses. General and administrative expenses decreased $35.3
million, or 6.1% in 2008, and were essentially flat in 2007 compared to
2006.
The
decrease in 2008 reflects insurance recoveries of approximately $35.3 million
relating to a class action claims processing error (see Note 7), lower client
transaction errors, and incremental foreign exchange gains, partially offset by
higher occupancy costs. Higher occupancy and technology costs in 2007 were
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.
Interest on Borrowings
Interest
on our borrowings for 2008 decreased $10.9 million, or 45.4%, the result of
lower average interest rates. Interest on our borrowings for 2007 increased $0.9
million, or 3.7%, reflecting higher short-term borrowing levels partly offset by
lower interest rates.
Non-operating Income
Non-operating
income consists of contingent purchase price payments earned from the
disposition in 2005 of our cash management services. Non-operating income for
2008 increased $2.9 million, or 18.9% due to higher contingent purchase price
payments earned in 2008. 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.
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
decrease in taxes on income in 2008 reflects lower earnings and the recognition
of $12.9 million of net unrecognized tax benefits during the fourth quarter of
2008 due primarily to certain tax audits being settled. 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) where tax rates are generally higher.
Non-Controlling Interest in Earnings of Consolidated
Entities
Our
non-controlling interests in consolidated entities consist of 90% limited
partner interests in our consolidated venture capital fund (of which 10% is
owned by AXA and its subsidiaries and 80% is owned by an unaffiliated client)
and 50% interests in consolidated joint ventures in Australia and New Zealand
(of which 50% is owned by AXA and its subsidiaries). Non-controlling interest in
earnings of consolidated entities for 2008 decreased $7.5 million, primarily as
a result of lower net unrealized gains on investments in our consolidated
venture capital fund. Non-controlling interest in earnings of consolidated
entities for 2007 increased $8.3 million, primarily as a result of higher net
unrealized gains on investments in our consolidated venture capital
fund.
Capital
Resources and Liquidity
The
following table identifies selected items relating to capital resources and
liquidity:
% Change
|
||||||||||||||||||||
2008
|
2007
|
2006
|
2008 - 07 | 2007 - 06 | ||||||||||||||||
(in
millions, except per unit amounts)
|
||||||||||||||||||||
As
of December 31:
|
||||||||||||||||||||
Partners’
capital
|
$ | 4,317.7 | $ | 4,541.2 | $ | 4,571.0 | (4.9 | ) | (0.7 | )% | ||||||||||
Cash
and cash equivalents
|
552.6 | 576.4 | 546.8 | (4.1 | ) | 5.4 | ||||||||||||||
For
the years ended December 31:
|
||||||||||||||||||||
Cash
flow from operations
|
1,380.8 | 1,291.4 | 1,103.9 | 6.9 | 17.0 | |||||||||||||||
Proceeds
from sales (purchases) of investments, net
|
21.0 | 26.5 | (42.0 | ) | (20.6 | ) | n/m | |||||||||||||
Capital
expenditures
|
(75.2 | ) | (137.5 | ) | (97.1 | ) | (45.3 | ) | 41.7 | |||||||||||
Distributions
paid to General Partners and unitholders
|
(1,019.7 | ) | (1,364.6 | ) | (1,025.5 | ) | (25.3 | ) | 33.1 | |||||||||||
Purchases
of Holding Units to fund deferred compensation plans, net
|
(2.4 | ) | (50.9 | ) | (22.3 | ) | (95.4 | ) | 127.6 | |||||||||||
Additional
investment by Holding through issuance of Holding Units in exchange for
cash awards made under the Partners Compensation Plan
|
— | — | 47.2 | — | (100.0 | ) | ||||||||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
13.5 | 50.1 | 100.5 | (73.0 | ) | (50.2 | ) | |||||||||||||
(Repayment)
issuance of commercial paper, net
|
(260.1 | ) | 175.8 | 328.1 | n/m | (46.4 | ) | |||||||||||||
Repayment
of long-term debt
|
— | — | (408.1 | ) | — | (100.0 | ) | |||||||||||||
Available
Cash Flow
|
810.2 | 1,253.2 | 1,153.4 | (35.3 | ) | 8.7 |
Cash and
cash equivalents decreased $23.8 million in 2008 and increased $29.6 million in
2007. Cash inflows are primarily provided by operations, proceeds from sales of
investments, and additional investments by Holding relating to equity-based
transactions. Significant cash outflows include cash distributions paid to the
General Partner and unitholders, capital expenditures, net repayment of
commercial paper, 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 $33.7 million, $31.1 million and $23.7 million, totaled
approximately $9.1 million, $84.1 million and $98.7 million during 2008, 2007
and 2006, respectively. Effective January 31, 2009, back-end load shares are no
longer offered to new investors in U.S. Funds.
Debt and Credit Facilities
Total
credit available, debt outstanding, and weighted average interest rates as of
December 31, 2008 and 2007 were as follows:
December 31,
|
||||||||||||||||||||||||
2008
|
2007
|
|||||||||||||||||||||||
Credit
Available
|
Debt
Outstanding
|
Interest
Rate
|
Credit
Available
|
Debt
Outstanding
|
Interest
Rate
|
|||||||||||||||||||
(in millions)
|
||||||||||||||||||||||||
Revolving
credit facility(1)
|
$ | 715.2 | $ | — | — | % | $ | 466.1 | $ | — | — | % | ||||||||||||
Commercial
paper(1)(2)
|
284.8 | 284.8 | 1.8 | 533.9 | 533.9 | 4.3 | ||||||||||||||||||
Total
revolving credit facility(1)
|
1,000.0 | 284.8 | 1.8 | 1,000.0 | 533.9 | 4.3 | ||||||||||||||||||
Revolving
credit facility – SCB LLC
|
950.0 | — | — | — | — | — | ||||||||||||||||||
Unsecured
bank loan(3)
|
— | — | — | — | — | — | ||||||||||||||||||
Total
|
$ | 1,950.0 | $ | 284.8 | 1.8 | $ | 1,000.0 | $ | 533.9 | 4.3 |
(1)
|
Our
$1.0 billion revolving credit facility supports our commercial paper
program; amounts borrowed under the commercial paper program reduce
amounts available for direct borrowing under the revolving credit facility
on a dollar-for-dollar basis.
|
(2)
|
Commercial
paper outstanding is short-term in nature, and as such, book value
approximates fair value.
|
(3)
|
As
of December 31, 2008, SCB LLC maintained five separate uncommitted credit
facilities with various banks totaling $775
million.
|
We have a
$1.0 billion five-year revolving credit facility with a group of commercial
banks and other lenders which expires in 2011. The revolving credit facility is
intended to provide back-up liquidity for our $1.0 billion commercial paper
program, although we borrow directly under the facility from time to time. Our
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. 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, 2008.
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 custody activities for private
clients. 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 LIBOR or the Federal Funds rate.
Our solid
financial foundation 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
necessary 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 2008, we were not required to perform under the agreement and as of
December 31, 2008 had no liability 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 obligation under the credit facility has been made or the
maturity date.
Aggregate Contractual Obligations
The
following table summarizes our contractual obligations as of December 31,
2008:
Contractual Obligations
|
||||||||||||||||||||
Total
|
Less than
1
Year
|
1-3 Years
|
3-5 Years
|
More than 5
Years
|
||||||||||||||||
(in millions)
|
||||||||||||||||||||
Commercial
paper
|
$ | 284.8 | $ | 284.8 | $ | — | $ | — | $ | — | ||||||||||
Operating
leases, net of sublease commitments
|
2,422.9 | 124.2 | 259.0 | 266.7 | 1,773.0 | |||||||||||||||
Accrued
compensation and benefits
|
321.2 | 211.4 | 57.3 | 25.7 | 26.8 | |||||||||||||||
Unrecognized
tax benefits
|
9.7 | 3.6 | — | 6.1 | — | |||||||||||||||
Total
|
$ | 3,038.6 | $ | 624.0 | $ | 316.3 | $ | 298.5 | $ | 1,799.8 |
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 permit participants to elect to have their
deferred compensation awards invested notionally in Holding Units and in
company-sponsored investment services. Since January 1, 2009, we have made
purchases of mutual funds and hedge funds totaling $196 million and allocated
Holding Units with an aggregate value of approximately $27 million within our
deferred compensation trust to fund our future obligations resulting from
participant elections with respect to 2008 awards. We also issued 1,587,114 new
units.
We expect
to make contributions to our qualified profit sharing plan of approximately
$25 million in each of the next four years and to contribute an estimated
$22 million to our qualified, noncontributory, defined benefit plan during
2009.
Acquisitions
See Note 21 to AllianceBernstein’s
consolidated financial statements in Item 8 for a discussion of our
acquisition in 2006.
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 impairment quarterly by comparing
undiscounted future cash flows to the recorded value, net of accumulated
amortization. Significant assumptions utilized to estimate the company’s future
average assets under management and undiscounted future cash flows from back-end
load shares are updated quarterly and 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, 2008, management used average market return
assumptions of 5% for fixed income securities and 8% for equities 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, one-year and current periods ended December 31, 2008, and
calculated as a percentage of our average assets under management represented by
back-end load shares, ranged from 22% to 32% for U.S. fund shares and 28% to 72%
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. 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, 2008, management determined that the
deferred sales commission asset was not impaired. However, if higher redemption
rates continue in 2009, this asset may become 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. Any impairment could reduce
materially the recorded amount of the deferred sales commission asset with a
corresponding charge to our earnings.
Goodwill
In
accordance with Statement of Financial Accounting Standards No. 142 (“SFAS No.
142”), “Goodwill and Other
Intangible Assets”, we test our single reporting unit annually, as of
September 30, for impairment. The carrying value of goodwill is also reviewed if
facts and circumstances, such as significant declines in assets under
management, revenues, earnings or our Holding Unit price, occur, suggesting
possible impairment. As of September 30, 2008, the impairment test
indicated that goodwill was not impaired. Due to the significant declines in our
assets under management and operating results in 2008 as a result of the global
financial crisis, we also tested goodwill for impairment as of December 31,
2008, and determined that goodwill was not impaired.
The
analysis is a two-step process. The first step involves determining whether the
estimated fair value of AllianceBernstein, the reporting unit, exceeds its book
value. If the fair value of the company exceeds its book value, goodwill is not
impaired. However, if the book value exceeds the fair value of the
company, goodwill may be impaired and additional analysis is
required. The second step compares the fair value of the company to
the aggregated fair values of its individual assets and liabilities to calculate
the amount of impairment, if any.
In the
first step of the process, there are several methods of estimating
AllianceBernstein’s fair value, which include valuation techniques such as
discounted expected cash flows and market valuation (private partnership units
outstanding multiplied by Holding Unit price). Developing estimated fair value
using a discounted cash flow valuation technique consists of applying business
growth rate assumptions over the estimated life of the goodwill asset and then
discounting the resulting expected cash flows to arrive at a present value
amount that approximates fair value. In our test as of December 31, 2008, our
discounted expected cash flow model used management’s current business plan,
which factored in current market conditions and all material events that have
impacted, or that we believed at the time could potentially impact, future
discounted expected cash flows for the first four years and a 7.4% compounded
annual growth rate thereafter. Management used AllianceBernstein’s weighted
average cost of capital of 13.4% as its discount rate. Our market valuation as
of December 31, 2008 was higher than our book value, but the amount of excess
has decreased significantly.
To the
extent that securities valuations remain depressed for prolonged periods of time
and market conditions stagnate or worsen as a result of the global financial
crisis, our assets under management, revenues, profitability and unit price
would likely be adversely affected. As a result, subsequent
impairment tests may be based upon different assumptions and future cash flow
projections, which may result in an impairment of this asset. Any impairment
could reduce materially the recorded amount of goodwill with a corresponding
charge to our earnings.
Intangible Assets
Management
tests intangible assets for impairment quarterly. A present value technique is
applied to expected cash flows to estimate the fair value of intangible assets.
Estimated fair value is then compared to the recorded book value to determine
whether impairment is indicated. The key assumptions used in the estimates
include attrition factors of customer accounts, asset growth rates, direct
expenses and fee rates included in management’s current business plan and our
weighted average cost of capital of 13.4% for the discount rate. In determining
these estimates, we choose assumptions based on actual historical trends that
may or may not occur in the future. Management has determined that intangible
assets were not impaired as of December 31, 2008.
To the
extent that securities valuations remain depressed for prolonged periods of time
and market conditions stagnate or worsen as a result of the global financial
crisis, our assets under management and revenues from these investment
management contracts would likely be adversely affected. As a result,
certain triggering events, including impairment of our goodwill, may occur
requiring more frequent testing for impairment of intangibles. Such tests may be
based upon different assumptions, which could 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 Barclays
Aggregate Bond Index. The actual rate of return on plan assets was (45.8)%, 4.1%
and 9.0% in 2008, 2007 and 2006, 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 2008 net pension income of $0.7 million by
approximately $0.1 million.
The
objective of our discount rate assumption was to reflect the rate at which
our pension obligations 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, 2008 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
6.20% discount rate as of December 31, 2008 represents the approximate
mid-point (to the nearest five basis points) of the single rates determined
under two independently constructed yield curves. One yield curve, prepared by
Mercer Human Resources, produced a rate of 6.24%; the other, prepared by
Citigroup, produced a rate of 6.18%. The discount rate as of December 31,
2007 was 6.55%, which was used in developing the 2008 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 2008 net pension income of $0.7 million by
approximately $0.1 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 22 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, industry trends, 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, other documents
we file with or furnish to the SEC, and 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 backlog of new
institutional mandates not yet funded: Before they are funded,
institutional mandates do not represent legally binding commitments to
fund and, accordingly, the possibility exists that not all mandates will
be funded in the amounts and at the times we currently
anticipate.
|
|
•
|
Our anticipation that
our DC business will continue to expand: The actual performance of
the capital markets and other factors beyond our control will affect our
asset flows and investment success for clients, as will our ability to
improve the poor relative investment performance we experienced in
2008.
|
|
•
|
Our expectation that
we will recover a portion of the $7.8 million remaining in accrued
liabilities related to the claims processing error-related charge:
Our ability to recover more of this cost depends on the availability of
funds from the related class-action settlement funds, the amount of which
is not known.
|
|
•
|
The possibility that
prolonged weakness in asset values may result in impairment of goodwill,
intangible assets and the deferred sales commission asset: To the
extent that securities valuations remain depressed for prolonged periods
of time and market conditions stagnate or worsen as a result of the global
financial crisis (factors that are beyond our control), our assets under
management, revenues, profitability and unit price may be adversely
affected. As a result, subsequent impairment tests may be based upon
different assumptions and future cash flow projections which may result in
an impairment of goodwill, intangible assets and the deferred sales
commission asset.
|
|
•
|
The cash flow Holding
realizes from its investment in AllianceBernstein providing Holding with
the resources necessary to meet its financial obligations:
Holding’s cash flow is dependent on the quarterly cash distributions it
receives from AllianceBernstein. Accordingly, Holding’s ability to meet
its financial obligations is dependent on AllianceBernstein’s cash flow
from its operations, which is subject to the performance of the capital
markets and other factors beyond our
control.
|
|
•
|
Our
solid financial foundation and access to public and private debt providing
adequate liquidity for our general business needs: Our solid financial foundation
is dependent on our cash flow from operations, which is subject to the
performance of the capital markets and other factors beyond our control.
Our access to public and private debt, as well as the market for debt or
equity we may choose to issue, may be limited by adverse market
conditions, our profitability and changes in government regulations,
including tax rates and interest
rates.
|
|
•
|
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, 2008, 2007 and 2006.
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, 2008 and 2007. 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,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
Fair
Value
|
Effect of
+100
Basis Point
Change
|
Fair
Value
|
Effect of +100
Basis Point
Change
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Fixed
Income Investments:
|
||||||||||||||||
Trading
|
$ | 76,153 | $ | (3,099 | ) | $ | 106,152 | $ | (5,117 | ) | ||||||
Available-for-sale and other
investments
|
160 | (7 | ) | 28,368 | (1,367 | ) |
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, 2008 and 2007. 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,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
Fair
Value
|
Effect of
-10%
Equity Price
Change
|
Fair
Value
|
Effect of
-10%
Equity Price
Change
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Equity
Investments:
|
||||||||||||||||
Trading
|
$ | 246,394 | $ | (24,639 | ) | $ | 466,085 | $ | (46,609 | ) | ||||||
Available-for-sale and other
investments
|
255,136 | (25,514 | ) | 314,476 | (31,448 | ) |
Item 8.
Financial Statements
and Supplementary Data
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Financial Condition
December
31,
|
||||||||
2008
|
2007
|
|||||||
(in
thousands, except unit amounts)
|
||||||||
ASSETS
|
||||||||
Investment
in AllianceBernstein
|
$ | 1,600,045 | $ | 1,574,512 | ||||
Other
assets
|
1,397 | 722 | ||||||
Total
assets
|
$ | 1,601,442 | $ | 1,575,234 | ||||
LIABILITIES
AND PARTNERS’ CAPITAL
|
||||||||
Liabilities:
|
||||||||
Payable
to AllianceBernstein
|
$ | 4,825 | $ | 7,460 | ||||
Other
liabilities
|
462 | 314 | ||||||
Total
liabilities
|
5,287 | 7,774 | ||||||
Commitments
and contingencies (See
Note 7)
|
||||||||
Partners’
capital:
|
||||||||
General
Partner: 100,000 general partnership units issued and
outstanding
|
1,633 | 1,698 | ||||||
Limited
partners: 90,223,767 and 86,848,149 limited partnership units issued and
outstanding
|
1,618,985 | 1,548,212 | ||||||
Accumulated
other comprehensive income (loss)
|
(24,463 | ) | 17,550 | |||||
Total
partners’ capital
|
1,596,155 | 1,567,460 | ||||||
Total
liabilities and partners’ capital
|
$ | 1,601,442 | $ | 1,575,234 |
See Accompanying Notes to Financial
Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Income
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Equity
in earnings of AllianceBernstein
|
$ | 278,636 | $ | 415,256 | $ | 359,469 | ||||||
Income
taxes
|
33,910 | 39,104 | 34,473 | |||||||||
Net
income
|
$ | 244,726 | $ | 376,152 | $ | 324,996 | ||||||
Net
income per unit:
|
||||||||||||
Basic
|
$ | 2.79 | $ | 4.35 | $ | 3.85 | ||||||
Diluted
|
$ | 2.79 | $ | 4.32 | $ | 3.82 |
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Changes in Partners’ Capital and Comprehensive Income
General
Partner’s
Capital
|
Limited
Partners’
Capital
|
Accumulated
Other
Comprehensive Income (Loss)
|
Total
Partners’
Capital
|
|||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||
Balance
as of December 31, 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 December 31, 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 December 31, 2007
|
1,698 | 1,548,212 | 17,550 | 1,567,460 | ||||||||||||
Comprehensive
income:
|
||||||||||||||||
Net
income
|
280 | 244,446 | — | 244,726 | ||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||
Unrealized
gain (loss) on investments
|
— | — | (1,188 | ) | (1,188 | ) | ||||||||||
Foreign
currency translation adjustment
|
— | — | (32,464 | ) | (32,464 | ) | ||||||||||
Changes
in retirement plan related items
|
— | — | (8,361 | ) | (8,361 | ) | ||||||||||
Comprehensive
income (loss)
|
280 | 244,446 | (42,013 | ) | 202,713 | |||||||||||
Cash
distributions to unitholders ($3.45 per unit)
|
(345 | ) | (301,031 | ) | — | (301,376 | ) | |||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
— | (2,358 | ) | — | (2,358 | ) | ||||||||||
Issuance
of Holding Units to fund CEO’s Restricted Units award
|
— | 52,264 | — | 52,264 | ||||||||||||
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
— | 63,927 | — | 63,927 | ||||||||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
— | 13,525 | — | 13,525 | ||||||||||||
Balance
as of December 31, 2008
|
$ | 1,633 | $ | 1,618,985 | $ | (24,463 | ) | $ | 1,596,155 |
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Cash Flows
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in
thousands)
|
||||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 244,726 | $ | 376,152 | $ | 324,996 | ||||||
Adjustments
to reconcile net income to net cash used in operating
activities:
|
||||||||||||
Equity
in earnings of AllianceBernstein
|
(278,636 | ) | (415,256 | ) | (359,469 | ) | ||||||
Changes
in assets and liabilities:
|
||||||||||||
(Increase)
decrease in other assets
|
(675 | ) | (421 | ) | 161 | |||||||
(Decrease)
increase in payable to AllianceBernstein
|
(2,635 | ) | 311 | (48 | ) | |||||||
Increase
(decrease) in other liabilities
|
148 | (1,383 | ) | 686 | ||||||||
Net
cash used in operating activities
|
(37,072 | ) | (40,597 | ) | (33,674 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Investments
in AllianceBernstein with proceeds from exercise of compensatory options
to buy Holding Units
|
(13,525 | ) | (50,051 | ) | (100,469 | ) | ||||||
Cash
distributions received from AllianceBernstein
|
338,448 | 449,320 | 332,035 | |||||||||
Net
cash provided by investing activities
|
324,923 | 399,269 | 231,566 | |||||||||
Cash
flows from financing activities:
|
||||||||||||
Cash
distributions to unitholders
|
(301,376 | ) | (408,723 | ) | (298,450 | ) | ||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
13,525 | 50,051 | 100,469 | |||||||||
Net
cash used in financing activities
|
(287,851 | ) | (358,672 | ) | (197,981 | ) | ||||||
Change
in cash and cash equivalents
|
— | — | (89 | ) | ||||||||
Cash
and cash equivalents as of beginning of the year
|
— | — | 89 | |||||||||
Cash
and cash equivalents as of end of the year
|
$ | — | $ | — | $ | — | ||||||
Cash
paid:
|
||||||||||||
Income
taxes
|
$ | 34,410 | $ | 41,422 | $ | 33,662 | ||||||
Non-cash
investing activities:
|
||||||||||||
Changes
in accumulated other comprehensive income
|
(42,013 | ) | 6,699 | 3,188 | ||||||||
Issuance
of Holding Units to fund deferred compensation plans and CEO’s Restricted
Units award
|
70,868 | — | — | |||||||||
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
|
63,927 | 34,801 | 35,323 | |||||||||
Non-cash
financing activities:
|
||||||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
(20,962 | ) | (50,853 | ) | (22,345 | ) |
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 its institutional clients, including
unaffiliated corporate and public employee pension funds, endowment funds,
domestic and foreign institutions and governments, and affiliates such as
AXA and certain of its insurance company subsidiaries, by means of
separately managed accounts, sub-advisory relationships, structured
products, collective investment trusts, mutual funds, hedge funds and
other investment vehicles.
|
|
•
|
Retail Services – servicing its individual clients, primarily by
means of retail mutual funds sponsored by AllianceBernstein or an
affiliated company, sub-advisory relationships in respect of mutual funds
sponsored by third parties, separately managed account programs sponsored
by financial intermediaries worldwide and other investment
vehicles.
|
|
•
|
Private Client Services – servicing its private clients, including
high-net-worth individuals, trusts and estates, charitable foundations,
partnerships, private and family corporations, and other entities, by
means of separately managed accounts, hedge funds, mutual funds and other
investment vehicles.
|
|
•
|
Institutional Research Services – servicing its institutional clients 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 strategies 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 plan 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 private early-stage and later-stage high potential growth
companies.
As of
December 31, 2008, AXA, a société anonyme organized
under the laws of France and the holding company for an international group of
insurance and related financial services companies, AXA Financial, Inc. (an
indirect wholly-owned subsidiary of AXA, “AXA Financial”), AXA Equitable Life
Insurance Company (a wholly-owned subsidiary of AXA Financial, “AXA Equitable”),
and certain subsidiaries of AXA Financial, collectively referred to as “AXA and
its subsidiaries”, owned approximately 1.6% of the issued and outstanding units
representing assignments of beneficial ownership of limited partnership
interests in Holding (“Holding Units”).
As of
December 31, 2008, the ownership structure of AllianceBernstein, expressed as a
percentage of general and limited partnership interests, was as
follows:
AXA
and its subsidiaries
|
61.8 | % | ||
Holding
|
33.9 | |||
SCB
Partners Inc. (a wholly-owned subsidiary of SCB Inc., formerly known as
Sanford C. Bernstein Inc.)
|
3.1 | |||
Unaffiliated
holders
|
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. As of December 31, 2008, AXA and its
subsidiaries were the beneficial owners of approximately 62.0% of the units of
limited partnership interest in AllianceBernstein (“AllianceBernstein Units”).
This percentage includes AllianceBernstein Units that AXA and its subsidiaries
hold indirectly through its ownership of approximately 1.6% of Holding Units
that are issued and outstanding. Including both the general partnership and
limited partnership interests in Holding and AllianceBernstein, AXA and its
subsidiaries had an approximate 62.4% economic interest in AllianceBernstein as
of December 31, 2008.
On
January 6, 2009, AXA America Holdings, Inc., a wholly-owned subsidiary of AXA,
purchased the remaining 8,160,000 units held by SCB Partners, Inc.
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 21, 2009, the General Partner declared a distribution of $26.2 million,
or $0.29 per unit, representing Available Cash Flow for the three months ended
December 31, 2008. 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 12, 2009 to holders of record at the close of
business on February 2, 2009.
During
the third quarter of 2008, AllianceBernstein recorded approximately $35.3
million in insurance recoveries relating to payments made for a class action
claims processing error for which it recorded a charge of $56.0 million in the
fourth quarter of 2006 (see
Note 7). AllianceBernstein’s and Holding’s fourth quarter 2006 cash
distributions were based on net income as calculated prior to AllianceBernstein
recording the charge. Accordingly, the insurance recoveries ($0.13
per unit) were not included in AllianceBernstein’s or Holding’s cash
distribution to unitholders for the third quarter of 2008.
Compensatory
Option Plans
AllianceBernstein
maintains certain compensation plans under which options to buy Holding Units
have been, or may be, granted to employees of AllianceBernstein and independent
directors of the General Partner. In accordance with
Statement of Financial Accounting Standards No. 123 (revised 2004), (“SFAS
No. 123-R”), “Share
Based Payment”, AllianceBernstein
recognizes compensation expense related to grants of compensatory options in its
financial statements. Under the fair value method, compensatory expense is
measured at the grant date based on the estimated fair value of the award
(determined using the Black-Scholes option valuation model) and is recognized
ratably over the vesting period. Holding exchanges the proceeds from
exercises of Holding Unit options for AllianceBernstein Units and thereby
increases its investment in AllianceBernstein. As of December 31, 2008, there
were 6,685,808 options for Holding Units outstanding, of which 3,277,879 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 by the diluted weighted average
number of units outstanding for each year.
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Net
income—basic
|
$ | 244,726 | $ | 376,152 | $ | 324,996 | ||||||
Additional
allocation of equity in earnings of AllianceBernstein resulting from
assumed dilutive effect of compensatory options
|
1,133 | 5,146 | 5,430 | |||||||||
Net
income—diluted
|
$ | 245,859 | $ | 381,298 | $ | 330,426 | ||||||
Weighted
average units outstanding—basic
|
87,571 | 86,460 | 84,325 | |||||||||
Dilutive
effect of compensatory options
|
531 | 1,807 | 2,243 | |||||||||
Weighted
average units outstanding—diluted
|
88,102 | 88,267 | 86,568 | |||||||||
Basic
net income per unit
|
$ | 2.79 | $ | 4.35 | $ | 3.85 | ||||||
Diluted
net income per unit
|
$ | 2.79 | $ | 4.32 | $ | 3.82 |
As of
December 31, 2008 and 2007, we excluded, respectively, 5,050,605 and 1,678,985
out-of-the-money options (i.e., options with an
exercise price greater than the weighted average closing price of a unit for the
relevant period) from the diluted net income per unit computation due to their
anti-dilutive effect. 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, 2008 and 2007
were as follows:
2008
|
2007
|
||||||||||
(in
thousands)
|
|||||||||||
Investment
in AllianceBernstein as of January 1,
|
$ | 1,574,512 | $ | 1,567,733 | |||||||
Equity
in earnings of AllianceBernstein
|
278,636 | 415,256 | |||||||||
Additional
investments with proceeds from exercises of compensatory options to buy
Holding Units
|
13,525 | 50,051 | |||||||||
Changes
in accumulated other comprehensive income
|
(42,013 | ) | 6,699 | ||||||||
Cash
distributions received from AllianceBernstein
|
(338,448 | ) | (449,320 | ) | |||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plans,
net
|
(2,358 | ) | (50,853 | ) | |||||||
Issuance
of Holding Units to fund CEO’s Restricted Units awards
|
52,264 | — | |||||||||
Impact
of initial adoption of FIN 48
|
— | 145 | |||||||||
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
63,927 | 34,801 | |||||||||
Investment
in AllianceBernstein as of December 31,
|
$ | 1,600,045 | $ | 1,574,512 |
5.
|
Units
Outstanding
|
The
following table summarizes the activity in units:
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
|
|||
Options
exercised
|
315,467
|
|||
Issuance
of units
|
3,015,396
|
|||
Units
awarded
|
48,365
|
|||
Units
forfeited
|
(3,610
|
)
|
||
Outstanding
as of December 31, 2008
|
90,323,767
|
Units
awarded and units forfeited pertain to restricted unit awards made to
independent members of the Board of Directors and to Century Club Plan unit
awards to AllianceBernstein employees whose primary responsibilities are to
assist in the distribution of company-sponsored mutual funds and who meet
certain sales targets. Issuance of units pertains to Holding Units issued by
AllianceBernstein to fund deferred compensation plan elections by participants
and the CEO’s Restricted Units award.
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,
|
||||||||||||||||||||||||
2008
|
2007
|
2006
|
||||||||||||||||||||||
(in
thousands)
|
||||||||||||||||||||||||
UBT
statutory rate
|
$ | 11,145 | 4.0 | % | $ | 16,610 | 4.0 | % | $ | 14,379 | 4.0 | % | ||||||||||||
Federal
tax on partnership gross business income
|
33,910 | 12.2 | 39,104 | 9.4 | 34,473 | 9.6 | ||||||||||||||||||
Credit
for UBT paid by AllianceBernstein
|
(11,145 | ) | (4.0 | ) | (16,610 | ) | (4.0 | ) | (14,379 | ) | (4.0 | ) | ||||||||||||
Income
tax expense (all currently payable) and effective tax rate
|
$ | 33,910 | 12.2 | $ | 39,104 | 9.4 | $ | 34,473 | 9.6 |
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,
2008. 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 regulatory inquiries,
administrative proceedings and litigation, some of which allege substantial
damages. While any inquiry, proceeding or litigation has the element of
uncertainty, management believes that the outcome of any one of the other
regulatory inquiries, administrative proceedings, 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. During the third quarter of 2008,
AllianceBernstein recorded approximately $35.3 million in insurance
recoveries relating to this error. AllianceBernstein’s and Holding’s fourth
quarter 2006 cash distributions were based on net income as calculated prior to
AllianceBernstein recording the charge. Accordingly, the insurance
recoveries ($0.13 per unit) were not included in AllianceBernstein’s or
Holding’s cash distribution to unitholders for the third quarter of 2008. As of
December 31, 2008, AllianceBernstein had $7.8 million remaining in accrued
liabilities related to the $56.0 million pre-tax charge, some of which
AllianceBernstein hopes to recover for its clients in future periods from
related class action settlement funds, the amount of which is not
known. To the extent AllianceBernstein is unable to recover amounts
its clients would have received were it not for the claims processing error,
AllianceBernstein will reimburse these clients for the unrecovered
amount.
8.
|
Quarterly
Financial Data (Unaudited)
|
Quarters
Ended 2008
|
||||||||||||||||
December
31
|
September
30
|
June
30
|
March
31
|
|||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||
Equity
in earnings of AllianceBernstein
|
$ | 30,661 | $ | 72,936 | $ | 93,042 | $ | 81,997 | ||||||||
Net
income
|
$ | 24,018 | $ | 64,361 | $ | 83,911 | $ | 72,436 | ||||||||
Basic
net income per unit(1)
|
$ | 0.27 | $ | 0.73 | $ | 0.96 | $ | 0.83 | ||||||||
Diluted
net income per unit(1)
|
$ | 0.27 | $ | 0.73 | $ | 0.96 | $ | 0.83 | ||||||||
Cash
distributions per unit(2) (3)
(4)
|
$ | 0.29 | $ | 0.60 | $ | 0.96 | $ | 0.83 |
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 |
(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. During the third quarter of
2008, AllianceBernstein recorded approximately $35.3 million in insurance
recoveries relating to this error. AllianceBernstein’s and
Holding’s fourth quarter 2006 cash distributions were based on net income
as calculated prior to AllianceBernstein recording the charge.
Accordingly, the related insurance recoveries ($0.13 per unit) were not
included in AllianceBernstein’s or Holding’s cash distribution to
unitholders for the third quarter of
2008.
|
(4)
|
During
the fourth quarter of 2008, AllianceBernstein recorded an additional $5.1
million ($0.02 per unit) provision for income taxes subsequent to the
declaration of the fourth quarter 2008 cash distribution of $0.29 per
unit. As a result, the cash distribution per unit in the fourth quarter of
2008 is $0.02 higher than diluted net income per
unit.
|
Report
of Independent Registered Public Accounting Firm
To the
General Partner and Unitholders
AllianceBernstein
Holding L.P.:
In our
opinion, the accompanying statements 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,
2008 and 2007, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2008 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, 2008,
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, 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
20, 2009
ALLIANCEBERNSTEIN L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Financial Condition
December 31,
|
||||||||
2008
|
2007
|
|||||||
(in
thousands, except unit amounts)
|
||||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 552,577 | $ | 576,416 | ||||
Cash
and securities segregated, at market (cost $2,568,339 and $2,366,925
)
|
2,572,569 | 2,370,019 | ||||||
Receivables,
net:
|
||||||||
Brokers
and dealers
|
251,644 | 493,873 | ||||||
Brokerage
clients
|
398,979 | 410,074 | ||||||
Fees,
net
|
377,167 | 729,636 | ||||||
Investments:
|
||||||||
Deferred
compensation related
|
305,809 | 547,473 | ||||||
Other
|
272,034 | 367,608 | ||||||
Furniture,
equipment and leasehold improvements, net
|
365,804 | 367,279 | ||||||
Goodwill,
net
|
2,893,029 | 2,893,029 | ||||||
Intangible
assets, net
|
243,493 | 264,209 | ||||||
Deferred
sales commissions, net
|
113,541 | 183,571 | ||||||
Other
assets
|
156,813 | 165,567 | ||||||
Total
assets
|
$ | 8,503,459 | $ | 9,368,754 | ||||
LIABILITIES
AND PARTNERS’ CAPITAL
|
||||||||
Liabilities:
|
||||||||
Payables:
|
||||||||
Brokers
and dealers
|
$ | 110,655 | $ | 161,387 | ||||
Brokerage
clients
|
2,755,104 | 2,728,271 | ||||||
AllianceBernstein
mutual funds
|
195,617 | 408,185 | ||||||
Accounts
payable and accrued expenses
|
310,392 | 389,300 | ||||||
Accrued
compensation and benefits
|
360,086 | 458,861 | ||||||
Debt
|
284,779 | 533,872 | ||||||
Non-controlling
interest in consolidated entities
|
169,167 | 147,652 | ||||||
Total
liabilities
|
4,185,800 | 4,827,528 | ||||||
Commitments
and contingencies (See
Note 11)
|
||||||||
Partners’
capital:
|
||||||||
General
Partner
|
45,010 | 45,932 | ||||||
Limited
partners: 263,717,610 and 260,341,992 units issued and
outstanding
|
4,485,564 | 4,526,126 | ||||||
4,530,574 | 4,572,058 | |||||||
Capital
contributions receivable from General Partner
|
(23,168 | ) | (26,436 | ) | ||||
Deferred
compensation expense
|
(117,600 | ) | (57,501 | ) | ||||
Accumulated
other comprehensive income (loss)
|
(72,147 | ) | 53,105 | |||||
Total
partners’ capital
|
4,317,659 | 4,541,226 | ||||||
Total
liabilities and partners’ capital
|
$ | 8,503,459 | $ | 9,368,754 |
See Accompanying Notes to Consolidated Financial
Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Income
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Revenues:
|
||||||||||||
Investment
advisory and services fees
|
$ | 2,839,526 | $ | 3,386,188 | $ | 2,890,229 | ||||||
Distribution
revenues
|
378,425 | 473,435 | 421,045 | |||||||||
Institutional
research services
|
471,716 | 423,553 | 375,075 | |||||||||
Dividend
and interest income
|
91,752 | 284,014 | 266,520 | |||||||||
Investment
gains (losses)
|
(349,172 | ) | 29,690 | 62,200 | ||||||||
Other
revenues
|
118,436 | 122,869 | 123,171 | |||||||||
Total
revenues
|
3,550,683 | 4,719,749 | 4,138,240 | |||||||||
Less:
Interest expense
|
36,524 | 194,432 | 187,833 | |||||||||
Net
revenues
|
3,514,159 | 4,525,317 | 3,950,407 | |||||||||
Expenses:
|
||||||||||||
Employee
compensation and benefits
|
1,454,691 | 1,833,796 | 1,547,627 | |||||||||
Promotion
and servicing:
|
||||||||||||
Distribution
plan payments
|
274,359 | 335,132 | 292,886 | |||||||||
Amortization
of deferred sales commissions
|
79,111 | 95,481 | 100,370 | |||||||||
Other
|
207,506 | 252,468 | 218,944 | |||||||||
General
and administrative
|
539,198 | 574,506 | 574,904 | |||||||||
Interest
on borrowings
|
13,077 | 23,970 | 23,124 | |||||||||
Amortization
of intangible assets
|
20,716 | 20,716 | 20,710 | |||||||||
Total
Expenses
|
2,588,658 | 3,136,069 | 2,778,565 | |||||||||
Operating
income
|
925,501 | 1,389,248 | 1,171,842 | |||||||||
Non-operating
income
|
18,728 | 15,756 | 20,196 | |||||||||
Income
before income taxes and non-controlling interest in earnings of
consolidated entities
|
944,229 | 1,405,004 | 1,192,038 | |||||||||
Income
taxes
|
95,803 | 127,845 | 75,045 | |||||||||
Non-controlling
interest in earnings of consolidated entities, net of tax
|
9,186 | 16,715 | 8,392 | |||||||||
Net
income
|
$ | 839,240 | $ | 1,260,444 | $ | 1,108,601 | ||||||
Net
income per unit:
|
||||||||||||
Basic
|
$ | 3.18 | $ | 4.80 | $ | 4.26 | ||||||
Diluted
|
$ | 3.18 | $ | 4.77 | $ | 4.22 |
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
(Loss)
|
Total
Partners’
Capital
|
|||||||||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||||||||||
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 | ||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||
Net
income
|
8,392 | 830,848 | — | — | — | 839,240 | ||||||||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||||||||||
Unrealized
gain (loss) on investments
|
— | — | — | — | (3,511 | ) | (3,511 | ) | ||||||||||||||||
Foreign
currency translation adjustment
|
— | — | — | — | (96,978 | ) | (96,978 | ) | ||||||||||||||||
Changes
in retirement plan related items
|
— | — | — | — | (24,763 | ) | (24,763 | ) | ||||||||||||||||
Comprehensive
income (loss)
|
8,392 | 830,848 | — | — | (125,252 | ) | 713,988 | |||||||||||||||||
Cash
distributions to General Partner and unitholders ($3.87 per
unit)
|
(10,197 | ) | (1,009,482 | ) | — | — | — | (1,019,679 | ) | |||||||||||||||
Capital
contributions from General Partner
|
— | — | 4,927 | — | — | 4,927 | ||||||||||||||||||
Purchases
of Holding Units to fund deferred compensation plans, net
|
209 | 63,609 | — | (66,176 | ) | — | (2,358 | ) | ||||||||||||||||
Additional
investment by Holding through issuance of Holding Units to fund CEO’s
Restricted Unit award
|
523 | 51,741 | — | (52,264 | ) | — | — | |||||||||||||||||
Compensatory
Holding Unit options expense
|
— | 7,737 | — | — | — | 7,737 | ||||||||||||||||||
Amortization
of deferred compensation awards
|
— | — | — | 58,341 | — | 58,341 | ||||||||||||||||||
Compensation
plan accrual
|
17 | 1,642 | (1,659 | ) | — | — | — | |||||||||||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
135 | 13,390 | — | — | — | 13,525 | ||||||||||||||||||
ACM
New Alliance Liquidation
|
(1 | ) | (47 | ) | — | — | — | (48 | ) | |||||||||||||||
Balance
as of December 31, 2008
|
$ | 45,010 | $ | 4,485,564 | $ | (23,168 | ) | $ | (117,600 | ) | $ | (72,147 | ) | $ | 4,317,659 |
See Accompanying Notes to Consolidated Financial
Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in
thousands)
|
||||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 839,240 | $ | 1,260,444 | $ | 1,108,601 | ||||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
Amortization
of deferred sales commissions
|
79,111 | 95,481 | 100,370 | |||||||||
Amortization
of non-cash deferred compensation
|
66,078 | 49,815 | 46,500 | |||||||||
Depreciation
and other amortization
|
97,746 | 102,394 | 72,445 | |||||||||
Unrealized
losses (gains) on deferred compensation related
investments
|
254,686 | 21,701 | (29,483 | ) | ||||||||
Other,
net
|
22,268 | 9,783 | 9,585 | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
(Increase)
in segregated cash and securities
|
(132,792 | ) | (360,181 | ) | (245,077 | ) | ||||||
Decrease
(increase) in receivable from brokers and dealers
|
119,423 | 1,955,260 | (324,640 | ) | ||||||||
(Increase)
decrease in receivable from brokerage clients
|
(118,633 | ) | 77,052 | (31,974 | ) | |||||||
Decrease
(increase) in fees receivable, net
|
331,126 | (161,174 | ) | (135,821 | ) | |||||||
(Increase)
in investments
|
(34,189 | ) | (211,909 | ) | (240,438 | ) | ||||||
(Increase)
in deferred sales commissions
|
(9,081 | ) | (84,101 | ) | (98,679 | ) | ||||||
Decrease
(increase) in other assets
|
6,223 | (14,648 | ) | (9,638 | ) | |||||||
Increase
(decrease) in payable to brokers and dealers
|
77,844 | (500,869 | ) | (422,492 | ) | |||||||
Increase
(decrease) in payable to brokerage clients
|
139,382 | (1,266,050 | ) | 1,035,367 | ||||||||
(Decrease)
increase in payable to AllianceBernstein mutual funds
|
(212,568 | ) | 141,336 | 126,236 | ||||||||
(Decrease)
increase in accounts payable and accrued expenses
|
(50,740 | ) | 25,370 | 41,290 | ||||||||
(Decrease)
increase in accrued compensation and benefits
|
(110,346 | ) | 75,477 | 69,330 | ||||||||
Increase
in non-controlling interests in consolidated entities
|
16, 070 | 76,249 | 32,454 | |||||||||
Net
cash provided by operating activities
|
1,380,848 | 1,291,430 | 1,103,936 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of investments
|
(22,221 | ) | (25,932 | ) | (54,803 | ) | ||||||
Proceeds
from sales of investments
|
43,229 | 52,393 | 12,812 | |||||||||
Additions
to furniture, equipment and leasehold improvements
|
(75,208 | ) | (137,547 | ) | (97,073 | ) | ||||||
Purchase
of business, net of cash acquired
|
— | — | (16,086 | ) | ||||||||
Net
cash used in investing activities
|
(54,200 | ) | (111,086 | ) | (155,150 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
(Repayment)
issuance of commercial paper, net
|
(260,146 | ) | 175,750 | 328,119 | ||||||||
Repayment
of long-term debt
|
— | — | (408,149 | ) | ||||||||
(Decrease)
increase in overdrafts payable
|
(11,524 | ) | 23,321 | (1,575 | ) | |||||||
Cash
distributions to General Partner and unitholders
|
(1,019,679 | ) | (1,364,611 | ) | (1,025,461 | ) | ||||||
Capital
contributions from General Partner
|
4,927 | 4,854 | 4,303 | |||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
13,525 | 50,051 | 100,469 | |||||||||
Purchases
of Holding Units to fund deferred compensation plans, net
|
(2,358 | ) | (50,853 | ) | (22,345 | ) | ||||||
Net
cash used in financing activities
|
(1,275,255 | ) | (1,161,488 | ) | (1,024,639 | ) | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
(75,232 | ) | 10,783 | 12,414 | ||||||||
Net
(decrease) increase in cash and cash equivalents
|
(23,839 | ) | 29,639 | (63,439 | ) | |||||||
Cash
and cash equivalents as of beginning of the period
|
576,416 | 546,777 | 610,216 | |||||||||
Cash
and cash equivalents as of end of the period
|
$ | 552,577 | $ | 576,416 | $ | 546,777 | ||||||
Cash
paid:
|
||||||||||||
Interest
|
$ | 47,933 | $ | 218,398 | $ | 229,009 | ||||||
Income
taxes
|
132,491 | 87,329 | 59,704 | |||||||||
Non-cash
financing activities:
|
||||||||||||
Additional
investment by Holding through issuance of Holding Units to fund CEO’s
Restricted Units award
|
52,264 | — | — | |||||||||
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. Our principal services
include:
|
•
|
Institutional
Investment Services - servicing our institutional clients, including
unaffiliated corporate and public employee pension funds, endowment funds,
domestic and foreign institutions and governments, and affiliates such as
AXA and certain of its insurance company subsidiaries, by means of
separately managed accounts, sub-advisory relationships, structured
products, collective investment trusts, mutual funds, hedge funds and
other investment vehicles.
|
|
•
|
Retail
Services - servicing our individual clients, primarily by means of retail
mutual funds sponsored by AllianceBernstein or an affiliated company,
sub-advisory relationships in respect of mutual funds sponsored by third
parties, separately managed account programs sponsored by financial
intermediaries worldwide and other investment
vehicles.
|
|
•
|
Private
Client Services - servicing our private clients, including high-net-worth
individuals, trusts and estates, charitable foundations, partnerships,
private and family corporations, and other entities, by means of
separately managed accounts, hedge funds, mutual funds and other
investment vehicles.
|
|
•
|
Institutional
Research Services - servicing our institutional clients 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 strategies 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 plan
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 private
early-stage and later-stage high potential growth companies.
As of
December 31, 2008, AXA, a société anonyme organized
under the laws of France and the holding company for an international group of
insurance and related financial services companies, AXA Financial, Inc. (an
indirect wholly-owned subsidiary of AXA, “AXA Financial”), AXA Equitable Life
Insurance Company (a wholly-owned subsidiary of AXA Financial, “AXA Equitable”),
and certain subsidiaries of AXA Financial, collectively referred to as “AXA and
its subsidiaries”, owned approximately 1.6% of the issued and outstanding units
representing assignments of beneficial ownership of limited partnership
interests in Holding (“Holding Units”).
As of
December 31, 2008, the ownership structure of AllianceBernstein, expressed
as a percentage of general and limited partnership interests, was as
follows:
AXA
and its subsidiaries
|
61.8
|
%
|
||
Holding
|
33.9
|
|||
SCB
Partners Inc. (a wholly-owned subsidiary of SCB Inc.; formerly known as
Sanford C. Bernstein Inc.)
|
3.1
|
|||
Unaffiliated
holders
|
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. As of December 31, 2008, AXA and its
subsidiaries were the beneficial owners of approximately 62.0% of the units of
limited partnership interest in AllianceBernstein (“AllianceBernstein Units”).
This percentage includes AllianceBernstein Units that AXA and its subsidiaries
hold indirectly through its ownership of approximately 1.6% of Holding Units
that are issued and outstanding. Including both the general partnership and
limited partnership interests in Holding and AllianceBernstein, AXA and its
subsidiaries had an approximate 62.4% economic interest in AllianceBernstein as
of December 31, 2008.
On
January 6, 2009, AXA America Holdings, Inc., a wholly-owned subsidiary of AXA,
purchased the remaining 8,160,000 units held by SCB Partners, Inc.
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 entities 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, 2008, we have significant variable interests in certain structured
products and hedge funds with approximately $61.0 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 $0.1 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
include United States Treasury Bills, unconsolidated mutual funds and limited
partnership hedge funds we sponsor and manage, and investments held by a
consolidated venture capital fund of which we are the general partner and hold a
10% partnership interest.
Investments
in United States Treasury Bills, mutual funds, and other equity and fixed income
securities are classified as either trading or available-for-sale securities, in
accordance with Statement of Financial Accounting Standards No. 115 (“SFAS No.
115”), “Accounting for Certain
Investments in Debt and Equity Securities”. 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. Average cost is used to determine the realized
gain or loss on investments sold.
We use
the equity method of accounting for investments in limited partnership hedge
funds in accordance with EITF D-46, “Accounting for Limited Partnership
Investments”. The equity in earnings of our limited partnership hedge
fund investments are included in investments gains and losses on the
consolidated statements of income.
The
investments held by our consolidated venture capital fund are primarily
privately held and are initially valued at cost. These investments are adjusted
to fair value when changes in the underlying fair values are readily
ascertainable, generally reflecting the occurrence of “significant developments”
(i.e., business,
economic, or market events that may affect a company in which an investment has
been made). Adjustments to fair value are recorded as unrealized gains and
losses in investment gains and losses on the consolidated statements of income.
There is one private equity investment which represents an approximate 12%
ownership of a company that we own directly, outside of our consolidated venture
capital fund. This investment is accounted for using the cost
method.
We
adopted Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”),
“Fair Value
Measurements”, on January 1, 2008. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, establishes a fair value
hierarchy based on the quality of inputs used to measure fair value, and expands
disclosure requirements for fair value measurements (see Note 7).
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 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 our single reporting unit annually, as of
September 30, for impairment. The carrying value of goodwill is also reviewed if
facts and circumstances, such as significant declines in assets under
management, revenues, earnings or our Holding Unit price, occur, suggesting
possible impairment. As of September 30, 2008, the impairment test
indicated that goodwill was not impaired. Due to the significant declines in our
assets under management and operating results in 2008 as a result of the global
financial crisis, we also tested goodwill for impairment as of December 31,
2008, and determined that goodwill was not impaired.
The
analysis is a two-step process. The first step involves determining whether the
estimated fair value of AllianceBernstein, the reporting unit, exceeds its book
value. If the fair value of the company exceeds its book value, goodwill is not
impaired. However, if the book value exceeds the fair value of the
company, goodwill may be impaired and additional analysis is
required. The second step compares the fair value of the company to
the aggregated fair values of its individual assets and liabilities to calculate
the amount of impairment, if any.
In the
first step of the process, there are several methods of estimating
AllianceBernstein’s fair value, which include valuation techniques such as
discounted expected cash flows and market valuation (private partnership units
outstanding multiplied by Holding Unit price). Developing estimated fair value
using a discounted cash flow valuation technique consists of applying business
growth rate assumptions over the estimated life of the goodwill asset and then
discounting the resulting expected cash flows to arrive at a present value
amount that approximates fair value. In our test as of December 31, 2008, our
discounted expected cash flow model used management’s current business plan,
which factored in current market conditions and all material events that have
impacted, or that we believed at the time could potentially impact, future
discounted expected cash flows for the first four years and a 7.4% compounded
annual growth rate thereafter. Management used AllianceBernstein’s weighted
average cost of capital of 13.4% as its discount rate. Our market valuation as
of December 31, 2008 was higher than our book value, but the amount of excess
has decreased significantly.
To the
extent that securities valuations remain depressed for prolonged periods of time
and market conditions stagnate or worsen as a result of the global financial
crisis, our assets under management, revenues, profitability and unit price
would likely be adversely affected. As a result, subsequent
impairment tests may be based upon different assumptions and future cash flow
projections, which may result in an impairment of this asset. Any impairment
could reduce materially the recorded amount of goodwill with a corresponding
charge to our earnings.
Intangible
Assets, Net
Intangible
assets consist primarily of costs assigned to acquired investment management
contracts of SCB Inc., less accumulated amortization. Intangible assets are
recognized at fair value and are amortized on a straight-line basis over their
estimated useful life of approximately 20 years. The gross carrying amount of
intangible assets totaled $414.3 million as of December 31, 2008 and 2007,
and accumulated amortization was $170.8 million as of December 31, 2008 and
$150.1 million as of December 31, 2007, resulting in the net carrying
amount of intangible assets subject to amortization of $243.5 million as of
December 31, 2008 and $264.2 million as of December 31, 2007. Amortization
expense was $20.7 million for each of the years ended December 31,
2008, 2007 and 2006, and estimated amortization expense for each of the next
five years is approximately $20.7 million.
Management
tests intangible assets for impairment quarterly. A present value technique is
applied to expected cash flows to estimate the fair value of intangible assets.
Estimated fair value is then compared to the recorded book value to determine
whether impairment is indicated. The key assumptions used in the estimates
include attrition factors of customer accounts, asset growth rates, direct
expenses and fee rates included in management’s current business plan and our
weighted average cost of capital of 13.4% for the discount rate. In determining
these estimates, we choose assumptions based on actual historical trends that
may or may not occur in the future. Management has determined that intangible
assets were not impaired as of December 31, 2008.
To the
extent that securities valuations remain depressed for prolonged periods of time
and market conditions stagnate or worsen as a result of the global financial
crisis, our assets under management and revenues from these investment
management contracts would likely be adversely affected. As a result,
certain triggering events, including impairment of our goodwill, may occur
requiring more frequent testing for impairment of intangibles. Such tests may be
based upon different assumptions, which could 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.
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, 2008 was not
impaired.
Loss
Contingencies
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 or shortfall compared to a stated benchmark over
a specified period of time. Performance-based fees are recorded as a component
of revenue at the end of each contract’s measurement period.
We
calculate AUM using our standard fair valuation methodologies, including market
based valuation methods and fair valuation methods. Market based valuation
methods include: last sale/settle prices from an exchange for
actively traded listed equities, options and futures; evaluated bid prices from
standard pricing vendors for fixed income, asset-backed or mortgage-backed
issues; mid prices from standard pricing vendors and brokers for credit default
swaps; and quoted bids or spreads from pricing vendors and brokers for other
derivative products. Fair valuation methods include discounted cash
flow models, evaluation of assets vs. liabilities or any other methodology that
is validated and approved by our Valuation Committee (“Committee”). Fair
valuation methods are used only where AUM cannot be valued using market based
valuation methods, such as in the case of private equity or illiquid securities.
Fair valued investments typically make up less than 1% of our total
AUM. Recent market volatility has not had a significant effect on our
ability to acquire market data and, accordingly, our ability to use market based
valuation methods.
The
Committee, which is composed of senior officers and employees and is chaired by
our Chief Risk Officer, is responsible for overseeing the pricing and valuation
of all investments held in client portfolios. The Committee has
adopted a Statement of Pricing Policies describing principles and policies that
apply to pricing and valuing investments held in client
portfolios. We have also established a Pricing Group, which reports
to the Committee. The Committee has delegated to the Pricing Group
responsibility for monitoring the pricing process for all investments held in
client portfolios.
Institutional research services revenue
consists of brokerage transaction charges received by SCB LLC and SCBL, each a
wholly-owned subsidiary of AllianceBernstein, for independent 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 dividend 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: (i) among notional investments in Holding
Units, certain of the investment services we provide to our clients, and a money
market fund, or (ii) in options to acquire Holding Units. We typically purchase
the investments that are notionally elected by the participants and hold such
investments in a consolidated rabbi trust. Vesting periods for annual awards
range from four years to immediate, depending on the terms of the individual
award, the age of the participant, or, as was the case of our former 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 in Holding
Units and income credited on notional investments in our investment services or
the money market fund for which a long-term deferral election has been made are
reinvested and distributed as elected by participants.
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 and options to acquire Holding Units), is recognized on a
straight-line basis over the applicable vesting periods. Mark-to-market gains or
losses on investments held in the consolidated rabbi trust (other than in
Holding Units and options to acquire 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
Unit Awards and Option Plans
In
accordance with Statement of Financial Accounting Standards No. 123
(revised 2004) (“SFAS No. 123-R”), “Share Based Payment”, we
recognize compensation expense related to grants of unit awards and options in
the financial statements. Under the fair value method, compensatory expense is
measured at the grant date based on the estimated fair value of the award and is
recognized over the vesting period. Fair value of unit awards is the grant date
unit price; fair value of options is determined using the Black-Scholes option
valuation model. New Holding Units are issued upon exercise of options to buy
Holding Units.
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 $20.1 million, $7.1 million and $(0.2) million for 2008, 2007 and 2006,
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 21, 2009, the General Partner declared a distribution of $98.6
million, or $0.37 per AllianceBernstein Unit, representing a distribution of
Available Cash Flow for the three months ended December 31,
2008. 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 12, 2009 to holders of record as of February 2,
2009.
During
the third quarter of 2008, we recorded approximately $35.3 million in
insurance recoveries relating to payments made for a class action claims
processing error for which we recorded a charge of $56.0 million in the fourth
quarter of 2006 (see Note
11). Our fourth quarter 2006 cash distribution was based on net income as
calculated prior to recording the charge. Accordingly, the insurance recoveries
($0.13 per unit) were not included in our cash distribution to unitholders
for the third quarter of 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: (i) amounts from other investments to investments
in the consolidated statements of financial condition and cash flows, (ii)
non-controlling interest in earnings of consolidated entities, previously
included within general and administrative expenses, currently shown separately,
and (iii) unrealized losses (gains) on deferred compensation related
investments, previously included within other, net in the consolidated
statements of cash flows, currently shown separately.
3.
|
Cash and Securities Segregated
Under Federal Regulations and Other
Requirements
|
As of
December 31, 2008 and 2007, $2.5 billion and $2.2 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”).
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, 2008 and 2007, $47.9 million and $133.2 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 to buy Holding Units as follows:
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in thousands, except per unit amounts)
|
||||||||||||
Net
income
|
$ | 839,240 | $ | 1,260,444 | $ | 1,108,601 | ||||||
Weighted
average units outstanding—basic
|
260,965 | 259,854 | 257,719 | |||||||||
Dilutive
effect of compensatory options to buy Holding Units
|
531 | 1,807 | 2,243 | |||||||||
Weighted
average units outstanding—diluted
|
261,496 | 261,661 | 259,962 | |||||||||
Basic
net income per unit
|
$ | 3.18 | $ | 4.80 | $ | 4.26 | ||||||
Diluted
net income per unit
|
$ | 3.18 | $ | 4.77 | $ | 4.22 |
As of
December 31, 2008 and 2007, we excluded, respectively, 5,050,605 and 1,678,985
out-of-the-money options (i.e., options with an
exercise price greater than the weighted average closing price of a unit for the
relevant period) from the diluted net income per unit computation due to their
anti-dilutive effect. As of December 31, 2006, there were no out-of-the-money
options.
5.
|
Fees Receivables,
Net
|
Fees
receivable, net consists of:
December 31,
|
||||||||
2008
|
2007
|
|||||||
(in
thousands)
|
||||||||
AllianceBernstein
mutual funds
|
$ | 89,530 | $ | 173,746 | ||||
Unaffiliated
clients (net of allowance of $1,488 in 2008 and $1,792 in
2007)
|
280,288 | 545,787 | ||||||
Affiliated
clients
|
7,349 | 10,103 | ||||||
Total
fees receivables, net
|
$ | 377,167 | $ | 729,636 |
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. As a result, minimal
amounts of collateral for securities borrowed or loaned are included in
receivables from brokers and dealers or payables to brokers and dealers on the
consolidated statements of financial condition.
6.
|
Investments
|
Investments
consist of:
|
||||||||
December
31, 2008
|
December
31, 2007
|
|||||||
(in
thousands)
|
||||||||
Available-for-sale
|
$
|
7,566
|
$
|
48,038
|
||||
Trading:
|
||||||||
Deferred
compensation related
|
238,136
|
417,906
|
||||||
United
States Treasury Bills
|
52,694
|
89,328
|
||||||
Other
|
31,717
|
65,003
|
||||||
Investments
in limited partnership hedge funds:
|
||||||||
Deferred
compensation related
|
67,673
|
129,567
|
||||||
Other
|
2,191
|
27,111
|
||||||
Private
equity investments
|
176,823
|
135,601
|
||||||
Other
investments
|
1,043
|
2,527
|
||||||
Total
investments
|
$
|
577,843
|
$
|
915,081
|
Total
investments related to deferred compensation obligations of $305.8 million and
$547.5 million as of December 31, 2008 and 2007, respectively, consist of
company-sponsored mutual funds and limited partnership hedge funds. We typically
purchase the investments that are notionally elected by deferred compensation
plan participants and maintain them in a consolidated rabbi trust. The
investments held in the rabbi trust are held for the benefit of the participants
in our deferred compensation plans, but they are subject to the claims of the
general creditors of AllianceBernstein.
The
underlying investments of the hedge funds in which we invest 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.
We
purchase United States Treasury Bills for transfer into a special reserve bank
custody account for the exclusive benefit of brokerage customers of SCB LLC when
required by Rule 15c3-3 of the Exchange Act (see Note 3).
The
following is a summary of the cost and fair value of available-for-sale and
trading investments held as of December 31, 2008 and 2007:
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
December 31,
2008:
|
||||||||||||||||
Available-for-sale:
|
||||||||||||||||
Equity
investments
|
$ | 11,822 | $ | 264 | $ | (4,680 | ) | $ | 7,406 | |||||||
Fixed income
investments
|
235 | 4 | (79 | ) | 160 | |||||||||||
$ | 12,057 | $ | 268 | $ | (4,759 | ) | $ | 7,566 | ||||||||
Trading:
|
||||||||||||||||
Equity
investments
|
$ | 434,909 | $ | 67 | $ | (188,582 | ) | $ | 246,394 | |||||||
Fixed income
investments
|
79,594 | 65 | (3,506 | ) | 76,153 | |||||||||||
$ | 514,503 | $ | 132 | $ | (192,088 | ) | $ | 322,547 | ||||||||
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 |
Proceeds
from sales of available-for-sale investments were approximately $42.0 million,
$52.4 million and $12.8 million in 2008, 2007 and 2006, respectively. Realized
gains from our sales of available-for-sale investments were zero, $8.5 million
and $1.0 million in 2008, 2007 and 2006, respectively. Realized losses from our
sales of available-for-sale investments were $6.4 million in 2008, and zero in
2007 and 2006. We assess valuation declines to determine the extent to which
such declines are fundamental to the underlying investment or attributable to
temporary market-related factors. Based on our assessment, we do not believe the
declines are other than temporary as of December 31, 2008.
7.
|
Fair
Value
|
We
adopted SFAS No. 157 on January 1, 2008 for financial assets and financial
liabilities. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, establishes a fair value hierarchy based on the quality of
inputs used to measure fair value, and expands disclosure requirements for fair
value measurements. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability (i.e., the “exit price”) in an
orderly transaction between market participants at the measurement date. The
three broad levels of fair value hierarchy established by SFAS No. 157 are as
follows:
|
•
|
Level
1 – Quoted prices in active markets are available for identical assets or
liabilities as of the reported
date.
|
|
•
|
Level
2 – Quoted prices in markets that are not active or other pricing inputs
that are either directly or indirectly observable as of the reported
date.
|
|
•
|
Level
3 – Prices or valuation techniques that are both significant to the fair
value measurement and unobservable as of the reported date. These
financial instruments do not have two-way markets and are measured using
management’s best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment or
estimation.
|
FASB
Staff Position No. 157-2 (“FSP No. 157-2”) deferred the effective date of SFAS
No. 157 for nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years.
FSP No. 157-2 is not expected to have a material impact on our consolidated
financial statements.
Assets
Measured at Fair Value
The
following table summarizes the valuation of our financial instruments by SFAS
No. 157 pricing observability levels as of December 31, 2008:
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Cash
equivalents
|
$
|
184,404
|
$
|
—
|
$
|
—
|
$
|
184,404
|
||||||||
Securities
segregated
|
—
|
2,524,698
|
—
|
2,524,698
|
||||||||||||
Receivables
from brokers and dealers
|
(46
|
)
|
680
|
—
|
634
|
|||||||||||
Investments
– available-for-sale
|
7,566
|
—
|
—
|
7,566
|
||||||||||||
Investments
– trading
|
||||||||||||||||
Mutual
fund investments
|
237,529
|
—
|
—
|
237,529
|
||||||||||||
Equity
and fixed income securities
|
25,027
|
6,874
|
423
|
32,324
|
||||||||||||
U.S.
Treasury bills
|
—
|
52,694
|
—
|
52,694
|
||||||||||||
Investments
– private equity
|
4,694
|
—
|
162,129
|
166,823
|
||||||||||||
Total
assets measured at fair value
|
$
|
459,174
|
$
|
2,584,946
|
$
|
162,552
|
$
|
3,206,672
|
||||||||
Payables
to brokers and dealers
|
$
|
167
|
$
|
—
|
$
|
—
|
$
|
167
|
||||||||
Total
liabilities measured at fair value
|
$
|
167
|
$
|
—
|
$
|
—
|
$
|
167
|
Following
is a description of the fair value methodologies used for instruments measured
at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy:
|
•
|
Cash
equivalents: We invest excess cash in various money market funds
that are valued based on quoted prices in active markets; as such, these
are included in Level 1 of the valuation
hierarchy.
|
|
•
|
Securities
segregated: United States Treasury Bills segregated in a special
reserve bank custody account as required by Rule 15c3-3 of the Exchange
Act. As these securities are valued based on quoted yields in secondary
markets, we have included them in Level 2 of the valuation
hierarchy.
|
|
•
|
Receivables from
brokers and dealers: We hold several exchange traded futures and
currency forward contracts with counterparties that are included in Level
1 and Level 2, respectively, of the valuation
hierarchy.
|
|
•
|
Investments –
available-for-sale and trading: Our available-for-sale investments
consist principally of company-sponsored mutual funds with exchange listed
net asset values, and our trading investments consist principally of
company-sponsored mutual funds with exchange listed net asset values,
various separately managed portfolios consisting primarily of equity
securities with quoted prices in active markets, and United States
Treasury Bills. As such, these investments are included in Level 1 or
Level 2 of the valuation hierarchy. Trading investments also include a
separately managed portfolio of fixed income securities that are included
in Level 2 or Level 3 of the valuation
hierarchy.
|
|
•
|
Investments – private
equity: The valuation of non-public private equity investments held
by a consolidated venture capital fund 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 at cost. 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 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,
but not limited to, current operating performance and future expectations
of investee companies, 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, particular emphasis is placed on current company
performance and market conditions. Non-public equity investments are
included in Level 3 of the valuation hierarchy because they trade
infrequently and, therefore, the fair value is unobservable.
Publicly-traded equity investments are included in Level 1 of the
valuation hierarchy.
|
|
•
|
Payables to brokers
and dealers: Securities sold, but not yet purchased, are included
in Level 1 of the valuation
hierarchy.
|
The
following table summarizes the change in balance sheet carrying value associated
with Level 3 financial instruments carried at fair value during 2008 (in
thousands):
Twelve
Months Ended December 31, 2008
|
||||
Balance
as of beginning of period
|
$ | 125,020 | ||
Purchases
(sales), net
|
31,070 | |||
Realized
gains (losses), net
|
9 | |||
Unrealized
gains (losses), net
|
6,453 | |||
Balance
as of December 31,
2008
|
$ | 162,552 |
Realized
and unrealized gains and losses on Level 3 financial instruments are recorded in
investment gains and losses on the condensed consolidated statements of
income.
8.
|
Furniture, Equipment and
Leasehold Improvements, Net
|
Furniture,
equipment and leasehold improvements, net consist of:
December 31,
|
||||||||
2008
|
2007
|
|||||||
(in thousands)
|
||||||||
Furniture and
equipment
|
$ | 522,913 | $ | 495,669 | ||||
Leasehold
improvements
|
322,803 | 306,908 | ||||||
845,716 | 802,577 | |||||||
Less: Accumulated depreciation
and amortization
|
(479,912 | ) | (435,298 | ) | ||||
Furniture, equipment and
leasehold improvements, net
|
$ | 365,804 | $ | 367,279 |
Depreciation
and amortization expense on furniture, equipment and leasehold improvements were
$65.6 million, $58.4 million and $43.8 million for the years ended December 31,
2008, 2007 and 2006, respectively.
9.
|
Deferred Sales Commissions,
Net
|
The
components of deferred sales commissions, net for the years ended
December 31, 2008 and 2007 were as follows:
December 31,(1)
|
||||||||
2008
|
2007
|
|||||||
(in thousands)
|
||||||||
Carrying amount of deferred sales
commissions
|
$ | 521,334 | $ | 478,504 | ||||
Less: Accumulated
amortization
|
(294,775 | ) | (215,664 | ) | ||||
Cumulative CDSC
received
|
(113,018 | ) | (79,269 | ) | ||||
Deferred sales commissions,
net
|
$ | 113,541 | $ | 183,571 |
(1)
|
Excludes
amounts related to fully amortized deferred sales
commissions.
|
Amortization
expense was $79.1 million, $95.5 million and $100.4 million for the years ended
December 31, 2008, 2007 and 2006, respectively. Estimated future
amortization expense related to the December 31, 2008 net asset
balance, assuming no additional CDSC is received in future periods, is as
follows (in thousands):
2009
|
$
|
51,155
|
||
2010
|
32,421
|
|||
2011
|
18,873
|
|||
2012
|
8,175
|
|||
2013
|
2,652
|
|||
2014
|
265
|
|||
$
|
113,541
|
10.
|
Debt
|
Total
credit available, debt outstanding, and weighted average interest rates as of
December 31, 2008 and 2007 were as follows:
December 31,
|
||||||||||||||||||||||||
2008
|
2007
|
|||||||||||||||||||||||
Available
Credit
|
Debt
Outstanding
|
Interest
Rate
|
Available
Credit
|
Debt
Outstanding
|
Interest
Rate
|
|||||||||||||||||||
(in millions)
|
||||||||||||||||||||||||
Revolving
credit facility(1)
|
$ | 715.2 | $ | — | — | % | $ | 466.1 | $ | — | — | % | ||||||||||||
Commercial
paper(1)(2)
|
284.8 | 284.8 | 1.8 | 533.9 | 533.9 | 4.3 | ||||||||||||||||||
Total
revolving credit facility(1)
|
1,000.0 | 284.8 | 1.8 | 1,000.0 | 533.9 | 4.3 | ||||||||||||||||||
Revolving
credit facility – SCB LLC
|
950.0 | — | — | — | — | — | ||||||||||||||||||
Unsecured
bank loan(3)
|
— | — | — | — | — | — | ||||||||||||||||||
Total
|
$ | 1,950.0 | $ | 284.8 | 1.8 | $ | 1,000.0 | $ | 533.9 | 4.3 |
(1)
|
Our
$1.0 billion revolving credit facility supports our commercial paper
program; amounts borrowed under the commercial paper program reduce
amounts available for direct borrowing under the revolving credit facility
on a dollar-for-dollar basis.
|
(2)
|
Commercial
paper outstanding is short-term in nature, and as such, book value
approximates fair value.
|
(3)
|
As
of December 31, 2008, SCB LLC maintained five separate uncommitted credit
facilities with various banks totaling $775
million.
|
We have a
$1.0 billion five-year revolving credit facility with a group of commercial
banks and other lenders which expires in 2011. The revolving credit facility is
intended to provide back-up liquidity for our $1.0 billion commercial paper
program, although we borrow directly under the facility from time to time. Our
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. 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, 2008.
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 custody activities for private
clients. 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 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 guarantee is continuous and remains in effect until the later of
payment in full of any obligation under the credit facility 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
necessary 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
related payments we are obligated to make, net of sublease commitments of third
party lessees to make payments to us, as of December 31, 2008 are as
follows:
Payments
|
Sublease
Receipts
|
Net
Payments
|
||||||||||
(in millions)
|
||||||||||||
2009
|
$ | 127.3 | $ | 3.1 | $ | 124.2 | ||||||
2010
|
131.8 | 3.1 | 128.7 | |||||||||
2011
|
133.0 | 2.7 | 130.3 | |||||||||
2012
|
136.3 | 3.0 | 133.3 | |||||||||
2013
|
136.4 | 3.0 | 133.4 | |||||||||
2014 and
thereafter
|
1,783.6 | 10.6 | 1,773.0 | |||||||||
Total future minimum
payments
|
$ | 2,448.4 | $ | 25.5 | $ | 2,422.9 |
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 $125.7 million, $106.8
million and $99.7 million, respectively, for the years ended December 31,
2008, 2007 and 2006, respectively, net of sublease income of $3.3 million, $3.4
million and $3.7 million for the years ended December 31, 2008, 2007 and
2006, 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 $113.5 million
and $183.6 million as of December 31, 2008 and 2007, 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 $33.7 million, $31.1 million and $23.7 million,
totaled approximately $9.1 million, $84.1 million and $98.7 million during 2008,
2007 and 2006, respectively. Effective January 31, 2009, back-end load shares
are no longer offered to new investors in U.S. funds.
Management
tests the deferred sales commission asset for impairment quarterly by comparing
undiscounted future cash flows to the recorded value, net of accumulated
amortization. Significant assumptions utilized to estimate the company’s future
average assets under management and undiscounted future cash flows from back-end
load shares are updated quarterly and 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, 2008, management used average market return
assumptions of 5% for fixed income securities and 8% for equities 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 22% to 32% for U.S. fund shares and 28% to 72% for non-U.S. fund
shares, determined by reference to actual redemption experience over the
five-year, three-year, one-year and current quarterly periods ended
December 31, 2008, calculated as a percentage of our 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, 2008, management determined that the deferred sales commission
asset was not impaired. However, if higher redemption rates continue in 2009,
this asset may become 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
2008, U.S. equity markets decreased by approximately 37.0% as measured by the
change in the Standard & Poor’s 500 Stock Index and U.S. fixed income
markets increased by approximately 5.2% as measured by the change in the
Barclays Aggregate Bond Index. The redemption rate for domestic back-end load
shares was 25.0% in 2008. Non-U.S. capital markets decreases ranged from 40.7%
to 53.3% as measured by the MSCI World, Emerging Market and EAFE Indices. The
redemption rate for non-U.S. back-end load shares was 42.3% in 2008. 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 regulatory inquiries,
administrative proceedings and litigation, some of which allege significant
damages. While any inquiry, proceeding or litigation has the element of
uncertainty, management believes that the outcome of any one of the other
regulatory inquiries, administrative proceedings, 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 in general and administrative expenses a
$56.0 million pre-tax charge ($54.5 million, net of related income tax benefit,
or $0.21 per unit) 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. During the third quarter of 2008, we
recorded as a reduction of general and administrative expenses approximately
$35.3 million in insurance recoveries relating to this error. Our fourth
quarter 2006 cash distribution was based on net income as calculated prior to
recording the charge. Accordingly, the insurance recoveries ($0.13 per
unit) are not included in our cash distribution to unitholders for the
third quarter of 2008. As of December 31, 2008, we had $7.8 million remaining in
accrued liabilities related to the $56.0 million pre-tax charge, some of which
we hope to recover for our clients in future periods from related class action
settlement funds, the amount of which is not known. To the extent we
are unable to recover amounts our clients would have received were it not for
the claims processing error, we will reimburse these clients for the unrecovered
amount.
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, 2008, SCB LLC had net
capital of $175.1 million, which was $167.3 million in excess of the
minimum net capital requirement of $7.8 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, 2008, $19.6 million was not available for payment of
cash dividends and advances.
SCBL is a
member of the London Stock Exchange. As of December 31, 2008, SCBL was
subject to financial resources requirements of $12.3 million imposed by the
Financial Services Authority of the United Kingdom and had aggregate regulatory
financial resources of $37.3 million, an excess of $25.0 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, 2008 was $85.4 million, which was $78.7 million in
excess of its required net capital of $6.7 million.
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, 2008, each of our subsidiaries subject to a minimum net capital
requirement satisfied the applicable requirement.
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 2008, 2007 and 2006 were $24.5
million, $29.4 million and $25.3 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 $10.6 million, $8.3 million and $5.9 million in 2008,
2007 and 2006, 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. As of December 31, 2008, the Retirement
Plan was changed to provide that the participants will not accrue any additional
benefits (i.e., service
and compensation after December 31, 2008 will not be taken into account in
determining the participants’ retirement benefit). 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,
|
||||||||
2008
|
2007
|
|||||||
(in thousands)
|
||||||||
Change
in projected benefit obligation:
|
||||||||
Projected
benefit obligation at beginning of year
|
$ | 76,731 | $ | 84,683 | ||||
Service
cost
|
2,995 | 3,446 | ||||||
Interest
cost
|
4,996 | 4,769 | ||||||
Actuarial
losses (gains)
|
3,891 | (8,280 | ) | |||||
Plan
amendment
|
— | (4,365 | ) | |||||
Plan
curtailment
|
(13,133 | ) | — | |||||
Benefits
paid
|
(3,250 | ) | (3,522 | ) | ||||
Projected
benefit obligation at end of year
|
72,230 | 76,731 | ||||||
Change
in plan assets:
|
||||||||
Plan
assets at fair value at beginning of year
|
56,786 | 53,315 | ||||||
Actual
return on plan assets
|
(25,770 | ) | 2,193 | |||||
Employer
contribution
|
5,617 | 4,800 | ||||||
Benefits
paid
|
(3,250 | ) | (3,522 | ) | ||||
Plan
assets at fair value at end of year
|
33,383 | 56,786 | ||||||
Funded
status
|
$ | (38,847 | ) | $ | (19,945 | ) |
The
change made effective December 31, 2008 regarding the elimination of accruing
for participants future services and compensation increases, considered a plan
curtailment, resulted in a decrease in our projected obligation of $13.1
million. This decrease in our projected obligation was offset against
existing deferred losses in accumulated other comprehensive income
(loss). In addition, as a result of all future service being
eliminated, we accelerated recognition of the existing prior service credit of
$3.5 million in the fourth quarter of 2008.
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 of December 31, 2007.
The
amounts recognized in other comprehensive income (loss), net of taxes, during
2008 and 2007 were as follows:
2008
|
2007
|
|||||||
(in
thousands)
|
||||||||
Unrecognized
net (loss) gain from experience different from that assumed and effects of
changes and assumptions
|
$ | (20,811 | ) | $ | 5,992 | |||
Unrecognized
prior service (credit) cost
|
(3,844 | ) | 4,187 | |||||
Unrecognized
net plan assets as of January 1, 1987 being recognized over 26.3
years
|
(108 | ) | (139 | ) | ||||
Other
comprehensive income (loss)
|
$ | (24,763 | ) | $ | 10,040 |
The
amounts included in accumulated other comprehensive income (loss), net of taxes,
as of December 31, 2008 and 2007 were as follows:
2008
|
2007
|
|||||||
(in
thousands)
|
||||||||
Unrecognized
net loss from experience different from that assumed and effects of
changes and assumptions
|
$ | (22,249 | ) | $ | (1,438 | ) | ||
Unrecognized
prior service credit
|
— | 3,844 | ||||||
Unrecognized
net plan assets as of January 1, 1987 being recognized over 26.3
years
|
602 | 710 | ||||||
Accumulated
other comprehensive income (loss)
|
$ | (21,647 | ) | $ | 3,116 |
The
estimated initial plan assets and amortization of loss for the Retirement Plan
that will be amortized from accumulated other comprehensive income over the next
year is $143,000 and $1.4 million, respectively.
The
accumulated benefit obligation for the plan was $72.2 million and $65.0 million
as of December 31, 2008 and 2007, respectively. We currently estimate we
will contribute $22 million to the Retirement Plan during 2009. 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, 2008
and 2007 (measurement dates) were made utilizing the following weighted-average
assumptions:
2008
|
2007
|
|||||||
Discount
rate on benefit obligations
|
6.20 | % | 6.55 | % | ||||
Annual
salary increases
|
3.11 | % | 3.14 | % |
The
following benefit payments, which reflect expected future service, are expected
to be paid as follows (in thousands):
2009
|
$
|
2,534
|
||
2010
|
3,122
|
|||
2011
|
3,287
|
|||
2012
|
4,129
|
|||
2013
|
3,112
|
|||
2014-2018
|
20,832
|
Net
expense under the Retirement Plan consisted of:
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in thousands)
|
||||||||||||
Service
cost
|
$ | 2,995 | $ | 3,447 | $ | 4,048 | ||||||
Interest
cost on projected benefit obligations
|
4,996 | 4,769 | 4,578 | |||||||||
Expected
return on plan assets
|
(4,590 | ) | (4,310 | ) | (3,800 | ) | ||||||
Amortization
of prior service credit
|
(431 | ) | (59 | ) | (59 | ) | ||||||
Amortization
of transition asset
|
(143 | ) | (143 | ) | (143 | ) | ||||||
Curtailment
gain recognized
|
(3,510 | ) | — | — | ||||||||
Amortization
of loss
|
— | — | 280 | |||||||||
Net
pension (benefit) charge
|
$ | (683 | ) | $ | 3,704 | $ | 4,904 |
Actuarial
computations used to determine net periodic costs were made utilizing the
following weighted-average assumptions:
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Discount
rate on benefit obligations
|
6.55 | % | 5.90 | % | 5.65 | % | ||||||
Expected
long-term rate of return on plan assets
|
8.00 | % | 8.00 | % | 8.00 | % | ||||||
Annual
salary increases
|
3.14 | % | 3.14 | % | 3.50 | % |
The
Retirement Plan’s asset allocation percentages consisted of:
December 31,
|
||||||||
2008
|
2007
|
|||||||
Equity
securities
|
56 | % | 69 | % | ||||
Debt
securities
|
30 | 21 | ||||||
Real
estate
|
14 | 10 | ||||||
100 | % | 100 | % |
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 Barclays Aggregate Bond Index.
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 2008, our net periodic benefit cost was $0.5 million,
and our aggregate benefit obligation as of December 31, 2008 is $4.0
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, 2008, 2007 and 2006 were $1.7 million, $1.7 million and
$2.1 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, 2008, 2007 and 2006 were $0.2 million, $0.6
million and $3.6 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.
|
|
o
|
Until
distributed, liability for the 1995 through 1998 awards increased or
decreased through December 31, 2005 based on our earnings growth
rate.
|
|
o
|
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.
|
|
o
|
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.
|
|
o
|
A
subsidiary of AllianceBernstein purchases Holding Units to fund the
related benefits.
|
|
o
|
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 2008 awards, executive committee members and those senior officers
previously participating in the Special Option Program may allocate up to
half of their awards to investments in options to buy Holding Units (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 2008, 2007 and
2006 aggregating $236.0 million, $314.6 million and $228.7 million,
respectively. In January 2009, $22.9 million of the 2008 award was allocated to
options to buy Holding Units (see Note 16). 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, 2008, 2007 and 2006 were $59.9 million, $227.2 million and
$191.9 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. The amounts charged to employee compensation and benefits expense for
the years ended December 31, 2008, 2007 and 2006 were $21.7 million, $31.9
million and $27.0 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 $15.2 million in 2008, $23.5 million in
2007 and $14.5 million in 2006. The amounts charged to employee compensation and
benefits expense for the years ended December 31, 2008, 2007 and 2006 were $8.7
million, $8.0 million and $4.2 million, respectively.
Effective
December 19, 2008, Mr. Sanders, Chairman and CEO, retired from the Company. In
accordance with the terms of the employment agreement between Mr. Sanders and
AllianceBernstein dated October 26, 2006 (and the terms of Mr. Sanders’s prior
employment agreement), Mr. Sanders was 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 2006 award of $19.0 million vested 65%
in December 2007 and 35% in December 2008. The 2007 award of $21.5 million
vested 75% in December 2008 and was to vest 25% in December 2009, which was
accelerated into 2008 upon his retirement. Mr. Sanders received his 2008 award
of approximately $12.8 million pursuant to his employment agreement, which
vested fully in 2008 based on his retirement. The amounts charged to employee
compensation and benefits expense for the years ended December 31, 2008, 2007
and 2006 were $40.9 million, $19.7 million and $15.0 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.
16.
|
Compensatory
Unit Awards and Option Plans
|
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.
Restricted Holding Units (“Restricted Units”) awarded to independent directors
of the General Partner vest on the third anniversary of the grant date or
immediately upon a director’s resignation. Restricted Units awarded
to the CEO vest 20% on each of the first five anniversary dates of the grant
date. 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, 2008, options to buy 14,213,209 Holding Units,
net of forfeitures, had been granted and 4,140,449 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 22,646,342 Holding Units
were available for grant as of December 31, 2008.
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.
On
January 23, 2009, the Compensation Committee granted an award of options to buy
6,534,182 Holding Units to 67 employees, consisting of certain Executive
Committee members and senior officers previously participating in the Special
Option Program. The exercise price is $17.05, the closing price of
Holding Units on the grant date, and the fair value is $3.51 per
option.
Options
to buy Holding Units were granted as follows: 13,825 options were granted during
2008; 3,708,939 options were granted during 2007; and 9,712 options were granted
during 2006. The weighted average fair value of options to buy Holding Units
granted during 2008, 2007 and 2006 was $10.85, $15.96 and $12.35, respectively,
on the date of grant, determined using the Black-Scholes option valuation model
with the following assumptions:
2008
|
2007
|
2006
|
||||||||||
Risk-free
interest rate
|
3.2 | % | 3.5 – 4.9 | % | 4.9 | % | ||||||
Expected
cash distribution yield
|
5.4 | % | 5.6 – 5.7 | % | 6.0 | % | ||||||
Historical
volatility factor
|
29.3 | % | 27.7 – 30.8 | % | 31.0 | % | ||||||
Expected
term
|
6.0
years
|
6.0
– 9.5 years
|
6.5
years
|
Due to a
lack of sufficient historical data, we have chosen to use, in accordance with
SEC Staff Accounting Bulletin No. 110, the simplified method to calculate the
expected term of options.
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
|
|||||||||||||
|
||||||||||||||||
Outstanding
as of December 31, 2007
|
7,273,621 | $ | 64.20 | 6.9 | ||||||||||||
Granted
|
13,825 | 64.24 | ||||||||||||||
Exercised
|
(315,467 | ) | 41.98 | |||||||||||||
Forfeited
|
(123,071 | ) | 67.67 | |||||||||||||
Expired
|
(163,100 | ) | 26.31 | |||||||||||||
Outstanding
as of December 31, 2008
|
6,685,808 | 66.11 | 6.3 | $ | — | |||||||||||
Exercisable
as of December 31, 2008
|
3,277,879 | 46.69 | 3.2 | — | ||||||||||||
Expected
to vest as of December 31, 2008
|
3,239,112 | 84.78 | 9.2 | — |
The
aggregate intrinsic value as of December 31, 2008 on options outstanding,
exercisable and expected to vest is negative, therefore is presented as zero in
the table above. The total intrinsic value of options exercised during 2008,
2007 and 2006 was $6.3 million, $58.8 million and $79.0 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 $7.7 million,
$5.9 million and $2.7 million, respectively, for the years ended December 31,
2008, 2007 and 2006. As of December 31, 2008, there was $46.1 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 7.0 years.
Other
Unit Awards
Restricted
Units
In 2008,
2007 and 2006, 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 2,335, 1,705 and 1,848 Restricted Units in
2008, 2007 and 2006, respectively, with grant date fair values of $64.24, $87.98
and $65.02 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, 2008, 5,888 Restricted Units, net of distributions made upon
retirement of two directors, were outstanding. We recorded compensation expense
of $150,000, $178,000 and $164,000 in 2008, 2007 and 2006, respectively, related
to Restricted Units.
In
accordance with the terms of the employment agreement between Mr. Kraus,
Chairman and CEO, the General Partner, Holding and AllianceBernstein dated
December 19, 2008, Mr. Kraus was granted 2,722,052 Restricted Units with a grant
date fair value of $19.20. Mr. Kraus’s Restricted Units will vest ratably on
each of the first five anniversaries of the grant date.
The
following table summarizes the activity of unvested Restricted Units during
2008:
Holding
Units
|
Weighted Average
Grant
Date Fair Value
|
|||||||
Unvested
as of January 1, 2008
|
4,875 | $ | 67.74 | |||||
Granted
|
2,724,387 | 19.24 | ||||||
Vested
|
(1,322 | ) | 45.45 | |||||
Forfeited
|
— | — | ||||||
Unvested
as of December 31, 2008
|
2,727,940 | 19.31 |
The total
fair value of units that vested during 2008 was $87,000. No units vested during
2007 or 2006.
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 46,030, 45,072 and
36,020 Holding Units in 2008, 2007 and 2006, respectively, with grant date fair
values of $62.05, $82.37 and $63.82 per Holding Unit, respectively.
The
following table summarizes the activity of unvested Century Club units during
2008:
Holding
Units
|
Weighted Average
Grant
Date Fair Value
|
|||||||
Unvested
as of January 1, 2008
|
73,990 | $ | 72.63 | |||||
Granted
|
46,030 | 62.05 | ||||||
Vested
|
(37,504 | ) | 67.35 | |||||
Forfeited
|
(3,610 | ) | 69.23 | |||||
Unvested
as of December 31, 2008
|
78,906 | 70.77 |
The total
fair value of units that vested during 2008, 2007 and 2006 was $2.2 million,
$2.5 million and $1.7 million, respectively.
We
recorded compensation expense relating to the Century Club Plan of $2.8 million,
$2.3 million and $1.5 million, respectively, for the years ended December 31,
2008, 2007 and 2006. As of December 31, 2008, there was $3.3 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, 2006
|
259,062,014
|
|||
Options
to buy Holding Units exercised
|
1,234,917
|
|||
Holding
Units awarded
|
46,777
|
|||
Holding
Units forfeited
|
(1,716
|
)
|
||
Outstanding
as of December 31, 2007
|
260,341,992
|
|||
Options
to buy Holding Units exercised
|
315,467
|
|||
Issuance
of Holding Units
|
3,015,396
|
|||
Holding
Units awarded
|
48,365
|
|||
Holding
Units forfeited
|
(3,610
|
)
|
||
Outstanding
as of December 31, 2008
|
263,717,610
|
Holding
Units awarded and Holding Units forfeited pertain to restricted Holding Unit
awards to independent members of the Board of Directors and Century Club Plan
Holding unit awards to company-sponsored mutual fund sales personnel, see Note
16. Issuance of Holding Units pertains to Holding Units we
issued to fund deferred compensation plan elections by participants and the
CEO’s Restricted Units award, see Note 16.
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 consist of:
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in thousands)
|
||||||||||||
Earnings
before income taxes:
|
||||||||||||
United
States
|
$ | 669,205 | $ | 1,113,185 | $ | 1,058,545 | ||||||
Foreign
|
275,024 | 291,819 | 133,493 | |||||||||
Total
|
$ | 944,229 | $ | 1,405,004 | $ | 1,192,038 | ||||||
Income
tax expense:
|
||||||||||||
Partnership
UBT
|
$ | 9,945 | $ | 30,219 | $ | 23,696 | ||||||
Corporate
subsidiaries:
|
||||||||||||
Federal
|
13,713 | 6,852 | 4,901 | |||||||||
State
and local
|
1,762 | 2,733 | 374 | |||||||||
Foreign
|
78,367 | 87,494 | 41,061 | |||||||||
Current
tax expense
|
103,787 | 127,298 | 70,032 | |||||||||
Deferred
tax (benefit) expense
|
(7,984 | ) | 547 | 5,013 | ||||||||
Income
tax expense
|
$ | 95,803 | $ | 127,845 | $ | 75,045 |
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,
|
||||||||||||||||||||||||
2008
|
2007
|
2006
|
||||||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||
UBT
statutory rate
|
$ | 37,769 | 4.0 | % | $ | 55,532 | 4.0 | % | $ | 47,346 | 4.0 | % | ||||||||||||
Corporate
subsidiaries’ federal, state, local, and foreign income
taxes
|
77,732 | 8.2 | 83,195 | 5.9 | 40,708 | 3.4 | ||||||||||||||||||
Effect
of FIN 48 adjustments, miscellaneous taxes, and other
|
(11,929 | ) | (1.3 | ) | 2,684 | 0.2 | 282 | — | ||||||||||||||||
Income
not taxable resulting from use of UBT business apportionment factors
and other non deductible items
|
(7,769 | ) | (0.8 | ) | (13,566 | ) | (1.0 | ) | (13,291 | ) | (1.1 | ) | ||||||||||||
Income
tax expense and effective tax rate
|
$ | 95,803 | 10.1 | $ | 127,845 | 9.1 | $ | 75,045 | 6.3 |
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:
Twelve
Months
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
(in
thousands)
|
||||||||
Balance
as of beginning of period
|
$ | 19,016 | $ | 17,862 | ||||
Additions
for prior year tax positions
|
324 | 2,000 | ||||||
Reductions
for prior year tax positions
|
(603 | ) | (1,452 | ) | ||||
Additions
for current year tax positions
|
1,649 | 3,317 | ||||||
Reductions
for current year tax positions
|
(715 | ) | (303 | ) | ||||
Reductions
related to settlements with tax authorities/closed years
|
(10,866 | ) | (2,408 | ) | ||||
Balance
as of end of period
|
$ | 8,805 | $ | 19,016 |
During
2008 and 2007, unrecognized tax benefits with respect to certain tax positions
taken in the prior years have been adjusted resulting in a net decrease to the
reserve totaling $0.3 million and net increase to the reserve totaling $0.5
million, respectively. As described below, settlements with taxing authorities
resulted in a $10.9 million and $2.4 million reduction, not including interest,
to the reserve, in 2008 and 2007, respectively. The amount of unrecognized tax
benefits as of December 31, 2008 and 2007, when recognized, is 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, 2008 and 2007, the amounts are $0.9 million and $2.2 million,
respectively. There were no accrued penalties as of December 31, 2008 and
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 2005 except as noted
below. The Internal Revenue Service (“IRS”) completed an examination of our
domestic corporate subsidiaries’ federal tax returns for 2003 and 2004 in the
third quarter of 2007. This examination was settled 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 is
currently examining our domestic corporate subsidiaries' federal tax returns for
the years 2005 and 2006. These examinations are in exploratory stages and we do
not believe an increase for unrecognized tax benefits is necessary. In addition,
various state and local examinations of AllianceBernstein’s corporate subsidiary
tax returns for years 2001 through 2007 are now in progress. These
examinations are in various stages of completion and the reserve for
unrecognized tax benefits was adjusted as noted above.
During
December 2008, the examinations of AllianceBernstein’s New York City Partnership
tax returns for the years 2003 through 2005 were formerly settled. As a
result, we recognized approximately $12.1 million of net unrecognized tax
benefits, including accrued interest, during the fourth quarter of
2008.
The
Canadian Revenue Agency has commenced an examination of AllianceBernstein's
Canadian subsidiary tax returns for the years 2005-2006. The examination is in
the preliminary stage and we do not believe an increase for unrecognized tax
benefits is necessary. 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.
Adjustment
to the reserve could occur in light of changing facts and circumstances with
respect to aforementioned on-going examinations.
Subject
to the results of the examinations for the tax years 2001-2007, 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 $3.6
million including accrued interest could occur over the next twelve
months.
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,
|
||||||||
2008
|
2007
|
|||||||
(in thousands)
|
||||||||
Deferred
tax asset:
|
||||||||
Differences
between book and tax basis:
|
||||||||
Deferred
compensation plans
|
$ | 14,704 | $ | 10,252 | ||||
Intangible
assets
|
280 | 401 | ||||||
Charge
for mutual fund matters, legal proceedings, and claims processing
contingency
|
4,179 | 4,179 | ||||||
Other,
primarily revenues taxed upon receipt and accrued expenses deductible when
paid
|
4,955 | 3,909 | ||||||
Deferred
tax asset
|
24,118 | 18,741 | ||||||
Deferred
tax liability:
|
||||||||
Differences
between book and tax basis:
|
||||||||
Furniture,
equipment and leasehold improvements
|
341 | 301 | ||||||
Investment
partnerships
|
112 | 1,634 | ||||||
Intangible
assets
|
17,075 | 14,889 | ||||||
Translation
adjustment
|
2,700 | 5,694 | ||||||
Other,
primarily undistributed earnings of certain foreign
subsidiaries
|
2,597 | 2,359 | ||||||
22,825 | 24,877 | |||||||
Net
deferred tax asset (liability)
|
$ | 1,293 | $ | (6,136 | ) |
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, 2008, $484.7 million
of accumulated undistributed earnings of non-U.S. corporate subsidiaries were
permanently invested. At existing applicable income tax rates, additional taxes
of approximately $24.5 million would need to be provided if such earnings were
remitted.
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, 2008, 2007 and 2006 were as
follows:
Services
Net
revenues derived from our various research, investment management and related
services were as follows:
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in millions)
|
||||||||||||
Institutional
Investments
|
$ | 1,241 | $ | 1,482 | $ | 1,222 | ||||||
Retail
|
1,227 | 1,521 | 1,304 | |||||||||
Private
Client
|
850 | 961 | 883 | |||||||||
Institutional
Research Services
|
472 | 424 | 375 | |||||||||
Other
|
(239 | ) | 332 | 354 | ||||||||
Total
revenues
|
3,551 | 4,720 | 4,138 | |||||||||
Less:
Interest expense
|
37 | 195 | 188 | |||||||||
Net
revenues
|
$ | 3,514 | $ | 4,525 | $ | 3,950 |
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:
2008
|
2007
|
2006
|
||||||||||
(in millions)
|
||||||||||||
Net
revenues:
|
||||||||||||
United
States
|
$ | 2,258 | $ | 3,013 | $ | 2,733 | ||||||
International
|
1,256 | 1,512 | 1,217 | |||||||||
Total
|
$ | 3,514 | $ | 4,525 | $ | 3,950 | ||||||
Long-lived
assets:
|
||||||||||||
United
States
|
$ | 3,576 | $ | 3,656 | $ | 3,619 | ||||||
International
|
40 | 52 | 42 | |||||||||
Total
|
$ | 3,616 | $ | 3,708 | $ | 3,661 |
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 4%, 2% and 2% of our open-end mutual fund sales in
2008, 2007 and 2006, respectively. Subsidiaries of Merrill Lynch &
Co., Inc. (“Merrill Lynch”) were responsible for approximately 8%, 7% and
6% of our open-end mutual fund sales in 2008, 2007 and 2006, respectively.
Citigroup, Inc. and its subsidiaries (“Citigroup”), was responsible for
approximately 7%, 7% and 5% of our open-end mutual fund sales in 2008, 2007 and
2006, 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, 2008, 2007 and 2006. No single institutional client other than
AXA and its subsidiaries accounted for more than 1% of total revenues for the
years ended December 31, 2008, 2007 and 2006, 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,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in thousands)
|
||||||||||||
Investment
advisory and services fees
|
$ | 870,524 | $ | 1,027,636 | $ | 840,994 | ||||||
Distribution
revenues
|
378,425 | 473,435 | 421,045 | |||||||||
Shareholder
servicing fees
|
99,028 | 103,604 | 97,236 | |||||||||
Other
revenues
|
6,868 | 6,502 | 6,917 | |||||||||
Institutional
research services
|
1,233 | 1,583 | 1,902 |
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 $0.7 billion, $0.5
billion and $0.5 billion for the years ended December 31, 2008, 2007 and 2006,
respectively. 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,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in thousands)
|
||||||||||||
Revenues:
|
||||||||||||
Investment
advisory and services fees
|
$ | 180,689 | $ | 208,786 | $ | 184,122 | ||||||
Institutional
research services
|
225 | 606 | 657 | |||||||||
Other
revenues
|
697 | 824 | 736 | |||||||||
$ | 181,611 | $ | 210,216 | $ | 185,515 | |||||||
Expenses:
|
||||||||||||
Commissions
and distribution payments to financial intermediaries
|
$ | 9,408 | $ | 7,178 | $ | 5,708 | ||||||
Other
promotion and servicing
|
703 | 1,409 | 936 | |||||||||
General
and administrative
|
13,843 | 10,219 | 9,533 | |||||||||
$ | 23,954 | $ | 18,806 | $ | 16,177 | |||||||
Balance
Sheet:
|
||||||||||||
Institutional
investment advisory and services fees receivable
|
$ | 7,349 | $ | 10,103 | $ | 7,330 | ||||||
Other
due to AXA and its subsidiaries
|
(1,278 | ) | (506 | ) | (965 | ) | ||||||
$ | 6,071 | $ | 9,597 | $ | 6,365 |
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 $68.3 million, $77.6 million and $61.1
million, for the years ended December 31, 2008, 2007 and 2006, respectively, of
which approximately $19.6 million, $22.9 million and $21.3 million,
respectively, were from AXA affiliates and are included in the table above.
Minority interest recorded for these companies was $9.7 million, $11.1 million
and $8.8 million, for the years ended December 31, 2008, 2007 and 2006,
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 $167 million, $136 million and $34 million of
investments on the consolidated statement of financial condition as of December
31, 2008, 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, 2008, 2007 and 2006 are as follows:
December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(in thousands)
|
||||||||||||
Due from Holding,
net
|
$ | 4,825 | $ | 7,460 | $ | 7,149 | ||||||
Due from unconsolidated joint
ventures, net
|
$ | — | $ | 255 | $ | 376 |
21. Acquisition
On May 2,
2006, we acquired for $16.1 million in cash the 50% interest in our Hong Kong
joint venture (including its wholly-owned Taiwanese subsidiary) that had been
owned by our joint venture partner. The effect of this acquisition was not
material to our consolidated financial condition, results of operations or cash
flows.
22. Accounting
Pronouncements
In
December 2007, the FASB issued Statement No. 160 (“SFAS No. 160”), “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No.
51”. SFAS No. 160 amends ARB No. 51 to establish accounting
and reporting standards for noncontrolling interests in subsidiaries and for the
deconsolidation of subsidiaries. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest that should be reported as
equity in the consolidated financial statements. The provisions of
SFAS No. 160 are effective for fiscal years beginning on or after December 15,
2008, and interim periods within those fiscal years. SFAS is
effective January 1, 2009 and is to be applied retroactively. SFAS
No. 160 is not expected to have a material impact on our consolidated financial
statements.
In
February 2008, the FASB issued Staff Position No. 157-2 (“FSP No. 157-2”). FSP
No. 157-2 delays the effective date of SFAS No. 157, for nonfinancial assets and
nonfinancial liabilities, except for items disclosed at fair value in the
financial statements on a recurring basis, until fiscal years beginning after
November 15, 2008. FSP No.157-2 is not expected to have a material impact on our
consolidated financial statements.
In
December 2008, the FASB issued Staff Position No. 132(R)-1 (“FSP No. 132(R)-1”),
which requires companies to disclose information about fair value measurements
of retirement plan assets that would be similar to the disclosures about fair
value measurements required by SFAS No. 157. The provisions of FSP No. 132(R)-1
are effective for fiscal years ending after December 15, 2009. FSP
No. 132(R)-1 is not expected to have a material impact on our consolidated
financial statements.
23. Quarterly Financial Data
(Unaudited)
Quarters Ended 2008
|
||||||||||||||||
December 31
|
September 30
|
June 30
|
March 31
|
|||||||||||||
(in thousands, except per unit amounts)
|
||||||||||||||||
Net
revenues
|
$ | 580,522 | $ | 840,991 | $ | 1,063,624 | $ | 1,029,022 | ||||||||
Net
income
|
$ | 91,979 | $ | 219,529 | $ | 280,289 | $ | 247,443 | ||||||||
Basic
net income per unit(1)
|
$ | 0.35 | $ | 0.83 | $ | 1.06 | $ | 0.94 | ||||||||
Diluted
net income per unit(1)
|
$ | 0.35 | $ | 0.83 | $ | 1.06 | $ | 0.94 | ||||||||
Cash
distributions per unit(2) (3)
(4)
|
$ | 0.37 | $ | 0.70 | $ | 1.06 | $ | 0.94 |
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 |
(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
($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. During the third quarter of 2008, we recorded approximately
$35.3 million in insurance recoveries relating to this error.
AllianceBernstein’s and Holding’s fourth quarter 2006 cash distributions
were based on net income as calculated prior to AllianceBernstein
recording the charge. Accordingly, the related insurance recoveries
($0.13 per unit) were not included in AllianceBernstein’s or
Holding’s cash distribution to unitholders for the third quarter of
2008.
|
(4)
|
During
the fourth quarter of 2008, we recorded an additional $5.1 million ($0.02
per unit) provision for income taxes subsequent to the declaration of the
fourth quarter 2008 cash distribution of $0.37 per unit. As a result, the
cash distribution per unit in the fourth quarter of 2008 is $0.02 higher
than diluted net income per unit.
|
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, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008 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, 2008, 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 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
20, 2009
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, 2008. 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, 2008, 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 2008
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, 2008. 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 2008 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 2008.
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
February 20, 2009, the directors and executive officers of the General Partner
were as follows (officers of the General Partner serve as equivalent officers of
AllianceBernstein and Holding):
Name
|
Age
|
Position
|
Peter
S. Kraus
|
56
|
Chairman
of the Board and Chief Executive Officer
|
Lewis
A. Sanders*
|
62
|
Former
Chairman of the Board and Chief Executive Officer
|
Dominique
Carrel-Billiard
|
42
|
Director
|
Henri
de Castries
|
54
|
Director
|
Christopher
M. Condron
|
61
|
Director
|
Denis
Duverne
|
55
|
Director
|
Richard
S. Dziadzio
|
45
|
Director
|
Deborah
S. Hechinger
|
58
|
Director
|
Weston
M. Hicks
|
52
|
Director
|
Nick
Lane
|
35
|
Director
|
Gerald
M. Lieberman
|
62
|
Director,
President and Chief Operating Officer
|
Lorie
A. Slutsky
|
56
|
Director
|
A.W.
(Pete) Smith, Jr.
|
65
|
Director
|
Peter
J. Tobin
|
64
|
Director
|
Lawrence
H. Cohen
|
47
|
Executive
Vice President
|
Laurence
E. Cranch
|
62
|
Executive
Vice President, General Counsel and Corporate Secretary
|
Edward
J. Farrell
|
48
|
Senior
Vice President and Controller
|
Sharon
E. Fay
|
48
|
Executive
Vice President
|
Marilyn
G. Fedak
|
62
|
Vice
Chair of Investment Services
|
James
A. Gingrich
|
50
|
Executive
Vice President
|
Mark
R. Gordon
|
55
|
Executive
Vice President
|
Thomas
S. Hexner
|
52
|
Executive
Vice President
|
Robert
H. Joseph, Jr.
|
61
|
Senior
Vice President and Chief Financial Officer
|
Robert
M. Keith
|
48
|
Executive
Vice President
|
Mark
R. Manley
|
46
|
Senior
Vice President, Deputy General Counsel and Chief Compliance
Officer
|
Lori
A. Massad
|
44
|
Executive
Vice President and Chief Talent Officer – Talent Development and Human
Resources
|
Seth
J. Masters
|
49
|
Executive
Vice President
|
Douglas
J. Peebles
|
43
|
Executive
Vice President
|
Jeffrey
S. Phlegar
|
42
|
Executive
Vice President
|
James
G. Reilly
|
47
|
Executive
Vice President
|
Lisa
A. Shalett
|
45
|
Executive
Vice President
|
David
A. Steyn
|
49
|
Executive
Vice President
|
Richard
G. Taggart
|
47
|
Executive
Vice President and Head of Global Operations
|
Gregory
J. Tencza
|
42
|
Executive
Vice President
|
Christopher
M. Toub
|
49
|
Executive
Vice President
|
* Mr.
Sanders retired as Chairman of the Board and Chief Executive Officer on December
19, 2008.
Biographies
Mr. Kraus
was elected Chairman of the Board of the General Partner and Chief Executive
Officer of the General Partner, AllianceBernstein and Holding on December 19,
2008. Mr. Kraus has in-depth experience in the financial markets, including
investment banking, asset management and private wealth
management. Most recently, he served as an executive vice president,
the head of global strategy and a member of the Management Committee of Merrill
Lynch & Co. Inc. (“Merrill”), from September 2008 through December
2008. Prior to joining Merrill, Mr. Kraus spent 22 years with Goldman
Sachs Group Inc. (“Goldman”), where he most recently served as co-head of the
Investment Management Division and a member of the Management Committee, as well
as head of firm-wide strategy and chairman of the Strategy
Committee. Mr. Kraus also served as co-head of the Financial
Institutions Group. He was named a partner at Goldman in 1994 and
managing director in 1996. Mr. Kraus was named a Director of AXA
Financial, AXA Equitable, MONY Life Insurance Company (a wholly-owned subsidiary
of AXA Financial, “MONY”) and MONY Life Insurance Company of America (a
wholly-owned subsidiary of MONY) on February 12, 2009. He is also Chairman of
the Investment Committee of Trinity College, Chairman of the Board of Overseers
of CalArts, Co-Chair of the Friends of the Carnegie International, a member of
the board of Keewaydin Camp and a member of the board of Young Audiences, Inc.,
a non-profit organization that works with educational systems, the arts
community and private and pubic sectors to provide arts education to
children.
Mr.
Sanders retired as Chairman of the Board of the General Partner and Chief
Executive Officer of the General Partner, AllianceBernstein and Holding on
December 19, 2008. He was elected Chairman of the Board effective January 1,
2005 and Chief Executive Officer effective July 1, 2003. Before taking on these
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 S.A. (“AXA IM”), a
subsidiary of AXA, since June 13, 2006 and was named to the AXA Group Executive
Committee on January 1, 2009. 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 & 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. 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 (“AXA Group
Management Board”). 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 Chairman
of the Financial Services Round Table.
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.
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. Lane
was elected a Director of the General Partner in July 2008. He is
currently the head of AXA Group strategy and he is the Business Support
Development representative for AXA Equitable, AXA IM and AllianceBernstein.
Previously, Mr. Lane served as Vice Chairman of AXA Advisors LLC and AXA Network
LLC where he was charged with overseeing the Retail Broker Dealer and Network
Business as well as its enterprise operations and supervision
systems. Prior to joining AXA Equitable, Mr. Lane worked for McKinsey
& Co, a strategic consulting firm, where he was a leader in their sales and
marketing practice. His previous experiences also include serving as
an infantry officer in the United States Marine Corps and working on the floor
of the NYSE. AXA IM, AXA Advisors and AXA Network are subsidiaries of
AXA.
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 the AXA
Group 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 and AXA
Equitable since March 1999.
Mr. Cohen
joined our firm in 2004 and has been Executive Vice President and Chief
Technology Officer since that time. 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 joined our firm in 2004 and has been Executive Vice President and General
Counsel since that time. He became Corporate Secretary in May 2008. 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 joined our firm in 2003 and has been Senior Vice President and
Controller since that time. 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,
a CFA charter holder, joined our firm in 1990 as a research analyst,
subsequently launching Canadian Value, Bernstein’s first single-market service
focused outside the U.S. An Executive Vice President of
AllianceBernstein since 2003, she was named Head of Bernstein Value Equities in
January 2009 to oversee the portfolio management and research activities
relating to all value investment portfolios, while continuing to chair the
Global Value Investment Policy Group as Chief Investment Officer-Global Value
Equities. From 2003 to 2008, Ms. Fay served as CIO-Global Value
Equities, overseeing the portfolio management and research activities relating
to cross-border and non-U.S. value investment portfolios. From 1999 to 2006, she
was CIO-European and U.K. Value Equities, serving as Co-CIO from 2003 to 2006
after being named CIO-Global Value Equities in 2003. Between 1997 and
1999, Ms. Fay was CIO-Canadian Value Equities. Prior to that, she had been a
senior portfolio manager of International Value Equities since
1995.
Ms.
Fedak, a CFA charter holder, joined our firm in 1984 as a senior portfolio
manager and has been Vice Chair of Investment Services at AllianceBernstein
since January 2009. She was an Executive Vice President from 2000 through 2008.
Before becoming Vice Chair, Ms. Fedak served as Head of Global Value Equities.
From 1993 through 2003, she was Chief Investment Officer for U.S. Value
Equities. In 2003, she named a Co-CIO and in January 2009 she relinquished her
role as Co-CIO, although she remains a member of our U.S. Equity investment
policy group. Ms. Fedak is the President of Sanford C. Bernstein Fund, Inc. and
a Director of SCB Inc.
Mr.
Gingrich joined our firm in 1999 as a senior research analyst on the sell-side.
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 CFA charter holder, joined our firm 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 our firm 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 our firm 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. Keith
joined our firm in 1996, holding client-facing roles within Bernstein’s
institutional investment management arm until 1998. He currently
serves as Executive Vice President of AllianceBernstein and Head of
AllianceBernstein Investments, roles he has held since June 2008. He is also
President of the U.S. Funds (except for the SCB Funds). From December
2006 to June 2008, he served as executive managing director within
AllianceBernstein Investments with responsibility for client service and sales.
From May 2006 to November 2006, he served as executive managing director within
Bernstein GWM and had responsibility for all aspects of the North American
private client business. From October 2002 to May 2006, Mr. Keith occupied
senior roles in Institutional Investments, first as head of U.S. client service
and sales and then as head of global client service and sales. From late 1998 to
September 2002, he was a managing director within the firm’s private client
business.
Mr.
Manley joined our firm 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 firm’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.
Ms.
Massad joined our firm in 2006 as Senior Vice President and Chief Talent
Officer. In February 2009, she was elected Executive Vice President
and Chief Talent Officer – Talent Development and Human
Resources. Prior to joining our firm, Ms. Massad served as Chief
Talent Officer and Chief Operating Officer at Marakon Associates, a strategy
consulting firm from 2004 to 2006. Before Marakon, Ms. Massad was a
founding member of two start-ups: Spencer Stuart Talent Network (in
2001) and EmployeeMatters, a human resources outsourcing firm (in
2000). She spent the previous eight years at The Boston Consulting
Group, where she became a senior manager on the consulting staff and leader of
the firm’s recruiting, training and development programs. While with
The Boston Consulting Group, Ms. Massad was also an adjunct professor at New
York University’s Leonard Stern School of Business.
Mr.
Masters joined our firm in 1991 as a research analyst covering banks, insurance
companies, and other financial firms. Since June 2008, he has served as Chief
Investment Officer of ABDC, our firm’s team responsible for focusing on the
needs of DC clients, including investment design and management. In
February 2009, Mr. Masters took on the additional roles of heading the
AllianceBernstein Blend Strategies team and serving as Chief Investment Officer
for Style Blend, roles he previously held from 2002 through May 2008. 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.
Peebles joined our firm in 1987 and has been the Chief Investment Officer of
AllianceBernstein Fixed Income since August 2008. In this role, Mr.
Peebles supervises all of the fixed income portfolio management and research
teams globally. In addition, he is Chairman of our Interest Rates and Currencies
Research Review team, our team responsible for setting interest-rate and
currency policy for all fixed income portfolios, and he has been an Executive
Vice President of AllianceBernstein since 2004. Mr. Peebles has held several
leadership positions within the fixed income team, having served as Director of
Global Fixed Income from 1997 to 2004 and Co-Chief Investment Officer of
AllianceBernstein Fixed Income and Co-Chairman of the Fixed Income Investment
Strategy Committee from 2004 to August 2008.
Mr.
Phlegar joined our firm in 1993 and has been an Executive Vice President of
AllianceBernstein since 2004. He leads the development and management of new
specialized fixed income services and participates in the management of our All
Asset Deep Value service, which he helped develop and launch. Mr. Phlegar
previously served as Co-Chief Investment Officer of AllianceBernstein Fixed
Income and Co-Chairman of the Fixed Income Investment Strategy Committee from
2004 to August 2008. In these prior roles, Mr. Phlegar oversaw 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 our firm 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 our firm 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 our firm 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 Distribution 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 Institutional Investments since November
2003.
Mr.
Taggart joined our firm in February 2008 as Senior Vice President and Head of
Global Operations. Since January 2009, he has served as Executive
Vice President and Head of Global Operations, which includes investment
management operations, retail operations, fund administration and broker-dealer
operations. Prior to joining the firm, Mr. Taggart spent the majority
of his career at Morgan Stanley (from 2004 to 2008 and 1990 to 1998), where he
was responsible for a variety of operations functions including Transformation
Services, Global Institutional Equity Operations, Morgan Stanley Trust Company
Operations and Morgan Stanley Capital International. From 2002 to
2004, he was a principal in two start-up firms in technology and business
process outsourcing, and from 1998 to 2001 he was Senior Vice President, Global
Business Architecture at JPMorgan Chase, Global Investment
Services. Mr. Taggart was a Vice President, Research Operations at
Greenwich Associates from 1988 to 1990.
Mr.
Tencza joined our firm 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 our firm 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 regular 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.
Carrel-Billiard attended fewer than 75% of the aggregate of all Board and
committee meetings which he was entitled to attend in 2008.
Committees
of the Board
The
Executive Committee of the Board (“Executive Committee”) is composed of Ms.
Slutsky and Messrs. Condron, Duverne, Kraus (Chair), Lieberman 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 four meetings in
2008.
The
Corporate Governance Committee of the Board (“Governance Committee”) is composed
of Mr. Condron, Ms. Hechinger, Mr. Kraus, 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 two meetings in 2008.
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 eight meetings in 2008.
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. Kraus, 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 2008.
Audit
Committee Financial Experts
In
January 2008 and January 2009, 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 each of February 2008 and February 2009. 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 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 that were previously 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.
In
January 2009, 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 that used to be made by
AllianceBernstein to The New York Community Trust, of which she is President and
Chief Executive Officer) and then determined, at its February 2009 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
Group Compliance and Ethics Guide, and the 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 2008
Certification by our Chief Executive Officer under NYSE Listed Company Manual
Section 303A.12(a) was submitted to the NYSE on March 24, 2008.
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 our Corporate Secretary (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, Keith, Kraus, Lieberman, Manley, Masters, Peebles, Phlegar,
Reilly, Steyn, Taggart, Tencza and Toub, and Mses. Fay, Fedak, Massad 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. Kraus 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 Ethics Committee and its subcommittee,
the Personal Trading Subcommittee, have oversight of personal trading by our
employees.
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 2008: (i)
all Section 16(a) filing requirements relating to Holding were complied
with; and (ii) all
Section 16(a) filing requirements relating to AllianceBernstein were complied
with. Our Section 16 filings can be found 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
The
intellectual capital of our employees 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 56%
of our operating expenses and representing approximately 41% of our net revenues
for 2008. These percentages are not unusual for companies in the financial
services industry. The magnitude of this expense 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 and retain highly-qualified executive talent, provide
rewards for the past year’s performance, provide incentives for future
performance, and align our executives’ long-term interests with those of our
clients and Unitholders. We believe that success in achieving good results for
the firm, and for our Unitholders, flows from achieving investment success for
our clients. Accordingly, our deferred incentive compensation program is
designed to encourage our executives to allocate their annual 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.
We
utilize a variety of compensation elements to achieve the goals described above,
including 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.
Although
estimates are developed for budgeting and strategic planning purposes, we do not
set firm-wide financial performance targets (such as net income per unit, market
capitalization, operating margin or organic growth) and, therefore, management
compensation is not correlated with meeting any such specific targets. Some of
our salespeople have compensation incentives based on sales levels.
While our
compensation philosophy has not changed, our compensation decisions in 2008
reflect the adverse impact that volatile market conditions throughout the year
had on our firm’s financial and operating results. Specifically, in
2008, our AUM, revenues, and earnings per unit were down 42.3%, 22.3% and 33.3%,
respectively, as compared to 2007 totals (for additional information about our
firm’s financial and operating results, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item
7). As a result, we have imposed a firm-wide salary freeze for
2009 and 2008 year-end cash bonuses and deferred compensation awards to senior
management declined significantly compared to the prior
year. Incentive compensation paid in 2008 to our named executive
officers (excluding Mr. Kraus, our Chief Executive Officer (“CEO”) since
December 19, 2008 and Mr. Sanders, our former CEO, who retired on December 19,
2008) decreased 68%, as compared to 2007.
Overview
of 2008 Incentive Compensation Program
Our 2008
incentive compensation, generally consisting of annual cash bonuses and deferred
compensation awards, is intended to reward our officers for their performance
and encourage them to remain with the firm. Annual cash bonuses generally
reflect individual performance and the financial performance of the firm and
provide a shorter-term incentive to remain through year-end because such bonuses
are typically paid during the last week of the year. Deferred compensation
awards provide future earnings potential and encourage longer-term retention
because such awards vest over time and are subject to forfeiture; recipients are
therefore encouraged to remain with the firm.
The
aggregate amount of incentive compensation – that is, the amount available to
pay annual cash bonuses and make deferred compensation awards to all employees
(other than Mr. Sanders, our former CEO, and Mr. Kraus, our current CEO) – is
determined on a discretionary basis and is primarily a function of our firm’s
financial performance. This amount is determined for any year in
part guided by formulas, approved by the Compensation Committee, which take
into account the firm’s annual consolidated operating income (excluding
institutional research services) and its annual institutional research services
revenues. The separate formulas used to calculate guidelines for awards
of total cash bonuses and total deferred compensation awards available for
all of our employees (except Messrs. Kraus and Sanders) for 2008 are set forth
below (in thousands):
Cash
Bonus Amounts
|
Deferred
Compensation
Amounts
|
Total
|
||||||||||
Consolidated
Operating Income
|
$ | 887,564 | $ | 887,564 | ||||||||
Add: total
incentive compensation expense
|
351,730 | 351,730 | ||||||||||
Add: amortization
of intangibles
|
20,716 | 20,716 | ||||||||||
Add: non-operating
income
|
17,916 | 17,916 | ||||||||||
Operating
Income Before Incentive Compensation
|
1,277,926 | 1,277,926 | ||||||||||
Less: brokerage
operating income
|
175,893 | 175,893 | ||||||||||
Total
asset management operating income
|
$ | 1,102,033 | $ | 1,102,033 | ||||||||
Calculated
Cash @ 22.2% & Deferred @ 14.8%
|
$ | 244,651 | $ | 163,101 | ||||||||
Brokerage
Business Revenues
|
$ | 492,968 | $ | 492,968 | ||||||||
Calculated
Cash @ 16.56% & Deferred @ 6.44%
|
$ | 81,636 | $ | 31,747 | ||||||||
Total
calculated incentive compensation available
|
$ | 326,287 | $ | 194,848 | ||||||||
Less: qualified
plans contributions
|
32,500 | — | ||||||||||
Total
incentive compensation available
|
$ | 293,787 | $ | 194,848 | $ | 488,635 | ||||||
Total
incentive compensation awarded to employees
|
$ | 209,790 | $ | 210,857 | $ | 420,647 |
Because
incentive compensation decisions are made prior to the end of the calendar year,
the calculations used provide guidance for available amounts of cash
bonuses and deferred compensation awards are based on estimates made by
management of AllianceBernstein’s operating income and other items considered
for the full year. The amounts of the total incentive compensation
available listed above were approved by the Compensation Committee on December
5, 2008.
These
calculations are used by management as guidelines and together comprise only one
of the several factors considered by management when determining appropriate
levels of compensation (please
see “Factors Considered
when Determining Executive Officer Compensation” below for a discussion
of the other factors). Management, with the approval of the
Compensation Committee, has the discretion to exceed these available guideline
amounts if it determines that additional bonus compensation is
appropriate.
In 2008,
the calculations described above resulted in significantly lower guideline
amounts than in 2007, and total incentive compensation in 2008 was lower than in
the prior year, primarily due to the adverse impact that volatile global market
conditions throughout 2008 had on our firm’s overall financial results and our
resulting headcount reduction (for information about the headcount
reduction, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item
7). In 2008, management, with approval of the Compensation
Committee, granted cash bonuses that, in the aggregate, were significantly less
than the 2008 guideline amounts established for cash bonuses and granted
deferred compensation awards that, in the aggregate, were slightly higher than
the 2008 guideline amounts established for these awards. Aggregate
incentive compensation awards (i.e., total cash bonuses and
deferred compensation awards) in 2008 were less than the established guideline
amounts.
We have
identified a select 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 they have made exceptional individual contributions to the
firm. 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 did not receive awards under the Special Option
Program.
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).
The firm
did not make awards under the Special Option Program in 2008 due to the decline
in the firm’s overall financial results. However, previous recipients of Special
Option Program awards and members of the Management Executive Committee were
permitted to allocate up to 50% of their 2008 deferred compensation award under
the Partners Plan to Holding Unit options or to receive Holding Unit options in
lieu of up to 50% of their 2008 Partners Plan awards.
Overview
of our Current Chief Executive Officer’s Compensation
On
December 19, 2008, Peter S. Kraus, the General Partner, AllianceBernstein and
Holding entered into an agreement (“Kraus Employment Agreement”) pursuant to
which Mr. Kraus serves as Chairman of the Board of the General Partner and CEO
of the General Partner, AllianceBernstein and Holding until January 2, 2014
(“Employment Term”) unless the Kraus Employment Agreement is terminated in
accordance with its terms.
In
connection with the commencement of Mr. Kraus’s employment, on December 19,
2008, he was granted 2,722,052 restricted Holding Units. Subject to
accelerated vesting clauses in the Kraus Employment Agreement (immediate vesting
upon AXA ceasing to control the management of AllianceBernstein’s business or
Holding ceasing to be publicly traded and certain qualifying terminations of
employment, including termination of Mr. Kraus’s employment (i) by
AllianceBernstein without cause, (ii) by Mr. Kraus for good reason (“good
reason” generally means actions taken by AllianceBernstein resulting in a
material negative change in Mr. Kraus’s employment relationship, including
assignment to Mr. Kraus of duties materially inconsistent with his position or a
requirement that Mr. Kraus report to an officer or employee of AllianceBernstein
instead of reporting directly to the Board), and (iii) due to death or
disability), Mr. Kraus’s restricted Holding Units will vest ratably on each of
the first five anniversaries of December 19, 2008, commencing December 19, 2009,
provided, with respect to each installment, Mr. Kraus continues to be employed
by AllianceBernstein on the vesting date. Mr. Kraus will be paid the
cash distributions payable with respect to his unvested restricted Holding Units
and a dollar amount equal to the cash distributions payable with respect to the
number of any Holding Units that are withheld by AllianceBernstein to cover Mr.
Kraus’s withholding tax obligations as the Holding Units vest. These
cash distributions will be paid at the time distributions are made to Holding
Unitholders generally, provided that no payments to Mr. Kraus will be required
with respect to any cash distribution with a record date following the earlier
of (i) the termination of Mr. Kraus’s employment for any reason, and (ii)
December 19, 2013.
Mr. Kraus
will be paid an annual base salary of $275,000 and will be entitled to receive a
2009 cash bonus of $6 million.
During
the Employment Term, AllianceBernstein has no commitment to pay any cash bonuses
to Mr. Kraus beyond the $6 million in 2009 (with any additional bonuses being
entirely in the discretion of the Board) or to make any additional equity based
awards to him. Consequently, for years after 2009 during the
Employment Term, the totality of Mr. Kraus’s compensation (other than his fixed
salary) will be dependent on the level of cash distributions on the restricted
Holding Units granted to him and the evolution of the trading price of Holding
Units, thereby directly aligning Mr. Kraus’s interests with those of other
holders of Holding Units.
Mr. Kraus
is also entitled to receive perquisites and benefits generally on the same terms
as his predecessor. However, unlike his predecessor, Mr. Kraus is
entitled to full tax gross-ups by AllianceBernstein with respect to personal air
travel on company aircraft, personal use of a company car and driver, any
continued medical coverage due to termination by death or disability, and any
payments for COBRA coverage due to termination of employment by
AllianceBernstein without cause or by Mr. Kraus for good reason.
Factors
Considered when Determining Executive Officer Compensation
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, all of which contribute to
long-term Unitholder value. We do not utilize quantitative formulas when
determining each named executive officer’s compensation, but rather rely on our
judgment about each executive’s performance and whether each particular payment
or award provides an appropriate reward for the current year’s
performance. We begin this process by calculating the total incentive
compensation amounts available for a particular year (as more fully explained above
in “Overview of 2008 Incentive
Compensation Program”). We then consider a number of key factors for each
of the named executive officers (other than Mr. Sanders, our former CEO, who,
pursuant to his retirement agreement, received a compensation award equivalent
to approximately 1% of AllianceBernstein’s consolidated operating income before
incentive compensation (the same amount specified in his employment agreement),
and Mr. Kraus, our current CEO, whose compensation is described above in “Overview of
our Current Chief Executive Officer’s Compensation”). These
factors include: total compensation paid to the named executive officer in the
previous year; the increase or decrease in the current year’s total incentive
compensation amounts available; the named executive officer’s performance
compared to individual business and operational goals established at the
beginning of the year; the nature, scope and level of responsibilities of the
named executive officer; the contribution to our overall financial results; and
the contribution of the executive’s business unit to the company’s fiduciary
culture in which clients’ interests are paramount.
We also
use data provided by McLagan Partners (“McLagan”) to benchmark the total
compensation paid to each of our named executive officers. This process, which
is conducted by the Chief Executive Officer and the President, results in
specific incentive compensation recommendations by them to the Compensation
Committee supported by the factors considered. The Compensation
Committee then makes the final incentive compensation decisions. The Compensation Committee
did not analyze quantifiable goals relating to the firm’s business units in
determining the cash bonus of each of the named executive officers (other than
Mr. Sanders, whose compensation was determined as described in the preceding
paragraph, and Mr. Kraus, whose compensation has not yet been part of our
year-end process and is
described above in “Overview of our Current Chief Executive Officer’s
Compensation”).
Business
and operational goals established for our former chief executive officer, our
chief financial officer, and our other three most highly compensated executive
officers (and, together with Mr. Kraus, the “named executive officers”) in 2008
are as follows:
|
•
|
Mr.
Sanders’s business and operational goals for 2008 were established by the
terms of the October 2006 employment agreement, as amended, between
himself and our company (“Sanders Employment Agreement”). The
Sanders Employment Agreement provided that he was entitled to receive a
deferred compensation award of not less than 1% of AllianceBernstein’s
consolidated operating income before incentive compensation (as defined
with respect to the calculations of the annual incentive compensation
guideline amounts). Thus, the only goal that was established to
determine Mr. Sanders’s compensation was the goal of maximizing
AllianceBernstein’s consolidated operating income for the year, a goal
which is measured objectively. Mr. Sanders retired as Chairman
of the Board of the General Partner and CEO of the General Partner,
AllianceBernstein and Holding effective December 19, 2008. For
information regarding Mr. Sanders’s retirement agreement and additional
information regarding the Sanders Employment Agreement, see “Former CEO Arrangements”
and “Other Information regarding Compensation of Named Executive Officers”
below.
|
|
•
|
For
Mr. Lieberman, the main elements of business and operational goals that
were established to determine his incentive compensation included making
additional progress towards achieving operational excellence, especially
by ensuring our firm’s reduced workforce does not compromise intellectual
rigor, client service or key initiatives, and by working closely with the
CEOs of our firm’s global subsidiaries and the leadership of our firm’s
Institutional Investments and Private Client distribution channels to
further enhance corporate governance; people leadership, including support
of our firm’s corporate culture and our employees’ morale through
exceptionally difficult market conditions; supporting global client
service, both to existing clients and prospects; and continuing to lower
the risk of errors.
|
|
•
|
For
Ms. Fedak, the main elements of her business and operational goals
included: efforts to improve the alpha generating potential of our U.S.
Value services, including enhancements for our U.S. Diversified Value
services and reconfiguration of our U.S. Equity Investment Policy Group;
leading our U.S. Value client service efforts; operational excellence, in
particular by focusing on leadership of a new, firm-wide portfolio
management group; continuing to drive our Global Equity buy-side trading
to our best-in-class vision; and focusing, in her role as the head of our
Talent Development efforts, on implementing managerial excellence
practices so as to foster employee
engagement.
|
|
•
|
For
Ms. Fay, the main elements of her business and operational goals included
achieving: investment leadership, by improving our quantitative and
fundamental research inputs, further integrating the U.S. team into our
global platform and overseeing the evolution of our currency management
capabilities; people leadership, by focusing Bernstein Value’s senior team
on the most critical tasks (e.g., portfolio risk
control/management, research prioritization and dimensioning the return
opportunities within the equity markets) and by leading the firm’s
thinking on innovation in conjunction with the newly appointed product
champions; client leadership, by engaging clients and consultants to share
our insights and build confidence; and business leadership, by ensuring
that the firm’s cost-cutting initiatives did not impair our ability to
perform for clients or retain our most talented
staff.
|
|
•
|
For
Mr. Joseph, the main elements of his business and operational goals
included achieving: people leadership, including establishment of a
“center of excellence” culture throughout finance by setting goals and
identifying a successor CFO; operational excellence, including performing
a comprehensive risk assessment and remediation of all U.S. finance
activities and further improving the system of internal control over
financial reporting; working with information technology to complete a
number of significant financial and control systems including a headcount
reporting and control application, “purchase-through-payment” (a
procurement work flow application), and client billing and sales force
commissions applications in the Private Client distribution channel;
implementation of enhanced financial forecasting and budgeting
applications capabilities; and determining a deferred compensation funding
/ hedging strategy.
|
Consistent
with the management approach taken by AllianceBernstein for its executive
officers generally, the 2008 goals of our named executive officers (other than
Mr. Sanders and Mr. Kraus, whose compensation has not yet been part of our 2008
year-end process and is
described above in “Overview of our Current Chief Executive Officer’s
Compensation”) did not
include specific revenue or profit targets. By their nature, the
business and operational goals for each of these other named executive officers
are difficult to measure quantitatively and thus management uses discretion to
determine whether those goals and objectives have been met. In the
case of each of these four named executive officers, management determined that
the main elements of the established business and operational goals had been met
in 2008.
In
addition to considering the extent to which our named executive officers met
their business and operational goals, we consider each executive’s current
salary, and prior-year cash bonus and deferred compensation awards, 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 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.
Furthermore,
in October of each year, McLagan provides us with comparative compensation
benchmarking data, which summarizes compensation levels for the prior year at
selected asset management companies comparable to ours. This data
provides ranges of compensation levels for executive positions at these
companies similar to those held by our named executive officers, including
salary, total cash compensation and total compensation. The
comparable companies are selected in order to provide appropriate comparables
for the size and business mix of AllianceBernstein, the roles played by the
named executive officers and, in the case of Messrs. Sanders and Lieberman, to
reflect the fact that AllianceBernstein is a publicly-traded
entity.
The
McLagan data is another factor we use to determine executive compensation and to
provide a basis for concluding that the compensation levels for our named
executive officers are within the ranges of compensation paid by comparable
companies in our industry. Our Chief Executive Officer and
President, and the Compensation Committee, retain discretion as to how to
utilize the McLagan benchmarking data. The data is not used in a
formulaic or mechanical way to determine named executive officer compensation
levels. The Compensation Committee considered the McLagan data
in concluding that the compensation levels paid in 2008 to our named executive
officers were appropriate and reasonable.
In 2008,
the McLagan data we used to benchmark the compensation of our named executive
officers (excluding Mr. Kraus) was based on compensation comparisons from the
following selected asset management companies: Barclays Global
Investors, BlackRock Financial Management, The Capital Group Companies, Deutsche
Asset Management, Fidelity Investments, Franklin Templeton Investments, Goldman
Sachs Asset Management, Legg Mason, MFS Investment Management, Morgan Stanley
Investment Management, Oppenheimer Funds, PIMCO Advisors, T. Rowe Price
Associates, The Vanguard Group and Wellington Management
Company. Total compensation paid to our named executive officers
(excluding Mr. Kraus) fell within the ranges of total compensation paid to
executives in similar positions by the companies included in the McLagan data.
Additionally, the Board, when it reviewed and approved the Kraus Employment
Agreement on December 19, 2008, considered McLagan data indicating that Mr.
Kraus’s compensation arrangement was fully competitive and appropriate given our
size, scope, and complexity and Mr. Kraus’s experience, credentials and proven
track record.
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 2008 to our named executive officers are shown in column (c) of the
Summary Compensation Table.
2. Cash
Bonus. We pay annual cash bonuses in late December 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 the firm’s
overall financial performance. The cash bonuses we awarded in 2008 to our named
executive officers are shown in column (d) of the Summary Compensation
Table.
3. Deferred
Compensation. We grant annual deferred compensation awards in late
December to supplement cash bonuses and to encourage retention of our executive
officers.
The
Partners Plan is an unfunded, non-qualified deferred compensation plan under
which deferred awards may be granted to eligible employees. Since 2001,
participants have been permitted to allocate their Partners Plan awards to 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 and in Section 4 below, we have created a Special Option Program which
permits a select group of senior officers to allocate up to 50% of their
Partners Plan award to options to buy Holding Units. The 2008 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.
Deferred
compensation is awarded as part of total incentive compensation based on a
customized set of goals for each executive officer. The relative
level of cash bonus compared to deferred compensation is generally based on the
total compensation level of the executive officer. As a result, had
Mr. Sanders not retired, all of his 2008 incentive compensation would have been
paid in the form of a deferred award. The relative amounts of cash
bonus compared to deferred compensation awarded to Mr. Lieberman, Ms. Fedak, and
Ms. Fay (who were all compensated in the aggregate at approximately the same
level) were substantially lower than the level of cash bonus compared to
deferred compensation paid to Mr. Joseph.
For
deferred awards made during or before 2007, we typically purchased the
investments that are notionally elected by plan participants and held these
investments in a consolidated rabbi trust. Effective January 1, 2009,
investments we make in our investment services offered to clients are held in a
custodial account, while we continue to hold investments in Holding Units in the
rabbi trust. These investments are subject to the general creditors
of AllianceBernstein.
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 rabbi trust does not hold a sufficient number of Holding Units
to fulfill the aggregate amount of participant allocations, Holding issues the
needed amount of new 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 vest fully if a
participant remains in our employ through December 1 in the year during which he
or she turns 65. Withdrawals prior to vesting are not permitted. 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. Earnings credited on investment
services are reinvested and distributed pro rata as awards
vest. 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. Awards were not made under the Special Option Program in
2008. However, previous recipients of Special Option Program awards
and members of the Management Executive Committee, were permitted to allocate up
to 50% of their 2008 deferred compensation award under the Partners Plan to
Holding Unit options or to receive Holding Unit options in lieu of all or a
portion of their 2008 Partners Plan awards.
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.
5. Defined
Contribution Plan. Employees of AllianceBernstein L.P. are eligible to
participate in the Profit Sharing Plan for Employees of AllianceBernstein L.P.
(as amended and restated as of January 1, 2008, “Profit Sharing Plan”), a
tax-qualified retirement 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). For 2008, we matched employee deferral contributions on a
one-to-one basis up to five percent of eligible compensation; profit sharing
contributions were an additional three 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. See “Overview of our Current Chief
Executive Officer’s Compensation” in this Item 11.
7. Former CEO
Arrangements. On December 19, 2008, Lewis A. Sanders, former Chairman of
the Board of the General Partner and Chief Executive Officer of the General
Partner, AllianceBernstein and Holding, announced his retirement. Mr.
Sanders resigned from these positions as of December 19, 2008 and as an employee
of AllianceBernstein as of December 31, 2008.
Mr.
Sanders and AllianceBernstein entered into an agreement setting forth the terms
of Mr. Sanders’s retirement (“Sanders Retirement Agreement”). Mr.
Sanders will receive, in connection with his retirement and in recognition of 40
years of service to AllianceBernstein and one of its legacy firms (Bernstein),
and as provided in Section 6(a) of the Sanders Employment Agreement, a payment
of $12,750,000, together with all unvested deferred compensation awards
previously made to him. Mr. Sanders will also receive, until December 31, 2011,
a number of continuing benefits from AllianceBernstein as described in the
Sanders Retirement Agreement.
Prior to
his retirement, Mr. Sanders, our former chief executive officer, was compensated
in accordance with the Sanders Employment Agreement, described below under “Other Information regarding
Compensation of Named Executive Officers”. The terms of the Sanders
Employment Agreement reflected the policy and decision of the Compensation
Committee that all of Mr. Sanders’s compensation, other than his base salary and
perquisites, should be deferred and that the amount of his deferred compensation
should be directly related to AllianceBernstein’s “consolidated operating income
before incentive compensation” for the applicable calendar
year. Accordingly, the Sanders Employment Agreement was amended in
2007 to require that half of his unvested deferred compensation balance be
allocated to Holding Units and that half of his future awards be allocated to
Holding Units. In each case, it was agreed that the other half must
be allocated to investment services offered to clients by AllianceBernstein. For
additional information regarding the Sanders Employment Agreement, see “Other Information regarding
Compensation of Named Executive Officers” below.
(For
a description of consolidated operating income before incentive
compensation, see “Overview of
2008 Incentive Compensation Program” in this Item 11.)
Compensation
Committee
The
Compensation Committee consists of Mr. Condron, Mr. Kraus, 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. AXA owns, indirectly, an approximate 65.1% economic interest in
AllianceBernstein (as of February 2, 2009), and compensation expense is a
significant component of our financial results. For these reasons, Mr. Condron,
President and Chief Executive Officer of AXA Financial, serves as chairman of
the Compensation Committee and any action taken by the Compensation Committee
requires the affirmative vote or consent of an executive officer of one or more
of our parent companies. (Presently, Mr. Condron is the only member
of the Compensation Committee who is also an executive officer of one or more of
our parent companies.)
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 (our Chief Executive Officer 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 (“Omnibus
Committee”), consisting of five members who are senior officers of
AllianceBernstein. The Compensation Committee held four meetings in
2008. The Omnibus Committee held two meetings in 2008.
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 Sanders Employment Agreement. Mr. Sanders played an active
role in the work of the Compensation Committee, and we anticipate Mr. Kraus
playing a similarly active role. Our Chief Executive Officer and Mr. Lieberman,
working with other members of senior management, provide recommendations for
individual employee awards to the Compensation Committee for their
consideration.
In 2008,
Compensation Committee members engaged in a number of discussions (including a
Special Meeting of the Compensation Committee on October 16, 2008) with Messrs.
Sanders and Lieberman regarding the appropriate levels of incentive compensation
to be awarded to employees, taking into consideration the effect of
deteriorating market conditions and asset outflows on the firm’s assets under
management, earnings and unit price. The resulting compensation recommendations
were then reviewed by the full Board at a Special Meeting convened for that
purpose.
The
Compensation Committee held its regularly-scheduled meeting regarding year-end
compensation on December 5, 2008, at which it discussed Messrs. Sanders’s and
Lieberman’s final recommendations and information from McLagan concerning
expected levels of 2008 incentive compensation versus 2007 compensation levels
at several firms comparable to AllianceBernstein. The Compensation Committee
then approved Messrs. Sanders’s and Lieberman’s final recommendations, which
were revised to reflect comments from members of the Compensation Committee and
the Board. As noted above in
this Item 11, management retains McLagan 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 1997 Long Term Incentive Plan, as amended and restated November 28, 2007
(“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, 2008, 22,646,342 Holding Units were available
for future awards under the 1997 Plan.
Compensation
Committee Interlocks and Insider Participation
Mr.
Condron is the Chairman of the Board, President and Chief Executive Officer of
AXA Equitable, the sole stockholder of the General Partner. As of December 31,
2008, AXA Equitable and its affiliates owned an aggregate 62.4% economic
interest in AllianceBernstein. Mr. Kraus is Chief Executive Officer of the
General Partner, and, accordingly, also serves in that capacity 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)
|
Peter
S. Kraus
|
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 2008, 2007 and 2006:
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
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)
|
(i)
|
(j)
|
||||||||||||||||||||||||||
Peter S. Kraus(1)(2) |
2008
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Chairman
and
Chief
Executive Officer
|
|
|
|||||||||||||||||||||||||||||||||
Lewis
A. Sanders(1)
Chairman
and
Chief
Executive Officer
|
2008
2007
2006
|
275,002
275,002
275,002
|
—
—
—
|
—
—
—
|
—
—
—
|
—
—
—
|
—
—
—
|
13,278,571
21,893,098
19,501,985
|
13,553,573
22,168,100
19,776,987
|
||||||||||||||||||||||||||
Gerald
M. Lieberman
President
and
Chief
Operating Officer
|
2008
2007
2006
|
200,000
200,000
200,000
|
1,000,000
4,050,000
4,050,000
|
—
—
—
|
—
42,908
61,192
|
—
—
—
|
—
—
—
|
2,867,920
7,568,795
6,224,070
|
4,067,920
11,861,703
10,535,262
|
||||||||||||||||||||||||||
Marilyn
G. Fedak
Vice
Chair of Investment Services
|
2008
2007
2006
|
170,000
160,000
140,769
|
1,000,000
4,000,000
4,000,000
|
—
—
—
|
—
—
—
|
—
—
—
|
—
—
—
|
2,361,356
7,356,000
6,123,707
|
3,531,356
11,516,000
10,264,476
|
||||||||||||||||||||||||||
Sharon
E. Fay
Executive
Vice
President
|
2008
2007
2006
|
170,000
160,000
150,000
|
1,000,000
3,900,000
3,900,000
|
—
—
—
|
—
—
—
|
—
—
—
|
—
—
—
|
2,581,523
8,370,008
7,284,717
|
3,751,523
12,430,008
11,334,717
|
||||||||||||||||||||||||||
Robert
H. Joseph, Jr.
Senior
Vice President
and
Chief Financial Officer
|
2008
2007
2006
|
195,000
185,000
175,000
|
400,000
1,050,000
1,050,000
|
—
—
—
|
—
16,091
22,947
|
—
—
—
|
63,612
18,664
31,041
|
692,285
1,088,406
868,726
|
1,350,897
2,358,161
2,147,714
|
(1)
|
Mr.
Sanders served as Chief Executive Officer of the General Partner,
AllianceBernstein and Holding through December 19, 2008. Mr.
Kraus succeeded Mr. Sanders in this capacity effective December 19, 2008
and received no compensation in
2008.
|
(2)
|
Mr.
Kraus did not receive any compensation in 2008. His compensation structure
is set forth in his Employment Agreement, the terms of which are described above in “Overview
of Current Chief Executive Officer’s Compensation” and described below in
“Grant of Plan-based Awards” and “Other Information regarding Compensation
of Named Executive
Officers”.
|
Each
named executive officer received a base salary for 2008, 2007 and 2006 and,
except for Messrs. Kraus and 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.
The level
of Mr. Lieberman’s compensation reflects his role as the President and Chief
Operating Officer of our firm. In this role, he is responsible
for the operations of the firm and their impact on its
profitability. Mr. Lieberman’s compensation reflects this high-level
contribution and the broad responsibilities of his position.
Ms. Fedak
and Ms. Fay are jointly responsible for AllianceBernstein’s value equity
investment services. Their level of compensation reflects the fact
that, during 2008, value equity investment services accounted for a
disproportionately large percentage of AllianceBernstein’s consolidated
operating income. This reflects the relative amount of our assets
under management invested in value equity services, the rate of growth in those
services and the relative profitability of those services to the
firm.
Mr.
Joseph’s compensation reflects his role as the Chief Financial Officer of
AllianceBernstein and the contribution he makes in ensuring that our business
and operations are adequately funded and accurately reflected in our financial
records and reports and that adequate internal controls over financial reporting
are in place and operating effectively.
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”). Benefits
under the Retirement Plan ceased accruing as of December 31,
2008. For additional information about the Retirement Plan, see Note 14 to AllianceBernstein’s
consolidated financial statements in Item 8.
Column
(i) reflects awards under the Partners Plan, Mr. Sanders’s deferred awards under
the Sanders Employment Agreement and the Sanders Retirement 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 the named
executive officers. In addition, awards under the Partners Plan are not
accounted for under SFAS No. 123-R.
During
2008, we owned fractional interests in two aircraft with an aggregate operating
cost of $3,753,743 (including $1,245,243 in maintenance fees, $1,849,713 in
usage fees and $658,787 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, 2008 was
$6,952,808.
Our
interests in aircraft facilitate business travel of members of our management
executive committee. In 2008, we permitted our former Chief Executive Officer,
our President and our Vice Chair of Investment Services to use the aircraft for
personal travel. Overall, personal travel constituted approximately 27.2% of our
actual use of the aircraft in 2008.
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, 2008 for personal use imputed to Mr. Sanders is
$41,760, to Mr. Lieberman is $22,642 and to Ms. Fedak is $2,294. 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 2008,
column (i) includes:
for Mr.
Sanders, $12,750,000 representing the contractual payment due per the Sanders
Retirement Agreement, $328,860 for personal use of aircraft, $180,123 for
personal use of a car (including lease costs ($25,725), driver compensation
($113,161) and other car-related costs ($41,237) such as parking, gas, tolls,
and repairs and maintenance), an $18,400 contribution to the Profit Sharing Plan
and $1,188 of life insurance premiums.
for Mr.
Lieberman, $2,600,000 for his 2008 Partners Plan award, $100,099 for personal
use of aircraft, $151,821 for personal use of a car (including lease costs
($30,721), driver compensation ($95,795) and other car-related costs ($25,305)
such as parking, gas, tolls, and repairs and maintenance) and a $16,000
contribution to the Profit Sharing Plan.
for Ms.
Fedak, $2,330,000 for her 2008 Partners Plan award, $17,756 for personal use of
aircraft and a $13,600 contribution to the Profit Sharing Plan.
for Ms.
Fay, $2,330,000 for her 2008 Partners Plan award, a $13,600 contribution to the
Profit Sharing Plan, $5,500 for tax preparation and $216 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 2008 to Ms. Fay include tax equalization of
approximately $232,207.
for Mr.
Joseph, $650,000 for his 2008 Partners Plan award, $12,618 for personal use of a
car (including lease costs ($6,000) and other car-related costs ($6,618) such as
parking, gas, tolls, and repairs and maintenance), $6,741 in business club dues,
a $15,600 contribution to the Profit Sharing Plan and $7,326 of life insurance
premiums.
Grants
of Plan-based Awards in 2008
The
following table describes each grant of an award made to a named executive
officer during 2008 under the 1997 Plan, an equity compensation
plan:
Estimated
future payouts under non-equity incentive plan awards
|
Estimated
future payouts under equity incentive plan awards
|
|||||||||||||||||||||||||||||||||||||||||||
Name
|
Grant
date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
All
other stock awards: Number of shares of stock or units
(#)
|
All
other option awards: Number of securities underlying options
(#)
|
Exercise
or base price of option awards
($/Sh)
|
Grant
date fair value of stock and option awards
|
|||||||||||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
(k)
|
(l)
|
|||||||||||||||||||||||||||||||||
Peter
S. Kraus (1)
|
12.19.08 | — | — | — | — | — | — | 2,722,052 | — | — | $ | 52,263,398 | ||||||||||||||||||||||||||||||||
Lewis
A. Sanders
|
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Gerald
M. Lieberman
|
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Marilyn
G. Fedak
|
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Sharon
E. Fay
|
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Robert
H. Joseph, Jr.
|
— | — | — | — | — | — | — | — | — | — | — |
(1)
|
In
connection with the commencement of Mr. Kraus’s employment, on December
19, 2008, he was granted 2,722,052 restricted Holding Units. Subject to
accelerated vesting clauses in the Kraus Employment Agreement (immediate
vesting upon AXA ceasing to control the management of AllianceBernstein’s
business or Holding ceasing to be publicly traded and certain qualifying
terminations of employment, including termination of Mr. Kraus’s
employment (i) by AllianceBernstein without cause, (ii) by Mr. Kraus for
good reason (“good reason” generally means actions taken by
AllianceBernstein resulting in a material negative change in Mr. Kraus’s
employment relationship, including assignment to Mr. Kraus of duties
materially inconsistent with his position or a requirement that Mr. Kraus
report to an officer or employee of AllianceBernstein instead of reporting
directly to the Board), and (iii) due to death or disability), Mr. Kraus’s
restricted Holding Units will vest ratably on each of the first five
anniversaries of December 19, 2008, commencing December 19, 2009,
provided, with respect to each installment, Mr. Kraus continues to be
employed by AllianceBernstein on the vesting date. Aside from
Mr. Kraus’s continued employment, there are no conditions that must be
satisfied for Mr. Kraus’s restricted Holding Units to vest. For
additional information, see “Overview of our Current
Chief Executive Officer’s Compensation” above and “Other Information
regarding Compensation of Named Executive Officers” below in this Item
11.
|
Outstanding
Equity Awards at 2008 Fiscal Year-End
The
following table describes any outstanding equity awards as of December 31, 2008
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
($)
|
|||||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||||
Peter
S. Kraus
|
— | — | — | — | — | 2,722,052 | 56,591,461 | — | — | |||||||||||||||||||||||||||
Lewis
A. Sanders
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Gerald
M. Lieberman
|
40,000 | — | — | 33.18 |
12/06/12
|
— | — | — | — | |||||||||||||||||||||||||||
40,000 | — | — | 50.25 |
12/07/11
|
— | — | — | — | ||||||||||||||||||||||||||||
Marilyn
G. Fedak
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Sharon
E. Fay
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Robert
H. Joseph, Jr.
|
15,000 | — | — | 33.18 |
12/06/12
|
— | — | — | — | |||||||||||||||||||||||||||
15,000 | — | — | 50.25 |
12/07/11
|
— | — | — | — | ||||||||||||||||||||||||||||
15,000 | — | — | 53.75 |
12/11/10
|
— | — | — | — | ||||||||||||||||||||||||||||
50,000 | — | — | 48.50 |
06/20/10
|
— | — | — | — | ||||||||||||||||||||||||||||
15,000 | — | — | 30.25 |
12/06/09
|
— | — | — | — |
Of the
named executive officers, only Mr. Kraus has been awarded Holding Units and only
Messrs. Lieberman and Joseph have been granted options to buy Holding
Units.
Option
Exercises and Stock Vested in 2008
None of
our named executive officers exercised options or had portions of Holding Unit
awards vest during 2008. Accordingly, we have omitted the table.
Pension
Benefits for 2008
The
following table describes the accumulated benefit under our company pension plan
belonging to each of our named executive officers as of December 31, 2008, if
any:
Name
|
Plan
Name
|
Number
of Years
Credited
Service
(#)
|
Present
Value of
Accumulated
Benefit
($)
|
Payments
During
Last
Fiscal Year
($)
|
||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||||||
Peter
S. Kraus
|
n/a
|
— | — | — | ||||||||||||
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
|
24 | 490,142 | — |
Of the
named executive officers, only Mr. Joseph participates in the Retirement Plan.
The Board has determined that no new benefits shall be accrued under the
Retirement Plan, effective as of the close of business on December 31,
2008.
The
Retirement 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 through December 31,
2008, the participant’s average compensation over prescribed periods and Social
Security covered compensation. The maximum annual benefit payable under the
Retirement Plan may not exceed the lesser of $100,000 or 100% of a participant’s
average aggregate compensation for the three consecutive years in which he or
she received the highest aggregate compensation from us or such lower limit as
may be imposed by the Code on certain participants by reason of their coverage
under another qualified retirement plan we maintain. A participant is fully
vested after the completion of five years of service. The Retirement Plan
generally provides for payments to, or on behalf of, each vested employee upon
such employee’s retirement at the normal retirement age provided under the plan
or later, although provision is made for payment of early retirement benefits on
an actuarially reduced basis. Normal retirement age under the plan is 65. Death
benefits are payable to the surviving spouse of an employee who dies with a
vested benefit under the Retirement Plan. For additional information regarding
interest rates and actuarial assumptions, see Note 14 to AllianceBernstein’s consolidated
financial statements in Item 8.
Non-Qualified
Deferred Compensation for 2008
The
following table describes our named executive officers’ non-qualified deferred
compensation contributions, earnings and distributions during 2008 and their
non-qualified deferred compensation plan balances as of December 31,
2008:
Name
|
Executive
Contributions
in
Last FY
($)
|
Registrant
Contributions
in
Last FY
($)
|
Aggregate
Earnings
in
Last FY
($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance
at
Last
FYE
($)
|
|||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|||||||||||||||
Peter
S. Kraus
|
— | — | — | — | — | |||||||||||||||
Lewis
A. Sanders
|
— | — | (19,041,629 | ) | (18,900,720 | ) | 6,191,559 | |||||||||||||
Gerald
M. Lieberman
|
— | |||||||||||||||||||
Partners
Plan
|
— | 2,600,000 | (7,337,717 | ) | (4,769,864 | ) | 7,122,670 | |||||||||||||
SCB
Deferred Plan
|
— | — | 92,556 | (1,625,658 | ) | 3,330,517 | ||||||||||||||
Total
|
— | 2,600,000 | (7,245,161 | ) | (6,395,522 | ) | 10,453,187 | |||||||||||||
Marilyn
G. Fedak
|
— | 2,330,000 | (13,916,457 | ) | — | 17,751,603 | ||||||||||||||
Sharon
E. Fay
|
— | 2,330,000 | (4,294,902 | ) | (3,822,901 | ) | 8,591,119 | |||||||||||||
Robert
H. Joseph, Jr.
|
— | 650,000 | (4,622,265 | ) | (814,455 | ) | 4,228,795 |
For Mr.
Sanders, the amounts shown reflect his awards under the Sanders Retirement
Agreement and the Sanders 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 awards were last
permitted to be made in 2003, and the Partners Plan. For Ms. Fedak, Ms. Fay and
Mr. Joseph, amounts shown reflect their respective interests in the Partners
Plan. For additional information about the SCB Deferred Plan, the Partners Plan,
the Sanders Retirement Agreement and the Sanders 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, 2008. As of that date, Mr. Sanders notionally held
66,024 Holding Units relating to awards under the Sanders Retirement Agreement,
Mr. Lieberman notionally held 41,357 Holding Units in the Partners Plan, Ms. Fay
notionally held 8,443 Holding Units in the Partners Plan and Mr. Joseph
notionally held 59,661 Holding Units in the Partners Plan. For Mr. Sanders, the
amount shown in column (f) includes $4,115,577 paid to him in February 2009 and
approximately $2,075,982 that will be paid to him within 30 days of June 30,
2009 (the value of the latter payment will depend on the market value of Mr.
Sanders’s investments on June 30, 2009).
Other
Information regarding Compensation of Named Executive Officers
In
connection with the commencement of Mr. Kraus’s employment, on December 19,
2008, he was granted 2,722,052 restricted Holding Units. The Kraus Employment
Agreement stipulates that the unvested portion of Mr. Kraus’s restricted Holding
Units shall immediately vest upon a change in control of the company (as “change
in control” is defined in the Kraus Employment Agreement). During Mr.
Kraus’s Employment Term, AllianceBernstein has no commitment to pay any cash
bonuses to Mr. Kraus beyond the $6 million in 2009 (with any additional bonuses
being entirely in the discretion of the Board) or to make any additional equity
based awards to him. Consequently, for years after 2009 during the
Employment Term, the totality of Mr. Kraus’s compensation (other than his fixed
salary) will be dependent on the level of cash distributions on the restricted
Holding Units granted to him and the evolution of the trading price of Holding
Units, thereby directly aligning Mr. Kraus’s interests with those of other
holders of Holding Units. For additional information about Mr. Kraus’s
compensation, see “Overview of
our Current Chief Executive Officer’s Compensation” in this Item
11.
There are
no other amounts payable to the named executive officers upon a change in
control of the company.
On
October 26, 2006, Lewis A. Sanders and AllianceBernstein entered into the
Sanders Employment Agreement, pursuant to which Mr. Sanders was to serve as
Chairman of the General Partner and Chief Executive Officer of the General
Partner, AllianceBernstein and Holding through December 31, 2011 (“Sanders
Employment Term”), but the Sanders Employment Agreement was terminated in
accordance with its terms when Mr. Sanders retired on December 19, 2008. Mr.
Sanders was paid a minimum base salary of $275,000 per year during the Sanders
Employment Term and, for calendar year 2006 and each subsequent calendar year
during the Sanders Employment Term, was 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 the aggregate amount of incentive compensation)
for such calendar year. Under the Sanders Employment Agreement, Mr. Sanders’s
deferred compensation was paid to him as the deferred compensation vests and he
was not entitled to make any withdrawals prior to vesting. Mr.
Sanders was entitled to perquisites on the same terms as other senior executives
through the Sanders Employment Term, including personal use of aircraft and a
car and driver (generally, our President is the only other officer entitled to
personal use of aircraft and a car and driver). The terms of the Sanders
Employment Agreement reflected the policy and decision of the Compensation
Committee that all of Mr. Sanders’s compensation, other than his $275,000 base
salary and perquisites, should be deferred and that the amount of his deferred
compensation should be directly related to AllianceBernstein’s “consolidated
operating income before incentive compensation” for the applicable calendar
year. The deferral of such awards, and the notional investments
available for such awards, were designed to serve the same retention incentive
as the deferral of Partners Plan awards.
Mr.
Sanders is entitled to receive payments upon termination of his employment
pursuant to the Sanders Retirement Agreement. He is entitled to (i) his annual
base salary for 2008, (ii) the deferred compensation award described above ($12,750,000)
calculated as of his retirement date as an employee of the General Partner,
Holding and AllianceBernstein (December 31, 2008), (iii) all unvested deferred
compensation awards (approximately $2,075,982) and (iv) health and welfare
benefits for Mr. Sanders, his spouse and his dependents through December 31,
2011. Compensation under (ii) and (iii) will result in a payment to Mr. Sanders
of approximately $14.8 million within 30 days of June 30, 2009.
Director
Compensation in 2008
The
following table describes how we compensated our independent directors during
2008:
Name
|
Fees
Earned
or
Paid
in
Cash
($)
|
Stock
Awards(1)
($)
|
Option
Awards(2)
($)
|
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
|
53,500 | 30,000 | 30,000 | — | — | — | 113,500 | |||||||||||||||||||||
Weston
M. Hicks
|
59,500 | 30,000 | 30,000 | — | — | — | 119,500 | |||||||||||||||||||||
Lorie
A. Slutsky
|
71,500 | 30,000 | 30,000 | — | — | — | 131,500 | |||||||||||||||||||||
A.W.
(Pete) Smith, Jr.
|
68,500 | 30,000 | 30,000 | — | — | — | 128,500 | |||||||||||||||||||||
Peter
J. Tobin
|
88,000 | 30,000 | 30,000 | — | — | — | 148,000 |
(1)
As of
December 31, 2008, our independent directors had outstanding Holding Unit awards
in the following amounts: Ms. Hechinger owned 808 Holding Units, Mr.
Hicks owed 1,270 Holding Units, Ms. Slutsky owned 1,931 Holding Units, Mr. Smith
owned 1,270 Holding Units and Mr. Tobin owned 1,931 Holding
Units.
(2)
As of
December 31, 2008, our independent directors had outstanding option awards in
the following amounts: Ms. Hechinger owned options to buy 4,721 Holding Units,
Mr. Hicks owned options to buy 7,149 Holding Units, Ms. Slutsky owned options to
buy 36,300 Holding Units, Mr. Smith owned options to buy 7,149 Holding Units and
Mr. Tobin owned options to buy 51,550 Holding Units.
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
13, 2008, at a regularly scheduled meeting of the Board, 467 restricted Holding
Units and options to buy 2,765 Holding Units at $64.24 per Unit were granted to
each of 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 2007. The exercise price of the options
was the closing price on the NYSE on the grant date. 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 as soon as administratively feasible 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, 2008:
Equity
Compensation Plan Information(1)
Plan
Category
|
Number
of
securities
to be
issued
upon
exercise
of
outstanding
options,
warrants
and
rights
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and
rights
|
Number
of
securities
remaining
available
for future
issuance
|
|||||||||
(a)
|
(b)
|
(c)
|
||||||||||
Equity
compensation plans approved by security holders
|
6,685,808 | $ | 66.11 | 22,646,342 | ||||||||
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
Total
|
6,685,808 | $ | 66.11 | 22,646,342 |
(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
Amended and Restated 1997 Long Term Incentive Plan, as amended through
November 28, 2007 (“1997 Plan”). For additional information concerning our
deferred compensation 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
Plan, Century Club Plan), see
Note 16 to AllianceBernstein’s consolidated financial statements in Item
8.
Principal
Security Holders
As of
February 2, 2009, we had no information that any person beneficially owned more
than 5% of the outstanding Holding Units.
As of
February 2, 2009, we had no information that any person beneficially owned more
than 5% of the outstanding AllianceBernstein Units except AXA and certain of its
wholly-owned subsidiaries as reported on Schedule 13D/A and Forms 4 filed with
the SEC on January 8, 2009 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)(5)(6)
|
25 avenue Matignon
75008
Paris,
France
|
170,121,745 | 64.1 | % |
(1)
|
Based
on information provided by AXA Financial, on December 31, 2008, 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 Henri de Castries, Denis Duverne
and Christopher M. Condron, each of whom serves on the Management 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, 2008, 14.29% of the
issued ordinary shares (representing 23.29% 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 America Holdings, Inc. (a wholly-owned subsidiary of AXA), AXA
Financial, AXA Equitable, AXA Financial (Bermuda) Ltd. (a wholly-owned
subsidiary of AXA Financial), ACMC Inc. (a wholly-owned subsidiary of AXA
Financial), MONY Life Insurance Company (a wholly-owned subsidiary of AXA
Financial) and MONY Life Insurance Company of America (a wholly-owned
subsidiary of MONY Life Insurance Company) 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 170,121,745 AllianceBernstein
Units.
|
(5)
|
In
connection with the Bernstein Transaction, SCB Inc., AllianceBernstein and
AXA Financial entered into a purchase agreement under which SCB Inc. had
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. had 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. Generally, SCB Inc. could have
exercised its Put rights only once per year and SCB Inc. could not have
delivered 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, February 23,
2007 and January 6, 2009, AXA America Holdings, AXA Financial or certain
of AXA Financial’s 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. SCB does not have any Put rights remaining after its sale
on January 6, 2009. The Put rights would have expired on
October 2, 2010.
|
(6)
|
The
beneficial ownership figures in the table reflect the January 6, 2009
sale.
|
As of
February 2, 2009, Holding was the record owner of 91,910,013, or 34.6%, of the
issued and outstanding AllianceBernstein Units.
Management
The
following table sets forth, as of February 2, 2009, 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
|
||||||
Peter
S. Kraus(1)(2)
|
2,722,052 | 3.0 | % | |||||
Lewis
A. Sanders(3)
|
66,024 | * | ||||||
Dominique
Carrel-Billiard(1)
|
— | * | ||||||
Henri
de Castries(1)
|
2,000 | * | ||||||
Christopher
M. Condron(1)
|
30,000 | * | ||||||
Denis
Duverne(1)
|
2,000 | * | ||||||
Richard
S. Dziadzio(1)
|
— | * | ||||||
Deborah
S. Hechinger(4)
|
1,460 | * | ||||||
Weston
M. Hicks(5)
|
8,540 | * | ||||||
Nick
Lane(1)
|
— | * | ||||||
Gerald
M. Lieberman(1)(6)
|
218,744 | * | ||||||
Lorie
A. Slutsky(1)(7)
|
32,762 | * | ||||||
A.W.
(Pete) Smith, Jr.(8)
|
5,059 | * | ||||||
Peter
J. Tobin(1)(9)
|
46,602 | * | ||||||
Marilyn
G. Fedak(1)
|
— | * | ||||||
Sharon
E. Fay(1)(10)
|
28,003 | * | ||||||
Robert
H. Joseph, Jr.(1)(11)
|
210,282 | * | ||||||
All
directors and executive officers of the General Partner as a group (34
persons)(12)(13)
|
5,471,959 | 6.0 | % |
*
|
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. Kraus, Carrel-Billiard, de Castries, Condron, Duverne,
Dziadzio, Lane, Lieberman, and Tobin are directors and/or officers of AXA,
AXA Financial, and/or AXA Equitable. Mses. Fedak and Fay, and Messrs.
Kraus, Lieberman and Joseph, are directors and/or officers of the General
Partner.
|
(2)
|
In
connection with the commencement of Mr. Kraus’s employment, on December
19, 2008, he was granted 2,722,052 restricted Holding Units. Subject to
accelerated vesting clauses in the Kraus Employment Agreement (e.g., immediate vesting
upon AXA ceasing to control the management of AllianceBernstein’s business
or Holding ceasing to be publicly traded and certain qualifying
terminations of employment), Mr. Kraus’s restricted Holding Units will
vest ratably on each of the first five anniversaries of December 19, 2008,
commencing December 19, 2009, provided, with respect to each installment,
Mr. Kraus continues to be employed by AllianceBernstein on the vesting
date.
|
(3)
|
Mr.
Sanders retired as Chairman of the Board of the General Partner and CEO of
the General Partner, AllianceBernstein and Holding on December 19,
2008.
|
(4)
|
Includes
652 Holding Units Ms. Hechinger can acquire within 60 under the 1997
Plan.
|
(5)
|
Includes
2,270 Holding Units Mr. Hicks can acquire within 60 days under the 1997
Plan.
|
(6)
|
Includes
80,000 Holding Units Mr. Lieberman can acquire within 60 days under the
1997 Plan.
|
(7)
|
Includes
29,421 Holding Units Ms. Slutsky can acquire within 60 days under the 1997
Plan.
|
(8)
|
Includes
2,270 Holding Units Mr. Smith can acquire within 60 days under the 1997
Plan.
|
(9)
|
Includes
44,671 Holding Units Mr. Tobin can acquire within 60 days under the 1997
Plan.
|
(10)
|
Includes
8,444 Holding Units to which Ms. Fay has allocated portions of previous
awards under deferred compensation
plans.
|
(11)
|
Includes
110,000 Holding Units Mr. Joseph can acquire within 60 days under
AllianceBernstein option plans and 69,192 Holding Units to which he has
allocated portions of previous awards under deferred compensation
plans.
|
(12)
|
Includes
635,864 Holding Units the directors and executive officers as a group can
acquire within 60 days under AllianceBernstein option
plans.
|
(13)
|
Includes
3,224,443 Holding Units to which executive officers as a group have
allocated their awards under deferred compensation
plans.
|
As of
February 2, 2009, our directors and executive officers did not beneficially own
any AllianceBernstein Units.
The
following table sets forth, as of February 2, 2009, 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
|
||||||
Peter
S. Kraus
|
— |
*
|
||||||
Lewis
A. Sanders(2)
|
— | * | ||||||
Dominique
Carrel-Billiard(3)
|
75,032 |
*
|
||||||
Henri
de Castries(4)
|
6,482,448 |
*
|
||||||
Christopher
M. Condron(5)
|
3,107,653 |
*
|
||||||
Denis
Duverne(6)
|
2,210,303 |
*
|
||||||
Richard
S. Dziadzio(7)
|
183,536 |
*
|
||||||
Deborah
S. Hechinger
|
— |
*
|
||||||
Weston
M. Hicks
|
— |
*
|
||||||
Nick
Lane(8)
|
3,490 | * | ||||||
Gerald
M. Lieberman
|
— |
*
|
||||||
Lorie
A. Slutsky(9)
|
1,196 |
*
|
||||||
A.W.
(Pete) Smith, Jr.
|
— |
*
|
||||||
Peter
J. Tobin(10)
|
17,774 |
*
|
||||||
Marilyn
G. Fedak
|
— |
*
|
||||||
Sharon
E. Fay
|
— |
*
|
||||||
Robert
H. Joseph, Jr.
|
— |
*
|
||||||
All
directors and executive officers of the General Partner as a group (34
persons)(11)
|
12,081,432 |
*
|
* |
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)
|
Mr.
Sanders retired as Chairman of the Board of the General Partner and CEO of
the General Partner, AllianceBernstein and Holding on December 19,
2008.
|
(3)
|
Includes
56,500 shares Mr. Carrel-Billiard can acquire within 60 days under option
plans.
|
(4)
|
Includes
4,980,866 shares Mr. de Castries can acquire within 60 days under option
plans. Also includes 84,000 unvested AXA performance shares, which are
paid out when vested based on the price of AXA at that
time.
|
(5)
|
Includes
880,497 shares and 1,507,909 ADSs Mr. Condron can acquire within 60 days
under option plans. Also includes 149,482 unvested 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.
|
(6)
|
Includes
1,450,392 shares Mr. Duverne can acquire within 60 days under option
plans. Also includes 99,183 unvested AXA performance shares,
which are paid out when vested based on the price of AXA at that
time.
|
(7)
|
Includes
157,618 shares Mr. Dziadzio can acquire within 60 days under option plans.
Also includes 19,029 unvested 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.
|
(8)
|
Includes
3,021 ADSs Mr. Lane can acquire within 60 days under options
plans.
|
(9)
|
Includes
294 ADSs Ms. Slutsky can acquire within 60 days under option
plans.
|
(10)
|
Includes
4,420 ADSs Mr. Tobin can acquire within 60 days under option
plans.
|
(11)
|
Includes
7,525,873 shares and 1,515,644 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 (the person asserting such liability having the burden
of proof) 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” or under a grant of similar authority or latitude, 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 2008 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 2008. The first table summarizes services we provide to related
persons, and the second table summarizes services our related persons provide to
us:
Parties(1)
|
General
Description of Relationship(2)
|
Amounts
Received or
Accrued for in
2008
|
|||
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.
|
$ | 63,567,000 | ||
AXA
Asia Pacific(2)(3)
|
$ | 45,814,000 | |||
AXA
Equitable(3)
|
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.
|
$ |
32,463,000
(of which $547,417 relates to
the ancillary services)
|
||
AXA
Group Life Insurance(2)(3)
|
$ | 10,361,000 | |||
MONY
Life Insurance Company and its subsidiaries(3)(4)
|
We
provide investment management services and ancillary accounting
services.
|
$ |
8,963,000
(of which $150,000 relates to
the ancillary services)
|
||
AXA
Sun Life(2)(3)
|
$ | 5,885,000 | |||
AXA
U.K. Group Pension Scheme(2)
|
$ | 2,549,000 | |||
AXA
France(2)(3)
|
$ | 2,326,000 | |||
AXA
Winterthur(2)(3)
|
$ | 2,267,000 | |||
AXA
Rosenberg Investment Management Asia
Pacific(2)(3)
|
$ | 2,138,000 | |||
AXA
(Canada)(2)(3)
|
$ | 1,614,000 | |||
AXA
Corporate Solutions(2)(3)
|
$ | 1,024,000 | |||
AXA
Germany(2)(3)
|
$ | 890,000 | |||
AXA
Bermuda(2)(3)
|
$ | 494,000 | |||
AXA
Belgium(2)(3)
|
$ | 419,000 | |||
AXA
Foundation, Inc., a subsidiary of AXA Financial(2)
|
$ | 222,000 | |||
AXA
Reinsurance Company(2)(3)
|
$ | 176,000 | |||
AXA
Investment Managers Limited(2)(3)
|
$ | 164,000 | |||
AXA
General Insurance Hong Kong Ltd.(2)(3)
|
$ | 153,000 | |||
Other
AXA subsidiaries(2)
|
$ | 122,000 |
(1)
|
AllianceBernstein
is a party to each transaction.
|
(2)
|
We
provide investment management services unless otherwise
indicated.
|
(3)
|
This
entity is a subsidiary of AXA. AXA is an indirect parent of
AllianceBernstein.
|
(4)
|
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
2008
|
||||
AXA
Advisors
|
AXA
Advisors distributes certain of our Retail Products and provides Private
Client referrals.
|
$ | 9,408,000 | |||
AXA
Equitable
|
AXA
Equitable provides certain data processing services and related
functions.
|
$ | 4,055,000 | |||
AXA
Business Services
|
AXA
Business Services provides data processing services and support for
certain investment operations functions.
|
$ | 3,654,000 | |||
AXA
Equitable
|
We
are covered by various insurance policies maintained by AXA
Equitable.
|
$ | 3,126,000 | |||
AXA
Technology Services India Pvt. Ltd.
|
AXA
Technology Services India Pvt. Ltd. provides certain data processing
services and functions.
|
$ | 1,755,000 | |||
GIE
Informatique AXA (“GIE”)
|
GIE
provides cooperative technology development and procurement services to us
and to various other subsidiaries of AXA.
|
$ | 1,053,000 | |||
AXA
Advisors
|
AXA
Advisors sells shares of our mutual funds under Distribution Services and
Educational Support agreements.
|
$ | 703,000 | |||
AXA Group
Solutions Pvt. Ltd.
|
AXA
Group Solution Pvt. Ltd provides maintenance and development support for
applications.
|
$ | 200,000 |
(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 $28.4 billion in client assets,
and earned approximately $68.3 million in management fees in 2008 (of which
$19.6 million is included in the table above).
AXA Advisors was our fourth largest
distributor of U.S. Funds in 2008, for which we paid AXA Advisors sales
concessions on sales of approximately $703 million. Various subsidiaries of AXA
distribute certain of our Non-U.S. Funds, for which such entities received
aggregate distribution payments of approximately $364,000 in 2008.
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 2008, 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 4,997
employees.
Gerald M.
Lieberman’s daughter, Andrea L. Feldman, is employed in Institutional Investment
Services and received 2008 compensation of $140,762 (salary, bonus and
contribution to the Profit Sharing Plan). Mr. Lieberman’s son-in-law, Jonathan
H. Feldman, Ms. Feldman’s spouse, is employed in Retail Services and received
2008 compensation of $251,286 (salary, bonus, deferred compensation,
contribution to the Profit Sharing Plan and life insurance premiums). Gerald M.
Lieberman is Director of the General Partner and the President and Chief
Operating Officer of the General Partner, AllianceBernstein and
Holding.
James G.
Reilly’s brother, Michael J. Reilly, is a U.S. Large Cap Growth portfolio
manager and received 2008 compensation of $1,640,703 (salary, bonus, deferred
compensation, options amortization, contribution to the Profit Sharing Plan and
life insurance premiums). James G. Reilly is an Executive Vice President of the
General Partner, AllianceBernstein and Holding, and he is our U.S. Large Cap
Growth team leader.
Director
Independence
See “Corporate
Governance—Independence of Certain Directors” in Item 10.
Item 14.
|
Principal
Accounting Fees and Services
|
The
following table presents fees for professional audit services rendered by
PricewaterhouseCoopers LLP (“PwC”) for the audit of AllianceBernstein’s and
Holding’s annual financial statements for 2008 and 2007, respectively, and fees
for other services rendered by PwC ($ in thousands):
2008
|
2007
|
|||||||
Audit
Fees(1)
|
$ | 7,490 | $ | 7,212 | ||||
Audit
Related Fees(2)
|
2,408 | 2,530 | ||||||
Tax
Fees(3)
|
2,376 | 2,003 | ||||||
All
Other Fees(4)
|
5 | 27 | ||||||
Total
|
$ |
12,279
|
$ |
11,772
|
(1)
|
Includes
$105,000 paid for audit services to Holding in each of 2008 and
2007.
|
(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 2008 and 2007 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 Schedule.
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,
2008, 2007 and 2006. PwC’s report regarding the schedule is 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).
|
|
Amendment
and Restatement of the Profit Sharing Plan for Employees of
AllianceBernstein L.P., as of January 1, 2008.
|
||
Amendment
and Restatement of the Retirement Plan for Employees of AllianceBernstein
L.P., as of January 1, 2008.
|
||
Amended
and Restated AllianceBernstein Partners Compensation Plan, as amended and
restated January 23, 2009.
|
||
Amended
and Restated AllianceBernstein L.P. Financial Advisor Wealth Accumulation
Plan, as amended and restated December 5, 2008.
|
||
Amended
and Restated AllianceBernstein Commission Substitution Plan, as amended
and restated December 5, 2008.
|
||
Form
of Award Agreement under the Amended and Restated AllianceBernstein
Partners Compensation Plan.
|
||
Form
of Award Agreement under the Special Option Program.
|
||
Form
of Award Agreement under the AllianceBernstein L.P. Financial Advisor
Wealth Accumulation Plan.
|
||
Summary
of AllianceBernstein L.P.’s Lease at 1345 Avenue of the Americas, New
York, New York 10105.
|
||
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.
|
||
Amended
and Restated Commercial Paper Dealer Agreement, dated as of February 10,
2009, among Banc of America Securities LLC, Merrill Lynch Money Markets
Inc., Deutsche Bank Securities Inc. and AllianceBernstein
L.P.
|
||
10.12
|
Employment
Agreement among Peter S. Kraus, AllianceBernstein Corporation,
AllianceBernstein Holding L.P. and AllianceBernstein L.P., dated as of
December 19, 2008 (incorporated by reference to Exhibit 99.02 to Form 8-K,
as filed December 24, 2008).
|
|
10.13
|
Retirement
Agreement between Lewis A. Sanders and AllianceBernstein L.P. dated as of
December 19, 2008 (incorporated by reference to Exhibit 99.01 to Form 8-K,
as filed December 24, 2008).
|
|
10.14
|
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” (incorporated by reference to Exhibit 10.08
to Form 10-K for the fiscal year ended December 31, 2007, as filed
February 25,
2008).
|
Exhibit
|
Description
|
|
10.15
|
Amended
and Restated 1997 Long Term Incentive Plan, as amended through November
28, 2007 (incorporated by reference to Exhibit 10.02 to Form 10-K for the
fiscal year ended December 31, 2007, as filed February 25,
2008).
|
|
10.16
|
Amended
and Restated AllianceBernstein Century Club Plan (incorporated by
reference to Exhibit 10.04 to Form 10-K for the fiscal year ended December
31, 2007, as filed February 25, 2008).
|
|
10.17
|
Uncommitted
Line of Credit Agreement dated as of January 23, 2008 between
AllianceBernstein L.P. and Citibank, N.A. (incorporated by reference to
Exhibit 10.09 to Form 10-K for the fiscal year ended December 31, 2007, as
filed February 25, 2008).
|
|
10.18
|
Supplement
dated November 2, 2007 to the Revolving Credit Facility (incorporated by
reference to Exhibit 10.10 to Form 10-K for the fiscal year ended December
31, 2007, as filed February 25, 2008). (See Exhibit
10.22.)
|
|
10.19
|
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).
|
|
10.20
|
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).
|
|
10.21
|
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).
|
|
10.22
|
Revolving
Credit Facility dated as of February 17, 2006 among AllianceBernstein
L.P., 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).
|
|
10.23
|
Investment
Advisory and Management Agreement for MONY Life Insurance Company
(incorporated by reference to Exhibit 10.4 to Form 10-K for the fiscal
year ended December 31, 2004, as filed March 15, 2005).
|
|
10.24
|
Investment
Advisory and Management Agreement for the General Account of AXA Equitable
Life Insurance Company (incorporated by reference to Exhibit 10.5 to Form
10-K for the fiscal year ended December 31, 2004, as filed March 15,
2005).
|
|
10.25
|
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).
|
|
10.26
|
Services
Agreement dated as of April 22, 2001 between Alliance Capital Management
L.P. and AXA Equitable Life Insurance Company (incorporated by reference
to Exhibit 10.19 to Form 10-K for the fiscal year ended December 31, 2001,
as filed March 28, 2002).
|
|
10.27
|
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).
|
|
10.28
|
Purchase
Agreement dated as of June 20, 2000 by and among Alliance Capital
Management L.P., AXA Financial, Inc. 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).
|
|
10.29
|
Alliance
Capital Management L.P. Annual Elective Deferral Plan (incorporated by
reference to Exhibit 99 to Form S-8, as filed November 6,
2000).
|
|
10.30
|
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).
|
|
10.31
|
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 Life Insurance Company
(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).
|
|
10.32
|
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 Life Insurance Company (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).
|
|
10.33
|
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, 2008, 2007 and 2006.
|
||
Subsidiaries
of AllianceBernstein.
|
||
Consents
of PricewaterhouseCoopers LLP.
|
||
Certification
of Mr. Kraus 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. Kraus furnished for the purpose of complying with Rule 13a-14(b) or
Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
||
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.
|
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 20, 2009
|
By:
|
/s/
Peter S. Kraus
|
Peter
S. Kraus
|
||
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 20, 2009
|
/s/
Robert H. Joseph, Jr.
|
|
Robert
H. Joseph, Jr.
|
||
Senior
Vice President and Chief Financial Officer
|
||
Date:
February 20, 2009
|
/s/
Edward J. Farrell
|
|
Edward
J. Farrell
|
||
Senior
Vice President and Chief Accounting
Officer
|
Directors
/s/
Peter S. Kraus
|
/s/
Weston M. Hicks
|
|
Peter
S. Kraus
|
Weston
M. Hicks
|
|
Chairman
of the Board
|
Director
|
|
/s/
Dominique Carrel-Billiard
|
/s/
Nick Lane
|
|
Dominique
Carrel-Billiard
|
Nick
Lane
|
|
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/
Deborah S. Hechinger
|
||
Deborah
S. Hechinger
|
||
Director
|
133
SCHEDULE
I I
AllianceBernstein
L.P.
Valuation
and Qualifying Account - Allowance for Doubtful Accounts
For
the Three Years Ending December 31, 2008, 2007 and 2006
Description
|
Balance
at Beginning of Period
|
Charged
(Credited) to Costs and Expenses
|
Deductions
|
Balance
at End of Period
|
|||||||||||||
(in
thousands)
|
|||||||||||||||||
For
the year ended December 31, 2006
|
$ | 939 | $ | 251 | $ | 77 |
(a)
|
$ | 1,113 | ||||||||
For
the year ended December 31, 2007
|
$ | 1,113 | $ | 955 | $ | 276 |
(b)
|
$ | 1,792 | ||||||||
For
the year ended December 31, 2008
|
$ | 1,792 | $ | (192 | ) | $ | 112 |
(c)
|
$ | 1,488 |
(a)
Includes accounts written-off as uncollectible of $93 and a net addition to the
allowance balance of $16.
(b)
Includes accounts written-off as uncollectible of $267 and a net reduction of
the allowance balance of $9.
(c)
Includes
accounts written-off as uncollectible of $31 and a net reduction to the
allowance balance of $81.
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 20, 2009 appearing in the 2008 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
February
20, 2009