ALLIANCEBERNSTEIN HOLDING L.P. - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
T
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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, 2009
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 T 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
T
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 T No
£
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes £ 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. £
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
definitions of “accelerated filer”, “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer T 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 T
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, 2009 was approximately $1.73 billion.
The
number of units representing assignments of beneficial ownership of limited
partnership interests outstanding as of December 31, 2009 was 101,351,749. (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
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Item
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Item
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Item
1B.
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Item
2.
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Item
3.
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Item
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Part
II
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Item
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Item
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Item
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Item
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Item
8.
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61
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Item
9.
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Item
9A.
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Item
9B.
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Part
III
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Item
10.
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98
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Item
11.
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104
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Item
12.
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119
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Item
13.
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Item
14.
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Part
IV
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Item
15.
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127
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129
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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., and assumption of the
liabilities of that 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 Bernstein research services
in the United States.
“SCBL” – Sanford C. Bernstein
Limited (U.K. company), a wholly-owned subsidiary of AllianceBernstein that
provides Bernstein research services primarily in Europe.
“SEC” – the United States
Securities and Exchange Commission.
“Securities Act” – the
Securities Act of 1933, as amended.
PART
I
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 Morgan Stanley Capital International (“MSCI”) emerging markets
index. As of December 31, 2009, examples of such countries were Brazil, Chile,
China, Columbia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel,
Malaysia, Mexico, Morocco, 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 utilize various alternative strategies such as
leverage, short selling of securities, and utilizing forward contracts, currency
options and other derivatives.
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, including U.S. and offshore mutual funds, variable annuities,
insurance products and sub-advisory
relationships;
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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 high-quality research and related services, and issuers
of publicly-traded securities seeking equity capital markets
services.
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We also
provide distribution, shareholder servicing and administrative services to our
sponsored mutual funds.
Our
firm’s mission is to be the most trusted investment firm in the world by placing
our clients’ interests first and foremost, utilizing our research capabilities
to have more knowledge than any other investment firm, and using and sharing
knowledge better than our competitors to help our clients achieve financial
peace of mind and investment success.
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, quantitative and economic research, as
well as currency forecasting. In addition, we have created several specialized
research units, including one 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 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 services to 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 research, portfolio strategy and
brokerage-related services, and, to issuers of publicly-traded securities,
we offer equity capital markets services (“Bernstein Research
Services”).
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These
services are provided by teams of investment professionals with significant
expertise in their respective disciplines (see “Employees” in this Item
1). Our buy-side research analysts support our portfolio managers and,
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 Bernstein Research
Services.
Our
services include:
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Value
equities, generally targeting stocks that are out of favor and considered
undervalued;
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Growth
equities, generally targeting stocks with under-appreciated growth
potential;
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Fixed
income securities, including 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 index and enhanced index
strategies;
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Alternative
investments, such as hedge funds, currency management strategies, venture
capital and, beginning in 2010, direct real estate investing;
and
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Asset
allocation services, by which we offer blend strategies
specifically-tailored for our clients (e.g., customized
target-date fund retirement services for defined contribution plan
sponsors).
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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, 2009,
blend strategies AUM was $90 billion (representing 18% of our company-wide AUM),
an increase of 6% from $85 billion as of December 31, 2008 and a decrease of 49%
from $175 billion as of December 31, 2007.
We market
and distribute alternative investment products (which include hedge funds,
venture capital and currency management strategies) globally to high-net-worth
clients and institutional investors. Alternative product AUM totaled $3.9
billion as of December 31, 2009, $2.5 billion of which was private client AUM
(primarily hedge funds) and $1.4 billion of which was institutional AUM
(primarily currency services).
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 August
2008, we created an 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, 2009, our DC assets under
management, which are distributed in all three of our buy-side distribution
channels, totaled $25 billion.
In April
2009, we were selected by the U.S. Treasury Department as one of only three
firms to manage its portfolio of assets issued by banks and other institutions
taking part in the Capital Purchase Program of the Troubled Assets Relief
Program. In addition, we were selected by the U.S. Treasury Department as one of
nine pre-qualified fund managers under the Public-Private Investment Program
and, during the fourth quarter of 2009, we were one of five firms that closed an
initial Public-Private Investment Fund of at least $500
million.
Global
Reach
We serve
clients in major global markets through operations in 45 cities in 24 countries.
Our client base includes investors throughout the Americas, Europe, Asia, Africa
and Australia. We utilize an integrated global investment platform that provides
our clients with access to local (country-specific), international, and global
research and investment strategies.
Assets
under management by client domicile and investment service as of December 31,
2009, 2008 and 2007 were as follows:
By
Client Domicile ($ in billions):
![]() December
31, 2009
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![]() December
31, 2008
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![]() December
31, 2007
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By
Investment Service ($ in billions):
![]() December
31, 2009
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![]() December
31, 2008
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![]() December
31, 2007
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Our
international client base stabilized during 2009, decreasing by 1% compared to a
decrease of 43% during 2008. Our global and international AUM increased by 6%
during 2009 compared to a decrease of 47% during 2008. Approximately 62%, 76%
and 80% of our gross asset inflows (sales/new accounts) during 2009, 2008 and
2007, respectively, were invested in global and international investment
services.
Revenues
We earn
revenues primarily by charging fees for managing the investment assets of, and
providing research to, our clients.
We
generally calculate investment advisory fees as a percentage of the value of AUM
at a specific point in time or as a percentage of the value of average AUM for
the applicable billing period, with these percentages 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 provided to 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 fail to achieve 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. 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 2009, 2008 and 2007 were $29.8
million, $13.4 million and $81.2 million, respectively. 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 changes 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, primarily in the form of transaction fees
calculated as either “cents per share” (generally in the U.S. market) or a
percentage of the value of the securities traded (generally in the European
market) for these clients. In 2009, we re-launched our equity capital
markets business, through which we earn revenues from issuers of publicly-traded
securities to which we provide these services in the form of underwriting fees,
management fees and/or selling concessions, depending on our role in the
offering.
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
The
substantial decrease in our assets under management and the resulting decrease
in fee revenues from levels during the first nine months of 2008 led us to
undertake initiatives in 2008 and 2009 that resulted in significant reductions
in operating expenses and capital expenditures.
We
reduced our headcount by 628, or 13%, during 2009 to 4,369 which, along with the
reduction in force that occurred during the fourth quarter of 2008, represents a
total reduction of nearly 1,300 staff members, or 23%, from our headcount peak
during the third quarter of 2008. These actions reduced our fixed compensation
costs (salaries and fringe benefits) by approximately $130 million. Despite
these measures, we believe we have retained the intellectual capital required to
service our clients and grow our business.
Our
firm’s 4,369 full-time employees, who are located in 24 countries, include 300
research analysts, 158 portfolio managers, 46 traders and 23 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 17 years. We consider our employee relations to be
good.
Institutional 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 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, 2009, institutional AUM was $300 billion, or 61% of our
company-wide AUM as compared to $291 billion, or 63%, as of December 31, 2008
and $508 billion, or 63%, as of December 31, 2007. 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 1,762 mandates for these
clients, which are located in 42 countries. As of December 31, 2009, we managed
employee benefit plan assets for 42 of the Fortune 100
companies, and we managed public pension fund assets for 39 states and/or
municipalities in those states.
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, 2009, retail AUM was $121 billion,
or 24% of our company-wide AUM as compared to $102 billion, or 22%, as of
December 31, 2008 and $183 billion, or 23%, as of December 31, 2007. For more
information concerning retail AUM, revenues and fees, see “Assets Under Management,
Revenues and Fees” in this Item 1.
Our
Retail Products and Services are designed to provide disciplined, research-based
investments that contribute to a well-diversified investment portfolio. We
distribute these products and services through financial intermediaries,
including broker-dealers, insurance sales representatives, banks, registered
investment advisers and financial planners.
Our
Retail Products and Services 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 retail share classes of the Sanford
C. Bernstein Funds (principally Private Client Services products, “SCB Funds”), currently offer
99 different portfolios to U.S. investors. As of December 31, 2009, retail U.S.
Funds AUM was approximately $45 billion, or 37% of total retail AUM as compared
to $39 billion, or 38%, as of December 31, 2008 and $66 billion, or 36%, as of
December 31, 2007. Because of the way they are marketed and serviced, we report
substantially all of the AUM in the SCB Funds, which totaled $26 billion as of
December 31, 2009, as private client AUM.
Our
Non-U.S. Funds are distributed internationally by local financial intermediaries
to non-U.S. investors in most major international markets by means of
distribution agreements. As of December 31, 2009, these funds consisted of 70
different portfolios and AUM in these funds was $20 billion. We also offer
local-market funds that we distribute in Japan through financial intermediaries.
As of December 31, 2009, retail AUM in these funds was $3 billion.
AllianceBernstein
Investments serves as the principal underwriter and distributor of the U.S.
Funds. AllianceBernstein Investments employs approximately 140 sales
representatives who devote their time exclusively to promoting the sale of U.S.
Funds and certain other Retail Products and Services offered 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 60 sales representatives who devote their time
exclusively to promoting the sale of Non-U.S. Funds and other Retail Products
and Services offered by financial intermediaries.
Private Client Services
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, with a minimum initial
account size of $500,000. As of December 31, 2009, private client AUM was $75
billion, or 15% of our company-wide AUM as compared to $69 billion, or 15%, as
of December 31, 2008 and $109 billion, or 14%, as of December 31, 2007. For more
information concerning private client AUM, revenues and fees, see “Assets Under Management,
Revenues and Fees” in this Item 1.
Our
Private Client Services are built on a sales effort that involves 292 financial advisors
based in 18 cities in the U.S. and in London, England. These advisors do not
manage money, but work with private clients and their tax, legal and other
advisors to assist them 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 our research reports, investment planning services and
the Wealth Management Group, which has in-depth knowledge of trust, estate and
tax planning strategies.
Bernstein
Research Services
Bernstein
Research Services consist of fundamental research, quantitative services and
brokerage-related services in equities and listed options 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, with
research services also provided by Sanford C. Bernstein, a unit of
AllianceBernstein Hong Kong Limited (a wholly-owned subsidiary of
AllianceBernstein, “AB Hong Kong”), in Asia. For more information concerning the
revenues we derive from Bernstein Research Services, see “Assets Under Management,
Revenues and Fees” in this Item 1.
We
provide 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.
Additionally,
we provide equity capital markets services to issuers of publicly-traded
securities, primarily in initial public offerings and follow-on offerings,
acting as manager, syndicate member or selling group member.
Assets Under Management, Revenues and Fees
The
following tables summarize our AUM and revenues by distribution
channel:
Assets
Under Management(1)
December 31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Institutional
Services
|
$ | 300,052 | $ | 291,361 | $ | 508,081 | 3.0 | % | (42.7 | )% | ||||||||||
Retail
Services
|
120,697 | 101,643 | 183,165 | 18.7 | (44.5 | ) | ||||||||||||||
Private
Client Services
|
74,753 | 68,947 | 109,144 | 8.4 | (36.8 | ) | ||||||||||||||
Total
|
$ | 495,502 | $ | 461,951 | $ | 800,390 | 7.3 | (42.3 | ) |
_____________
(1)
|
Excludes
certain non-discretionary client
relationships.
|
Revenues
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Institutional
Services
|
$ | 811,164 | $ | 1,240,636 | $ | 1,481,885 | (34.6 | )% | (16.3 | ) % | ||||||||||
Retail
Services
|
888,256 | 1,227,538 | 1,521,201 | (27.6 | ) | (19.3 | ) | |||||||||||||
Private
Client Services
|
589,665 | 849,830 | 960,669 | (30.6 | ) | (11.5 | ) | |||||||||||||
Bernstein
Research Services
|
434,605 | 471,716 | 423,553 | (7.9 | ) | 11.4 | ||||||||||||||
Other(1)
|
187,600 | (239,037 | ) | 332,441 | n/m | n/m | ||||||||||||||
Total
Revenues
|
2,911,290 | 3,550,683 | 4,719,749 | (18.0 | ) | (24.8 | ) | |||||||||||||
Less:
Interest Expense
|
4,411 | 36,524 | 194,432 | (87.9 | ) | (81.2 | ) | |||||||||||||
Net
Revenues
|
$ | 2,906,879 | $ | 3,514,159 | $ | 4,525,317 | (17.3 | ) | (22.3 | ) |
_____________
(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
22%, 21% and 15% of our company-wide AUM as of December 31, 2009, 2008 and 2007,
respectively. We earned approximately 4%, 5% and 5% of our company-wide net
revenues from our affiliates for each of 2009, 2008 and 2007, respectively. This
AUM is included in our Institutions and Retail buy-side distribution
channels.
Institutional
Services
The
following tables summarize our Institutional Services AUM and
revenues:
Institutional
Services Assets Under Management(1)
(by
Investment Service)
December 31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 19,028 | $ | 22,598 | $ | 49,235 | (15.8 | )% | (54.1 | )% | ||||||||||
Global
and International
|
88,758 | 84,787 | 192,472 | 4.7 | (55.9 | ) | ||||||||||||||
107,786 | 107,385 | 241,707 | 0.4 | (55.6 | ) | |||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
18,124 | 16,075 | 31,908 | 12.7 | (49.6 | ) | ||||||||||||||
Global
and International
|
34,762 | 38,034 | 88,691 | (8.6 | ) | (57.1 | ) | |||||||||||||
52,886 | 54,109 | 120,599 | (2.3 | ) | (55.1 | ) | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
71,832 | 66,151 | 73,240 | 8.6 | (9.7 | ) | ||||||||||||||
Global
and International(2)
|
41,083 | 37,900 | 44,066 | 8.4 | (14.0 | ) | ||||||||||||||
112,915 | 104,051 | 117,306 | 8.5 | (11.3 | ) | |||||||||||||||
Other(3):
|
||||||||||||||||||||
U.S.
|
9,677 | 6,617 | 12,426 | 46.2 | (46.7 | ) | ||||||||||||||
Global
and International(2)
|
16,788 | 19,199 | 16,043 | (12.6 | ) | 19.7 | ||||||||||||||
26,465 | 25,816 | 28,469 | 2.5 | (9.3 | ) | |||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
118,661 | 111,441 | 166,809 | 6.5 | (33.2 | ) | ||||||||||||||
Global
and International
|
181,391 | 179,920 | 341,272 | 0.8 | (47.3 | ) | ||||||||||||||
Total
|
$ | 300,052 | $ | 291,361 | $ | 508,081 | 3.0 | (42.7 | ) |
_____________
(1)
|
Excludes
certain non-discretionary client
relationships.
|
(2)
|
Certain
client assets were reclassified among investment services to more
accurately reflect how these assets are managed by our
firm.
|
(3)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
Revenues
from Institutional Services
(by
Investment Service)
Years Ended December
31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 57,596 | $ | 108,921 | $ | 153,747 | (47.1 | )% | (29.2 | )% | ||||||||||
Global
and International
|
375,914 | 607,431 | 747,957 | (38.1 | ) | (18.8 | ) | |||||||||||||
433,510 | 716,352 | 901,704 | (39.5 | ) | (20.6 | ) | ||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
51,017 | 70,119 | 108,691 | (27.2 | ) | (35.5 | ) | |||||||||||||
Global
and International
|
150,612 | 276,676 | 311,727 | (45.6 | ) | (11.2 | ) | |||||||||||||
201,629 | 346,795 | 420,418 | (41.9 | ) | (17.5 | ) | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
90,798 | 85,333 | 91,144 | 6.4 | (6.4 | ) | ||||||||||||||
Global
and International
|
73,316 | 77,640 | 53,533 | (5.6 | ) | 45.0 | ||||||||||||||
164,114 | 162,973 | 144,677 | 0.7 | 12.6 | ||||||||||||||||
Other(1):
|
||||||||||||||||||||
U.S.
|
1,895 | 2,883 | 4,441 | (34.3 | ) | (35.1 | ) | |||||||||||||
Global
and International
|
9,343 | 11,633 | 10,353 | (19.7 | ) | 12.4 | ||||||||||||||
11,238 | 14,516 | 14,794 | (22.6 | ) | (1.9 | ) | ||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
201,306 | 267,256 | 358,023 | (24.7 | ) | (25.4 | ) | |||||||||||||
Global
and International
|
609,185 | 973,380 | 1,123,570 | (37.4 | ) | (13.4 | ) | |||||||||||||
810,491 | 1,240,636 | 1,481,593 | (34.7 | ) | (16.3 | ) | ||||||||||||||
Distribution
Revenues(2)
|
— | — | 292 | — | (100.0 | ) | ||||||||||||||
Shareholder
Servicing Fees(2)
|
673 | — | — | n/m | — | |||||||||||||||
Total
|
$ | 811,164 | $ | 1,240,636 | $ | 1,481,885 | (34.6 | ) | (16.3 | ) |
_____________
(1)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
(2)
|
For
a description of distribution revenues and shareholder servicing fees,
see “Retail Services”
below.
|
As of
December 31, 2009, 2008 and 2007, Institutional Services represented
approximately 61%, 63% and 63%, respectively, of our company-wide AUM. The fees
we earned from these services represented approximately 28%, 35% and 33% of our
company-wide net revenues for 2009, 2008 and 2007, respectively.
AXA and
its subsidiaries together constitute our largest institutional client. Their AUM
accounted for approximately 26%, 25% and 16% of our total institutional AUM as
of December 31, 2009, 2008 and 2007, respectively, and approximately 10%, 8% and
7% of our total institutional revenues for 2009, 2008 and 2007,
respectively.
The
institutional AUM we manage for our affiliates, along with our nine other
largest institutional accounts, accounted for approximately 40% of our total
institutional AUM as of December 31, 2009 and approximately 19% of our total
institutional revenues for the year ended December 31, 2009. 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, 2009.
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 13% of institutional
assets under management, which are primarily invested in long-only equity and
fixed income services. 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
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 11,253 | $ | 12,086 | $ | 33,488 | (6.9 | )% | (63.9 | )% | ||||||||||
Global
and International
|
26,232 | 28,053 | 56,560 | (6.5 | ) | (50.4 | ) | |||||||||||||
37,485 | 40,139 | 90,048 | (6.6 | ) | (55.4 | ) | ||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
9,552 | 8,494 | 24,637 | 12.5 | (65.5 | ) | ||||||||||||||
Global
and International
|
14,339 | 11,544 | 23,530 | 24.2 | (50.9 | ) | ||||||||||||||
23,891 | 20,038 | 48,167 | 19.2 | (58.4 | ) | |||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
9,635 | 9,857 | 10,627 | (2.3 | ) | (7.2 | ) | |||||||||||||
Global
and International
|
30,263 | 20,178 | 29,855 | 50.0 | (32.4 | ) | ||||||||||||||
39,898 | 30,035 | 40,482 | 32.8 | (25.8 | ) | |||||||||||||||
Other(1):
|
||||||||||||||||||||
U.S.
|
16,416 | 9,851 | 4,468 | 66.6 | 120.5 | |||||||||||||||
Global
and International
|
3,007 | 1,580 | — | 90.3 | n/m | |||||||||||||||
19,423 | 11,431 | 4,468 | 69.9 | 155.8 | ||||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
46,856 | 40,288 | 73,220 | 16.3 | (45.0 | ) | ||||||||||||||
Global
and International
|
73,841 | 61,355 | 109,945 | 20.4 | (44.2 | ) | ||||||||||||||
Total
|
$ | 120,697 | $ | 101,643 | $ | 183,165 | 18.7 | (44.5 | ) |
_____________
(1)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
Revenues
from Retail Services
(by
Investment Service)
Years Ended December
31,
|
%
Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 45,211 | $ | 88,394 | $ | 129,125 | (48.9 | )% | (31.5 | )% | ||||||||||
Global
and International
|
121,514 | 216,561 | 262,369 | (43.9 | ) | (17.5 | ) | |||||||||||||
166,725 | 304,955 | 391,494 | (45.3 | ) | (22.1 | ) | ||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
46,672 | 84,651 | 119,880 | (44.9 | ) | (29.4 | ) | |||||||||||||
Global
and International
|
85,583 | 130,247 | 168,817 | (34.3 | ) | (22.8 | ) | |||||||||||||
132,255 | 214,898 | 288,697 | (38.5 | ) | (25.6 | ) | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
30,219 | 30,888 | 39,644 | (2.2 | ) | (22.1 | ) | |||||||||||||
Global
and International
|
175,595 | 195,373 | 224,335 | (10.1 | ) | (12.9 | ) | |||||||||||||
205,814 | 226,261 | 263,979 | (9.0 | ) | (14.3 | ) | ||||||||||||||
Other(1):
|
||||||||||||||||||||
U.S.
|
8,972 | 3,702 | 1,868 | 142.4 | 98.2 | |||||||||||||||
Global
and International
|
9,429 | 1,297 | — | 627.0 | n/m | |||||||||||||||
18,401 | 4,999 | 1,868 | 268.1 | 167.6 | ||||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
131,074 | 207,635 | 290,517 | (36.9 | ) | (28.5 | ) | |||||||||||||
Global
and International
|
392,121 | 543,478 | 655,521 | (27.8 | ) | (17.1 | ) | |||||||||||||
523,195 | 751,113 | 946,038 | (30.3 | ) | (20.6 | ) | ||||||||||||||
Distribution
Revenues(2)
|
275,372 | 376,372 | 471,031 | (26.8 | ) | (20.1 | ) | |||||||||||||
Shareholder
Servicing Fees(2)
|
89,689 | 100,053 | 104,132 | (10.4 | ) | (3.9 | ) | |||||||||||||
Total
|
$ | 888,256 | $ | 1,227,538 | $ | 1,521,201 | (27.6 | ) | (19.3 | ) |
_____________
(1)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
(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 generally must 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 31%, 35% and 34% of our
company-wide net revenues for the years ended December 31, 2009, 2008 and 2007,
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 unaffiliated life insurance companies (“Variable Product Series
Fund”), and we sub-advise variable product mutual funds sponsored by affiliates.
As of December 31, 2009, we managed or sub-advised approximately $36 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 25%, 21% and 22% of our
total retail AUM as of December 31, 2009, 2008 and 2007, respectively, and
approximately 5%, 7% and 7% of our total retail revenues for 2009, 2008 and
2007, respectively.
Our
mutual fund distribution system (the “System”) includes a multi-class share
structure that permits open-end AllianceBernstein Funds to offer investors
various options for the purchase of mutual fund shares, including both front-end
load shares and back-end load shares. For front-end load shares,
AllianceBernstein Investments 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 $18.7 million, $33.7 million and $31.1
million, totaled approximately $31.6 million, $9.1 million and $84.1 million
during 2009, 2008 and 2007, respectively. We have not offered back-end load
shares to new investors in U.S. Funds since January 31, 2009.
The rules
of the Financial Industry Regulatory Authority, Inc. (“FINRA”) effectively cap
the aggregate sales charges that may be received from each open-end U.S. Fund by
AllianceBernstein Investments at 6.25% of cumulative gross sales (plus interest
at the prime rate plus 1% per annum).
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 financial intermediaries that sell shares of
our funds, a practice sometimes referred to as revenue sharing. Although the
amount of payments made 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.
Financial
intermediaries 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
2009, the 10 financial intermediaries responsible for the largest volume of
sales of open-end AllianceBernstein Funds were responsible for 36% of such
sales. AXA Advisors, LLC (“AXA Advisors”), a wholly-owned subsidiary of AXA
Financial that utilizes members of AXA Equitable’s insurance sales force as its
registered representatives, was responsible for approximately 2%, 4% and 2% of
total sales of shares of open-end AllianceBernstein Funds in 2009, 2008 and
2007, 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.
Morgan
Stanley Smith Barney LLC (formed in 2009 by the combination of the Global Wealth
Management group of Morgan Stanley & Co. Inc. and the Smith Barney division
of Citigroup Global Markets Inc., “MSSB”) was responsible for approximately 5%
of our open-end AllianceBernstein Fund sales in 2009. Merrill Lynch
& Co., Inc. (and its subsidiaries, “Merrill Lynch”), which was acquired by
Bank of America Corporation in 2008, was responsible for approximately 5%, 8%
and 7% of open-end AllianceBernstein Fund sales in 2009, 2008 and 2007,
respectively. Citigroup Inc. (and its subsidiaries, “Citigroup”) was responsible
for approximately 4%, 7% and 7% of open-end AllianceBernstein Fund sales in
2009, 2008 and 2007, respectively. MSSB, Merrill Lynch and Citigroup are not
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 was approximately 1% of total industry
assets in the U.S. during 2009. 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 our shareholder services (see below) and the amounts
and types of distribution assistance and administrative services payments we
make to financial intermediaries, which we believe are competitive with others
in the industry.
AllianceBernstein
Investor Services, which operates in San Antonio, Texas, provides transfer
agency and related services for each open-end U.S. Fund (except the SCB Funds)
and provides shareholder servicing for each open-end U.S. Fund’s shareholder
accounts (approximately 3.5 million accounts in total), for which it receives a
monthly fee under servicing agreements with each open-end U.S. Fund 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, which approximate $7 million per year, must be specifically approved
in advance by each fund’s board of directors or trustees.
A unit of
AllianceBernstein Luxembourg (“ABIS Lux”) is the transfer agent for
substantially all of the Non-U.S. Funds. ABIS Lux, based in Luxembourg and
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. 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
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 14,137 | $ | 13,254 | $ | 25,259 | 6.7 | % | (47.5 | )% | ||||||||||
Global
and International
|
11,751 | 11,627 | 25,497 | 1.1 | (54.4 | ) | ||||||||||||||
25,888 | 24,881 | 50,756 | 4.0 | (51.0 | ) | |||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
10,384 | 8,425 | 16,004 | 23.3 | (47.4 | ) | ||||||||||||||
Global
and International
|
6,941 | 5,709 | 12,175 | 21.6 | (53.1 | ) | ||||||||||||||
17,325 | 14,134 | 28,179 | 22.6 | (49.8 | ) | |||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
30,862 | 29,287 | 29,498 | 5.4 | (0.7 | ) | ||||||||||||||
Global
and International
|
621 | 606 | 676 | 2.5 | (10.4 | ) | ||||||||||||||
31,483 | 29,893 | 30,174 | 5.3 | (0.9 | ) | |||||||||||||||
Other(1):
|
||||||||||||||||||||
U.S.
|
15 | 21 | 25 | (28.6 | ) | (16.0 | ) | |||||||||||||
Global
and International
|
42 | 18 | 10 | 133.3 | 80.0 | |||||||||||||||
57 | 39 | 35 | 46.2 | 11.4 | ||||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
55,398 | 50,987 | 70,786 | 8.7 | (28.0 | ) | ||||||||||||||
Global
and International
|
19,355 | 17,960 | 38,358 | 7.8 | (53.2 | ) | ||||||||||||||
Total
|
$ | 74,753 | $ | 68,947 | $ | 109,144 | 8.4 | (36.8 | ) |
_____________
(1)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
Revenues
from Private Client Services
(by
Investment Service)
Years Ended December
31,
|
% Change
|
|||||||||||||||||||
2009
|
2008(1)
|
2007(1)
|
2009-08 | 2008-07 | ||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Investment
Advisory and Services Fees:
|
||||||||||||||||||||
Value
Equity:
|
||||||||||||||||||||
U.S.
|
$ | 143,390 | $ | 232,662 | $ | 286,851 | (38.4 | )% | (18.9 | ) % | ||||||||||
Global
and International
|
113,908 | 191,805 | 244,492 | (40.6 | ) | (21.5 | ) | |||||||||||||
257,298 | 424,467 | 531,343 | (39.4 | ) | (20.1 | ) | ||||||||||||||
Growth
Equity:
|
||||||||||||||||||||
U.S.
|
106,131 | 159,622 | 161,078 | (33.5 | ) | (0.9 | ) | |||||||||||||
Global
and International
|
68,693 | 106,358 | 121,628 | (35.4 | ) | (12.6 | ) | |||||||||||||
174,824 | 265,980 | 282,706 | (34.3 | ) | (5.9 | ) | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
152,205 | 154,936 | 142,078 | (1.8 | ) | 9.0 | ||||||||||||||
Global
and International
|
2,126 | 2,336 | 2,316 | (9.0 | ) | 0.9 | ||||||||||||||
154,331 | 157,272 | 144,394 | (1.9 | ) | 8.9 | |||||||||||||||
Other(2):
|
||||||||||||||||||||
U.S.
|
17 | 15 | 23 | 13.3 | (34.8 | ) | ||||||||||||||
Global
and International
|
176 | 43 | 91 | 309.3 | (52.7 | ) | ||||||||||||||
193 | 58 | 114 | 232.8 | (49.1 | ) | |||||||||||||||
Total
Investment Advisory and Services Fees:
|
||||||||||||||||||||
U.S.
|
401,743 | 547,235 | 590,030 | (26.6 | ) | (7.3 | ) | |||||||||||||
Global
and International
|
184,903 | 300,542 | 368,527 | (38.5 | ) | (18.4 | ) | |||||||||||||
586,646 | 847,777 | 958,557 | (30.8 | ) | (11.6 | ) | ||||||||||||||
Distribution
Revenues(3)
|
1,956 | 2,053 | 2,112 | (4.7 | ) | (2.8 | ) | |||||||||||||
Shareholder
Servicing Fees(3)
|
1,063 | — | — | n/m | — | |||||||||||||||
Total
|
$ | 589,665 | $ | 849,830 | $ | 960,669 | (30.6 | ) | (11.5 | ) |
_____________
(1)
|
Certain
2008 and 2007 investment advisory fee amounts have been reclassified to
confirm to our 2009 product
classification.
|
(2)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
(3)
|
For
a description of distribution revenues and shareholder servicing fees,
see “Retail Services”
above.
|
Private
client accounts generally are managed pursuant to a written investment advisory
agreement among the client, AllianceBernstein and SCB LLC, 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 types of investment services 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 include
performance-based fees, incentive allocations or carried interests in addition
to asset-based fees. We are eligible to earn performance-based fees on
approximately 4% of private client AUM, substantially all of which is held in
hedge funds.
Revenues
from Private Client Services represented approximately 20%, 24% and 21% of our
company-wide net revenues for the years ended December 31, 2009, 2008 and 2007,
respectively.
Bernstein
Research Services
The
following table summarizes Bernstein Research Services revenues:
Revenues
from Bernstein Research Services
Years Ended December
31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Bernstein
Research Services
|
$ | 434,605 | $ | 471,716 | $ | 423,553 | (7.9 | ) | 11.4 |
We earn
revenues for providing investment research to, and executing brokerage
transactions for, institutional clients. These clients compensate us principally
by directing SCB LLC and SCBL to execute brokerage transactions on their behalf,
for which we earn transaction charges. These services accounted for
approximately 15%, 13% and 9% of our company-wide net revenues for the years
ended December 31, 2009, 2008 and 2007, 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.
We also
earn revenues from the equity capital markets services we provide to issuers of
publicly-traded securities. Depending on our role in a particular
equity issuance, these revenues may take the form of underwriting fees,
management fees and/or selling concessions.
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 custodians.
Brokerage
AllianceBernstein
generally has 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 also 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
We have
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”.
Regulation
Virtually
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.
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 and servicing 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 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. Sanford C. Bernstein, a unit of AB Hong Kong, is regulated
by the Hong Kong Securities and Futures Commission.
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, 2009, 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 a 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.
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% 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 also 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 approximately 40
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 Bernstein Research Services businesses. For additional
details about this business combination, see Note 2 to AllianceBernstein’s
consolidated financial statements in Item 8.
As of
December 31, 2009, 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):
![Graph 7](https://www.sec.gov/Archives/edgar/data/0000825313/000114036110005696/graph_7.jpg)
_____________
(1)
|
Direct
and indirect ownership including unallocated Holding Units held in a trust
for our long-term incentive compensation
plans.
|
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 1.4% equity interest in Holding, AXA, through certain
of its subsidiaries (see
“Principal Security Holders” in Item 12), had an approximate 62.1%
economic interest in AllianceBernstein as of December 31, 2009.
AXA and
its subsidiaries own all of the issued and outstanding shares of the common
stock of AXA Financial. AXA Financial indirectly owns all of the issued and
outstanding shares of AXA Equitable. See “Principal Security Holders” in
Item 12.
AXA, a
société anonyme
organized under the laws of France, is the holding company for an international
group of insurance and related financial services companies engaged in the
financial protection and wealth management businesses. AXA’s operations are
diverse geographically, with major operations in Western Europe, North America
and the Asia/Pacific regions and, to a lesser extent, in other regions including
the Middle East and Africa. AXA has five operating business segments: life and
savings, property and casualty, international insurance, asset management and
other financial services.
Competition
The
financial services industry is intensely competitive and new entrants are
continually attracted to it. No single or small group of competitors is dominant
in the industry.
We
compete in all aspects of our business with numerous investment management
firms, mutual fund sponsors, brokerage and investment banking firms, insurance
companies, banks, savings and loan associations, and other financial
institutions that often provide investment products that have similar features
and objectives as those we offer. Our competitors offer a wide range of
financial services to the same customers that we seek to serve. Some of our
competitors are larger, have a broader range of product choices and investment
capabilities, conduct business in more markets, and have substantially greater
resources than we do. These factors may place us at a competitive disadvantage,
and we can give no assurance that our strategies and efforts to maintain and
enhance our current client relationships, and create new ones, will be
successful.
AXA 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:
|
•
|
our
investment performance for clients;
|
|
•
|
our
commitment to place the interests of our clients
first;
|
|
•
|
the
quality of our research;
|
|
•
|
our
ability to attract, retain, and motivate highly skilled, and often highly
specialized, personnel;
|
|
•
|
the
array of investment products we
offer;
|
|
•
|
the
fees we charge;
|
|
•
|
Morningstar/Lipper
rankings for the AllianceBernstein
Funds;
|
|
•
|
our
operational effectiveness;
|
|
•
|
our
ability to further develop and market our brand;
and
|
|
•
|
our
global presence.
|
Increased
competition could reduce the demand for our products and services, which could
have a material adverse effect on our 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.
|
Risk
Factors
|
Please
read this section along with the description of our business in Item 1, the competition
section just above and AllianceBernstein’s financial information contained in Items 6, 7 and
8. The majority of the risk factors discussed below directly affect
AllianceBernstein. These risk factors also affect Holding because Holding’s
principal source of income and cash flow is attributable to its investment in
AllianceBernstein. See also
“Cautions Regarding Forward-Looking Statements” in Item 7.
Poor
investment performance may lead to loss of clients and a decline in AUM and
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, and in particular during the fourth quarter, we underperformed
benchmarks in virtually all of our services, in some cases by substantial
amounts. In so doing, we failed to meet client expectations, which contributed
to net outflows across each of our three buy-side distribution channels in 2008
and 2009. Although our investment performance improved significantly in 2009, we
continued to experience net outflows in each of our three buy-side distribution
channels, particularly in the Institutions channel. Although we are
hopeful that our net outflows will continue to decline, this will depend on a
number of factors, including our ability to sustain our improved investment
performance, which cannot be assured, and the view that clients have of us as
investment managers. Continuation of substantial net outflows for an extended
period may have a significantly adverse effect on our results of operations
and business prospects.
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 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
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 and early in 2009. These conditions had a
significant adverse affect on our 2009 and 2008 results of
operations. Although global markets improved during 2009, there can
be no assurance that such improvement will continue or that market conditions
will not deteriorate again, which may have a significant adverse effect on our
results of operations and business prospects.
Prolonged
weakness in asset values may result in impairment of goodwill, intangible assets
and the deferred sales commission asset.
If market
conditions deteriorate significantly and securities valuations are depressed for
prolonged periods of time (factors that are beyond our control), our AUM,
revenues, profitability and unit price may be adversely affected. As a result,
goodwill, intangible assets and/or the deferred sales commission asset may
become impaired. 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
results of operations and business prospects.
Furthermore,
the investment management agreements pursuant to which we manage the U.S. Funds
must be renewed and approved by the Funds’ boards of directors or
trustees annually. A significant majority of the
directors/trustees are independent. Consequently, there can be no
assurance that the board of directors or trustees of each fund will approve the
fund’s investment management agreement each year, or will not condition its
approval on revised terms that may be adverse to us.
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 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 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.
We
may be unable to continue to attract and retain key personnel.
Our
business depends on our ability to attract, retain and motivate highly skilled,
and often highly specialized, technical, managerial and executive personnel;
there is no assurance that we will be able to do so.
The
market for qualified research analysts, portfolio managers, financial advisers,
traders and other professionals is extremely competitive and is characterized by
frequent movement of these investment professionals among different firms.
Portfolio managers and financial advisers often maintain strong, personal
relationships with their clients so their departure could cause us to lose
client accounts, which could have a material adverse effect on our 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 fail to achieve the 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 13% of the assets we manage for institutional clients and
approximately 4% of the assets we manage for private clients (in total,
approximately 9% 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. Our performance-based fees in
2009, 2008 and 2007 were $29.8 million, $13.4 million and $81.2 million,
respectively.
Approximately
72% of our hedge fund AUM is subject to high-watermarks, and we ended the fourth
quarter of 2009 with approximately 89% of this 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 2010.
If
we are unable to maintain our fee levels, or if our mix of assets under
management changes, our results of operations may be adversely
affected.
A shift
from active equity services towards fixed income services and passive services
may result in a corresponding decline in revenues and income because we
generally earn higher fees from assets invested in our active equity services
than in our fixed income services or passive services. A shift from global and
international services to U.S. services may have a similar effect. The global
economic turmoil experienced during the second half of 2008 and early in 2009
caused some investors to shift their investment preferences from active equities
to fixed income, passive and money market products (some of which we do not
offer), and this trend may continue or accelerate.
In
addition, we may be required to reduce our fee levels, or restructure the fees
we charge, because of, among other things, regulatory initiatives (whether
industry-wide or specifically targeted), court decisions and competitive
considerations. A reduction in fees will reduce our
revenues. A reduction in revenues, without a commensurate reduction
in expenses, will adversely affect our results of operations.
We
may engage in strategic transactions that could pose risks.
As part
of our business strategy, we consider potential strategic transactions,
including acquisitions, dispositions, consolidations, joint ventures and similar
transactions, some of which may be material. These transactions, if
undertaken, may involve a number of risks and present financial, managerial and
operational challenges, including:
|
·
|
adverse
effects on our earnings if acquired intangible assets or goodwill become
impaired;
|
|
·
|
existence
of unknown liabilities or contingencies that arise after closing;
and
|
|
·
|
potential
disputes with counterparties.
|
Acquisitions
also pose the risk that any business we acquire may lose customers or employees
or could underperform relative to expectations. Furthermore, strategic
transactions may require us to increase our leverage or, if we issue
AllianceBernstein Units or Holding Units to fund an acquisition, dilute the
holdings of our existing Unitholders.
Because
many of our subsidiary operations are located outside of the United States and
have functional currencies other than the U.S. dollar, changes in exchange rates
to the U.S. dollar affect our reported financial results from one period to the
next.
Although
the largest components of our net revenues and expenses, as well as our AUM, are
presently derived from the United States, we have subsidiaries outside of the
United States whose functional currencies are not the U.S. dollar. As
a result, fluctuations in exchange rates to the U.S. dollar affect our reported
financial results from one period to the next. We may not be
successful in our efforts to hedge our exposure to such fluctuations, which
could have a negative effect on our reported financial results.
The
individuals, counterparties or issuers on which we rely in the course of
performing services for us or our clients may be unable or unwilling to honor
their contractual obligations to us.
We rely
on various third party counterparties and other vendors to fulfill their
obligations to us, whether specified by contract, course of dealing or
otherwise. Default rates, downgrades and disputes with counterparties as to the
valuation of collateral increase significantly in times of market
stress. Furthermore, disruptions in the financial markets and other
economic challenges, like those presented by the recent global financial crisis,
may cause our counterparties and other vendors to experience significant cash
flow problems or even render them insolvent, which may expose us to significant
costs.
Maintaining
adequate liquidity for our general business needs depends upon certain factors,
including operating cash flows and our access to credit on reasonable
terms.
Our
financial condition is dependent on our cash flow from operations, which is
subject to the performance of the capital markets, our ability to maintain and
grow client assets under management and other factors beyond our control. Our
ability to issue public or private debt on reasonable terms may be limited by
adverse market conditions, our profitability, our creditworthiness as perceived
by lenders and changes in government regulations, including tax rates and
interest rates. Furthermore, our access to bank credit or the debt
markets depends significantly on our credit ratings. A downgrade to
our credit ratings could increase our borrowing costs and limit our access to
the capital markets. If we are unable to obtain funds and/or financing, we may
be forced to incur unanticipated costs or revise our strategic plans, which
could have a material adverse effect on our financial condition, results of
operations and business prospects.
Unpredictable
events, including natural disaster, technology failure and terrorist attack, may
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, thereby decreasing
investor confidence and making investment products generally less
attractive;
|
|
•
|
inflicting
loss of life;
|
|
•
|
triggering
massive technology failures or delays;
and
|
|
•
|
requiring
substantial capital expenditures and operating expenses to remediate
damage and restore operations.
|
Our
operations require experienced, professional staff. Loss of a substantial number
of such persons or an inability to provide properly equipped places for them to
work may, by disrupting our operations, adversely affect our 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 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 comply
with 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 we may use 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 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, 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.
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 injured our reputation among many clients, prospects and consultants. We
are focused on continuing the improved investment performance we delivered in
2009 and, in so doing, rebuilding our reputation. Failure in this endeavor,
however, could have a material adverse effect on our reputation, 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
expands, 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
reputation, 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 may adversely affect Bernstein Research Services 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 and market share 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.
Despite
our efforts to manage exposures from principal positions taken by our sell-side
business, these positions are subject to market risk.
Our
sell-side business may use the firm’s capital to facilitate customer
transactions, primarily relating to our trading activities in listed
options. The resulting principal positions are exposed to market
risk. We seek to manage this risk both by engaging in transactions
designed to hedge the market risk and by maintaining a risk platform that
includes the measurement and monitoring of financial exposures and operational
processes. Our ability to manage this risk may be limited, however,
by adverse changes in the liquidity of the security or the hedging instrument
and in the correlation of price movements between the security and the hedging
instrument. Similarly, the risk monitoring and risk mitigation
techniques we employ and the related judgments we make cannot anticipate every
possible economic and financial circumstance and
outcome. Consequently, we may incur losses, which would adversely
affect our results of operations and require us to increase our regulatory
capital.
The
costs of insurance are substantial and may increase.
Our
insurance expenses are significant and can fluctuate significantly from year to
year. Although these expenses slightly decreased in 2009, future increases 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. Also, there can
be no assurance that a claim or claims will be covered by our insurance policies
or, if covered, will not exceed the limits of available insurance coverage, or
that our insurers will remain solvent and meet their obligations.
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 may 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 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.
Regulation
of the financial services industry is evolving.
As an
investment firm, we are subject to financial services laws, regulations,
corporate governance requirements, administrative actions and policies in each
location in which we operate. In 2009, as many emergency government programs
slowed or wound down, global regulatory and legislative focus generally moved to
a second phase of broader reform and a restructuring of financial institution
regulation. Legislators and regulators, particularly in the United States and
Europe, are currently considering a wide range of proposals that, if enacted,
may result in changes to the manner in which our global operations are
regulated.
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,
may make it more difficult for us to compete effectively. For
additional information regarding competitive factors, see “Competition” in Item
1.
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 10.06 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% 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 may 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
and again in 2009, 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. The legislation, in the form proposed, would not affect
Holding’s tax status. 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 249,217 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 a lease expiring in
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. 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, 2009, 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 2009.
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 10.06 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 2009 and 2008 and the high and low sale
prices of Holding Units reflected on the NYSE composite transaction tape during
2009 and 2008:
Quarters Ended 2009
|
||||||||||||||||||||
December 31
|
September 30
|
June 30
|
March 31
|
Total
|
||||||||||||||||
Cash
distributions per AllianceBernstein Unit(1)
|
$ | 0.70 | $ | 0.74 | $ | 0.48 | $ | 0.14 | $ | 2.06 | ||||||||||
Cash
distributions per Holding Unit(1)
|
$ | 0.62 | $ | 0.67 | $ | 0.41 | $ | 0.07 | $ | 1.77 | ||||||||||
Holding
Unit prices:
|
||||||||||||||||||||
High
|
$ | 28.91 | $ | 27.81 | $ | 22.62 | $ | 23.27 | ||||||||||||
Low
|
$ | 24.40 | $ | 17.83 | $ | 14.28 | $ | 10.12 |
Quarters Ended 2008
|
||||||||||||||||||||
December 31
|
September 30
|
June 30
|
March 31
|
Total
|
||||||||||||||||
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 |
_____________
(1)
|
Declared
and paid during the following
quarter.
|
On
December 31, 2009, the closing price of a Holding Unit on the NYSE was $28.10
per Unit and there were 1,148 Holding Unitholders of record for approximately
80,000 beneficial owners. On December 31, 2009, there were 507 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
We did
not engage in any unregistered sales of our 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
Total Number of Holding Units
Purchased
|
Average Price Paid Per Holding Unit, net of
Commissions
|
Total Number of Holding Units Purchased as Part of
Publicly Announced Plans or Programs
|
Maximum Number (or Approximate Dollar Value) of
Holding Units that May Yet Be Purchased Under the Plans or
Programs
|
|||||||||||||
(a) | (b) | (c) | (d) | |||||||||||||
Period
|
||||||||||||||||
10/1/09-10/31/09(1)
|
3,167 | $ | 24.74 | — | — | |||||||||||
11/1/09-11/30/09
|
— | — | — | — | ||||||||||||
12/1/09-12/31/09(2)
|
292,350 | 25.92 | — | — | ||||||||||||
Total
|
295,517 | $ | 25.91 | — | — |
_____________
(1)
|
On
October 2 and 16, 2009, we purchased from employees 2,932 Holding Units
and 235 Holding Units, respectively, to allow them to fulfill statutory
withholding tax requirements at the time of distribution of long-term
incentive compensation awards.
|
(2)
|
On
December 1 and 18, 2009, we purchased from employees 12,086 Holding Units
and 280,264 Holding Units, respectively, to allow them to fulfill
statutory withholding tax requirements at the time of distribution of
long-term incentive compensation
awards.
|
Neither
AllianceBernstein nor any of our affiliates purchased AllianceBernstein Units
during the fourth quarter of the fiscal year covered by this
report.
Item
6.
|
Selected
Financial Data
|
AllianceBernstein Holding L.P.
Selected
Financial Data
Years Ended December 31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||||||
INCOME
STATEMENT DATA:
|
||||||||||||||||||||
Equity
in net income attributable to AllianceBernstein
Unitholders
|
$ | 192,513 | $ | 278,636 | $ | 415,256 | $ | 359,469 | $ | 275,054 | ||||||||||
Income
taxes
|
25,324 | 33,910 | 39,104 | 34,473 | 26,990 | |||||||||||||||
Net
income
|
$ | 167,189 | $ | 244,726 | $ | 376,152 | $ | 324,996 | $ | 248,064 | ||||||||||
Basic
net income per unit
|
$ | 1.80 | $ | 2.79 | $ | 4.35 | $ | 3.85 | $ | 3.04 | ||||||||||
Diluted
net income per unit
|
$ | 1.80 | $ | 2.79 | $ | 4.32 | $ | 3.82 | $ | 3.02 | ||||||||||
CASH
DISTRIBUTIONS PER UNIT(1)
|
$ | 1.77 | $ | 2.68 | $ | 4.33 | $ | 4.02 | $ | 3.00 | ||||||||||
BALANCE
SHEET DATA AT PERIOD END:
|
||||||||||||||||||||
Total
assets
|
$ | 1,912,301 | $ | 1,601,442 | $ | 1,575,234 | $ | 1,568,034 | $ | 1,377,054 | ||||||||||
Partners’
capital
|
$ | 1,910,118 | $ | 1,596,155 | $ | 1,567,460 | $ | 1,559,188 | $ | 1,368,846 |
_____________
(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,
|
||||||||||||||||||||
2009
|
2008(1)
|
2007(1)
|
2006(1)
|
2005(1)
|
||||||||||||||||
(in
thousands, except per unit amounts and unless otherwise
indicated)
|
||||||||||||||||||||
INCOME
STATEMENT DATA:
|
||||||||||||||||||||
Revenues:
|
||||||||||||||||||||
Investment
advisory and services fees
|
$ | 1,920,332 | $ | 2,839,526 | $ | 3,386,188 | $ | 2,890,229 | $ | 2,259,392 | ||||||||||
Distribution
revenues
|
277,328 | 378,425 | 473,435 | 421,045 | 397,800 | |||||||||||||||
Bernstein
research services
|
434,605 | 471,716 | 423,553 | 375,075 | 352,757 | |||||||||||||||
Dividend
and interest income
|
26,730 | 91,752 | 284,014 | 266,520 | 152,781 | |||||||||||||||
Investment
gains (losses)
|
144,447 | (349,172 | ) | 29,690 | 62,200 | 29,070 | ||||||||||||||
Other
revenues
|
107,848 | 118,436 | 122,869 | 123,171 | 116,788 | |||||||||||||||
Total
revenues
|
2,911,290 | 3,550,683 | 4,719,749 | 4,138,240 | 3,308,588 | |||||||||||||||
Less:
interest expense
|
4,411 | 36,524 | 194,432 | 187,833 | 95,863 | |||||||||||||||
Net
revenues
|
2,906,879 | 3,514,159 | 4,525,317 | 3,950,407 | 3,212,725 | |||||||||||||||
Expenses:
|
||||||||||||||||||||
Employee
compensation and benefits
|
1,298,053 | 1,454,691 | 1,833,796 | 1,547,627 | 1,262,198 | |||||||||||||||
Promotion
and servicing:
|
||||||||||||||||||||
Distribution
plan payments
|
207,643 | 274,359 | 335,132 | 292,886 | 291,953 | |||||||||||||||
Amortization
of deferred sales commissions
|
54,922 | 79,111 | 95,481 | 100,370 | 131,979 | |||||||||||||||
Other
|
173,250 | 207,506 | 252,468 | 218,944 | 198,004 | |||||||||||||||
General
and administrative
|
558,361 | 539,198 | 574,506 | 574,904 | 378,856 | |||||||||||||||
Interest
on borrowings
|
2,696 | 13,077 | 23,970 | 23,124 | 25,109 | |||||||||||||||
Amortization
of intangible assets
|
21,126 | 20,716 | 20,716 | 20,710 | 20,700 | |||||||||||||||
Total
expenses
|
2,316,051 | 2,588,658 | 3,136,069 | 2,778,565 | 2,308,799 | |||||||||||||||
Operating
income
|
590,828 | 925,501 | 1,389,248 | 1,171,842 | 903,926 | |||||||||||||||
Non-operating
income
|
33,657 | 18,728 | 15,756 | 20,196 | 34,446 | |||||||||||||||
Income
before income taxes
|
624,485 | 944,229 | 1,405,004 | 1,192,038 | 938,372 | |||||||||||||||
Income
taxes
|
45,977 | 95,803 | 127,845 | 75,045 | 64,571 | |||||||||||||||
Net
income
|
578,508 | 848,426 | 1,277,159 | 1,116,993 | 873,801 | |||||||||||||||
Net
income of consolidated entities attributable to non-controlling
interests
|
(22,381 | ) | (9,186 | ) | (16,715 | ) | (8,392 | ) | (5,483 | ) | ||||||||||
Net
income attributable to AllianceBernstein Unitholders
|
$ | 556,127 | $ | 839,240 | $ | 1,260,444 | $ | 1,108,601 | $ | 868,318 | ||||||||||
Basic
net income per AllianceBernstein Unit
|
$ | 2.07 | $ | 3.18 | $ | 4.80 | $ | 4.26 | $ | 3.37 | ||||||||||
Diluted
net income per AllianceBernstein Unit
|
$ | 2.07 | $ | 3.18 | $ | 4.77 | $ | 4.22 | $ | 3.35 | ||||||||||
Operating
margin(2)
|
19.6 | % | 26.1 | % | 30.3 | % | 29.5 | % | 28.0 | % | ||||||||||
CASH
DISTRIBUTIONS PER ALLIANCEBERNSTEIN UNIT(3)
|
$ | 2.06 | $ | 3.07 | $ | 4.77 | $ | 4.42 | $ | 3.33 | ||||||||||
BALANCE
SHEET DATA AT PERIOD END:
|
||||||||||||||||||||
Total
assets
|
$ | 7,214,940 | $ | 8,503,459 | $ | 9,368,754 | $ | 10,601,105 | $ | 9,490,480 | ||||||||||
Debt
|
$ | 248,987 | $ | 284,779 | $ | 533,872 | $ | 334,901 | $ | 407,291 | ||||||||||
Total
Capital
|
$ | 4,701,955 | $ | 4,486,826 | $ | 4,688,878 | $ | 4,624,512 | $ | 4,312,042 | ||||||||||
ASSETS
UNDER MANAGEMENT AT PERIOD END (in millions)
|
$ | 495,502 | $ | 461,951 | $ | 800,390 | $ | 716,921 | $ | 578,552 |
_____________
(1)
|
Certain
prior-year amounts have been reclassified to conform to our 2009
presentation. See Note 2
to AllianceBernstein’s
consolidated financial statements in Item 8 for a discussion of
reclassifications.
|
(2)
|
Operating
income less net income attributable to non-controlling interests as a
percentage of net revenue.
|
(3)
|
AllianceBernstein
is required to distribute all of its Available Cash Flow, as defined in
the AllianceBernstein Partnership Agreement, to its unitholders and the
General Partner.
|
Item 7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Executive Overview
Our firm
rebounded from a very difficult 2008, posting strong relative investment returns
for clients across our global platform. While we enhanced our
investment process using the lessons learned last year, we stayed true to our
philosophy of fusing our high-quality, in-depth fundamental research
with innovative quantitative tools to deliver outperformance to our
clients.
The
strong capital markets of 2009, coupled with our broad-based relative
outperformance, enabled us to grow client assets under management (“AUM”) in
2009, despite increased client outflows for the full year. These
outflows peaked in the second quarter of 2009, and we are confident that the
trend of improving sales over the second half of 2009 will continue into
2010. The successful launch of new services in all our buy-side
distribution channels, which we are aggressively pursuing, will aid in achieving
this goal.
For the
fourth quarter of 2009, the performance of our investment services relative to
benchmarks or peer averages was strong in non-U.S. growth equities and fixed
income but mixed in our value services. For the full year 2009, most
of our services outperformed, materially so in many cases, exemplified by the
exceptional returns in our blend strategies portfolios, with our top four
institutional blend services outperforming their benchmarks by 280 to over 1,000
basis points for the year. Furthermore, fixed income services had a
stellar year, with three of our five largest institutional services
outperforming benchmarks by more than 1,000 basis points. In
addition, three of our four largest retail fixed income services generated
returns of more than 1,500 basis points above peer
averages.
Our total
AUM increased $33.5 billion, or 7.3% during 2009, driven by market appreciation
of $107.4 billion, partly offset by net outflows of $73.9
billion. Net outflows occurred primarily in our value and growth
equity services, while our fixed income services experienced modest net outflows
and our other investment services achieved modest net inflows.
Institutional
AUM increased $8.6 billion, or 3.0%, to $300.0 billion during 2009, due to
strong investment returns of $66.1 billion, largely offset by net outflows of
$57.7 billion. While our pipeline of won but unfunded mandates
decreased by 52.2% to $3.6 billion from $7.6 billion during 2009, our pipeline
increased by 27.6% during the second half of 2009 from $2.8 billion at the end
of the second quarter. Strong relative performance led to some
notable account wins in the latter part of the year, most notably in fixed
income and regional value services.
Retail
AUM increased $19.1 billion, or 18.7%, to $120.7 billion during 2009, led by
market appreciation of $28.3 billion, partly offset by net outflows of $9.2
billion. Virtually all of the year’s net outflows occurred during the
first three quarters of 2009. Gross sales continued to improve
throughout the year to $7.8 billion in the fourth quarter of 2009 as compared to
$5.9 billion during the previous quarter.
Private
Client AUM increased $5.8 billion, or 8.4%, to $74.8 billion during 2009, as
market appreciation of $13.0 billion was partly offset by net outflows of $7.0
billion. Gross sales of $2.4 billion and net outflows of $0.8 billion
in the fourth quarter compared favorably to the first three quarters of
2009.
Despite
lower Bernstein Research Services revenues in 2009 compared to 2008, due
primarily to market forces, our sell-side business made important strides in
gaining market share and launching new products. We anticipate this
trend will continue as we further globalize our research footprint and expand
our array of client services in 2010. Specifically, we aim to
increase our U.S. and European research market share, build out our
newly-established Asia research platform, expand equity derivatives and
electronic trading services, and develop our nascent equity capital markets
business.
Our full
year 2009 net revenues decreased $607.3 million, or 17.3%, compared to 2008, led
by a $919.2 million, or 32.4%, decrease in investment advisory and services fees
and a $101.1 million decrease in distribution revenues. Conversely,
investment gains (losses) had a positive effect on net revenues of $493.7
million, primarily the result of 2009 gains of $120.5 million on investments
related to employee deferred compensation awards, as compared to 2008 losses of
$325.0 million. Full year operating expenses declined $272.6 million,
or 10.5%, compared to 2008 driven mostly by lower employee compensation and
benefits of $156.6 million, a reflection of the 22.9% reduction in headcount
during the last 15 months, and lower promotion and servicing expenses of $125.2
million principally resulting from lower average Retail Services
AUM. Accordingly, 2009 diluted net income per Holding Unit fell to
$1.80, down 35.5% compared to $2.79 for 2008. In addition, our
operating margin decreased 650 basis points from 26.1% in 2008 to 19.6% in 2009,
due primarily to the decrease in investment advisory and services fees,
partially offset by positive investment gains and lower operating
expenses.
Global
equity markets are still only halfway back to their October 2007
peak. Furthermore, cumulative 10-year returns for the S&P 500 and
MSCI World indices are both still negative. With profitability at
30-year lows, we expect corporate earnings to rise and to see significant
opportunities emerge for active asset managers.
Our firm
experienced a transitional year in 2009. We began the year with three
main objectives: improving investment performance, reducing net asset outflows
and right sizing our firm. We believe we succeeded on all three
fronts. We are now focused on continuing to provide solid investment
returns and world class service for our clients, expanding our product
offerings, acquiring new clients, engaging and motivating our employees,
and improving returns for Unitholders.
Holding’s
principal source of income and cash flow is attributable to its investment in
AllianceBernstein limited partnership Units. Holding's 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
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||||||
Net
income attributable to AllianceBernstein Unitholders
|
$ | 556,127 | $ | 839,240 | $ | 1,260,444 | (33.7 | )% | (33.4 | )% | ||||||||||
Weighted
average equity ownership interest
|
34.6 | % | 33.2 | % | 32.9 | % | ||||||||||||||
Equity
in net income attributable to AllianceBernstein
Unitholders
|
$ | 192,513 | $ | 278,636 | $ | 415,256 | (30.9 | ) | (32.9 | ) | ||||||||||
Net
income of Holding
|
$ | 167,189 | $ | 244,726 | $ | 376,152 | (31.7 | ) | (34.9 | ) | ||||||||||
Diluted
net income per Holding Unit
|
$ | 1.80 | $ | 2.79 | $ | 4.32 | (35.5 | ) | (35.4 | ) | ||||||||||
Distribution
per Holding Unit(1)
|
$ | 1.77 | $ | 2.68 | $ | 4.33 | (34.0 | ) | (38.1 | ) |
_____________
(1)
|
2008
distribution excludes a $35.3 million insurance
reimbursement.
|
In 2009
and 2008, net income and diluted net income per unit decreased from prior years
due to lower equity in net income attributable to AllianceBernstein
Unitholders.
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
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Partners’
capital, as of December 31
|
$ | 1,910.1 | $ | 1,596.2 | $ | 1,567.5 | 19.7 | % | 1.8 | % | ||||||||||
Distributions
received from AllianceBernstein
|
160.1 | 338.4 | 449.3 | (52.7 | ) | (24.7 | ) | |||||||||||||
Distributions
paid to unitholders
|
(133.1 | ) | (301.4 | ) | (408.7 | ) | (55.8 | ) | (26.3 | ) | ||||||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
- | 13.5 | 50.1 | (100.0 | ) | (73.0 | ) | |||||||||||||
Investment
in AllianceBernstein with proceeds from exercise of compensatory options
to buy Holding Units
|
- | (13.5 | ) | (50.1 | ) | (100.0 | ) | (73.0 | ) | |||||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plan
awards, net
|
(7.0 | ) | (2.4 | ) | (50.9 | ) | 196.1 | (95.4 | ) | |||||||||||
Issuance
of Holding Units to fund deferred compensation plan awards
|
272.2 | 70.9 | — | 284.1 | n/m | |||||||||||||||
Available
Cash Flow
|
169.3 | 235.1 | 374.3 | (28.0 | ) | (37.2 | ) |
Cash and
cash equivalents were zero as of December 31, 2009, 2008 and 2007. 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 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. Issuances of Holding Units
increased significantly in 2009 due to the grant of restricted Holding Units as
long-term incentive compensation (see Note 16 to AllianceBernstein’s
consolidated financial statements in Item 8 and “Compensation Elements for
Executive Officers—Long-term Incentive Compensation” in Item 11 for a
further description of restricted Holding Unit Awards).
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
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Institutions
|
$ | 300.0 | $ | 291.4 | $ | 508.1 | 3.0 | % | (42.7 | )% | ||||||||||
Retail
|
120.7 | 101.6 | 183.2 | 18.7 | (44.5 | ) | ||||||||||||||
Private
Client
|
74.8 | 69.0 | 109.1 | 8.4 | (36.8 | ) | ||||||||||||||
Total
|
$ | 495.5 | $ | 462.0 | $ | 800.4 | 7.3 | (42.3 | ) |
Assets
under management by investment service were as follows:
As of December 31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Equity
|
||||||||||||||||||||
Value:
|
||||||||||||||||||||
U.S.
|
$ | 44.4 | $ | 47.9 | $ | 108.0 | (7.3 | )% | (55.6 | )% | ||||||||||
Global
& international
|
126.8 | 124.5 | 274.5 | 1.8 | (54.7 | ) | ||||||||||||||
171.2 | 172.4 | 382.5 | (0.7 | ) | (54.9 | ) | ||||||||||||||
Growth:
|
||||||||||||||||||||
U.S.
|
38.1 | 33.0 | 72.5 | 15.4 | (54.5 | ) | ||||||||||||||
Global
& international
|
56.0 | 55.3 | 124.4 | 1.4 | (55.6 | ) | ||||||||||||||
94.1 | 88.3 | 196.9 | 6.6 | (55.2 | ) | |||||||||||||||
Total
Equity
|
265.3 | 260.7 | 579.4 | 1.8 | (55.0 | ) | ||||||||||||||
Fixed
Income:
|
||||||||||||||||||||
U.S.
|
112.3 | 105.3 | 113.4 | 6.7 | (7.1 | ) | ||||||||||||||
Global
& international(1)
|
72.0 | 58.7 | 74.6 | 22.6 | (21.3 | ) | ||||||||||||||
184.3 | 164.0 | 188.0 | 12.4 | (12.8 | ) | |||||||||||||||
Other
(2):
|
||||||||||||||||||||
U.S.
|
26.1 | 16.5 | 16.9 | 58.3 | (2.5 | ) | ||||||||||||||
Global
& international(1)
|
19.8 | 20.8 | 16.1 | (4.6 | ) | 29.6 | ||||||||||||||
45.9 | 37.3 | 33.0 | 23.2 | 13.1 | ||||||||||||||||
Total:
|
||||||||||||||||||||
U.S.
|
220.9 | 202.7 | 310.8 | 9.0 | (34.8 | ) | ||||||||||||||
Global
& international
|
274.6 | 259.3 | 489.6 | 5.9 | (47.0 | ) | ||||||||||||||
Total
|
$ | 495.5 | $ | 462.0 | $ | 800.4 | 7.3 | (42.3 | ) |
_____________
(1)
|
Certain
client assets were reclassified among investment services to more
accurately reflect how these assets are managed by our
firm.
|
(2)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
Changes
in assets under management during 2009 were as follows:
Distribution Channel
|
Investment Service
|
|||||||||||||||||||||||||||||||||||
Institutions
|
Retail
|
Private
Client
|
Total
|
Value
Equity
|
Growth
Equity
|
Fixed
Income(1)
|
Other
(1)(2)
|
Total
|
||||||||||||||||||||||||||||
(in
billions)
|
||||||||||||||||||||||||||||||||||||
Balance
as of December 31, 2008
|
$ | 291.4 | $ | 101.6 | $ | 69.0 | $ | 462.0 | $ | 172.4 | $ | 88.3 | $ | 164.0 | $ | 37.3 | $ | 462.0 | ||||||||||||||||||
Long-term
flows:
|
||||||||||||||||||||||||||||||||||||
Sales/new
accounts
|
16.2 | 23.0 | 7.5 | 46.7 | 8.7 | 6.4 | 24.6 | 7.0 | 46.7 | |||||||||||||||||||||||||||
Redemptions/terminations
|
(56.2 | ) | (25.8 | ) | (8.0 | ) | (90.0 | ) | (46.3 | ) | (22.2 | ) | (19.9 | ) | (1.6 | ) | (90.0 | ) | ||||||||||||||||||
Cash
flow/unreinvested dividends
|
(17.7 | ) | (6.4 | ) | (6.5 | ) | (30.6 | ) | (11.8 | ) | (6.1 | ) | (7.9 | ) | (4.8 | ) | (30.6 | ) | ||||||||||||||||||
Net
long-term (outflows) inflows
|
(57.7 | ) | (9.2 | ) | (7.0 | ) | (73.9 | ) | (49.4 | ) | (21.9 | ) | (3.2 | ) | 0.6 | (73.9 | ) | |||||||||||||||||||
Transfers
|
0.2 | — | (0.2 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Market
appreciation
|
66.1 | 28.3 | 13.0 | 107.4 | 48.2 | 27.7 | 23.5 | 8.0 | 107.4 | |||||||||||||||||||||||||||
Net
change
|
8.6 | 19.1 | 5.8 | 33.5 | (1.2 | ) | 5.8 | 20.3 | 8.6 | 33.5 | ||||||||||||||||||||||||||
Balance
as of December 31, 2009
|
$ | 300.0 | $ | 120.7 | $ | 74.8 | $ | 495.5 | $ | 171.2 | $ | 94.1 | $ | 184.3 | $ | 45.9 | $ | 495.5 |
_____________
(1)
|
Certain
client assets were reclassified among investment services to more
accurately reflect how these assets are managed by our
firm.
|
(2)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
Changes
in assets under management during 2008 were as follows:
Distribution Channel
|
Investment Service
|
|||||||||||||||||||||||||||||||||||
Institutions
|
Retail
|
Private
Client
|
Total
|
Value
Equity
|
Growth
Equity
|
Fixed
Income(1)
|
Other
(1)(2)
|
Total
|
||||||||||||||||||||||||||||
(in
billions)
|
||||||||||||||||||||||||||||||||||||
Balance
as of December 31, 2007
|
$ | 508.1 | $ | 183.2 | $ | 109.1 | $ | 800.4 | $ | 382.5 | $ | 196.9 | $ | 188.0 | $ | 33.0 | $ | 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 | ) | (11.5 | ) | 8.1 | (34.0 | ) | |||||||||||||||||||
Net
long-term (outflows) inflows
|
(14.4 | ) | (25.1 | ) | (4.7 | ) | (44.2 | ) | (29.3 | ) | (18.2 | ) | (8.3 | ) | 11.6 | (44.2 | ) | |||||||||||||||||||
Transfers
|
(10.6 | ) | 10.6 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Market
depreciation
|
(191.7 | ) | (67.1 | ) | (35.4 | ) | (294.2 | ) | (180.8 | ) | (90.4 | ) | (15.7 | ) | (7.3 | ) | (294.2 | ) | ||||||||||||||||||
Net
change
|
(216.7 | ) | (81.6 | ) | (40.1 | ) | (338.4 | ) | (210.1 | ) | (108.6 | ) | (24.0 | ) | 4.3 | (338.4 | ) | |||||||||||||||||||
Balance
as of December 31, 2008
|
$ | 291.4 | $ | 101.6 | $ | 69.0 | $ | 462.0 | $ | 172.4 | $ | 88.3 | $ | 164.0 | $ | 37.3 | $ | 462.0 |
_____________
(1)
|
Certain
client assets were reclassified among investment services to more
accurately reflect how these assets are managed by our
firm.
|
(2)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
Average
assets under management by distribution channel and investment service were as
follows:
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
billions)
|
||||||||||||||||||||
Distribution
Channel:
|
||||||||||||||||||||
Institutions
|
$ | 284.9 | $ | 426.5 | $ | 491.1 | (33.2 | )% | (13.1 | )% | ||||||||||
Retail
|
105.1 | 145.4 | 180.5 | (27.7 | ) | (19.4 | ) | |||||||||||||
Private
Client
|
68.6 | 93.2 | 104.8 | (26.4 | ) | (11.1 | ) | |||||||||||||
Total
|
$ | 458.6 | $ | 665.1 | $ | 776.4 | (31.1 | ) | (14.3 | ) |
Investment
Service:
|
||||||||||||||||||||
Value
Equity
|
$ | 160.6 | $ | 297.9 | $ | 373.3 | (46.1 | )% | (20.2 | )% | ||||||||||
Growth
Equity
|
86.1 | 152.6 | 186.0 | (43.6 | ) | (17.9 | ) | |||||||||||||
Fixed
Income(1)
|
170.8 | 182.2 | 179.0 | (6.2 | ) | 1.8 | ||||||||||||||
Other(1)(2)
|
41.1 | 32.4 | 38.1 | 26.6 | (14.8 | ) | ||||||||||||||
Total
|
$ | 458.6 | $ | 665.1 | $ | 776.4 | (31.1 | ) | (14.3 | ) |
_____________
(1)
|
Certain
client assets were reclassified among investment services to more
accurately reflect how these assets are managed by our
firm.
|
(2)
|
Includes
index, structured, asset allocation services and other non-actively
managed AUM.
|
Consolidated
Results of Operations
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
millions, except per unit amounts)
|
||||||||||||||||||||
Net
revenues
|
$ | 2,906.9 | $ | 3,514.2 | $ | 4,525.3 | (17.3 | )% | (22.3 | )% | ||||||||||
Expenses
|
2,316.1 | 2,588.7 | 3,136.1 | (10.5 | ) | (17.5 | ) | |||||||||||||
Operating
income
|
590.8 | 925.5 | 1,389.2 | (36.2 | ) | (33.4 | ) | |||||||||||||
Non-operating
income
|
33.7 | 18.7 | 15.8 | 79.7 | 18.9 | |||||||||||||||
Income
before income taxes
|
624.5 | 944.2 | 1,405.0 | (33.9 | ) | (32.8 | ) | |||||||||||||
Income
taxes
|
46.0 | 95.8 | 127.9 | (52.0 | ) | (25.1 | ) | |||||||||||||
Net
income
|
578.5 | 848.4 | 1,277.1 | (31.8 | ) | (33.6 | ) | |||||||||||||
Net
income of consolidated entities attributable to non-controlling
interests
|
(22.4 | ) | (9.2 | ) | (16.7 | ) | 143.6 | (45.0 | ) | |||||||||||
Net
income attributable to AllianceBernstein Unitholders
|
$ | 556.1 | $ | 839.2 | $ | 1,260.4 | (33.7 | ) | (33.4 | ) | ||||||||||
Diluted
net income per AllianceBernstein Unit
|
$ | 2.07 | $ | 3.18 | $ | 4.77 | (34.9 | ) | (33.3 | ) | ||||||||||
Distributions
per AllianceBernstein Unit(1)
|
$ | 2.06 | $ | 3.07 | $ | 4.77 | (32.9 | ) | (35.6 | ) | ||||||||||
Operating
margin(2)
|
19.6 | % | 26.1 | % | 30.3 | % |
_____________
(1)
|
2008
distribution excludes a $35.3 million insurance
reimbursement.
|
(2)
|
Operating
income less net income attributable to non-controlling interests as a
percentage of net revenues.
|
In 2009,
net income attributable to AllianceBernstein Unitholders decreased $283.1
million, or 33.7%, to $556.1 million and net income per AllianceBernstein Unit
decreased $1.11, or 34.9%, to $2.07. The decrease was primarily due
to lower investment advisory and services fees and distribution revenues,
partially offset by investment gains (compared to losses in 2008), lower
promotion and servicing expenses and lower employee compensation and benefits
expenses.
In 2008,
net income attributable to AllianceBernstein Unitholders decreased $421.2
million, or 33.4%, to $839.2 million, and net income per AllianceBernstein Unit
decreased $1.59, or 33.3%, to $3.18. The decrease was due primarily to lower
investment advisory and services fees resulting from lower AUM and significant
mark-to-market losses on investments related to deferred compensation plan
obligations, partially offset by lower employee compensation and benefits and
promotion and servicing expenses.
Expense
Reduction
The
substantial decrease in AUM and the resulting decrease in fee revenues from
levels during the first nine months of 2008 led us to undertake initiatives in
the fourth quarter of 2008 that resulted in significant reductions in operating
expenses and capital expenditures.
We
continued those initiatives in 2009 as we reduced our headcount by 628, or
12.6%, during the year to 4,369, which, along with the reduction in force that
occurred during the fourth quarter of 2008, represents a reduction of nearly
1,300 staff members, a 22.9% decline from our headcount peak during the third
quarter of 2008. These actions reduced our fixed compensation costs (salaries
and fringe benefits) by approximately $130 million. Despite taking
these measures, we believe we have retained the intellectual capital required to
service our clients and grow our business.
We have
also reduced other controllable operating expenses, including print, mail,
travel and entertainment, recruitment, seminars, market data services,
communications, temporary help and technology consulting, by approximately $75
million in 2009 as compared to 2008. In addition, we have eliminated or deferred
nearly $150 million of planned capital expenditures since the beginning of
2008.
If AUM
increases, higher revenues should result which, when supported by a lower
expense base, will generate a greater amount of income.
Units
Outstanding
In
December 2009, we issued approximately 8.5 million Holding Units to fund the
2009 restricted Holding Unit awards to eligible employees. The
dilutive effect to earnings per Unit (“EPU”) during the fourth quarter of 2009
was not significant due to the timing of the issuance. However, the
dilutive effect to EPU and per Unit distributions in 2010 will be approximately
3%. At the present time, management has not determined the extent to
which we will repurchase units during future periods to minimize this
dilutive impact.
Net
Revenues
The
following table summarizes the components of net revenues:
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Investment
advisory and services fees:
|
|
|
|
|||||||||||||||||
Institutions:
|
|
|
|
|||||||||||||||||
Base
fees
|
$ | 792.4 | $ | 1,229.1 | $ | 1,416.0 | (35.5 | )% | (13.2 | )% | ||||||||||
Performance-based
fees
|
18.1 | 11.5 | 65.6 | 56.6 | (82.4 | ) | ||||||||||||||
810.5 | 1,240.6 | 1,481.6 | (34.7 | ) | (16.3 | ) | ||||||||||||||
Retail:
|
||||||||||||||||||||
Base
fees
|
522.8 | 751.0 | 946.0 | (30.4 | ) | (20.6 | ) | |||||||||||||
Performance-based
fees
|
0.4 | 0.1 | — | 394.6 | n/m | |||||||||||||||
523.2 | 751.1 | 946.0 | (30.3 | ) | (20.6 | ) | ||||||||||||||
Private
Client:
|
||||||||||||||||||||
Base
fees
|
575.3 | 846.0 | 943.0 | (32.0 | ) | (10.3 | ) | |||||||||||||
Performance-based
fees
|
11.3 | 1.8 | 15.6 | 521.3 | (88.3 | ) | ||||||||||||||
586.6 | 847.8 | 958.6 | (30.8 | ) | (11.6 | ) | ||||||||||||||
Total:
|
||||||||||||||||||||
Base
fees
|
1,890.5 | 2,826.1 | 3,305.0 | (33.1 | ) | (14.5 | ) | |||||||||||||
Performance-based
fees
|
29.8 | 13.4 | 81.2 | 121.8 | (83.4 | ) | ||||||||||||||
1,920.3 | 2,839.5 | 3,386.2 | (32.4 | ) | (16.1 | ) | ||||||||||||||
Distribution
revenues
|
277.3 | 378.4 | 473.4 | (26.7 | ) | (20.1 | ) | |||||||||||||
Bernstein
research services
|
434.6 | 471.7 | 423.5 | (7.9 | ) | 11.4 | ||||||||||||||
Dividend
and interest income
|
26.7 | 91.8 | 284.0 | (70.9 | ) | (67.7 | ) | |||||||||||||
Investment
gains (losses)
|
144.5 | (349.2 | ) | 29.7 | n/m | n/m | ||||||||||||||
Other
revenues
|
107.9 | 118.5 | 122.9 | (8.9 | ) | (3.6 | ) | |||||||||||||
Total
revenues
|
2,911.3 | 3,550.7 | 4,719.7 | (18.0 | ) | (24.8 | ) | |||||||||||||
Less:
Interest expense
|
4.4 | 36.5 | 194.4 | (87.9 | ) | (81.2 | ) | |||||||||||||
Net
revenues
|
$ | 2,906.9 | $ | 3,514.2 | $ | 4,525.3 | (17.3 | ) | (22.3 | ) |
Investment
Advisory and Services Fees
Investment
advisory and services fees are the largest component of our revenues. 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 the amount and timing of 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 established 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 recognized pricing vendors for fixed income, asset-backed or
mortgage-backed issues; mid prices from recognized 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 versus liabilities or
any other methodology that is validated and approved by our Valuation 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. 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
Valuation Committee, which is composed of senior officers and employees, is
responsible for overseeing the pricing and valuation of all investments held in
client and AllianceBernstein portfolios. The Valuation Committee has adopted a
Statement of Pricing Policies describing principles and policies that apply to
pricing and valuing investments held in client and AllianceBernstein portfolios.
We have also established a Pricing Group, which reports to the Valuation
Committee. The Valuation Committee has delegated to the Pricing Group
responsibility for monitoring the pricing process for all
investments.
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. 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 fail to achieve 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 13% of the assets we manage for institutional clients and
approximately 4% of the assets we manage for private clients (in total,
approximately 9% 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 72% of our hedge
fund AUM is subject to high-watermarks and we ended the fourth quarter of 2009
with approximately 89% of this 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 2010.
Our
investment advisory and services fees decreased 32.4% in 2009, primarily due to
a decrease of 31.1% in average assets under management. For 2008, investment
advisory and services fees decreased 16.1%, primarily due to a 14.3% decrease in
average assets under management.
Institutional
investment advisory and services fees decreased $430.1 million, or 34.7%, in
2009, primarily as a result of a decrease of 33.2% in average assets under
management and the impact of a shift in product mix. For information regarding
product mix changes, see “Risk
Factors” in Item 1A. 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.
Retail
investment advisory and services fees decreased $227.9 million, or 30.3%, in
2009, as average assets under management decreased 27.7% and fee realization
rates declined due to product mix changes. Retail investment advisory and
services fees decreased 20.6% in 2008 due primarily to a decrease of 19.4% in
average assets under management.
Private
Client investment advisory and services fees decreased $261.2 million, or 30.8%,
in 2009, primarily as a result of lower base fees reflecting a decrease in
billable assets under management of 27.6% and the impact of product mix changes.
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.
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 $101.1 million, or 26.7%, and $95.0
million, or 20.1%, in 2009 and 2008, respectively, principally due to lower
average mutual fund assets under management.
Bernstein
Research Services
Bernstein
Research Services revenue consists principally of transaction charges received
for providing equity research and brokerage-related services to institutional
investors. Bernstein Research Services also earns revenues in the form of
underwriting fees, management fees and/or selling concessions from issuers of
publicly-traded securities to which we provide equity capital markets services.
Revenues from Bernstein Research Services decreased $37.1 million, or 7.9%, in
2009. Despite higher volumes in the U.S. and Europe, reflecting market share
gains, and revenues from new services, revenue declined due to a mix shift
towards low-touch trading and lower security valuations in Europe, where trades
are priced in basis points. Revenues from Bernstein Research Services
increased 11.4% for 2008 due to significantly higher revenues from U.S.
operations partially offset by a decline in Europe.
Dividend
and Interest Income and Interest Expense
Dividend
and interest income consists primarily of investment income and interest earned
on customer margin balances and U.S. Treasury Bills. Interest expense
principally reflects interest accrued on cash balances in customers’ brokerage
accounts. Dividend and interest income, net of interest expense, decreased $33.0
million, or 59.6%, in 2009 due primarily to lower interest earned on U.S.
Treasury Bill balances and other investments, reflecting lower interest rates
and lower average balances, partially offset by lower interest expense
reflecting lower balances in customers’ brokerage accounts and lower interest
rates. Dividend and interest income, 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.
Investment
Gains (Losses)
Investment
gains (losses) consists primarily of realized and unrealized investment gains or
losses on trading investments and investments owned by 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) increased $493.7
million, primarily due to gains on investments related to deferred compensation
plan obligations of $120.5 million in 2009 compared to losses of $325.0 million
in 2008, as well as realized and unrealized gains on other investments.
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 other
investments.
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 8.9% in 2009 and 3.6% in 2008, due primarily to lower shareholder
servicing fees as a result of fewer shareholder accounts.
Expenses
The
following table summarizes the components of expenses:
Years Ended December 31,
|
% Change
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2009-08 | 2008-07 | ||||||||||||||||
(in
millions)
|
||||||||||||||||||||
|
|
|
||||||||||||||||||
Employee
compensation and benefits
|
$ | 1,298.1 | $ | 1,454.7 | $ | 1,833.8 | (10.8 | )% | (20.7 | )% | ||||||||||
Promotion
and servicing
|
435.8 | 561.0 | 683.1 | (22.3 | ) | (17.9 | ) | |||||||||||||
General
and administrative
|
558.4 | 539.2 | 574.5 | 3.6 | (6.1 | ) | ||||||||||||||
Interest
|
2.7 | 13.1 | 24.0 | (79.4 | ) | (45.4 | ) | |||||||||||||
Amortization
of intangible assets
|
21.1 | 20.7 | 20.7 | 2.0 | — | |||||||||||||||
Total
|
$ | 2,316.1 | $ | 2,588.7 | $ | 3,136.1 | (10.5 | ) | (17.5 | ) |
Employee
Compensation and Benefits
We had
4,369 full-time employees as of December 31, 2009 compared to 4,997 as of
year-end 2008 and 5,580 as of year-end 2007. Employee compensation and benefits,
which represented approximately 56%, 56% and 58% of total expenses in 2009, 2008
and 2007, respectively, consist of salaries (including severance),
annual cash incentive awards, annual expense associated with the accrual of
unvested deferred incentive compensation awards (net of forfeitures),
commissions, fringe benefits and other employment costs (including recruitment,
training, temporary help and meals).
In 2009,
base compensation, fringe benefits and other employment costs decreased $131.4
million, or 18.3%, compared to 2008 primarily from workforce
reductions. Incentive compensation increased $85.5 million, or 23.2%,
primarily due to higher deferred compensation expense resulting from
mark-to-market gains on related investments, partially offset by lower cash
incentive payments. Commission expense declined by $110.8 million, or 29.9%,
reflecting lower sales volume and revenues across all distribution
channels.
In 2008,
base compensation, fringe benefits and other employment costs increased $69.9
million, or 10.8%, compared to 2007 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 workforce reductions primarily in the fourth
quarter, 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 cash 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 and revenues across our Institutions, Retail and
Private Client distribution channels.
Promotion
and Servicing
Promotion
and servicing expenses, which represented approximately 19%, 22% and 22% of
total expenses in 2009, 2008 and 2007, respectively, include distribution plan
payments to financial intermediaries for distribution of AllianceBernstein
mutual funds and amortization of deferred sales commissions paid to financial
intermediaries for the sale of back-end load shares of AllianceBernstein 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 educational seminars for financial intermediaries that distribute our mutual
fund products.
Promotion
and servicing expenses decreased 22.3% in 2009 and 17.9% in 2008, 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.
General
and Administrative
General
and administrative expenses, which represented approximately 24%, 21% and 18% of
total expenses in 2009, 2008 and 2007, respectively, include technology,
professional fees, occupancy, communications and similar expenses. General and
administrative expenses increased $19.2 million or 3.6% in 2009, and decreased
$35.3 million, or 6.1% in 2008.
The
increase in 2009 was due to an insurance reimbursement of $35.3 million received
in 2008 and foreign exchange losses in 2009 compared to gains in 2008, partially
offset by lower office-related and technology expenses.
The
decrease in 2008 reflects the insurance reimbursement of $35.3
million, reduced operational errors and higher foreign exchange gains,
partially offset by higher occupancy costs.
Interest
on Borrowings
Interest
on our borrowings decreased $10.4 million, or 79.4%, in 2009, primarily as a
result of significantly lower interest rates and lower borrowing levels.
Interest on our borrowings for 2008 decreased $10.9 million, or 45.4%, the
result of 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
increased $15.0 million, or 79.7% in 2009, primarily due to a one-time $10.0
million contingent payment we earned during the third quarter of
2009. We will continue to earn annual contingent payments through
March 2010. Non-operating income for 2008 increased $2.9 million, or 18.9%, due
to higher contingent payments earned in 2008.
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 also filed. Foreign corporate subsidiaries are generally subject to
taxes in the foreign jurisdictions where they are located.
Income
tax expense decreased $49.8 million, or 52.0% in 2009. The decrease
is primarily the result of lower earnings and a lower effective tax rate,
reflecting lower pre-tax earnings of our foreign subsidiaries where tax rates
are generally higher. Income tax expense decreased $32.1 million, or 25.1%, in
2008 reflecting lower pre-tax earnings and the recognition of $12.9 million of
net unrecognized tax benefits during the fourth quarter of 2008 due primarily to
the settlement of certain tax audits.
Net
Income of Consolidated Entities Attributable to Non-Controlling
Interests
Net
income of consolidated entities attributable to non-controlling interests
consists 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 our 50% interests in consolidated joint ventures in
Australia and New Zealand (of which the remaining 50% is owned by AXA and its
subsidiaries). Net income of consolidated entities attributable to
non-controlling interests increased $13.2 million due to higher gains on
investments owned by our consolidated venture capital fund, partly offset by
lower joint venture earnings. Net income of consolidated entities
attributable to non-controlling interests decreased $7.5 million in 2008,
primarily as a result of lower net unrealized gains on investments owned by our
consolidated venture capital fund.
Capital
Resources and Liquidity
The
following table identifies selected items relating to capital resources and
liquidity:
% Change
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2009 - 08 | 2008 - 07 | ||||||||||||||||
(in
millions, except per unit amounts)
|
||||||||||||||||||||
As
of December 31:
|
||||||||||||||||||||
Total
capital
|
$ | 4,702.0 | $ | 4,486.8 | $ | 4,688.9 | 4.8 | % | (4.3 | )% | ||||||||||
Cash
and cash equivalents
|
614.2 | 552.6 | 576.4 | 11.2 | (4.1 | ) | ||||||||||||||
For
the years ended December 31:
|
||||||||||||||||||||
Cash
flow from operations
|
625.5 | 1,364.8 | 1,215.2 | (54.2 | ) | 12.3 | ||||||||||||||
Proceeds
from sales (purchases) of investments, net
|
(3.5 | ) | 21.0 | 26.5 | n/m | (20.6 | ) | |||||||||||||
Capital
expenditures
|
(53.8 | ) | (75.2 | ) | (137.5 | ) | (28.5 | ) | (45.3 | ) | ||||||||||
Distributions
paid to General Partners and unitholders
|
(464.7 | ) | (1,019.7 | ) | (1,364.6 | ) | (54.4 | ) | (25.3 | ) | ||||||||||
Purchases
of Holding Units to fund deferred compensation plan awards,
net
|
(7.0 | ) | (2.4 | ) | (50.9 | ) | 196.1 | (95.4 | ) | |||||||||||
Issuance
of Holding Units to fund deferred compensation plan awards
|
272.2 | 70.9 | — | 284.1 | n/m | |||||||||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
- | 13.5 | 50.1 | (100.0 | ) | (73.0 | ) | |||||||||||||
(Repayment)
issuance of commercial paper, net
|
(36.8 | ) | (260.1 | ) | 175.8 | (85.9 | ) | n/m | ||||||||||||
Available
Cash Flow
|
559.7 | 810.2 | 1,253.2 | (30.9 | ) | (35.3 | ) |
Cash and
cash equivalents increased $61.6 million in 2009 and decreased $23.8 million in
2008. Cash inflows are primarily provided by operations, issuance of commercial
paper and proceeds from sales of investments. Significant cash outflows include
cash distributions paid to the General Partner and unitholders, capital
expenditures, repayment of commercial paper and purchases of Holding Units to
fund deferred compensation plans. Issuances of Holding Units
increased significantly in 2009 due to the grant of restricted Holding Units as
long-term incentive compensation (see Note 16 to AllianceBernstein’s
consolidated financial statements in Item 8 and “Compensation Elements for
Executive Officers—Long-term Incentive Compensation” in Item 11 for a
further description of restricted Holding Unit Awards).
Contingent
Deferred Sales Charge
See
Note 11 to AllianceBernstein’s consolidated financial statements in Item
8.
Debt
and Credit Facilities
Total
credit available, debt outstanding and weighted average interest rates were as
follows:
As of December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
Credit
Available
|
Debt
Outstanding
|
Interest
Rate
|
Credit
Available
|
Debt
Outstanding
|
Interest
Rate
|
|||||||||||||||||||
(in
millions)
|
||||||||||||||||||||||||
Revolving
credit facility(1)
|
$ | 751.0 | $ | — | — | % | $ | 715.2 | $ | — | — | % | ||||||||||||
Commercial
paper(1)
|
249.0 | 249.0 | 0.2 | 284.8 | 284.8 | 1.8 | ||||||||||||||||||
Total
revolving credit facility - AllianceBernstein(1)
|
1,000.0 | 249.0 | 0.2 | 1,000.0 | 284.8 | 1.8 | ||||||||||||||||||
Revolving
credit facility – SCB LLC(1)
|
950.0 | — | — | 950.0 | — | — | ||||||||||||||||||
Uncommitted
line of credit – SCB LLC
|
— | — | — | — | — | — | ||||||||||||||||||
Uncommitted
bank facilities – SCB LLC
|
— | — | — | — | — | — | ||||||||||||||||||
Total
|
$ | 1,950.0 | $ | 249.0 | 0.2 | $ | 1,950.0 | $ | 284.8 | 1.8 |
_____________
(1)
|
Commercial
paper and amounts outstanding under the revolving credit facility are
short-term in nature, and as such, recorded value is estimated to
approximate fair value.
|
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.
Amounts borrowed under the commercial paper program reduce amounts available for
direct borrowing under the revolving credit facility on a dollar-for-dollar
basis. 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 are in compliance with these covenants.
SCB LLC
has a $950 million three-year revolving credit facility with a group of
commercial banks to fund its activities resulting from engaging in certain
securities trading (including derivatives) and custody activities on behalf of
private clients and participating in equity capital offerings on behalf of
issuers of publicly-traded securities. The facility expires in
2011. 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. This revolving credit
facility contains covenants which, among other things, require
AllianceBernstein, as guarantor, to meet the same financial ratios contained in
its $1.0 billion revolving credit facility. We are in compliance with these
covenants.
SCB LLC
has four separate uncommitted credit facilities with various banks totaling $525
million, a decrease from five facilities totaling $775 million as of December
31, 2008. In addition, SCB LLC has two lines of credit with a
commercial bank as of December 31, 2009 and 2008, one for $75 million secured by
pledges of U.S. Treasury Bills and a second for $50 million secured by pledges
of equity securities.
Our
financial condition and access to public and private debt markets 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. See “Risk
Factors” in Item 1A and “Cautions Regarding Forward-Looking Statements” in this
Item 7 for a discussion of credit markets and our ability to renew our
credit facilities at expiration.
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
January 2008, AllianceBernstein and AXA executed guarantees in connection
with the $950 million SCB LLC facility. If 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 remains in effect until the later of payment in full
of any borrowings under the credit facility has been made or the facility
expires.
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.
We also
have three smaller guarantees totaling approximately $12 million, under which we
guaranteed certain obligations in the ordinary course of business of three
foreign subsidiaries.
We have
not been required to perform under any of the above agreements and currently
have no liability in connection with these agreements.
Aggregate
Contractual Obligations
The
following table summarizes our contractual obligations as of December 31,
2009:
Contractual Obligations
|
||||||||||||||||||||
Total
|
Less than
1 Year
|
1-3 Years
|
3-5 Years
|
More than
5 Years
|
||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Commercial
paper
|
$ | 249.0 | $ | 249.0 | $ | - | $ | - | $ | - | ||||||||||
Operating
leases, net of sublease commitments
|
2,361.1 | 120.0 | 269.5 | 278.7 | 1,692.9 | |||||||||||||||
Funding
commitments
|
55.9 | 22.7 | 16.0 | 14.8 | 2.4 | |||||||||||||||
Accrued
compensation and benefits
|
295.7 | 166.1 | 66.3 | 32.3 | 31.0 | |||||||||||||||
Unrecognized
tax benefits
|
7.4 | 2.6 | 4.8 | - | - | |||||||||||||||
Total
|
$ | 2,969.1 | $ | 560.4 | $ | 356.6 | $ | 325.8 | $ | 1,726.3 |
During
July 2009, we entered into a subscription agreement under which we committed to
invest up to $40 million in a venture capital fund over a six-year period. As of
December 31, 2009, we have not funded any of this commitment. In February 2010,
we received an initial $1.6 million capital call. Also during July 2009, we
were selected by the U.S. Treasury Department as one of nine pre-qualified
investment managers under the Public-Private Investment Program. As part of the
program, each investment manager is required to invest a minimum of $20 million
in the Public-Private Investment Fund they manage. As of December 31, 2009, we
had funded $4.1 million of this commitment.
Accrued
compensation and benefits amounts in the table above exclude our accrued pension
obligation. Any amounts reflected on the consolidated balance sheet as payables
(to broker-dealers, securities sold not yet purchased, brokerage clients and
company-sponsored mutual funds) and accounts payable and accrued expenses are
excluded from the table above.
We expect
to make contributions to our qualified profit sharing plan of approximately
$15.0 million in each of the next four years and to contribute an estimated $6.0
million to our qualified retirement plan during 2010.
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, 2009, 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 three-month periods ended December 31, 2009, and
calculated as a percentage of the company’s average assets under management
represented by back-end load shares, ranged from 21% to 24% for U.S. fund shares
and 27% to 40% 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, 2009, management
determined that the deferred sales commission asset was not impaired. However,
if redemption rates increase in 2010, 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. Effective January 31, 2009, back-end load shares are no
longer offered by our U.S. Funds to new investors.
Goodwill
We test
goodwill 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, 2009, the
impairment test indicated that goodwill was not impaired.
The
impairment 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 determine the amount of impairment,
if any.
There are
several methods of estimating AllianceBernstein’s fair value, including
valuation techniques such as discounted expected cash flows and market valuation
(the number of AllianceBernstein Units outstanding multiplied by Holding Unit
price). Determining 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 tests, our discounted expected cash flow model uses management’s current
business plan, which factors in current market conditions and all material
events that have impacted, or that we believed at the time could potentially
impact, future expected cash flows for the first four years and a compounded
annual growth rate thereafter.
To the
extent that securities valuations are depressed for prolonged periods of time,
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.
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. Key
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.
As of
December 31, 2008, we amended the retirement plan to provide that participants
will not accrue any additional benefits (i.e., service and compensation after
December 31, 2008 will not be taken into account in determining participants’
retirement benefits).
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 rates of return on plan assets were 29.4%,
(45.8)% and 4.1% in 2009, 2008 and 2007, 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 2009 net pension expense of $1.6 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 payable
under the plan’s lump sum option. Our methodology for selecting the discount
rate as of December 31, 2009 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 6.05% discount rate as of December 31,
2009 represents the Mercer Human Resources yield curve (to the nearest five
basis points). The discount rate as of December 31, 2008 was 6.20%, which was
used in developing the 2009 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 2009 net pension expense of $1.6 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 and record a loss contingency 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 financial condition, results
of operations and business prospects.
The
forward-looking statements referred to in the preceding paragraph include
statements regarding:
|
•
|
Our
optimism regarding improving sales and declining net
outflows: Our ability to sustain our improved investment
performance, as well as the actual performance of the capital markets
and other factors beyond our control, will affect our asset
flows.
|
|
•
|
Our
pipeline of new institutional client 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
expectation that we will further globalize our sell-side research
footprint and expand our array of client services in
2010: Factors beyond our control, including the effect
of the performance of the financial markets on our results of operations,
may adversely affect our ability to implement our strategic
initiatives.
|
|
•
|
Our
expectation that corporate earnings will rise: The extent to which
global economies have recently stabilized is not necessarily indicative of
future earnings growth and there are significant obstacles that may
hinder sustained growth. The actual performance of the capital
markets and other factors beyond our control will affect our investment
success for clients and asset
flows.
|
|
•
|
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
expectation that increased levels of AUM should lead to increased revenues
which, when supported by a lower expense base, will generate a greater
amount of income: Unanticipated events and factors, including
pursuit of strategic initiatives, may cause us to expand our expense base,
thus limiting the extent to which we benefit from any positive leverage in
future periods. Growth in our revenues will depend on the level of our
assets under management, which in turn depends on factors such as the
actual performance of the capital markets, the performance of our
investment products and other factors beyond our
control.
|
|
•
|
Our
financial condition and access to public and private debt providing
adequate liquidity for our general business needs: Our financial
condition is dependent on our cash flow from operations, which is subject
to the performance of the capital markets, our ability to maintain and
grow client assets under management and other factors beyond our control.
Our access to public and private debt, as well as the market for debt or
equity we may choose to issue on reasonable terms, may be limited by
adverse market conditions, our profitability and changes in government
regulations, including tax rates and interest
rates.
|
|
•
|
The
possibility that prolonged weakness in the value of client assets under
management may result in impairment of goodwill, intangible assets and the
deferred sales commission asset: To the extent that securities
valuations are depressed for prolonged periods of time, client assets
under management and our 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 outcome
of litigation: Litigation is inherently unpredictable, and
excessive damage awards do occur. Though we have stated that we do not
expect certain legal proceedings to have a material adverse effect on our
results of operations or financial condition, any settlement or judgment
with respect to a legal proceeding could be significant, and could have
such an effect.
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
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, 2009, 2008 and 2007.
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, equity and fixed income mutual funds investments,
exchange-traded options and various separately-managed portfolios. Trading
investments are purchased for short-term investment, principally to fund
liabilities related to deferred compensation plans and to seed new investment
services. 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, 2009 and 2008. 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,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Fair Value
|
Effect of
+100
Basis Point
Change
|
Fair Value
|
Effect of
+100
Basis Point
Change
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Fixed
Income Investments:
|
||||||||||||||||
Trading
|
$ | 125,906 | $ | (5,766 | ) | $ | 76,153 | $ | (3,099 | ) | ||||||
Available-for-sale
and other investments
|
178 | (8 | ) | 160 | (7 | ) |
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, 2009 and 2008. 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,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Fair Value
|
Effect of
-10%
Equity
Price
Change
|
Fair Value
|
Effect of
-10%
Equity
Price
Change
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Equity
Investments:
|
||||||||||||||||
Trading
|
$ | 358,676 | $ | (35,868 | ) | $ | 246,394 | $ | (24,639 | ) | ||||||
Available-for-sale
and other investments
|
290,069 | (29,007 | ) | 255,136 | (25,514 | ) |
Item 8.
|
Financial
Statements and Supplementary Data
|
AllianceBernstein Holding L.P.
Statements
of Financial Condition
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands, except unit amounts)
|
||||||||
ASSETS
|
||||||||
Investment
in AllianceBernstein
|
$ | 1,912,291 | $ | 1,600,045 | ||||
Other
assets
|
10 | 1,397 | ||||||
Total
assets
|
$ | 1,912,301 | $ | 1,601,442 | ||||
LIABILITIES
AND PARTNERS’ CAPITAL
|
||||||||
Liabilities:
|
||||||||
Payable
to AllianceBernstein
|
$ | 1,484 | $ | 4,825 | ||||
Other
liabilities
|
699 | 462 | ||||||
Total
liabilities
|
2,183 | 5,287 | ||||||
Commitments
and contingencies (See
Note 7)
|
||||||||
Partners’
capital:
|
||||||||
General
Partner: 100,000 general partnership units issued and
outstanding
|
1,668 | 1,633 | ||||||
Limited
partners: 101,251,749 and 90,223,767 limited partnership units
issued and outstanding
|
1,916,434 | 1,618,985 | ||||||
Accumulated
other comprehensive income (loss)
|
(7,984 | ) | (24,463 | ) | ||||
Total
partners’ capital
|
1,910,118 | 1,596,155 | ||||||
Total
liabilities and partners’ capital
|
$ | 1,912,301 | $ | 1,601,442 |
See
Accompanying Notes to Financial Statements.
AllianceBernstein
Holding L.P.
Statements
of Income
Years Ended
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Equity
in net income attributable to AllianceBernstein
Unitholders
|
$ | 192,513 | $ | 278,636 | $ | 415,256 | ||||||
Income
taxes
|
25,324 | 33,910 | 39,104 | |||||||||
Net
income
|
$ | 167,189 | $ | 244,726 | $ | 376,152 | ||||||
Net
income per unit:
|
||||||||||||
Basic
|
$ | 1.80 | $ | 2.79 | $ | 4.35 | ||||||
Diluted
|
$ | 1.80 | $ | 2.79 | $ | 4.32 |
See
Accompanying Notes to Financial Statements.
AllianceBernstein
Holding L.P.
Statements
of Changes in Partners’ Capital and Comprehensive Income
Year Ended
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
General
Partner’s Capital
|
||||||||||||
Balance,
beginning of year
|
$ | 1,633 | $ | 1,698 | $ | 1,739 | ||||||
Net
income
|
179 | 280 | 434 | |||||||||
Cash
distributions to unitholders
|
(144 | ) | (345 | ) | (475 | ) | ||||||
Balance,
end of year
|
1,668 | 1,633 | 1,698 | |||||||||
Limited
Partners' Capital
|
||||||||||||
Balance,
beginning of year
|
1,618,985 | 1,548,212 | 1,546,598 | |||||||||
Net
income
|
167,010 | 244,446 | 375,718 | |||||||||
Cash
distributions to unitholders
|
(132,929 | ) | (301,031 | ) | (408,248 | ) | ||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plan
awards, net
|
(6,981 | ) | (2,358 | ) | (50,853 | ) | ||||||
Issuance
of Holding Units to fund deferred compensation plan awards
|
272,167 | 70,867 | — | |||||||||
Allocation
of Holding Units from the rabbi trust to fund deferred compensation plan
awards
|
11,672 | 55,276 | 39,088 | |||||||||
Forfeitures
of Holding Units under deferred compensation plans
|
(13,490 | ) | (9,952 | ) | (4,287 | ) | ||||||
Impact
of initial adoption of ASC 740
|
— | — | 145 | |||||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
— | 13,525 | 50,051 | |||||||||
Balance,
end of year
|
1,916,434 | 1,618,985 | 1,548,212 | |||||||||
Accumulated
Other Comprehensive Income (Loss)
|
||||||||||||
Balance,
beginning of year
|
(24,463 | ) | 17,550 | 10,851 | ||||||||
Unrealized
gain (loss) on investments, net of tax
|
1,461 | (1,188 | ) | (2,897 | ) | |||||||
Foreign
currency translation adjustment, net of tax
|
13,043 | (32,464 | ) | 6,309 | ||||||||
Changes
in retirement plan related items, net of tax
|
1,975 | (8,361 | ) | 3,287 | ||||||||
Balance,
end of year
|
(7,984 | ) | (24,463 | ) | 17,550 | |||||||
Total
Partners’ Capital
|
$ | 1,910,118 | $ | 1,596,155 | $ | 1,567,460 |
See
Accompanying Notes to Financial Statements.
AllianceBernstein
Holding L.P.
Statements
of Cash Flows
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 167,189 | $ | 244,726 | $ | 376,152 | ||||||
Adjustments
to reconcile net income to net cash used in operating
activities:
|
||||||||||||
Equity
in net income attributable to AllianceBernstein
Unitholders
|
(192,513 | ) | (278,636 | ) | (415,256 | ) | ||||||
Changes
in assets and liabilities:
|
||||||||||||
Decrease
(increase) in other assets
|
1,387 | (675 | ) | (421 | ) | |||||||
(Decrease)
increase in payable to AllianceBernstein
|
(3,341 | ) | (2,635 | ) | 311 | |||||||
Increase
(decrease) in other liabilities
|
237 | 148 | (1,383 | ) | ||||||||
Net
cash used in operating activities
|
(27,041 | ) | (37,072 | ) | (40,597 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Investments
in AllianceBernstein with proceeds from exercises of compensatory options
to buy Holding Units
|
— | (13,525 | ) | (50,051 | ) | |||||||
Cash
distributions received from AllianceBernstein
|
160,114 | 338,448 | 449,320 | |||||||||
Net
cash provided by investing activities
|
160,114 | 324,923 | 399,269 | |||||||||
Cash
flows from financing activities:
|
||||||||||||
Cash
distributions to unitholders
|
(133,073 | ) | (301,376 | ) | (408,723 | ) | ||||||
Proceeds
from exercise of compensatory options to buy Holding Units
|
— | 13,525 | 50,051 | |||||||||
Net
cash used in financing activities
|
(133,073 | ) | (287,851 | ) | (358,672 | ) | ||||||
Change
in cash and cash equivalents
|
— | — | — | |||||||||
Cash
and cash equivalents as of beginning of the year
|
— | — | — | |||||||||
Cash
and cash equivalents as of end of the year
|
$ | — | $ | — | $ | — | ||||||
Cash
paid:
|
||||||||||||
Income
taxes
|
$ | 24,749 | $ | 34,410 | $ | 41,422 | ||||||
Non-cash
investing activities:
|
||||||||||||
Changes
in accumulated other comprehensive income (loss)
|
16,479 | (42,013 | ) | 6,699 | ||||||||
Issuance
of Holding Units to fund deferred compensation plan awards
|
272,167 | 70,867 | — | |||||||||
Allocation
of Holding Units from the rabbi trust to fund deferred compensation plan
awards
|
11,672 | 55,276 | 39,088 | |||||||||
Forfeitures
of Holding Units under deferred compensation plans
|
(13,490 | ) | (9,952 | ) | (4,287 | ) | ||||||
Non-cash
financing activities:
|
||||||||||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plan
awards, net
|
(6,981 | ) | (2,358 | ) | (50,853 | ) |
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
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 with mutual funds sponsored by third parties,
separately-managed account programs sponsored by financial intermediaries
worldwide and other investment
vehicles.
|
|
•
|
Private
Client Services—servicing its private clients, including high-net-worth
individuals, trusts and estates, charitable foundations, partnerships,
private and family corporations, and other entities, by means of
separately-managed accounts, hedge funds, mutual funds and other
investment vehicles.
|
|
•
|
Bernstein
Research Services—servicing institutional investors seeking research,
portfolio strategy and brokerage-related services, and issuers of
publicly-traded securities seeking equity capital markets
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 considered
undervalued;
|
|
•
|
Growth
equities, generally targeting stocks with under-appreciated growth
potential;
|
|
•
|
Fixed
income securities, including taxable and tax-exempt
securities;
|
|
•
|
Blend
strategies, combining style-pure investment components with systematic
rebalancing;
|
|
•
|
Passive
management, including index and enhanced index
strategies;
|
|
•
|
Alternative
investments, such as hedge funds, currency management strategies and
venture capital; and
|
|
•
|
Asset
allocation services, by which AllianceBernstein offers blend strategies
specifically-tailored for its clients (e.g., customized
target-date fund retirement services for defined contribution plan
sponsors).
|
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.
During
2009, AllianceBernstein was selected by the U.S. Treasury Department as one of
only three firms to manage its portfolio of assets issued by banks and other
institutions taking part in the Capital Purchase Program of the Troubled Assets
Relief Program. In addition, AllianceBernstein was selected by the U.S. Treasury
Department as one of nine pre-qualified fund managers under the Public-Private
Investment Program and, during the fourth quarter of 2009, we were one of five
firms that closed an initial Public-Private Investment Fund of at least $500
million.
AllianceBernstein’s
research is the foundation of its business. AllianceBernstein’s research
disciplines include fundamental research, quantitative research, economic
research and currency forecasting. In addition, we have created
several specialized research units, including one that examines global strategic
changes that can affect multiple industries and geographies, and another
dedicated to identifying potentially successful innovations within early-stage
companies.
As of
December 31, 2009, 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, through certain of its
subsidiaries (“AXA and its subsidiaries”) owned approximately 1.4% of the issued
and outstanding units representing assignments of beneficial ownership of
limited partnership interests in Holding (“Holding Units”).
As of
December 31, 2009, the ownership structure of AllianceBernstein, expressed as a
percentage of general and limited partnership interests, was as
follows:
AXA
and its subsidiaries
|
61.6 | % | ||
Holding
|
36.5 | |||
Unaffiliated
Holders
|
1.9 | |||
100.0 | % |
AllianceBernstein
Corporation (an indirect wholly-owned subsidiary of AXA, “General Partner”) is
the general partner of both Holding and AllianceBernstein. AllianceBernstein
Corporation owns 100,000 general partnership units in Holding and a 1% general
partnership interest in AllianceBernstein. Including both the general
partnership and limited partnership interests in Holding and AllianceBernstein,
AXA and its subsidiaries had an approximate 62.1% economic interest in
AllianceBernstein as of December 31, 2009.
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.
FASB
Codification
For
annual and interim periods ending after September 15, 2009, the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (the
“Codification”) became the single authoritative source of generally accepted
accounting principles (“GAAP”) in the United States.
Subsequent
Events
We
evaluated subsequent events through February 11, 2010, the date the financial
statements were issued.
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
February 11, 2010, the General Partner declared a distribution of $62.8 million,
or $0.62 per unit, representing Available Cash Flow for the three months ended
December 31, 2009. Each general partnership unit in Holding is entitled to
receive distributions equal to those received by each Holding Unit. The
distribution is payable on March 4, 2010 to holders of record at the close of
business on February 22, 2010.
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. 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.
Total
cash distributions per unit paid to unitholders during 2009, 2008 and 2007 were
$1.44, $3.45 and $4.75, respectively.
Compensatory
Option Plans
AllianceBernstein
maintains certain compensation plans under which options to buy Holding Units
have been, or may be, granted to employees of AllianceBernstein and independent
directors of the General Partner. AllianceBernstein 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, 2009, there were 12,047,522 options for
Holding Units outstanding, of which 2,804,042 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,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Net
income—basic
|
$ | 167,189 | $ | 244,726 | $ | 376,152 | ||||||
Additional
allocation of equity in net income attributable to AllianceBernstein
resulting from assumed dilutive effect of compensatory
options
|
328 | 1,133 | 5,146 | |||||||||
Net
income—diluted
|
$ | 167,517 | $ | 245,859 | $ | 381,298 | ||||||
Weighted
average units outstanding—basic
|
92,906 | 87,571 | 86,460 | |||||||||
Dilutive
effect of compensatory options
|
244 | 531 | 1,807 | |||||||||
Weighted
average units outstanding—diluted
|
93,150 | 88,102 | 88,267 | |||||||||
Basic
net income per unit
|
$ | 1.80 | $ | 2.79 | $ | 4.35 | ||||||
Diluted
net income per unit
|
$ | 1.80 | $ | 2.79 | $ | 4.32 |
As of
December 31, 2009, 2008 and 2007, we excluded 5,752,877, 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), respectively, from the diluted net income per unit computation
due to their anti-dilutive effect.
4.
Investment in AllianceBernstein
Holding’s
investment in AllianceBernstein for the years ended December 31, 2009 and 2008
were as follows:
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Investment
in AllianceBernstein as of January 1,
|
$ | 1,600,045 | $ | 1,574,512 | ||||
Equity
in net income attributable to AllianceBernstein
Unitholders
|
192,513 | 278,636 | ||||||
Additional
investments with proceeds from exercises of compensatory options to buy
Holding Units
|
- | 13,525 | ||||||
Changes
in accumulated other comprehensive income (loss)
|
16,479 | (42,013 | ) | |||||
Cash
distributions received from AllianceBernstein
|
(160,114 | ) | (338,448 | ) | ||||
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation plan
awards, net
|
(6,981 | ) | (2,358 | ) | ||||
Issuance
of Holding Units to fund deferred compensation plan awards
|
272,167 | 70,867 | ||||||
Allocation
of Holding Units from rabbi trust to fund deferred compensation plan
awards
|
11,672 | 55,276 | ||||||
Forfeitures
of Holding Units under deferred compensation plans
|
(13,490 | ) | (9,952 | ) | ||||
Investment
in AllianceBernstein as of December 31,
|
$ | 1,912,291 | $ | 1,600,045 |
5.
Units Outstanding
The
following table summarizes the activity in Holding Units:
Outstanding
as of December 31, 2007
|
86,948,149 | |||
Options
exercised
|
315,467 | |||
Units
issued
|
3,063,761 | |||
Units
forfeited
|
(3,610 | ) | ||
Outstanding
as of December 31, 2008
|
90,323,767 | |||
Options
exercised
|
- | |||
Units
issued
|
11,030,983 | |||
Units
forfeited
|
(3,001 | ) | ||
Outstanding
as of December 31, 2009
|
101,351,749 |
Units
issued pertain to Holding Units newly issued under our Amended and Restated 1997
Long Term Incentive Plan and include: (i) restricted Holding Unit awards to
independent members of the Board of Directors of the General Partner, (ii)
restricted Holding Unit awards to eligible employees, (iii) Holding Unit
issuances to fund deferred compensation notional investment elections by plan
participants, (iv) Century Club Plan restricted Holding Unit awards to
AllianceBernstein employees whose primary responsibilities are to assist in the
distribution of company-sponsored mutual funds, and (v) restricted Holding Unit
issuances in connection with certain employee separation
agreements.
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,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
(in
thousands)
|
||||||||||||||||||||||||
UBT
statutory rate
|
$ | 7,701 | 4.0 | % | $ | 11,145 | 4.0 | % | $ | 16,610 | 4.0 | % | ||||||||||||
Federal
tax on partnership gross business income
|
25,324 | 13.2 | 33,910 | 12.2 | 39,104 | 9.4 | ||||||||||||||||||
Credit
for UBT paid by AllianceBernstein
|
(7,701 | ) | (4.0 | ) | (11,145 | ) | (4.0 | ) | (16,610 | ) | (4.0 | ) | ||||||||||||
Income
tax expense (all currently payable) and effective tax rate
|
$ | 25,324 | 13.2 | $ | 33,910 | 12.2 | $ | 39,104 | 9.4 |
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.
The
effects of a tax position are 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. Accordingly, we have no liability for unrecognized
tax benefits as of December 31, 2009, 2008 and 2007. 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 2006. 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.
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 expensed 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.
8.
Quarterly Financial Data (Unaudited)
Quarters Ended
|
||||||||||||||||
December 31
|
September 30
|
June 30
|
March 31
|
|||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||
2009:
|
||||||||||||||||
Equity
in net income attributable to AllianceBernstein
Unitholders
|
$ | 67,086 | $ | 68,723 | $ | 44,092 | $ | 12,612 | ||||||||
Net
income
|
$ | 59,671 | $ | 62,530 | $ | 38,253 | $ | 6,735 | ||||||||
Basic
net income per unit(1)
|
$ | 0.63 | $ | 0.67 | $ | 0.41 | $ | 0.07 | ||||||||
Diluted
net income per unit(1)
|
$ | 0.62 | $ | 0.67 | $ | 0.41 | $ | 0.07 | ||||||||
Cash
distributions per unit(2)
|
$ | 0.62 | $ | 0.67 | $ | 0.41 | $ | 0.07 |
2008:
|
||||||||||||||||
Equity
in net income attributable to AllianceBernstein
Unitholders
|
$ | 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 |
________________________
(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,
2009 and 2008, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2009 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, 2009,
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
11, 2010
AllianceBernstein L.P. and Subsidiaries
Consolidated
Statements of Financial Condition
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands, except unit amounts)
|
||||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 614,216 | $ | 552,577 | ||||
Cash
and securities segregated, at fair value (cost $985,213 and
$2,568,339)
|
985,331 | 2,572,569 | ||||||
Receivables,
net:
|
||||||||
Brokers
and dealers
|
170,148 | 251,644 | ||||||
Brokerage
clients
|
582,248 | 398,979 | ||||||
Fees,
net
|
346,482 | 377,167 | ||||||
Investments:
|
||||||||
Deferred
compensation-related
|
400,959 | 305,809 | ||||||
Other
|
373,870 | 272,034 | ||||||
Furniture,
equipment and leasehold improvements, net
|
359,674 | 365,804 | ||||||
Goodwill,
net
|
2,893,029 | 2,893,029 | ||||||
Intangible
assets, net
|
223,992 | 243,493 | ||||||
Deferred
sales commissions, net
|
90,187 | 113,541 | ||||||
Other
assets
|
174,804 | 156,813 | ||||||
Total
assets
|
$ | 7,214,940 | $ | 8,503,459 | ||||
LIABILITIES
AND CAPITAL
|
||||||||
Liabilities:
|
||||||||
Payables:
|
||||||||
Brokers
and dealers
|
$ | 120,574 | $ | 110,488 | ||||
Securities
sold not yet purchased
|
31,806 | 167 | ||||||
Brokerage
clients
|
1,430,835 | 2,755,104 | ||||||
AllianceBernstein
mutual funds
|
86,054 | 195,617 | ||||||
Accounts
payable and accrued expenses
|
278,398 | 310,392 | ||||||
Accrued
compensation and benefits
|
316,331 | 360,086 | ||||||
Debt
|
248,987 | 284,779 | ||||||
Total
liabilities
|
2,512,985 | 4,016,633 | ||||||
Commitments
and contingencies (See
Note 11)
|
||||||||
Capital:
|
||||||||
General
Partner
|
48,671 | 45,010 | ||||||
Limited
partners: 274,745,592 and 263,717,610 units issued and
outstanding
|
4,850,601 | 4,485,564 | ||||||
Capital
contributions receivable from General Partner
|
(19,664 | ) | (23,168 | ) | ||||
Holding
Units held for deferred compensation plans
|
(327,384 | ) | (117,600 | ) | ||||
Accumulated
other comprehensive income (loss)
|
(21,862 | ) | (72,147 | ) | ||||
Partners’
capital attributable to AllianceBernstein Unitholders
|
4,530,362 | 4,317,659 | ||||||
Non-controlling
interests in consolidated entities
|
171,593 | 169,167 | ||||||
Total
capital
|
4,701,955 | 4,486,826 | ||||||
Total
liabilities and capital
|
$ | 7,214,940 | $ | 8,503,459 |
See
Accompanying Notes to Consolidated Financial Statements.
AllianceBernstein
L.P. and Subsidiaries
Consolidated
Statements of Income
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Revenues:
|
||||||||||||
Investment
advisory and services fees
|
$ | 1,920,332 | $ | 2,839,526 | $ | 3,386,188 | ||||||
Distribution
revenues
|
277,328 | 378,425 | 473,435 | |||||||||
Bernstein
research services
|
434,605 | 471,716 | 423,553 | |||||||||
Dividend
and interest income
|
26,730 | 91,752 | 284,014 | |||||||||
Investment
gains (losses)
|
144,447 | (349,172 | ) | 29,690 | ||||||||
Other
revenues
|
107,848 | 118,436 | 122,869 | |||||||||
Total
revenues
|
2,911,290 | 3,550,683 | 4,719,749 | |||||||||
Less:
Interest expense
|
4,411 | 36,524 | 194,432 | |||||||||
Net
revenues
|
2,906,879 | 3,514,159 | 4,525,317 | |||||||||
Expenses:
|
||||||||||||
Employee
compensation and benefits
|
1,298,053 | 1,454,691 | 1,833,796 | |||||||||
Promotion
and servicing:
|
||||||||||||
Distribution
plan payments
|
207,643 | 274,359 | 335,132 | |||||||||
Amortization
of deferred sales commissions
|
54,922 | 79,111 | 95,481 | |||||||||
Other
|
173,250 | 207,506 | 252,468 | |||||||||
General
and administrative
|
558,361 | 539,198 | 574,506 | |||||||||
Interest
on borrowings
|
2,696 | 13,077 | 23,970 | |||||||||
Amortization
of intangible assets
|
21,126 | 20,716 | 20,716 | |||||||||
Total
expenses
|
2,316,051 | 2,588,658 | 3,136,069 | |||||||||
Operating
income
|
590,828 | 925,501 | 1,389,248 | |||||||||
Non-operating
income
|
33,657 | 18,728 | 15,756 | |||||||||
Income
before income taxes
|
624,485 | 944,229 | 1,405,004 | |||||||||
Income
taxes
|
45,977 | 95,803 | 127,845 | |||||||||
Net
income
|
578,508 | 848,426 | 1,277,159 | |||||||||
Net
income of consolidated entities attributable to non-controlling
interests
|
(22,381 | ) | (9,186 | ) | (16,715 | ) | ||||||
Net
income attributable to AllianceBernstein Unitholders
|
$ | 556,127 | $ | 839,240 | $ | 1,260,444 | ||||||
Net
income per AllianceBernstein Unit:
|
||||||||||||
Basic
|
$ | 2.07 | $ | 3.18 | $ | 4.80 | ||||||
Diluted
|
$ | 2.07 | $ | 3.18 | $ | 4.77 |
See
Accompanying Notes to Consolidated Financial Statements.
AllianceBernstein
L.P. and Subsidiaries
Consolidated
Statements of Changes in Partners’ Capital and Comprehensive Income
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
General
Partner’s Capital
|
||||||||||||
Balance,
beginning of year
|
$ | 45,010 | $ | 45,932 | $ | 46,416 | ||||||
Net
income
|
5,561 | 8,392 | 12,605 | |||||||||
Cash
distributions to General Partner
|
(4,647 | ) | (10,197 | ) | (13,646 | ) | ||||||
Purchases
of Holding Units to fund deferred compensation plan awards,
net
|
5 | — | — | |||||||||
Issuance
of Holding Units to fund deferred compensation plan awards
|
2,722 | 709 | — | |||||||||
Allocation
of Holding Units from the rabbi trust to fund deferred compensation plan
awards
|
8 | 30 | 36 | |||||||||
Forfeitures
of Holding Units under deferred compensation plans
|
(2 | ) | (7 | ) | (1 | ) | ||||||
Compensation
plan accrual
|
14 | 17 | 17 | |||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
— | 135 | 501 | |||||||||
ACM
New Alliance Liquidation
|
— | (1 | ) | — | ||||||||
Impact
of initial adoption of ASC 740
|
— | — | 4 | |||||||||
Balance,
end of year
|
48,671 | 45,010 | 45,932 | |||||||||
Limited
Partners' Capital
|
||||||||||||
Balance,
beginning of year
|
4,485,564 | 4,526,126 | 4,584,200 | |||||||||
Net
income
|
550,566 | 830,848 | 1,247,839 | |||||||||
Cash
distributions to unitholders
|
(460,086 | ) | (1,009,482 | ) | (1,350,965 | ) | ||||||
Purchases
of Holding Units to fund deferred compensation plan awards,
net
|
(6,986 | ) | (2,358 | ) | (50,853 | ) | ||||||
Issuance
of Holding Units to fund deferred compensation plan awards
|
269,445 | 70,158 | — | |||||||||
Allocation
of Holding Units from the rabbi trust to fund deferred compensation plan
awards
|
12,533 | 58,252 | 42,667 | |||||||||
Forfeitures
of Holding Units under deferred compensation plans
|
(13,711 | ) | (10,702 | ) | (4,380 | ) | ||||||
Compensatory
Holding Unit options expense
|
11,889 | 7,737 | 5,947 | |||||||||
Compensation
plan accrual
|
1,387 | 1,642 | 1,683 | |||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
— | 13,390 | 49,550 | |||||||||
ACM
New Alliance Liquidation
|
— | (47 | ) | — | ||||||||
Impact
of initial adoption of ASC 740
|
— | — | 438 | |||||||||
Balance,
end of year
|
4,850,601 | 4,485,564 | 4,526,126 | |||||||||
Capital
Contributions Receivable
|
||||||||||||
Balance,
beginning of year
|
(23,168 | ) | (26,436 | ) | (29,590 | ) | ||||||
Capital
contributions from General Partner
|
4,905 | 4,927 | 4,854 | |||||||||
Compensation
plan accrual
|
(1,401 | ) | (1,659 | ) | (1,700 | ) | ||||||
Balance,
end of year
|
(19,664 | ) | (23,168 | ) | (26,436 | ) | ||||||
Holding
Units Held for Deferred Compensation Plans
|
||||||||||||
Balance,
beginning of year
|
(117,600 | ) | (57,501 | ) | (63,196 | ) | ||||||
Awards
of Holding Units to fund deferred compensation plans
|
(284,708 | ) | (129,149 | ) | (42,703 | ) | ||||||
Amortization
of deferred compensation awards
|
61,211 | 58,341 | 44,017 | |||||||||
Forfeitures
of Holding Units under deferred compensation plans
|
13,713 | 10,709 | 4,381 | |||||||||
Balance,
end of year
|
(327,384 | ) | (117,600 | ) | (57,501 | ) | ||||||
Accumulated
Other Comprehensive Income (Loss)
|
||||||||||||
Balance,
beginning of year
|
(72,147 | ) | 53,105 | 33,167 | ||||||||
Unrealized
gain (loss) on investments, net of tax
|
4,232 | (3,511 | ) | (8,859 | ) | |||||||
Foreign
currency translation adjustment, net of tax
|
39,098 | (96,978 | ) | 18,757 | ||||||||
Changes
in retirement plan related items, net of tax
|
6,955 | (24,763 | ) | 10,040 | ||||||||
Balance,
end of year
|
(21,862 | ) | (72,147 | ) | 53,105 | |||||||
Total
Partners' Capital attributable to AllianceBernstein
Unitholders
|
4,530,362 | 4,317,659 | 4,541,226 | |||||||||
Non-controlling
Interests in Consolidated Entities
|
||||||||||||
Balance,
beginning of year
|
169,167 | 147,652 | 53,515 | |||||||||
Net
income
|
22,381 | 9,186 | 16,715 | |||||||||
Unrealized
gain (loss) on investments
|
159 | (451 | ) | 59 | ||||||||
Foreign
currency translation adjustment
|
4,074 | (3,290 | ) | 1,114 | ||||||||
Cash
distributions to joint venture partners
|
— | (10,387 | ) | (5,904 | ) | |||||||
Contributions
from (distributions to) non-controlling interests of our consolidated
venture capital fund activities
|
(24,188 | ) | 26,457 | 82,153 | ||||||||
Balance,
end of year
|
171,593 | 169,167 | 147,652 | |||||||||
Total
Capital
|
$ | 4,701,955 | $ | 4,486,826 | $ | 4,688,878 |
See
Accompanying Notes to Consolidated Financial Statements.
AllianceBernstein
L.P. and Subsidiaries
Consolidated
Statements of Cash Flows
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 578,508 | $ | 848,426 | $ | 1,277,159 | ||||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
Amortization
of deferred sales commissions
|
54,922 | 79,111 | 95,481 | |||||||||
Amortization
of non-cash deferred compensation
|
73,101 | 66,078 | 49,815 | |||||||||
Depreciation
and other amortization
|
83,851 | 97,746 | 102,394 | |||||||||
Unrealized
(gains) losses on deferred compensation related
investments
|
(184,384 | ) | 254,686 | 21,701 | ||||||||
Other,
net
|
(19,867 | ) | 13,082 | (6,932 | ) | |||||||
Changes
in assets and liabilities:
|
||||||||||||
Decrease
(increase) in segregated cash and securities
|
1,587,238 | (132,792 | ) | (360,181 | ) | |||||||
Decrease
in receivables
|
66,314 | 331,916 | 1,871,138 | |||||||||
Decrease
(increase) in investments
|
19,787 | (34,189 | ) | (211,909 | ) | |||||||
(Increase)
in deferred sales commissions
|
(31,568 | ) | (9,081 | ) | (84,101 | ) | ||||||
(Increase)
decrease in other assets
|
(18,626 | ) | 6,223 | (14,648 | ) | |||||||
(Decrease)
increase in payables
|
(1,520,959 | ) | 4,658 | (1,625,583 | ) | |||||||
(Decrease)
increase in accounts payable and accrued expenses
|
(21,493 | ) | (50,740 | ) | 25,370 | |||||||
(Decrease)
increase in accrued compensation and benefits
|
(41,361 | ) | (110,346 | ) | 75,477 | |||||||
Net
cash provided by operating activities
|
625,463 | 1,364,778 | 1,215,181 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of investments
|
(10,378 | ) | (22,221 | ) | (25,932 | ) | ||||||
Proceeds
from sales of investments
|
6,924 | 43,229 | 52,393 | |||||||||
Additions
to furniture, equipment and leasehold improvements
|
(53,763 | ) | (75,208 | ) | (137,547 | ) | ||||||
Net
cash used in investing activities
|
(57,217 | ) | (54,200 | ) | (111,086 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
(Repayment)
issuance of commercial paper, net
|
(36,751 | ) | (260,146 | ) | 175,750 | |||||||
(Decrease)
increase in overdrafts payable
|
(16,860 | ) | (11,524 | ) | 23,321 | |||||||
Distributions
to General Partner and unitholders
|
(464,733 | ) | (1,019,679 | ) | (1,364,611 | ) | ||||||
Distributions
to Joint Venture Partners
|
— | (10,387 | ) | (5,904 | ) | |||||||
(Distributions
to) contributions from non-controlling interests in consolidated
entities
|
(24,188 | ) | 26,457 | 82,153 | ||||||||
Capital
contributions from General Partner
|
4,905 | 4,927 | 4,854 | |||||||||
Additional
investment by Holding with proceeds from exercise of compensatory options
to buy Holding Units
|
— | 13,525 | 50,051 | |||||||||
Purchases
of Holding Units to fund deferred compensation plan awards,
net
|
(6,981 | ) | (2,358 | ) | (50,853 | ) | ||||||
Other
|
132 | — | — | |||||||||
Net
cash used in financing activities
|
(544,476 | ) | (1,259,185 | ) | (1,085,239 | ) | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
37,869 | (75,232 | ) | 10,783 | ||||||||
Net
increase (decrease) in cash and cash equivalents
|
61,639 | (23,839 | ) | 29,639 | ||||||||
Cash
and cash equivalents as of beginning of the period
|
552,577 | 576,416 | 546,777 | |||||||||
Cash
and cash equivalents as of end of the period
|
$ | 614,216 | $ | 552,577 | $ | 576,416 | ||||||
Cash
paid:
|
||||||||||||
Interest
|
$ | 5,433 | $ | 47,933 | $ | 218,398 | ||||||
Income
taxes
|
64,085 | 132,491 | 87,329 |
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
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 with 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.
|
|
•
|
Bernstein
Research Services—servicing institutional investors seeking research,
portfolio strategy and brokerage-related services, and issuers of
publicly-traded securities seeking equity capital markets
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 considered
undervalued;
|
|
•
|
Growth
equities, generally targeting stocks with under-appreciated growth
potential;
|
|
•
|
Fixed
income securities, including taxable and tax-exempt
securities;
|
|
•
|
Blend
strategies, combining style-pure investment components with systematic
rebalancing;
|
|
•
|
Passive
management, including index and enhanced index
strategies;
|
|
•
|
Alternative
investments, such as hedge funds, currency management strategies and
venture capital; and
|
|
•
|
Asset
allocation, by which we offer blend strategies specifically-tailored for
our clients (e.g., customized
target-date fund retirement services for defined contribution plan
sponsors).
|
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.
Recently,
we were selected by the U.S. Treasury Department as one of only three firms to
manage its portfolio of assets issued by banks and other institutions
taking part in the Capital Purchase Program of the Troubled Assets Relief
Program. In addition, we were selected by the U.S. Treasury
Department as one of nine pre-qualified fund managers under the Public-Private
Investment Program and, during the fourth quarter of 2009, we were one of five
firms that closed an initial Public-Private Investment Fund of at least $500
million.
Our
research is the foundation of our business. Our research disciplines include
fundamental research, quantitative research, economic research and currency
forecasting. In addition, we have created several specialized
research units, including one that examines global strategic changes that can
affect multiple industries and geographies, and another dedicated to identifying
potentially successful innovations within early-stage companies.
As of
December 31, 2009, 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, through certain of its
subsidiaries (“AXA and its subsidiaries”) owned approximately 1.4% of the issued
and outstanding units representing assignments of beneficial ownership of
limited partnership interests in Holding (“Holding Units”).
As of
December 31, 2009, the ownership structure of AllianceBernstein, expressed as a
percentage of general and limited partnership interests, was as
follows:
AXA
and its subsidiaries
|
61.6 | % | ||
Holding
|
36.5 | |||
Unaffiliated
holders
|
1.9 | |||
100.0 | % |
AllianceBernstein
Corporation (an indirect wholly-owned subsidiary of AXA, “General Partner”) is
the general partner of both Holding and AllianceBernstein. AllianceBernstein
Corporation owns 100,000 general partnership units in Holding and a 1% general
partnership interest in AllianceBernstein. Including both the general
partnership and limited partnership interests in Holding and AllianceBernstein,
AXA and its subsidiaries had an approximate 62.1% economic interest in
AllianceBernstein as of December 31, 2009.
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.
Subsequent
Events
We
evaluated subsequent events through February 11, 2010, the date the financial
statements were issued.
FASB
Codification
For
annual and interim periods ending after September 15, 2009, the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (the
“Codification”) became the single authoritative source of generally accepted
accounting principles (“GAAP”) in the United States.
Reclassifications
and Revisions
Effective
January 1, 2009, we adopted amended accounting principles related to
non-controlling interests in consolidated financial statements. The objective of
this amendment is to improve the relevance, comparability and transparency of
the financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for the
non-controlling interest in a subsidiary. The disclosure provisions of the
amendment require retrospective application for all periods presented. As a
result, certain prior period amounts have been reclassified to conform to the
current year presentation. These include: (i)
net income of consolidated entities attributable to non-controlling
interests, previously included within general and administrative expenses,
currently shown separately in the consolidated statements of income, (ii)
non-controlling interests in consolidated entities previously included in
liabilities, currently shown as a component of total capital in the consolidated
statements of financial condition, and (iii) change in non-controlling interests
in consolidated entities previously included within cash provided by operating
activities, currently included in net cash used in financing activities in the
consolidated statements of cash flows.
In addition, securities sold not
yet purchased, previously included in payable to brokers and dealers in the
consolidated statements of financial condition, is currently shown separately.
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 (“AUM”) to determine the variable interest entities that the company
is required to consolidate. 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, 2009, we have significant variable interests in certain structured
products and hedge funds with approximately $60.3 million in AUM. 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 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 original
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.
Securities
borrowed and securities loaned by Sanford C. Bernstein & Co., LLC (“SCB
LLC”) and Sanford C. Bernstein Limited (“SCBL”), both wholly-owned subsidiaries,
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, various separately-managed
portfolios, exchange-traded options and investments owned by a consolidated
venture capital fund in which we own a controlling interest as the general
partner and in which we hold a 10% limited 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.
Trading investments are stated at fair value with unrealized gains and losses
reported in net income. Available-for-sale investments are stated at fair value
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 realized gain or loss on investments
sold.
We use
the equity method of accounting for investments in limited partnership hedge
funds. The equity in earnings of our limited partnership hedge fund investments
is included in investment gains and losses on the consolidated statements of
income.
The
investments owned by our consolidated venture capital fund are generally
illiquid and are initially valued at cost. These investments are adjusted to
fair value to reflect the occurrence of “significant developments” (i.e., capital transactions or
business, economic or market events). 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 11% ownership in a company that we own directly, outside of our
consolidated venture capital fund. This investment is accounted for using the
cost method.
See Note 7 for a description
of how we measure the fair value of our investments.
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
In 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.
We test
our goodwill 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 the Holding Unit
price, occur, suggesting possible impairment. As of September 30, 2009, the
impairment test indicated that goodwill was not impaired.
To the
extent that securities valuations are depressed for prolonged periods of time,
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. based on their estimated fair value at the time of
acquisition 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 $415.9 million as of December 31, 2009 and $414.3 million as of
December 31, 2008, and accumulated amortization was $191.9 million as of
December 31, 2009 and $170.8 million as of December 31, 2008, resulting in the
net carrying amount of intangible assets subject to amortization of $224.0
million as of December 31, 2009 and $243.5 million as of December 31, 2008.
Amortization expense was $21.1 million for 2009 and $20.7 million for each of
the years 2008 and 2007, and estimated amortization expense for each of the next
five years is approximately $22 million.
We
periodically review intangible assets for impairment as events or changes in
circumstances indicate that the carrying value may not be recoverable. If the
carrying value exceeds fair value, additional impairment tests are performed to
measure the amount of the impairment loss, if any.
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.
Effective January 31, 2009, back-end load shares are no longer offered to new
investors by our U.S. mutual funds. Management tests the deferred sales
commission asset for recoverability quarterly and determined that the balance as
of December 31, 2009 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. 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. In such cases, we disclose that we are
unable to predict the outcome or estimate a possible loss or range of
loss.
Revenue
Recognition
Investment
advisory and services fees, generally calculated as a percentage of AUM, are
recorded as revenue as the related services are performed. Certain investment
advisory contracts, including those associated with hedge funds, provide for a
performance-based fee, in addition to or in lieu of a base fee, which is
calculated as either a percentage of absolute investment results or a percentage
of investment results in excess of a stated benchmark over a specified period of
time. Performance-based fees are recorded as a component of revenue at the end
of each contract’s measurement period.
We
calculate AUM using established 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 recognized pricing vendors for fixed income, asset-backed or
mortgage-backed issues; mid prices from recognized 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 versus liabilities or
any other methodology that is validated and approved by our Valuation 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
Valuation Committee, which is composed of senior officers and employees, is
responsible for overseeing the pricing and valuation of all investments held in
client and AllianceBernstein portfolios. The Valuation Committee has adopted a
Statement of Pricing Policies describing principles and policies that apply to
pricing and valuing investments held in client and AllianceBernstein portfolios.
We have also established a Pricing Group, which reports to the Valuation
Committee. The Valuation Committee has delegated to the Pricing Group
responsibility for monitoring the pricing process for all
investments.
Bernstein
Research Services revenue consists primarily of brokerage transaction charges
received by SCB LLC and SCBL for research and brokerage-related services
provided to institutional investors. Brokerage transaction charges earned and
related expenses are recorded on a trade-date basis. SCB LLC also receives
revenues from its equity capital markets activities in the form of underwriting
fees, management fees and/or selling concessions, which are recognized when
earned.
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
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. For awards
made before 2009, participants were permitted to 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, (ii) restricted Holding
Units or (iii) under certain circumstances, in options to buy Holding Units.
Awards in 2009 consisted solely of restricted Holding Units. We typically make
investments in our services that are notionally elected by the participants and
maintain them in a consolidated rabbi trust or separate custodial account.
Awards generally vest over four years but can vest as soon as immediately upon
grant depending on the terms of the individual award, the age of the
participant, or the terms of an employment, separation or retirement 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 or restricted Holding Units for which a long-term
deferral election has not been made are paid currently to participants. For
awards made prior to December 2009, 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. For awards made in December 2009, quarterly cash distributions on
vested and unvested restricted Holding Units for which a long-term deferral
election has been made are paid currently to participants.
Compensation
expense for awards under the plans, including changes in participant account
balances resulting from gains and losses on related investments (other than
in Holding Units and options to buy Holding Units), is recognized on a
straight-line basis over the applicable vesting periods. Mark-to-market gains or
losses on investments made to fund deferred compensation obligations (other than
in Holding Units and options to buy Holding Units) 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
made to fund deferred compensation obligations is recognized currently as
investment gains (losses) in the consolidated statements of income.
Compensatory
Unit Awards and Option Plans
We
recognize compensation expense related to grants of restricted Holding Units and
options to buy Holding Units 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.
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 (losses) gains were $(0.4)
million, $20.1 million and $7.1 million for 2009, 2008 and 2007,
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
February 11, 2010, the General Partner declared a distribution of $194.2
million, or $0.70 per AllianceBernstein Unit, representing a distribution of
Available Cash Flow for the three months ended December 31, 2009. The General
Partner, as a result of its 1% general partnership interest, is entitled to
receive 1% of each distribution. The distribution is payable on March 4, 2010 to
holders of record on February 22, 2010.
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.
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.
Total
cash distributions per unit paid to the General Partner and unitholders during
2009, 2008 and 2007 were $1.73, $3.87 and $5.20, respectively.
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.
3.
Cash and Securities Segregated Under Federal Regulations and Other
Requirements
As of
December 31, 2009 and 2008, $0.9 billion and $2.5 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, 2009 and 2008, $37.4 million and $47.9 million of cash,
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,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||
Net
income attributable to AllianceBernstein Unitholders
|
$ | 556,127 | $ | 839,240 | $ | 1,260,444 | ||||||
Weighted
average units outstanding—basic
|
266,300 | 260,965 | 259,854 | |||||||||
Dilutive
effect of compensatory options to buy Holding Units
|
244 | 531 | 1,807 | |||||||||
Weighted
average units outstanding—diluted
|
266,544 | 261,496 | 261,661 | |||||||||
Basic
net income per AllianceBernstein Unit
|
$ | 2.07 | $ | 3.18 | $ | 4.80 | ||||||
Diluted
net income per AllianceBernstein Unit
|
$ | 2.07 | $ | 3.18 | $ | 4.77 |
For the
years ended December 31, 2009, 2008 and 2007, we excluded 5,752,877, 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), respectively, from the diluted net income per unit computation
due to their anti-dilutive effect.
5.
Fees Receivables, Net
Fees
receivable, net consists of:
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
AllianceBernstein
mutual funds
|
$ | 112,535 | $ | 89,530 | ||||
Unaffiliated
clients (net of allowance of $1,393 in 2009 and $1,488 in
2008)
|
222,660 | 280,288 | ||||||
Affiliated
clients
|
11,287 | 7,349 | ||||||
Total
fees receivables, net
|
$ | 346,482 | $ | 377,167 |
6.
Investments
Investments
consist of:
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Available-for-sale
|
$ | 18,246 | $ | 7,566 | ||||
Trading:
|
||||||||
Deferred
compensation-related
|
326,364 | 238,136 | ||||||
United
States Treasury Bills
|
28,000 | 52,694 | ||||||
Other
|
130,218 | 31,717 | ||||||
Investments
in limited partnership hedge funds:
|
||||||||
Deferred
compensation-related
|
74,595 | 67,673 | ||||||
Other
|
16,579 | 2,191 | ||||||
Private
equity investments
|
172,747 | 176,823 | ||||||
Other
investments
|
8,080 | 1,043 | ||||||
Total
investments
|
$ | 774,829 | $ | 577,843 |
Total
investments related to deferred compensation obligations of $401.0 million and
$305.8 million as of December 31, 2009 and 2008, respectively, consist of
company-sponsored mutual funds and limited partnership hedge funds. We typically
make investments in our services that are notionally elected by deferred
compensation plan participants and maintain them in a consolidated rabbi trust
or separate custodial account. The rabbi trust and custodial account enable us
to hold such investments separate from our other assets for the purpose of
settling our obligations to participants. The investments held in the rabbi
trust and custodial account remain available to 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.
United
States Treasury Bills are held by SCB LLC in their investment account and are
pledged as collateral with clearing organizations.
The
following is a summary of the cost and fair value of available-for-sale and
trading investments held as of December 31, 2009 and 2008:
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
December
31, 2009:
|
||||||||||||||||
Available-for-sale:
|
||||||||||||||||
Equity
investments
|
$ | 12,827 | $ | 5,241 | $ | — | $ | 18,068 | ||||||||
Fixed
income investments
|
153 | 27 | (2 | ) | 178 | |||||||||||
$ | 12,980 | $ | 5,268 | $ | (2 | ) | $ | 18,246 | ||||||||
Trading:
|
||||||||||||||||
Equity
investments
|
$ | 217,076 | $ | 141,950 | $ | (350 | ) | $ | 358,676 | |||||||
Fixed
income investments
|
114,606 | 12,278 | (978 | ) | 125,906 | |||||||||||
$ | 331,682 | $ | 154,228 | $ | (1,328 | ) | $ | 484,582 | ||||||||
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 |
Proceeds
from sales of available-for-sale investments were approximately $6.9 million,
$42.0 million and $52.4 million in 2009, 2008 and 2007, respectively. Realized
gains from our sales of available-for-sale investments were zero in 2009, zero
in 2008 and $8.5 million in 2007. Realized losses from our sales of
available-for-sale investments were $2.5 million in 2009, $6.4 million in 2008
and zero in 2007. 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, 2009.
7.
Fair Value
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 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.
|
Assets
Measured at Fair Value on a Recurring Basis
The
following table summarizes the valuation of our financial instruments by pricing
observability levels as of December 31, 2009:
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Cash
equivalents
|
$ | 178,875 | $ | 177,772 | $ | — | $ | 356,647 | ||||||||
Securities
segregated
|
— | 947,888 | — | 947,888 | ||||||||||||
Receivables
from brokers and dealers
|
(15 | ) | 612 | — | 597 | |||||||||||
Investments
– available-for-sale
|
18,246 | — | — | 18,246 | ||||||||||||
Investments
– trading
|
||||||||||||||||
Mutual
fund investments
|
332,340 | — | — | 332,340 | ||||||||||||
Equity
and fixed income securities
|
90,611 | 32,900 | 731 | 124,242 | ||||||||||||
U.S.
Treasury bills
|
— | 28,000 | — | 28,000 | ||||||||||||
Investments
– private equity
|
2,913 | 62,006 | 97,828 | 162,747 | ||||||||||||
Total
assets measured at fair value
|
$ | 622,970 | $ | 1,249,178 | $ | 98,559 | $ | 1,970,707 | ||||||||
Securities
sold not yet purchased
|
$ | 31,806 | $ | — | $ | — | $ | 31,806 | ||||||||
Total
liabilities measured at fair value
|
$ | 31,806 | $ | — | $ | — | $ | 31,806 |
The
following table summarizes the valuation of our financial instruments 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 | ||||||||
Securities
sold not yet purchased
|
$ | 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; these are
included in Level 1 of the valuation hierarchy. We also hold United
Kingdom Treasury Bills, which are valued based on quoted yields in
secondary markets and are included in Level 2 of the valuation
hierarchy.
|
|
•
|
Securities
segregated: We hold United States Treasury Bills, which are
segregated in a special reserve bank custody account as required by Rule
15c3-3 of the Exchange Act. These securities are valued based on quoted
yields in secondary markets, and are included 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.
Our trading investments mainly comprise company-sponsored mutual funds
with exchange listed net asset values, United States Treasury Bills,
exchange-traded options and various separately-managed portfolios
consisting primarily of equity securities with quoted prices in active
markets. These investments are included in Level 1 or Level 2 of the
valuation hierarchy. Trading investments also include separately-managed
portfolios 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 owned 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 cost 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. If they contain trading
restrictions, publicly-traded equity investments are included in Level 2
of the valuation hierarchy.
|
|
•
|
Securities
sold not yet purchased: Securities sold not yet purchased,
primarily reflecting short positions in equities and exchange-traded
options, are included in Level 1 of the valuation
hierarchy.
|
The
following table summarizes the changes in carrying value associated with Level 3
financial instruments carried at fair value:
Years Ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in thousands) | ||||||||
Balance
as of beginning of period
|
$ | 162,552 | $ | 125,020 | ||||
Transfers
out, net
|
(85,606 | ) | — | |||||
Purchases,
net
|
8,170 | 31,070 | ||||||
Realized
(losses) gains, net
|
(1,739 | ) | 9 | |||||
Unrealized
gains, net
|
15,182 | 6,453 | ||||||
Balance
as of end of period
|
$ | 98,559 | $ | 162,552 |
Realized
and unrealized gains and losses on Level 3 financial instruments are recorded in
investment gains and losses in the consolidated statements of income.
Substantially all of the Level 3 investments are private equity
investments owned by our consolidated venture capital fund, of which we own
10% and non-controlling interests own 90%.
Assets
Measured at Fair Value on a Nonrecurring Basis
We
adopted Accounting Standards Codification (“ASC”) 820-10-65-1 for nonfinancial
assets and nonfinancial liabilities on January 1, 2009. There were no
impairments recognized for goodwill, intangible assets or other long-lived
assets as of December 31, 2009.
8.
Furniture, Equipment and Leasehold Improvements, Net
Furniture,
equipment and leasehold improvements, net consist of:
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
|
(in
thousands)
|
|||||||
|
|
|
||||||
Furniture
and equipment
|
$ | 544,493 | $ | 522,913 | ||||
Leasehold
improvements
|
348,222 | 322,803 | ||||||
|
892,715 | 845,716 | ||||||
Less:
Accumulated depreciation and amortization
|
(533,041 | ) | (479,912 | ) | ||||
Furniture,
equipment and leasehold improvements, net
|
$ | 359,674 | $ | 365,804 |
Depreciation
and amortization expense on furniture, equipment and leasehold improvements were
$61.4 million, $65.6 million and $58.4 million for the years ended December 31,
2009, 2008 and 2007, respectively.
9.
Deferred Sales Commissions, Net
The
components of deferred sales commissions, net for the years ended December 31,
2009 and 2008 were as follows:
December 31,(1)
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
|
|
|||||||
Carrying
amount of deferred sales commissions
|
$ | 571,599 | $ | 521,334 | ||||
Less: Accumulated
amortization
|
(349,697 | ) | (294,775 | ) | ||||
Cumulative
CDSC received
|
(131,715 | ) | (113,018 | ) | ||||
Deferred
sales commissions, net
|
$ | 90,187 | $ | 113,541 |
_____________
(1)
|
Excludes
amounts related to fully amortized deferred sales
commissions.
|
Amortization
expense was $54.9 million, $79.1 million and $95.5 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Estimated future amortization
expense related to the December 31, 2009 net asset balance, assuming no
additional CDSC is received in future periods, is as follows (in
thousands):
2010
|
$ | 41,208 | ||
2011
|
24,717 | |||
2012
|
15,168 | |||
2013
|
7,913 | |||
2014
|
1,050 | |||
2015
|
131 | |||
$ | 90,187 |
10.
Debt
Total
credit available, debt outstanding and weighted average interest rates were as
follows:
As of December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
Credit
Available
|
Debt
Outstanding
|
Interest
Rate
|
Credit
Available
|
Debt
Outstanding
|
Interest
Rate
|
|||||||||||||||||||
(in
millions)
|
||||||||||||||||||||||||
Revolving
credit facility(1)
|
$ | 751.0 | $ | — | — | % | $ | 715.2 | $ | — | — | % | ||||||||||||
Commercial
paper(1)
|
249.0 | 249.0 | 0.2 | 284.8 | 284.8 | 1.8 | ||||||||||||||||||
Total
revolving credit facility – AllianceBernstein(1)
|
1,000.0 | 249.0 | 0.2 | 1,000.0 | 284.8 | 1.8 | ||||||||||||||||||
Revolving
credit facility – SCB LLC(1)
|
950.0 | — | — | 950.0 | — | — | ||||||||||||||||||
Uncommitted
lines of credit – SCB LLC(1)
|
— | — | — | — | — | — | ||||||||||||||||||
Uncommitted
bank facilities – SCB LLC
|
— | — | — | — | — | — | ||||||||||||||||||
Total
|
$ | 1,950.0 | $ | 249.0 | 0.2 | $ | 1,950.0 | $ | 284.8 | 1.8 |
_________________________
(1)
|
Commercial
paper and amounts outstanding under the revolving credit facility are
short-term in nature and, as such, recorded value is estimated to
approximate fair value.
|
AllianceBernstein
has 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. Amounts borrowed under the commercial paper program reduce amounts
available for direct borrowing under the revolving credit facility on a
dollar-for-dollar basis. 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 are in compliance with these
covenants.
SCB LLC
has a $950 million three-year revolving credit facility with a group of
commercial banks to fund its activities resulting from engaging in certain
securities trading (including derivatives) and custody activities on behalf of
private clients and participating in equity capital offerings on behalf of
issuers of publicly-traded securities. The facility expires in 2011.
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. This revolving credit facility
contains covenants which, among other things, require AllianceBernstein, as
guarantor, to meet the same financial ratios contained in its $1.0 billion
revolving credit facility. We are in compliance with these
covenants.
AllianceBernstein
and AXA executed guarantees in regard to the $950 million SCB LLC facility. In
the event SCB LLC is unable to meet its obligations, AllianceBernstein or AXA
will pay the obligations when due or on demand. AllianceBernstein will reimburse
AXA to the extent AXA must pay on its guarantee. This agreement is continuous
and remains in effect until the later of payment in full of any such obligation
under the credit facility has been made or the maturity date.
SCB LLC
has four separate uncommitted credit facilities with various banks totaling $525
million, a decrease from five facilities totaling $775 million as of December
31, 2008. In addition, SCB LLC has two lines of credit with a
commercial bank as of December 31, 2009 and 2008, one for $75 million secured by
pledges of U.S. Treasury Bills and a second for $50 million secured by pledges
of equity securities.
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, 2009 are as
follows:
Payments
|
Sublease
Receipts
|
Net
Payments
|
||||||||||
(in
millions)
|
||||||||||||
2010
|
$ | 126.2 | $ | 6.2 | $ | 120.0 | ||||||
2011
|
133.7 | 3.4 | 130.3 | |||||||||
2012
|
142.8 | 3.6 | 139.2 | |||||||||
2013
|
143.2 | 3.7 | 139.5 | |||||||||
2014
|
142.8 | 3.6 | 139.2 | |||||||||
2015
and thereafter
|
1,702.3 | 9.4 | 1,692.9 | |||||||||
Total
future minimum payments
|
$ | 2,391.0 | $ | 29.9 | $ | 2,361.1 |
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 $133.6 million, $125.7
million and $106.8 million for the years ended December 31, 2009, 2008 and 2007,
respectively, net of sublease income of $3.4 million, $3.3 million and $3.4
million for the years ended December 31, 2009, 2008 and 2007,
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. mutual fund shares and four years for
non-U.S. mutual 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 $90.2 million
and $113.5 million as of December 31, 2009 and 2008, 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 $18.7 million, $33.7 million and $31.1 million,
totaled approximately $31.6 million, $9.1 million and $84.1 million during 2009,
2008 and 2007, respectively. Effective January 31, 2009, back-end load shares
are no longer offered to new investors in U.S. mutual 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, 2009, 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 21% to 24% for U.S. fund shares and 27% to 40% for non-U.S. fund
shares. These assumptions are determined by reference to actual redemption
experience over the five-year, three-year, one-year and three-month periods
ended December 31, 2009, 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, 2009, management determined that the deferred sales commission
asset was not impaired. However, 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
2009, U.S. equity markets increased by approximately 26.5% as measured by the
change in the Standard & Poor’s 500 Stock Index and U.S. fixed income
markets increased by approximately 5.9% as measured by the change in the
Barclays Aggregate Bond Index. The redemption rate for domestic back-end load
shares was 21.1% in 2009. Increases in non-U.S. capital markets ranged from
30.0% to 78.5% as measured by the MSCI World, Emerging Market and EAFE Indices.
The redemption rate for non-U.S. back-end load shares was 27.3% in 2009.
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 expensed 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.
Other
During
July 2009, we entered into a subscription agreement under which we committed to
invest up to $40 million in a venture capital fund over a six-year period. As of
December 31, 2009, we have not funded any of this commitment. In February 2010,
we received an initial $1.6 million capital call.
Also
during July 2009, we were selected by the U.S. Treasury Department as one of
nine pre-qualified investment managers under the Public-Private Investment
Program. As part of the program, each investment manager is required to invest a
minimum of $20 million in the Public-Private Investment Fund they manage. As of
December 31, 2009, we funded $4.1 million of this commitment.
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, 2009, SCB LLC had net capital of
$163.5 million, which was $152.0 million in excess of the minimum net capital
requirement of $11.5 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.
SCBL is a
member of the London Stock Exchange. As of December 31, 2009, SCBL was subject
to financial resources requirements of $14.8 million imposed by the Financial
Services Authority of the United Kingdom and had aggregate regulatory financial
resources of $41.8 million, an excess of $27.0 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, 2009 was $55.2 million, which was $49.2 million in excess of its
required net capital of $6.0 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, 2009, 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
on 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 on behalf of clients 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 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 2009, 2008 and 2007 were $15.2 million, $24.5
million and $29.4 million, respectively.
We
maintain several defined contribution plans for foreign employees in the United
Kingdom, Australia, New Zealand, Japan and our other foreign entities. Employer
contributions are generally consistent with regulatory requirements and tax
limits. Defined contribution expense for foreign entities was $7.7 million,
$10.6 million and $8.3 million in 2009, 2008 and 2007,
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. Service and compensation after December 31,
2008 are not taken into account in determining participants’ retirement
benefits. This change, 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.
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. We contributed $12.8 million to the
Retirement Plan during 2009. We currently estimate we will contribute $6.0
million to the Retirement Plan during 2010. 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.
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,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Change
in projected benefit obligation:
|
||||||||
Projected
benefit obligation at beginning of year
|
$ | 72,230 | $ | 76,731 | ||||
Service
cost
|
— | 2,995 | ||||||
Interest
cost
|
4,420 | 4,996 | ||||||
Actuarial
loss
|
3,427 | 3,891 | ||||||
Plan
curtailment
|
— | (13,133 | ) | |||||
Benefits
paid
|
(2,913 | ) | (3,250 | ) | ||||
Projected
benefit obligation at end of year
|
77,164 | 72,230 | ||||||
Change
in plan assets:
|
||||||||
Plan
assets at fair value at beginning of year
|
33,383 | 56,786 | ||||||
Actual
return on plan assets
|
13,368 | (25,770 | ) | |||||
Employer
contribution
|
12,754 | 5,617 | ||||||
Benefits
paid
|
(2,913 | ) | (3,250 | ) | ||||
Plan
assets at fair value at end of year
|
56,592 | 33,383 | ||||||
Funded
status
|
$ | (20,572 | ) | $ | (38,847 | ) |
The
amounts recognized in other comprehensive income (loss), net of taxes, for 2009
and 2008 were as follows:
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Unrecognized
net gain (loss) from experience different from that assumed and effects of
changes and assumptions
|
$ | 7,098 | $ | (20,811 | ) | |||
Unrecognized
prior service credit
|
— | (3,844 | ) | |||||
Unrecognized
net plan assets as of January 1, 1987 being recognized over 26.3
years
|
(143 | ) | (108 | ) | ||||
Other
comprehensive income (loss)
|
$ | 6,955 | $ | (24,763 | ) |
The
amounts included in accumulated other comprehensive income (loss), net of taxes,
as of December 31, 2009 and 2008 were as follows:
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Unrecognized
net loss from experience different from that assumed and effects of
changes and assumptions
|
$ | (15,151 | ) | $ | (22,249 | ) | ||
Unrecognized
net plan assets as of January 1, 1987 being recognized over 26.3
years
|
459 | 602 | ||||||
Accumulated
other comprehensive loss
|
$ | (14,692 | ) | $ | (21,647 | ) |
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 $223,000, respectively. The accumulated benefit obligation
for the plan was $77.2 million and $72.2 million as of December 31, 2009 and
2008, respectively.
Actuarial
computations used to determine benefit obligations as of December 31, 2009 and
2008 (measurement dates) were made utilizing the following weighted-average
assumptions:
2009
|
2008
|
|||||||
|
|
|||||||
Discount
rate on benefit obligations
|
6.05 | % | 6.20 | % | ||||
Annual
salary increases
|
0.00 | 3.11 |
The
following benefit payments, which reflect expected future service, are expected
to be paid as follows (in thousands):
2010
|
$ | 3,438 | ||
2011
|
2,696 | |||
2012
|
4,158 | |||
2013
|
3,257 | |||
2014
|
2,876 | |||
2015-2019
|
24,153 |
Net
expense under the Retirement Plan consisted of:
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Service
cost
|
$ | — | $ | 2,995 | $ | 3,447 | ||||||
Interest
cost on projected benefit obligations
|
4,419 | 4,996 | 4,769 | |||||||||
Expected
return on plan assets
|
(3,110 | ) | (4,590 | ) | (4,310 | ) | ||||||
Amortization
of prior service credit
|
— | (431 | ) | (59 | ) | |||||||
Amortization
of transition asset
|
(143 | ) | (143 | ) | (143 | ) | ||||||
Curtailment
gain recognized
|
— | (3,510 | ) | — | ||||||||
Recognized
actuarial loss
|
431 | — | — | |||||||||
Net
pension charge (benefit)
|
$ | 1,597 | $ | (683 | ) | $ | 3,704 |
Actuarial
computations used to determine net periodic costs were made utilizing the
following weighted-average assumptions:
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
|
|
|
||||||||||
Discount
rate on benefit obligations
|
6.20 | % | 6.55 | % | 5.90 | % | ||||||
Expected
long-term rate of return on plan assets
|
8.00 | 8.00 | 8.00 | |||||||||
Annual
salary increases
|
0.00 | 3.14 | 3.14 |
The
Retirement Plan’s asset allocation percentages consisted of:
December 31,
|
||||||||
2009
|
2008
|
|||||||
|
|
|||||||
Equity
securities
|
61 | % | 56 | % | ||||
Debt
securities
|
31 | 30 | ||||||
Real
estate
|
8 | 14 | ||||||
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.
The
guidelines regarding allocation of assets formalized in the Investment Policy
Statement were adopted by the Investment Committee for the Retirement Plan to
reflect the Plan’s liquidity requirements, funded status, growth expectations
and risk tolerance. The guidelines specify an allocation weighting of 50% to 70%
for global equity securities (target of 60%), 20% to 40% for fixed income
securities (target of 30%) and 0% to 10% for real estate investment trusts
(target of 10%). Alternative investments are permitted under the guidelines,
with such investments to be allocated to one or more of the above security
classes and subject to the indicated tactical ranges.
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
following table summarizes the valuation of our Retirement Plan assets by
pricing observability levels as of December 31, 2009:
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Cash
|
$ | 12 | $ | — | $ | — | $ | 12 | ||||||||
Short-term investments | — | 1,435 | — | 1,435 | ||||||||||||
Mutual
fund
|
4,233 | — | — | 4,233 | ||||||||||||
Offshore
hedge funds
|
— | 6,539 | — | 6,539 | ||||||||||||
Private
investment trusts
|
— | 44,373 | — | 44,373 | ||||||||||||
Total
assets measured at fair value
|
$ | 4,245 | $ | 52,347 | $ | — | $ | 56,592 |
See Note 7 for a description
of how we measure the fair value of our plan assets.
The
Retirement Plan invests in a mutual fund which is an open-end fund that seeks
total return from long-term growth of capital and income. Typically the mutual
fund invests at least 80% of its net assets in real estate investment trusts
(“REITs”) and other real estate industry companies. The mutual fund is subject
to certain risks associated with the direct ownership of real estate and with
the real estate industry in general. To the extent that assets underlying the
mutual fund’s investments are concentrated geographically, by property type or
in certain other respects, the mutual fund may be subject to additional
risks.
Additionally,
the Retirement Plan invests in two offshore hedge funds and two private
investment trusts. One of the hedge funds seeks to deliver long-term returns in
excess of balanced allocations of equities and fixed income instruments with
comparable volatility over time, while the other hedge fund attempts to
significantly outperform the returns of global markets over full market cycles.
One of the private investment trusts invests primarily in investment grade, U.S.
dollar-denominated fixed income securities. The other private investment trust
primarily invests in equity securities of companies located around the
world.
The short-term
investments held by the Retirement Plan consist mainly of United States
Treasury Bills.
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 2009, our
net periodic benefit cost was $0.5 million, and our aggregate benefit obligation
as of December 31, 2009 is $4.0
million.
15.
Long-term Incentive Compensation Plans
We
maintain an unfunded, non-qualified incentive compensation program known as the
Amended and Restated AllianceBernstein Incentive Compensation Award Program
(formerly known as the Amended and Restated AllianceBernstein Partners
Compensation Plan, the “Incentive Compensation Program”) under which annual
awards may be granted to eligible employees.
Effective
December 7, 2009, awards under the Incentive Compensation Program are governed
by the Post-December 1, 2009 Award Provisions under the Incentive Compensation
Program (“2009 ICP Provisions”). As a result, all 2009 awards under
the Incentive Compensation Program were in the form of restricted Holding Units,
which vest ratably over four years. The 2009 ICP Provisions include a
“rule of 65” retirement provision (employees must have attained age 55 and
completed at least 10 years of service) that will allow qualified employees to
retire from the company and continue to vest in their award provided they comply
with covenants and agreements in the award agreement (e.g., non-competition and
non-solicitation). Upon vesting, awards are distributed to
participants unless a voluntary election to defer receipt has been
made. Quarterly cash distributions on vested and unvested restricted
Holding Units are paid currently to participants. As an eligible
employee’s total compensation increases, the percentage of his or her annual
incentive compensation paid in equity awards increases relative to other
employees.
Prior to
2009, participants in the Incentive Compensation Program allocated their awards
among notional investments in Holding Units and certain of our investment
services and, in certain instances, in options to buy Holding
Units. The Compensation Committee of the Board of Directors of the
General Partner had the discretion to determine each calendar year a minimum and
a maximum percentage of each award that could have been treated as notionally
invested in Holding Units or certain of our investment services, or, under
certain circumstances, allocated to options to buy Holding Units.
For 2001
through 2008 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
had been made and income earned on notional investments in company-sponsored
mutual funds are treated as fully vested and are reinvested and distributed as
elected by participants.
|
•
|
For
2008 awards, executives and those senior officers previously participating
in the Special Option Program were permitted to allocate up to half of
their awards to investments in options to buy Holding Units (see Note
16).
|
|
•
|
For
2006 and 2007 awards, selected senior officers were permitted to elect to
allocate up to a specified portion of their awards to investments in
options to buy Holding Units (“Special Option Program”); the firm matched
this allocation on a two-for-one basis (for additional information about
the Special Option Program, see Note
16).
|
|
•
|
Beginning
with 2003 awards, participants were permitted to allocate their
awards to a combination of notional investments in Holding Units (up
to 50%) and notional investments in certain of our investment
services.
|
|
•
|
For
2002 awards, participants were permitted to allocate their awards to
a combination of notional investments in Holding Units and notional
investments in certain of our investment
services.
|
|
•
|
For
2001 awards, 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.
|
|
•
|
Awards
made for 1999 and 2000 are notionally invested in Holding Units and vested
over periods ranging from eight years to immediate depending on the age of
the participant.
|
|
•
|
Awards
made from 1995 through 1998 generally vested ratably over eight
years.
|
|
•
|
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 an
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.
|
The
Incentive Compensation Program (including the 2009 ICP Provisions) may be
terminated at any time without cause, in which case our liability would be
limited to vested benefits. We made awards in 2009, 2008 and 2007 aggregating
$223.1 million, $236.0 million and $314.6 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 award is net of $9.9 million allocated to the December 2007 Special
Option Program’s awards. The amounts charged to employee compensation and
benefits expense for the years ended December 31, 2009, 2008 and 2007 were
$199.7 million, $59.9 million and $227.2 million, respectively.
During
December 2008, Mr. Sanders, our former Chairman and CEO, retired from the
company. Based on his employment and retirement agreements, unvested
deferred compensation awards fully vested in 2008. The amounts charged to
employee compensation and benefits expense under his agreements for the years
ended December 31, 2008 and 2007 were $40.9 million and $19.7 million,
respectively.
Effective
August 1, 2005, we established the AllianceBernstein Financial Advisor Wealth
Accumulation Plan (“Wealth Accumulation Plan”), a voluntary unfunded,
non-qualified incentive plan. The Wealth Accumulation Plan was established to
attract and retain eligible employees expected to make significant contributions
to the future growth and success of Bernstein Global Wealth Management, the unit
of AllianceBernstein that services private clients. 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 $16.5 million in 2009, $15.2 million
in 2008, and $23.5 million in 2007. The amounts charged to employee compensation
and benefits expense for the years ended December 31, 2009, 2008 and 2007 were
$9.5 million, $8.7 million and $8.0 million, respectively.
During
2003, we established the AllianceBernstein Commission Substitution Plan
(“Commission Substitution Plan”), 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 were eligible for an award under this plan. Participants
designated the percentage of their awards to be allocated to notional
investments in Holding Units or in certain of our investment services. Awards
vested ratably over a three-year period and were amortized as employee
compensation expense. The Commission Substitution Plan was terminated in 2007
and no awards have been made since 2006. The amounts charged to employee
compensation and benefits expense for the years ended December 31, 2009, 2008
and 2007 were $10.5 million, $21.7 million and $31.9 million,
respectively.
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, 2009, 2008 and 2007 were $1.4 million, $1.7 million and $1.7
million, respectively.
16.
Compensatory Unit Awards and Option Plans
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 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 Holding Units awarded to our CEO (as described below under “Restricted
Holding Unit Awards”) vest 20% on each of the first five anniversary
dates of the grant date. Restricted Holding Units awarded under the Incentive
Compensation Program vest 25% on December 1st of
the subsequent four years. The aggregate number of Holding Units that can be the
subject of options granted or that can be issued under the 1997 Plan may not
exceed 41,000,000 Holding Units. As of December 31, 2009, options to buy
19,574,923 Holding Units, net of forfeitures, had been granted and 15,168,431
Holding Units, net of forfeitures, were issued for other unit awards made under
the 1997 Plan (as described
below). Holding Unit-based awards (including options) in respect of
6,256,646 Holding Units were available for grant of options or issuance of
Holding Units as of December 31, 2009. The 1997 Plan will expire on
July 26, 2010. We intend to convene a special meeting of Holding
Unitholders during 2010 to seek approval for a new long-term equity compensation
plan.
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.
Option
Awards
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 annual long-term incentive compensation 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 selected senior officers. 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 (including grants to independent directors) were granted as
follows: 6,565,302 options were granted during 2009, 13,825 options were granted
during 2008 and 3,708,939 options were granted during 2007. The weighted average
fair value of options to buy Holding Units granted during 2009, 2008 and 2007
was $3.52, $10.85 and $15.96, respectively, on the date of grant, determined
using the Black-Scholes option valuation model with the following
assumptions:
2009
|
2008
|
2007
|
||||||||||
Risk-free
interest rate
|
1.6 – 2.1 | % | 3.2 | % | 3.5 – 4.9 | % | ||||||
Expected
cash distribution yield
|
5.2 – 6.1 | % | 5.4 | % | 5.6 – 5.7 | % | ||||||
Historical
volatility factor
|
40.0 – 44.6 | % | 29.3 | % | 27.7–30.8 | % | ||||||
Expected
term
|
6.0
– 6.5 years
|
6.0
years
|
6.0
– 9.5 years
|
Due to a
lack of sufficient historical data, we have chosen to use 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
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Outstanding
as of December 31, 2008
|
6,685,808 | $ | 66.11 | 6.3 | ||||||||||||
Granted
|
6,565,302 | 17.06 | ||||||||||||||
Exercised
|
— | — | ||||||||||||||
Forfeited
|
(948,888 | ) | 45.09 | |||||||||||||
Expired
|
(254,700 | ) | 30.21 | |||||||||||||
Outstanding
as of December 31, 2009
|
12,047,522 | 41.79 | 7.3 | $ | — | |||||||||||
Exercisable
as of December 31, 2009
|
2,804,042 | 51.91 | 2.9 | — | ||||||||||||
Vested
or expected to vest as of December 31, 2009
|
11,530,174 | 41.26 | 7.3 | — |
The
aggregate intrinsic value as of December 31, 2009 on options outstanding,
exercisable and expected to vest is negative, and is therefore presented as zero
in the table above. The total intrinsic value of options exercised during 2009,
2008 and 2007 was zero, $6.3 million and $58.8 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 option grants of $11.9 million,
$7.7 million and $5.9 million, respectively, for the years ended December 31,
2009, 2008 and 2007. As of December 31, 2009, there was $47.9 million of
compensation cost related to unvested option grants not yet recognized in the
consolidated statements of income. The cost is expected to be recognized over a
weighted average period of 4.7 years.
Restricted
Holding Unit Awards
In 2009,
2008 and 2007, restricted Holding Units were awarded to the independent
directors of the General Partner. These 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 8,210, 2,335 and
1,705 restricted Holding Units in 2009, 2008 and 2007, respectively, with grant
date fair values of $18.27, $64.24 and $87.98 per restricted Holding Unit,
respectively. All of the restricted Holding Units vest on the third anniversary
of grant date or immediately upon a director’s resignation. We fully expensed
these awards on each grant date.
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 Holding Units with
a grant date fair value of $19.20. Subject to accelerated vesting
provisions in Mr. Kraus’s employment agreement, his restricted Holding Units
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. The
agreement provides for 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.
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 restricted Holding Units. Awards vest ratably over three
years and are amortized over the vesting period as employee compensation
expense. We awarded 46,163, 46,030 and 45,072 restricted Holding Units in 2009,
2008 and 2007, respectively, with grant date fair values of $12.17, $62.05 and
$82.37 per Holding Unit, respectively.
Beginning
in 2009, we awarded restricted Holding Units under the Incentive Compensation
Program (see Note 15). Restricted Holding
Unit awards vest ratably over four years and are amortized over the vesting
period as employee compensation expense. We awarded 8,345,805 restricted Holding
Units in 2009 with a grant date fair value of $26.73 per restricted Holding
Unit.
We also
awarded restricted Holding Units in connection with certain employment and
separation agreements with vesting schedules ranging between two to five
years. The fair value of the restricted Holding Units is amortized
over the required service period as employee compensation expense. We awarded
1,443,227 Holding Units in 2009 with grant date fair values ranging between
$16.79 and $28.38 per restricted Holding Unit.
The
following table summarizes the activity of unvested restricted Holding Units
during 2009:
Holding Units
|
Weighted Average Grant Date Fair
Value
|
|||||||
Unvested
as of December 31, 2008
|
2,806,846 | $ | 20.71 | |||||
Granted
|
9,843,405 | 26.13 | ||||||
Vested
|
(591,566 | ) | 22.82 | |||||
Forfeited
|
(3,001 | ) | 43.78 | |||||
Unvested
as of December 31, 2009
|
12,055,684 | 25.03 |
The total
grant date fair value of restricted Holding Units that vested during 2009, 2008
and 2007 was $14.7 million, $2.3 million and $2.5 million,
respectively.
We
recorded compensation expense relating to restricted Holding Unit awards of
$30.5 million, $2.9 million and $2.5 million, respectively, for the years ended
December 31, 2009, 2008 and 2007. As of December 31, 2009, there was $236.2
million of compensation cost related to unvested restricted Holding Unit awards
granted and not yet recognized in the consolidated statement of income. The cost
is expected to be recognized over a weighted average period of 4.0
years.
17.
Units Outstanding
The
following table summarizes the activity in units:
Outstanding
as of December 31, 2007
|
260,341,992 | |||
Options
to buy Holding Units exercised
|
315,467 | |||
Holding
Units issued
|
3,063,761 | |||
Holding
Units forfeited
|
(3,610 | ) | ||
Outstanding
as of December 31, 2008
|
263,717,610 | |||
Options
to buy Holding Units exercised
|
- | |||
Holding
Units issued
|
11,030,983 | |||
Holding
Units forfeited
|
(3,001 | ) | ||
Outstanding
as of December 31, 2009
|
274,745,592 |
Holding
Units issued pertain to Holding Units newly issued under our Amended and
Restated 1997 Long Term Incentive Plan and include: (i) restricted Holding Unit
awards to independent members of the Board of Directors of the General Partner,
(ii) restricted Holding Unit awards to eligible employees, (iii) Holding Unit
issuances to fund deferred compensation notional investment elections by plan
participants, (iv) Century Club Plan restricted Holding Unit awards and (v)
restricted Holding Unit issuances in connection with certain employee separation
agreements.
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,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Earnings
before income taxes:
|
||||||||||||
United
States
|
$ | 539,002 | $ | 669,205 | $ | 1,113,185 | ||||||
Foreign
|
85,483 | 275,024 | 291,819 | |||||||||
Total
|
$ | 624,485 | $ | 944,229 | $ | 1,405,004 | ||||||
Income
tax expense:
|
||||||||||||
Partnership
UBT
|
$ | 2,420 | $ | 9,945 | $ | 30,219 | ||||||
Corporate
subsidiaries:
|
||||||||||||
Federal
|
5,550 | 13,713 | 6,852 | |||||||||
State
and local
|
632 | 1,762 | 2,733 | |||||||||
Foreign
|
32,001 | 78,367 | 87,494 | |||||||||
Current
tax expense
|
40,603 | 103,787 | 127,298 | |||||||||
Deferred
tax expense (benefit)
|
5,374 | (7,984 | ) | 547 | ||||||||
Income
tax expense
|
$ | 45,977 | $ | 95,803 | $ | 127,845 |
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,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
(in
thousands)
|
||||||||||||||||||||||||
UBT
statutory rate
|
$ | 24,979 | 4.0 | % | $ | 37,769 | 4.0 | % | $ | 55,532 | 4.0 | % | ||||||||||||
Corporate
subsidiaries’ federal, state, local and foreign income
taxes
|
32,585 | 5.2 | 77,732 | 8.2 | 83,195 | 5.9 | ||||||||||||||||||
Effect
of ASC 740 adjustments, miscellaneous taxes, and other
|
(1,988 | ) | (0.3 | ) | (11,929 | ) | (1.3 | ) | 2,684 | 0.2 | ||||||||||||||
Income
not taxable resulting from use of UBT business apportionment
factors
|
(9,599 | ) | (1.5 | ) | (7,769 | ) | (0.8 | ) | (13,566 | ) | (1.0 | ) | ||||||||||||
Income
tax expense and effective tax rate
|
$ | 45,977 | 7.4 | $ | 95,803 | 10.1 | $ | 127,845 | 9.1 |
We
recognize the effects of a tax position 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, we assume that the taxing
authority will examine the tax position and have full knowledge of all relevant
information.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in thousands) | ||||||||||||
Balance
as of beginning of period
|
$ | 8,805 | $ | 19,016 | $ | 17,862 | ||||||
Additions
for prior year tax positions
|
174 | 324 | 2,000 | |||||||||
Reductions
for prior year tax positions
|
- | (603 | ) | (1,452 | ) | |||||||
Additions
for current year tax positions
|
1,182 | 1,649 | 3,317 | |||||||||
Reductions
for current year tax positions
|
(52 | ) | (715 | ) | (303 | ) | ||||||
Reductions
related to settlements with tax authorities/closed years
|
(2,744 | ) | (10,866 | ) | (2,408 | ) | ||||||
Balance
as of end of period
|
$ | 7,365 | $ | 8,805 | $ | 19,016 |
The
amount of unrecognized tax benefits as of December 31, 2009, 2008 and 2007 when
recognized, is recorded as a reduction to income tax expense and reduces 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 interest
expense (credit) recorded in income tax expense during 2009, 2008 and 2007 was
$(0.1) million, $(1.4) million and $0.5 million, respectively. The
total amount of accrued interest recorded on the consolidated statements of
financial condition as of December 31, 2009, 2008 and 2007 are $0.8 million,
$0.9 million and $2.2 million, respectively. There were no accrued penalties as
of December 31, 2009, 2008 or 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 2006 except as
noted below. The Internal Revenue Service (“IRS”) completed an examination of
our domestic corporate subsidiaries’ federal tax returns for 2005 in the second
quarter of 2009. This examination was settled resulting in a tax payment to the
U.S. Treasury in the amount of $0.2 million. The IRS has not indicated whether
they will examine our domestic corporate subsidiaries’ federal tax returns for
the years subsequent to 2005. The State of New York has begun an examination of
the Partnership’s tax returns for the years 2005 and 2006. This
examination is in the preliminary stage and we do not believe an increase in the
reserve is necessary. In addition, an assessment has been received resulting
from a state and local examination of AllianceBernstein’s corporate subsidiary
tax returns for years 2001 through 2004. This matter is in the appeal stage,
however, we do not believe an increase in the reserve is necessary.
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 2005-2007. The examination remains
in the preliminary stage and we do not believe an increase to the reserve 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 $2.9
million including accrued interest could occur over the next twelve
months.
Deferred
income taxes reflect the net tax effect of temporary differences 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 asset (liability) is as follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Deferred
tax asset:
|
||||||||
Differences
between book and tax basis:
|
||||||||
Deferred
compensation plans
|
$ | 9,593 | $ | 14,704 | ||||
Charge
for mutual fund matters, legal proceedings and claims processing
contingency
|
71 | 4,179 | ||||||
Other,
primarily accrued expenses deductible when paid
|
11,489 | 5,235 | ||||||
Deferred
tax asset
|
21,153 | 24,118 | ||||||
Deferred
tax liability:
|
||||||||
Differences
between book and tax basis:
|
||||||||
Intangible
assets
|
14,056 | 17,075 | ||||||
Translation
adjustment
|
5,902 | 2,700 | ||||||
Other,
primarily undistributed earnings of certain foreign
subsidiaries
|
4,576 | 3,050 | ||||||
24,534 | 22,825 | |||||||
Net
deferred tax asset (liability)
|
$ | (3,381 | ) | $ | 1,293 |
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, 2009, $534.4 million of
accumulated undistributed earnings of non-U.S. corporate subsidiaries were
permanently invested. At existing applicable income tax rates, additional taxes
of approximately $26.5 million would need to be provided if such earnings were
remitted.
19.
Business Segment Information
Management
has assessed the requirements of ASC 280, Segment Reporting, 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, 2009,
2008 and 2007 were as follows:
Services
Net
revenues derived from our investment management, research and related services
were as follows:
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
millions)
|
||||||||||||
|
|
|
||||||||||
Institutions
|
$ | 811 | $ | 1,241 | $ | 1,482 | ||||||
Retail
|
888 | 1,227 | 1,521 | |||||||||
Private
client
|
590 | 850 | 961 | |||||||||
Bernstein
research services
|
435 | 472 | 424 | |||||||||
Other
|
187 | (239 | ) | 332 | ||||||||
Total
revenues
|
2,911 | 3,551 | 4,720 | |||||||||
Less:
Interest expense
|
4 | 37 | 195 | |||||||||
Net
revenues
|
$ | 2,907 | $ | 3,514 | $ | 4,525 |
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:
2009
|
2008
|
2007
|
||||||||||
(in
millions)
|
||||||||||||
Net
revenues:
|
|
|
|
|||||||||
United
States
|
$ | 2,038 | $ | 2,258 | $ | 3,013 | ||||||
International
|
869 | 1,256 | 1,512 | |||||||||
Total
|
$ | 2,907 | $ | 3,514 | $ | 4,525 | ||||||
Long-lived
assets:
|
||||||||||||
United
States
|
$ | 3,488 | $ | 3,576 | $ | 3,656 | ||||||
International
|
79 | 40 | 52 | |||||||||
Total
|
$ | 3,567 | $ | 3,616 | $ | 3,708 |
Major
Customers
Company-sponsored
mutual funds are distributed to individual investors through broker-dealers,
insurance sales representatives, banks, registered investment advisers,
financial planners and other financial intermediaries. AXA Advisors, LLC (“AXA
Advisors”), a wholly-owned subsidiary of AXA Financial that uses members of the
AXA Equitable insurance agency sales force as its registered representatives,
has entered into a selected dealer agreement with AllianceBernstein Investments
and has been responsible for 2%, 4% and 2% of our open-end mutual fund sales in
2009, 2008 and 2007, respectively. Subsidiaries of Merrill Lynch & Co., Inc.
(“Merrill Lynch”), which was acquired by Bank of America Corporation in 2008,
was responsible for approximately 5%, 8% and 7% of our open-end mutual fund
sales in 2009, 2008 and 2007, respectively. Morgan Stanley Smith Barney LLC
(formed by the combination of the Global Wealth Management Group of Morgan
Stanley & Co. Incorporated and the Smith Barney division of Citigroup Global
Markets Inc.) was responsible for approximately 5% of open-end mutual fund sales
in 2009. Citigroup, Inc. and its subsidiaries (“Citigroup”), was
responsible for approximately 7% of our open-end mutual fund sales in 2008 and
2007. AXA Advisors, Merrill Lynch, Morgan Stanley Smith Barney 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,
Morgan Stanley Smith Barney 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 4%, 5% and 5% of total revenues for each of the
years ended December 31, 2009, 2008 and 2007, respectively. No single
institutional client other than AXA and its subsidiaries accounted for more than
1% of total revenues for the years ended December 31, 2009, 2008 and
2007.
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,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Investment
advisory and services fees
|
$ | 658,476 | $ | 870,524 | $ | 1,027,636 | ||||||
Distribution
revenues
|
277,328 | 378,425 | 473,435 | |||||||||
Shareholder
servicing fees
|
90,141 | 99,028 | 103,604 | |||||||||
Other
revenues
|
6,962 | 6,868 | 6,502 | |||||||||
Bernstein
research services
|
1,138 | 1,233 | 1,583 |
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 $0.3 billion, $0.7
billion and $0.5 billion for the years ended December 31, 2009, 2008 and 2007,
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,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Revenues:
|
||||||||||||
Investment
advisory and services fees
|
$ | 129,012 | $ | 180,689 | $ | 208,786 | ||||||
Bernstein
research services
|
71 | 225 | 606 | |||||||||
Other
revenues
|
568 | 697 | 824 | |||||||||
$ | 129,651 | $ | 181,611 | $ | 210,216 | |||||||
Expenses:
|
||||||||||||
Commissions
and distribution payments to financial intermediaries
|
$ | 6,918 | $ | 9,408 | $ | 7,178 | ||||||
Other
promotion and servicing
|
1,935 | 703 | 1,409 | |||||||||
General
and administrative
|
17,285 | 13,843 | 10,219 | |||||||||
$ | 26,138 | $ | 23,954 | $ | 18,806 | |||||||
Balance
Sheet:
|
||||||||||||
Institutional
investment advisory and services fees receivable
|
$ | 11,287 | $ | 7,349 | $ | 10,103 | ||||||
Other
due (to) from AXA and its subsidiaries
|
(3,888 | ) | (2,679 | ) | (2,405 | ) | ||||||
$ | 7,399 | $ | 4,670 | $ | 7,698 |
AllianceBernstein
and AXA Asia Pacific Holdings Limited (“AXA Asia Pacific”) own 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 $40.9 million, $68.3 million and $77.6 million, for
the years ended December 31, 2009, 2008 and 2007, respectively, of which
approximately $14.0 million, $19.6 million and $22.9 million, respectively, were
from AXA affiliates and are included in the table above. Minority interest
recorded for these companies was $3.7 million, $9.7 million and $11.1 million
for the years ended December 31, 2009, 2008 and 2007, respectively.
AllianceBernstein
Venture Fund I, L.P. was launched during the fourth quarter of 2006.
It seeks to achieve its investment objective, which is long-term capital
appreciation through equity and equity-related investments, by acquiring
early-stage growth companies in private transactions. 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 $163 million, $167 million
and $136 million of investments on the consolidated statement of financial
condition as of December 31, 2009, 2008 and 2007, respectively. AXA Equitable
holds a 10% limited partnership interest in this fund.
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 (see
Note 15). Amounts paid by the General Partner to AllianceBernstein for
the Capital Accumulation Plan and the Contractual Arrangements for the years
ended December 31, 2009, 2008 and 2007 was $4.9 million.
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, 2009, 2008 and 2007 are as follows:
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Due
from Holding, net
|
$ | 1,484 | $ | 4,825 | $ | 7,460 | ||||||
Due
from unconsolidated joint ventures, net
|
$ | — | $ | — | $ | 255 |
21.
Comprehensive Income
Comprehensive
income consisted of:
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Net
income
|
$ | 578,508 | $ | 848,426 | $ | 1,277,159 | ||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||
Unrealized
gains (losses) on investments
|
4,391 | (3,962 | ) | (8,800 | ) | |||||||
Foreign
currency translation adjustment
|
43,172 | (100,268 | ) | 19,871 | ||||||||
Changes
in retirement plan related items
|
6,955 | (24,763 | ) | 10,040 | ||||||||
Comprehensive
income
|
633,026 | 719,433 | 1,298,270 | |||||||||
Comprehensive
(income) loss of consolidated entities attributable to
non-controlling interests
|
(26,614 | ) | (5,445 | ) | (17,888 | ) | ||||||
Comprehensive
income attributable to AllianceBernstein Unitholders
|
$ | 606,412 | $ | 713,988 | $ | 1,280,382 |
22.
Accounting Pronouncements
In June
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-17, Consolidations (Topic 810) – Improvements to
Financial Reporting by Enterprises Involved with Variable Interest
Entities. This standard changes how a company determines when an entity
that is insufficiently capitalized or is not controlled through voting should be
consolidated. The determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. This standard will require additional
disclosures about involvement with variable interest entities and any
significant changes in risk exposure due to that involvement, including how
involvement with a variable interest entity affects the financial statements.
The provisions of this standard are effective January 1, 2010. In January 2010,
the FASB deferred portions of ASU 2009-17 as they relate to asset
managers. Management is currently evaluating the impact that the
adoption of this standard will have on our consolidated financial statements.
The adoption of this standard may require that a significant amount of assets,
liabilities, revenues and expenses of certain variable interest entities in
which we have a minimal financial ownership interest be included in our
consolidated financial statements, with corresponding offsets to non-controlling
interests.
23.
Quarterly Financial Data (Unaudited)
Quarters Ended 2009
|
||||||||||||||||
December 31
|
September 30
|
June 30
|
March 31
|
|||||||||||||
(in
thousands, except per unit amounts)
|
||||||||||||||||
|
|
|
|
|||||||||||||
Net
revenues
|
$ | 781,861 | $ | 806,014 | $ | 721,440 | $ | 597,564 | ||||||||
Net
income attributable to AllianceBernstein Unitholders
|
$ | 191,640 | $ | 199,341 | $ | 128,295 | $ | 36,851 | ||||||||
Basic
net income per AllianceBernstein Unit(1)
|
$ | 0.71 | $ | 0.74 | $ | 0.48 | $ | 0.14 | ||||||||
Diluted
net income per AllianceBernstein Unit(1)
|
$ | 0.70 | $ | 0.74 | $ | 0.48 | $ | 0.14 | ||||||||
Cash
distributions per AllianceBernstein Unit(2)
|
$ | 0.70 | $ | 0.74 | $ | 0.48 | $ | 0.14 |
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 attributable to AllianceBernstein Unitholders
|
$ | 91,979 | $ | 219,529 | $ | 280,289 | $ | 247,443 | ||||||||
Basic
net income per AllianceBernstein Unit(1)
|
$ | 0.35 | $ | 0.83 | $ | 1.06 | $ | 0.94 | ||||||||
Diluted
net income per AllianceBernstein Unit(1)
|
$ | 0.35 | $ | 0.83 | $ | 1.06 | $ | 0.94 | ||||||||
Cash
distributions per AllianceBernstein Unit(2) (3)
(4)
|
$ | 0.37 | $ | 0.70 | $ | 1.06 | $ | 0.94 |
_____________
(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, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009 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, 2009, 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
11, 2010
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 that information required to be disclosed
in our reports under the Exchange Act is (i) recorded, processed, summarized and
reported in a timely manner, and (ii) accumulated and communicated to
management, including the Chief Executive Officer and the Chief Financial
Officer, to permit timely decisions regarding our disclosure.
As of the
end of the period covered by this report, management carried out an evaluation,
under the supervision and with the participation of the Chief Executive Officer
and the Chief Financial Officer, of the effectiveness of the design and
operation of 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
officer, 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 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, 2009. 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, 2009, 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 2009
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, 2009. 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 2009 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 2009.
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 11, 2010, 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
|
57
|
Chairman
of the Board and Chief Executive Officer
|
Dominique
Carrel-Billiard
|
43
|
Director
|
Christopher
M. Condron
|
62
|
Director
|
Henri
de Castries
|
55
|
Director
|
Denis
Duverne
|
56
|
Director
|
Richard
S. Dziadzio
|
46
|
Director
|
Deborah
S. Hechinger
|
59
|
Director
|
Weston
M. Hicks
|
53
|
Director
|
Nick
Lane
|
36
|
Director
|
Lorie
A. Slutsky
|
57
|
Director
|
A.W.
(Pete) Smith, Jr.
|
66
|
Director
|
Peter
J. Tobin
|
65
|
Director
|
Laurence
E. Cranch
|
63
|
General
Counsel
|
James
A. Gingrich
|
51
|
Chairman
and Chief Executive Officer of SCB LLC
|
Robert
H. Joseph, Jr.
|
62
|
Chief
Financial Officer
|
Lori
A. Massad
|
45
|
Chief
Talent Officer – Talent Development and Human Capital
|
David
A. Steyn
|
50
|
Chief
Operating Officer
|
Biographies
Mr. Kraus
was elected Chairman of the Board of the General Partner and Chief Executive
Officer of the General Partner, AllianceBernstein and Holding in December 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 from September 2008 through
December 2008. Prior to joining Merrill Lynch, 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 is a
member of the Management Board of AXA (“AXA Management Board”) and 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, "MLOA") 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 public sectors to
provide arts education to children.
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 2006 and was named to the AXA Group Executive
Committee in January 2009. He is also a member of the boards of directors of
various other privately-held subsidiaries and affiliates of the AXA Group. Mr.
Carrel-Billiard joined AXA in June 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 (“McKinsey”), a strategic consulting firm, 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.
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 Management Board. In addition, Mr. Condron is
Chairman of the Board, President and Chief Executive Officer of MONY and MLOA,
which AXA Financial acquired in July 2004. In January 2010, he assumed the
additional responsibility of overseeing AXA’s global Life & Savings and
Health businesses. 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 has been a
member of the Board of Directors of Keefe Bruyette & Woods, Inc. (NYSE:
KBW), a full-service investment bank and broker-dealer, since January 2007. 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 boards of directors of The American Council of
Life Insurers and the Financial Services Round Table.
Mr. de
Castries was elected a Director of the General Partner in October 1993. Since
May 2000, he has been Chairman of the AXA Management Board. Prior thereto, he
served AXA in various capacities, including Vice Chairman of the AXA 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 in
February 1996 and was elected Chairman of AXA Financial in April
1998.
Mr.
Duverne was elected a Director of the General Partner in February 1996. In
January 2010, he was selected to oversee AXA Group strategy, finance and
operations with AXA’s Chief Operating Officer, Chief Financial Officer and Chief
Risk Officer reporting to him. Mr. Duverne has been a member of the
AXA Management Board since February 2003. He was Chief Financial Officer of AXA
from May 2003 through December 2009. 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.) The Chief
Financial Officer of AXA Financial and AXA Equitable since January 2007, Mr.
Dziadzio was elected Senior Executive Vice President of AXA Equitable in January
2010. He joined AXA Financial and AXA Equitable in July 2004 and was elected
Executive Vice President in September 2004. He became Deputy Chief Financial
Officer of AXA Financial and AXA Equitable in September 2005. Prior
to joining AXA Financial, Mr. Dziadzio held various positions with subsidiaries
and affiliates of the AXA Group, which he originally joined 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.
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 a Deputy
Comptroller and as 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. A professional
investor and CFA charter holder, he has been a Director and the President and
chief executive officer of Alleghany Corporation (NYSE: Y, “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, AllianceBernstein and AXA’s global
Life & Savings business. 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 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.
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 community foundation that manages a $2 billion endowment and
annually grants more than $150 million. Ms. Slutsky served on the Board of
Directors of BoardSource from 1999 to 2008 and served as its Chair from 2005 to
2007. She has been a Director of AXA Financial (as well as a member
of its Audit Committee and Organization and Compensation Committee), AXA
Equitable, MONY and MLOA 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, a privately-held company specializing in
executive compensation 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 has served on the board of directors of CIT
Group Inc. (NYSE: CIT) since 1985 (except for one year during which CIT Group
was owned by Tyco). He has been a Director of AXA Financial and AXA Equitable
since March 1999 and also serves on AXA Financial's Audit Committee, Investment
Committee, Investment and Finance Committee, Organization and Compensation
Committee, and Executive Committee.
Mr.
Cranch has been our General Counsel since he joined our firm in 2004. Prior to
joining AllianceBernstein, Mr. Cranch was a partner of Clifford Chance, an
international law firm. Mr. Cranch joined Clifford Chance in 2000 when Rogers
& Wells, a New York law firm of which he was Managing Partner, merged with
Clifford Chance.
Mr.
Gingrich joined our firm in 1999 as a senior research analyst on the sell-side
and has been Chairman and Chief Executive Officer of SCB LLC since February
2007. Prior to becoming Chairman and CEO of SCB LLC, Mr. Gingrich had served as
Global Director of Research from December 2002 to January 2007.
Mr.
Joseph joined our firm in 1984 and held various financial positions until his
election as Chief Financial Officer in 1994. Before joining AllianceBernstein,
Mr. Joseph was a Senior Audit Manager with Price Waterhouse for 13
years.
Ms.
Massad joined our firm in 2006 as Chief Talent Officer. In February
2009, her role was expanded to include oversight of Human Capital in addition to
Talent Development. 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). Before that, she spent 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. Steyn
joined our firm in 1999, having been the founding co-Chief Executive Officer of
Bernstein’s London office, and has been Chief Operating Officer of
AllianceBernstein since July 2009. As COO, the heads of Distribution
Services (Institutions, Retail and Private Clients) and the heads of Corporate
and Fiduciary Services (IT, Operations, Finance, and Legal & Compliance)
report to him. Mr. Steyn was the Global Head of Distribution Services
from April 2007 through July 2009, prior to which he had been Head of
Institutions since November 2003.
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, Compensation and Special Committees,
each of which is described in further detail below. Of the directors, only Mr.
de Castries attended fewer than 75% of the aggregate of all Board and committee
meetings which he was entitled to attend in 2009.
Committees
of the Board
The
Executive Committee of the Board (“Executive Committee”) is composed of Ms.
Slutsky and Messrs. Condron, Duverne, Kraus (Chair) and Tobin. The Executive
Committee exercises all of the powers and authority of the Board (with limited
exceptions) when the Board is not in session, or when it is impractical to
assemble the full Board. The Executive Committee held four meetings in
2009.
The
Corporate Governance Committee of the Board (“Governance Committee”) is composed
of Mr. Condron, Ms. Hechinger (Chair), Mr. Kraus, and Ms. Slutsky. 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 2009.
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 ten meetings in 2009.
The
functions of each of the committees discussed above are more fully described in
each committee’s charter. The charters are 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 “Compensation Discussion &
Analysis—Compensation Committee” in Item 11.
The
Special Committee of the Board (“Special Committee”) is composed of Ms.
Hechinger, Mr. Hicks, Ms. Slutsky, Mr. Smith and Mr. Tobin
(Chair). The Special Committee has the authority to direct and
oversee any matters referred to it by the Board and/or management including, but
not limited to, matters relating to conflicts of interest and the relationship
among AllianceBernstein, Holding and AXA. 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
held five meetings during 2009.
Audit
Committee Financial Experts
In
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 407(d) of Regulation S-K. The Board so determined at its regular meeting
in February 2009. The Board also determined at this meeting 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.
In
February 2010, the Governance Committee, after reviewing materials prepared by
management, recommended that the Board determine that Peter J. Tobin is an
“audit committee financial expert” within the meaning of Item 407(d) of
Regulation S-K. The Board so determined at its regular meeting in February 2010.
The Board also determined at this meeting 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 2009 and February 2010, 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 formerly
made by AllianceBernstein to The New York Community Trust, of which she is
President and Chief Executive Officer) and then determined, at both its February
2009 and February 2010 regular meetings, 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, as well as 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 2009
Certification by our Chief Executive Officer under NYSE Listed Company Manual
Section 303A.12(a) was submitted to the NYSE on March 13, 2009.
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).
Fiduciary
Culture
We
maintain a robust fiduciary culture and, as a fiduciary, we place the interests
of our clients first and foremost. We are committed to the fair and equitable
treatment of all our clients, and to compliance with all applicable
rules and regulations and internal policies to which our business is subject. We
pursue these goals through education of our employees to promote awareness of
our fiduciary obligations, incentives that align employees’ interests with those
of our clients, and a range of measures, including active monitoring, to ensure
regulatory compliance. Specific steps we have taken to help us achieve these
goals include:
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establishing
two committees, the Code of Ethics Oversight Committee (“Ethics
Committee”) and the Internal Compliance Controls Committee (“Compliance
Committee”), composed of our executive officers and other senior
executives to oversee and resolve code of ethics and compliance-related
issues;
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creating
an ombudsman office, where employees and others can voice concerns on a
confidential basis;
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initiating
firm-wide compliance and ethics training programs;
and
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appointing
a Conflicts Officer and establishing a Conflicts Committee to identify and
manage conflicts of interest.
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The
Ethics Committee oversees all matters relating to issues arising under the
AllianceBernstein Code of Business Conduct and Ethics. The Ethics Committee
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
Compliance Committee 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 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 2009: (i)
all Section 16(a) filing requirements relating to Holding were complied with,
except that a Form 4 was not timely filed for Mr. Cranch relating to his 2009
restricted Holding Unit award;
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.
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Executive
Compensation
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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 48.5% of our adjusted
revenues (as defined
below) for 2009. Although 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 executives 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.
We
utilize a variety of compensation elements to achieve the goals described above,
including base salary, annual short-term incentive compensation awards (cash
bonuses), a long-term incentive compensation award program under which awards of
restricted Holding Units are made and a defined contribution plan, all of which
are discussed in more detail
below.
Although
estimates are developed for budgeting and strategic planning purposes, executive
compensation is not correlated with meeting any specific targets. (Some of our
salespeople have compensation incentives based on sales levels.)
In
addition to the compensation goals discussed above, in 2009, we also
focused on adjusting our compensation practices to make them more competitive
with industry peers and increasing the potential for wealth creation for our
executives and employees in order to attract, motivate and retain top
talent. As a result (and as we noted in Note 2 to the consolidated
financial statements in our Forms 10-Q for the quarters ended June 30, 2009 and
September 30, 2009), we changed our approach regarding long-term
incentive compensation. Specifically, in 2009, all long-term
incentive compensation awards were in the form of restricted Holding Units and,
accordingly, unlike in previous years, executives (and employees) were not able
to notionally allocate any of their 2009 awards to our investment
services.
Overview
of 2009 Incentive Compensation Program
Our 2009
incentive compensation, generally consisting of annual cash bonuses and
restricted Holding Unit awards, is intended to reward our executives (and any
other employee with 2009 total compensation in excess of $200,000) 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. Restricted
Holding Unit 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 (i.e., the amount available to
pay annual cash bonuses and make restricted Holding Unit awards to executives
and other employees) is determined on a discretionary basis and is primarily a
function of our firm’s financial performance. Amounts are awarded to
help us achieve our goal of attracting, motivating and retaining top talent
while also helping ensure that our unitholders receive an appropriate return on
their investment. In 2009, senior management, with the approval of
the Compensation Committee, determined that the appropriate metric to consider
in determining the amount of incentive compensation for 2009 and future years is
the ratio of adjusted employee compensation and benefits expense to adjusted
revenues. (We define adjusted employee compensation and benefits
expense as employee compensation and benefits expense minus other employment
costs such as recruitment, meals, temporary help, and training and
seminars. We define adjusted revenues as net revenues minus
distribution revenues.) Senior management, with the approval of the
Compensation Committee, also determined that adjusted employee compensation and
benefits expense should range between 45% and 50% of our adjusted revenues
except in unexpected or unusual circumstances.
As shown
in the table below, in 2009, adjusted employee compensation and benefits expense
amounted to 48.5% of adjusted revenue (in thousands):
Net
Revenues
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$ | 2,906,879 | ||
Distribution
Revenues
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$ | (277,328 | ) | |
Adjusted
Revenues
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$ | 2,629,551 | ||
Employee
Compensation & Benefits Expense
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$ | 1,298,053 | ||
Other
Employment Costs
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$ | (23,806 | ) | |
Adjusted
Employee Compensation & Benefits Expense
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$ | 1,274,247 | ||
Adjusted
Compensation Ratio
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48.5 | % |
Our 2009
adjusted compensation ratio is towards the high end of the range discussed
above, reflecting the need to keep compensation levels competitive with industry
peers. In determining the appropriate level of compensation for the
firm’s executives, senior management considered compensation benchmarking data
from McLagan Partners (“McLagan”), which included comparisons of estimated 2009
executive compensation to executive compensation in 2008 as well as
2007.
Employees
with total compensation in excess of $200,000 received a portion of their
incentive compensation in the form of a cash bonus and a portion in the form of
restricted Holding Units. The split between cash bonus and restricted
Holding Units varied depending on the employee’s total compensation, with
lower-paid employees receiving a greater percentage of their incentive
compensation as cash bonuses than more highly-paid employees. Quarterly cash
distributions on vested and unvested restricted Holding Units are paid currently
to award recipients.
Overview
of our 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 is to serve 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 (“Restricted Holding
Unit Grant”). Subject to accelerated vesting clauses in the Kraus Employment
Agreement, Mr. Kraus’s restricted Holding Units 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. The agreement provides for 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 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 such 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
is paid an annual base salary of $275,000 and received 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 he was paid 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
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, including 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.
The terms
of the Kraus Employment Agreement were the result of arm’s-length negotiations
between Mr. Kraus and a member of the Compensation Committee. These
terms, including the compensation elements, were discussed and approved by the
Compensation Committee and the full Board on December 19, 2008 and reflect their
decision to structure the allocation of Mr. Kraus’s compensation more heavily
toward a restricted Holding Unit award. As a result, Mr. Kraus’s
compensation consists almost entirely of the Restricted Holding Unit
Grant. The $6 million cash bonus applied only with respect to
2009.
The
amount of compensation ultimately realized by Mr. Kraus from the Restricted
Holding Unit Grant will depend on the future market price of Holding Units and
the amount of cash distributions paid on Holding Units, both of which are
partially dependent on the financial and operating results of
AllianceBernstein. Given the five-year vesting, Mr. Kraus has a
strong incentive to remain with our firm for the full five-year term of the
Kraus Employment Agreement and to cause our firm to have strong financial
performance during each of those five years. Thus, his long-term
interests are directly aligned with the interests of our Unitholders and also
indirectly aligned with the interests of our clients, as strong performance for
our clients generally contributes directly to increases in assets under
management and thus improved financial performance for the firm. The
size of the Restricted Holding Unit Grant, which had a value of approximately
$52 million based on the market price of a Holding Unit on December 19, 2008,
reflected the determination by Mr. Kraus and the Board that this was a
reasonable and appropriate amount of long-term incentive compensation in view of
Mr. Kraus’s expertise and experience, his past compensation, the compensation of
his predecessor and the compensation of other chief executive officers of
comparable asset management companies.
The $6
million cash bonus for 2009 represents the amount which Mr. Kraus and the Board
agreed represented an appropriate short-term financial inducement for Mr. Kraus
to join AllianceBernstein based on these same factors and reflected the
significant uncertainty surrounding the level of 2009 quarterly cash
distributions on Holding Units when he was hired; it most directly reflects the
goal of attracting highly qualified executive talent. The $275,000
base salary is in line with our firm’s policy to keep base salaries low in
relation to total compensation. The terms of the perquisites and
benefits received by Mr. Kraus reflect the results of the arm’s-length
negotiation process.
Factors
Considered when Determining Executive Compensation
Decisions
about executive 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 the compensation of our Chief Executive Officer, our Chief Financial
Officer and our other three most highly-compensated executives (“named executive
officers”), 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 determining the total
incentive compensation amounts available for a particular year (as more fully explained above in
“Overview of 2009 Incentive Compensation Program”). We then consider a
number of key factors for each of the named executive officers (other than Mr.
Kraus, our CEO, whose compensation is described above in “Overview of
our 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 consider data provided by McLagan to benchmark
the total compensation paid to each of our named executive
officers.
This
process, which is conducted by the Chief Executive Officer working with other
members of senior management, results in specific incentive compensation
recommendations 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.
Business
and operational goals established in 2009 for our named executive officers other
than Mr. Kraus are as follows:
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For
Mr. Steyn, the main elements of his business and operational goals
included: restoring financial leverage to the firm through the
right-sizing, rationalization and re-engineering of the Distribution
Services’ units (Private Clients, Institutions and Retail) and the
Corporate and Fiduciary Services’ units (Finance, Legal and
Compliance, IT and Operations); leading the continued collaboration and
co-operation of the three distribution channels; focusing the distribution
channels on key strategic initiatives and new product launches;
integrating the local management of the overseas offices (in particular
London, Hong Kong, Tokyo and Sydney) into the global management of the
distribution channels; and working with Human Capital and Finance on the
overhaul of the firm’s incentive and deferred compensation
programs.
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For
Mr. Gingrich, the main elements of his business and operational goals
included: optimizing the revenue and profit contribution of our
Bernstein Research Services unit; further enhancing this unit’s research
capabilities, trading services and product array; extending this unit’s
geographic platform; and attracting, motivating and retaining top
talent.
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For
Mr. Cranch, the main elements of his business goals included: maintaining
the firm’s good compliance record; sustaining and improving the Legal and
Compliance Department’s level of client service; minimizing litigation
against the firm; and creating a high performance culture among staff in
the Legal and Compliance
department.
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For
Mr. Joseph, the main elements of his business and operational goals
included: assuming global responsibility for administrative functions and
restructuring our firm’s finance organization to achieve greater
operational efficiency and an improved control environment; leading a
firm-wide initiative to reduce controllable operating expenses by at least
15%; accelerating our firm’s monthly closing process; enhancing management
reporting and decision support; implementing procedures to better allocate
capital, de-risk our firm’s balance sheet and secure an appropriate level
of liquidity; and identifying and developing our firm’s next generation of
finance leaders.
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Consistent
with the management approach taken by AllianceBernstein for its executives
generally, the 2009 goals of our named executive officers (other than Mr. Kraus,
whose compensation is
described above in “Overview of our 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 2009.
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 short-term and long-term incentive compensation awards,
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,
during the fourth quarter 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 and the roles played by the named executive
officers. In 2009, the McLagan data we used to benchmark the
compensation of our named executive officers was based on compensation
comparisons from a number of selected asset management companies and banks,
including the following: Bank of America, Barclays Global Investors, BlackRock
Financial Management, Citigroup, Deutsche Bank, Franklin Templeton Investments,
Goldman Sachs Asset Management, Morgan Stanley Investment Management, PIMCO
Advisors, T. Rowe Price Associates and The Vanguard Group. For a complete
listing of the comparable companies provided by McLagan, see Exhibit 99.01 to this Form
10-K.
Total
compensation paid to our named executive officers 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.
Our Chief
Executive Officer, 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 McLagan data in concluding that the
compensation levels paid in 2009 to our named executive officers were
appropriate and reasonable.
Compensation
Elements for Executive Officers
Below we
describe the major elements of our executive compensation.
1. Base
Salary. Base salaries comprise a small portion of executives’ total
compensation and are maintained at low levels relative to salaries of executives
at peer firms. Within the relatively narrow range of base salaries paid to
executives, we consider individual experience, responsibilities and tenure with
the firm. The salaries we paid during 2009 to our named executive officers are
shown in column (c) of the Summary Compensation Table.
2. Short-term
Incentive Compensation (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 2009
to our named executive officers are shown in column (d) of the Summary
Compensation Table.
3. Long-term
Incentive Compensation. We grant annual long-term incentive compensation
awards in December to supplement cash bonuses and to encourage retention of our
executives. These awards are made under an unfunded, non-qualified
incentive compensation plan under which awards may be granted to eligible
employees.
As discussed above in “Overview of
2009 Incentive Compensation Program”, in 2009 we changed our approach
regarding long-term incentive compensation by requiring that all awards be in
the form of restricted Holding Units. We implemented this change to
directly align our executives’ long-term interests with the interests of our
Unitholders while also indirectly aligning our executives' long-term interests
with the interests of our clients as strong performance for our clients
generally contributes directly to increases in assets under management and thus
improved financial performance for the firm. As a result of this change, award
recipients are not able to allocate their 2009 awards to notional investments in
certain of our investment services offered to clients. The 2009 restricted
Holding Unit awards granted to our named executive officers are shown in column
(i) of the Grants of Plan-based Awards Table.
Restricted
Holding Units were awarded as part of total incentive compensation based on a
customized set of goals for each executive. The relative level of cash bonus
compared to restricted Holding Units is generally fixed using a sliding scale
based on the total compensation level of the executive, with lower-paid
executives receiving a greater percentage of their incentive compensation as
cash bonuses than more highly-paid executives.
In 2009,
the value used for restricted Holding Units was the closing price as reported
for NYSE composite transactions on the day the Compensation Committee approved
incentive compensation awards (December 7, 2009).
Awards of
restricted Holding Units generally vest ratably over four
years. However, if the recipient of such an award is at least 55
years old and has at least ten years of service, the award recipient qualifies
for “Retirement”. Any award recipient who qualifies for “Retirement”
continues to vest post-Retirement, provided the award recipient complies with
agreements and covenants contained in the award agreement (including covenants
not to compete with AllianceBernstein, not to solicit AllianceBernstein’s
clients or employees, to maintain confidentiality of AllianceBernstein’s trade
secrets and proprietary information, and not to disparage AllianceBernstein)
until the Holding Units have fully vested.
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 vested and
unvested restricted Holding Units are paid currently to participants and are
included in column (i) of the Summary Compensation Table. For awards
made prior to 2009, 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. 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 2009, the Compensation Committee determined that
employee deferral contributions would be matched on a one-to-one basis up to
five percent of eligible compensation and there would be no profit sharing
contribution. Company contributions to the Profit Sharing Plan on behalf of the
named executive officers are shown in column (i) of the Summary Compensation
Table.
5. CEO
Arrangements. See
“Overview of our Chief
Executive Officer’s Compensation” in this Item 11.
6. Former President
and Chief Operating Officer Arrangements. Gerald M. Lieberman,
formerly a member of the Board and our President and Chief Operating Officer,
retired effective July 31, 2009 (“Retirement Date”).
Pursuant
to our agreement with Mr. Lieberman (“Lieberman Retirement Agreement”) and in
recognition of his years of service to our firm and his assistance with
transitioning his responsibilities, Mr. Lieberman received his base salary of
$200,000, less applicable tax withholdings and other payroll deductions, through
January 31, 2010. In addition, Mr. Lieberman received a lump
sum separation payment of $2,600,000, less applicable tax withholdings and other
payroll deductions, and was awarded 157,898 restricted Holding
Units. The number of restricted Holding Units was determined by
dividing $3,400,000 by the average closing price on the NYSE of a Holding Unit
for the period covering the four trading days immediately preceding the
Retirement Date, the Retirement Date and the five trading days immediately
following the Retirement Date, and rounded up to the nearest whole
number. Mr. Lieberman’s 157,898 restricted Holding Units vest ratably
on July 31 in each of 2010, 2011 and 2012, provided Mr. Lieberman complies with
the terms of the Lieberman Retirement Agreement (including non-competition,
non-solicitation, confidentiality, non-disparagement and
cooperation). Mr. Lieberman also receives, until July 31, 2012, a
number of continuing benefits from AllianceBernstein as described in the
Lieberman Retirement Agreement, which has been filed as Exhibit 10.04 to this
Form 10-K. These benefits include access to comparable medical and
dental coverage, office space, administrative assistance and a company car and
driver.
Compensation
Committee
The
Compensation Committee consists of Mr. Condron, Mr. Kraus, Ms. Slutsky and Mr.
Smith. As discussed above (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 62.1% economic interest in
AllianceBernstein (as of December 31, 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: (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 will recuse 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 six members who are senior officers of
AllianceBernstein. The Compensation Committee held seven meetings in 2009. The
Omnibus Committee held two meetings in 2009 and acted by unanimous written
consent twice.
The
Compensation Committee’s year-end process has generally focused on the cash
bonuses and long-term incentive compensation awards granted to senior
management. Mr. Kraus plays an active role in the work of the Compensation
Committee. Mr. Kraus, working with other members of senior management, provides
recommendations for individual employee awards to the Compensation Committee for
their consideration.
The
Compensation Committee held its regularly-scheduled meeting regarding year-end
compensation on December 7, 2009, at which it discussed and approved senior
management’s compensation recommendations. 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 applicable law.
For
long-term incentive compensation awards made during or before 2007, we typically
purchased the investments that were notionally elected by plan participants and
held these investments in a consolidated rabbi trust. Effective January 1, 2009,
investments we previously made 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.
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. As of
December 31, 2009, 6,256,646 Holding Units were available for new awards under
the 1997 Plan through July 26, 2010, the 1997 Plan’s expiration date. We intend
to convene a special meeting of Holding Unitholders during 2010 to seek approval
for a new long-term equity compensation 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,
2009, AXA Equitable and its affiliates owned an aggregate 62.1% economic
interest in AllianceBernstein. Mr. Kraus is Chairman of the Board and Chief
Executive Officer of the General Partner and, accordingly, also serves in that
capacity for AllianceBernstein and Holding. Mr. Kraus is also a director of AXA
Financial, AXA Equitable, MONY and MLOA. No other 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 2009, 2008 and 2007 (including Mr. Lieberman, who is
no longer an executive officer as a result of his retirement on July 31,
2009):
Name and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards(1)
($)
|
Option Awards(1)
($)
|
Non-Equity Incentive Plan
Compensation
($)
|
Change in Pension Value and Nonqualified Deferred
Compensation Earnings
($)
|
All Other Compensation
($)
|
Total(1)
($)
|
||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||
Peter
S. Kraus(2)
|
2009
|
275,000 | 6,000,000 | 10,452,680 | — | — | — | 4,175,132 | 20,902,812 | ||||||||||||||||||||||||
Chairman
and Chief
|
2008
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Executive
Officer
|
|||||||||||||||||||||||||||||||||
David
A. Steyn
|
2009
|
176,048 | 1,672,503 | — | — | — | — | 16,569 | 1,865,120 | ||||||||||||||||||||||||
Chief
Operating Officer
|
|||||||||||||||||||||||||||||||||
James
A. Gingrich
|
2009
|
200,000 | 1,270,000 | — | 167,225 | — | — | 10,414 | 1,647,639 | ||||||||||||||||||||||||
Chairman
and CEO of
|
|||||||||||||||||||||||||||||||||
SCB
LLC
|
|||||||||||||||||||||||||||||||||
Laurence
E. Cranch
|
2009
|
200,000 | 770,000 | — | 173,684 | — | — | 11,188 | 1,154,872 | ||||||||||||||||||||||||
General
Counsel
|
|||||||||||||||||||||||||||||||||
Robert
H. Joseph, Jr.
|
2009
|
195,000 | 395,000 | 410,011 | — | — | 47,830 | 38,977 | 1,086,818 | ||||||||||||||||||||||||
Chief
Financial Officer
|
2008
|
195,000 | 400,000 | — | — | — | 63,612 | 692,285 | 1,350,897 | ||||||||||||||||||||||||
2007
|
185,000 | 1,050,000 | — | 16,091 | — | 18,664 | 1,088,406 | 2,358,161 | |||||||||||||||||||||||||
Gerald
M. Lieberman
|
2009
|
200,000 | — | 3,382,175 | 1,040,000 | — | — | 3,140,351 | 7,762,526 | ||||||||||||||||||||||||
Former
President and
|
2008
|
200,000 | 1,000,000 | — | — | — | — | 1,827,920 | 3,027,920 | ||||||||||||||||||||||||
Chief
Operating Officer
|
2007
|
200,000 | 4,050,000 | — | 42,908 | — | — | 7,568,795 | 11,861,703 |
_____________
(1)
|
The
figures in columns (e) and (f) of the above table provide the amount of
amortization expense incurred by our firm in connection with awards made
to the named executive officers, as required by Item 402(c) of Regulation
S-K. The total compensation figures in column (j) of the above
table do not include the grant date fair value of awards made in
2009. For information about these awards, see “Grants of Plan-based
Awards in 2009” later in this Item
11.
|
(2)
|
Mr.
Kraus joined AllianceBernstein in December 2008. Accordingly,
Mr. Kraus did not receive any compensation in 2008 or 2007. His
compensation structure is set forth in the Kraus Employment
Agreement, the terms of which are described above in
“Compensation Discussion and Analysis—Overview of
our Chief Executive Officer’s Compensation” and described below in
“Potential Payments upon Termination or Change in
Control”.
|
For
information about how salary and bonus relate to total compensation, see “Compensation Elements for
Executive Officers” in this Item 11. Mr. Steyn’s salary is paid in U.K.
pounds sterling and then converted into U.S. dollars.
Mr.
Steyn’s compensation reflects his role as Chief Operating Officer of
AllianceBernstein and the contribution he makes in restoring financial leverage
to the firm, leading continued collaboration and co-operation among our three
buy-side distribution channels, focusing those channels on key strategic
initiatives and new product launches, and working with Human Capital and Finance
on the overhaul of the firm’s incentive compensation program.
Mr.
Gingrich’s compensation reflects his role as Chief Executive Officer of Sanford
C. Bernstein & Co., LLC, our sell-side business, and his leadership
role in optimizing the revenue and profit contribution of our
sell-side business and further enhancing that business’s research
capabilities, trading services and product array.
Mr.
Cranch’s compensation reflects his role as General Counsel of AllianceBernstein
and the contribution he makes in maintaining a good compliance record,
minimizing litigation against the firm and creating a culture of high
performance among the firm’s Legal and Compliance personnel.
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.
For 2009,
Column (e) includes:
for Mr.
Kraus, AllianceBernstein's amortization expense in respect of the vesting of his
Restricted Holding Unit Grant, based on the value of the grant on the grant date
(see “Compensation Discussion
and Analysis—Overview of
our Chief Executive Officer’s Compensation” in this Item
11).
for Mr.
Joseph, AllianceBernstein's amortization expense in respect of the vesting of
his 2009 restricted Holding Unit award due to his qualifying for Retirement
(see “Compensation Elements
for Executive Officers—Long-term Incentive Compensation” in this Item
11), based on the value of the grant on the grant date.
for Mr.
Lieberman, AllianceBernstein's amortization expense in respect of the restricted
Holding Unit award granted pursuant to the Lieberman Retirement Agreement (see “Compensation Elements for
Executive Officers—Former President and Chief Operating Officer Arrangements” in
this Item 11).
Column
(f) reflects AllianceBernstein’s amortization expense in respect of the vesting
of 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 and “Pension Benefits in 2009” in
this Item 11.
Column
(i) reflects 2008 and 2007 awards under the Incentive Compensation Award Program
(formerly known as the Partners Compensation Plan, “Incentive Compensation
Program”) and other items. We report Incentive Compensation Program awards
granted prior to 2009 under column (i) because, while they were designed to
provide incentives to recipients, they could not be categorized as having been
granted under an “incentive plan” under relevant SEC rules because there were no
specific performance measures that were required to be met before a participant
could receive his or her award. Also, as described in Note 15 to
AllianceBernstein’s consolidated financial statements in Item 8 and
“Compensation Discussion and Analysis—Overview of Compensation Philosophy and
Program” in this Item 11, any allocation of awards by recipients to
equity of the firm was voluntary; until 2009, we did not unilaterally make
awards of Holding Units to the named executive officers. In addition, awards
granted under the Incentive Compensation Program before 2009 were not accounted
for under ASC 718, Compensation--Stock Compensation.
During
2009, we owned fractional interests in two aircraft with an aggregate operating
cost of $2,747,698 (including $988,877 in maintenance fees, $1,243,262 in usage
fees and $515,559 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, 2009 was $6,437,249. We also
leased an aircraft during 2009 with an aggregate operating cost of $2,681,769
(including $650,552 in leasing costs, $649,569 in maintenance fees and
$1,381,648 in usage fees).
Our
interests in aircraft facilitate business travel of senior
management. In 2009, we permitted our Chief Executive Officer and
former President to use the aircraft for personal travel. Overall, personal
travel constituted approximately 5.7% of our actual use of the aircraft in
2009.
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 the SIFL 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
12 months ended October 31, 2009 for personal use imputed to Mr. Kraus is
$19,139 and to Mr. Lieberman is $15,072. Messrs. Steyn, Gingrich, Cranch and
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, medical and dental coverage,
office space, administrative assistance, business club dues and parking, as
applicable.
For 2008,
a portion ($1,040,000) of Mr. Lieberman's total in column (i) has been
re-allocated to column (f) in 2009, representing a subsequent election to
allocate part of his 2008 Incentive Compensation Program award to
options. In addition, the $1,040,000 is now disclosed in column (l) of the
Grants of Plan-based Awards table.
For 2009,
column (i) includes:
for Mr.
Kraus, $3,919,755 for quarterly distributions related to his Restricted Holding
Unit Grant, $62,015 for personal use of aircraft, $167,926 for personal use of a
car and driver (including lease costs ($25,732), driver compensation ($120,334)
and other car-related costs ($21,860), such as parking, gas, tolls, and repairs
and maintenance) and $25,436 for gross-ups related to imputed income for
personal use of aircraft and car.
for Mr.
Steyn, a $14,084 contribution to the Alliance Trust Full Self Invested Personal
Pension (a profit sharing plan for our U.K. employees) and $2,485 for
car-related parking costs.
for Mr.
Gingrich, a $10,000 contribution to the Profit Sharing Plan and $414 of life
insurance premiums.
for Mr.
Cranch, a $10,000 contribution to the Profit Sharing Plan and $1,188 of life
insurance premiums.
for Mr.
Joseph, a $9,750 contribution to the Profit Sharing Plan, $14,839 for personal
use of a car (including lease costs ($6,000) and other car-related costs
($8,839), such as parking, gas, tolls, and repairs and maintenance), $7,326 of
life insurance premiums and $7,062 in business club dues.
for Mr.
Lieberman, $2,600,000 in severance, $170,530 for quarterly distributions on
restricted Holding Units, $47,389 for personal use of aircraft, $157,013 for
personal use of a car and driver (including lease costs ($28,738), driver
compensation ($102,980) and other car-related costs ($25,295), such as parking,
gas, tolls, and repairs and maintenance), $5,538 for medical and dental
coverage, $63,750 for office space, $73,131 for administrative assistance and
$23,000 in other benefit-related costs.
Grants
of Plan-based Awards in 2009
The
following table describes each grant of an award made to a named executive
officer during 2009 under the 1997 Plan, an equity compensation plan (including
Mr. Lieberman, who is no longer an executive officer as a result of his
retirement on July 31, 2009):
|
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards
|
Estimated Future Payouts Under Equity Incentive
Plan Awards
|
||||||||||||||||||||||||||||||||||||||||||
Name
|
Grant Date
|
Threshold
($)
|
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
|
— | — | — | — | — | — | — | — | — | — | $ | — | ||||||||||||||||||||||||||||||||
David
A. Steyn
|
12/7/09
|
— | — | — | — | — | — | 146,083 | — | — | 3,904,799 | |||||||||||||||||||||||||||||||||
James
A. Gingrich
|
12/7/09
|
— | — | — | — | — | — | 94,650 | — | — | 2,529,995 | |||||||||||||||||||||||||||||||||
1/23/09
|
— | — | — | — | — | — | — | 263,533 | 17.05 | 925,000 | ||||||||||||||||||||||||||||||||||
Laurence
E. Cranch
|
12/7/09
|
— | — | — | — | — | — | 38,534 | — | — | 1,030,014 | |||||||||||||||||||||||||||||||||
1/23/09
|
— | — | — | — | — | — | — | 78,348 | 17.05 | 275,000 | ||||||||||||||||||||||||||||||||||
Robert
H. Joseph, Jr.
|
12/7/09
|
— | — | — | — | — | — | 15,339 | — | — | 410,011 | |||||||||||||||||||||||||||||||||
Gerald
M. Lieberman
|
1/23/09
|
— | — | — | — | — | — | — | 296,297 | 17.05 | 1,040,000 | |||||||||||||||||||||||||||||||||
8/7/09 | — | — | — | — | — | — | 157,898 | — | — | 3,382,175 |
Outstanding
Equity Awards at 2009 Fiscal Year-End
The
following table describes any outstanding equity awards as of December 31, 2009
of our named executive officers (including Mr. Lieberman, who is no longer an
executive officer as a result of his retirement on July 31, 2009):
Option
Awards
|
Holding Unit
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
($)
|
|||||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||||
Peter
S. Kraus(1)
|
— | — | — | — | — | 2,177,642 | 61,191,740 | — | — | |||||||||||||||||||||||||||
David
A. Steyn(2)
|
— | — | — | — | — | 146,083 | 4,104,932 | — | — | |||||||||||||||||||||||||||
James
A. Gingrich(2)(3)
|
— | 263,533 | — | 17.05 |
1/23/19
|
94,650 | 2,659,665 | — | — | |||||||||||||||||||||||||||
Laurence
E. Cranch(2)(3)
|
— | 78,348 | — | 17.05 |
1/23/19
|
38,534 | 1,082,805 | — | — | |||||||||||||||||||||||||||
Robert
H. Joseph, Jr.(2)(4)
|
15,000 | — | — | 33.18 |
12/06/12
|
15,339 | 431,026 | — | — | |||||||||||||||||||||||||||
15,000 | — | — | 50.25 |
12/07/11
|
— | — | — | — | ||||||||||||||||||||||||||||
15,000 | — | — | 53.75 |
12/11/10
|
— | — | — | — | ||||||||||||||||||||||||||||
50,000 | — | — | 48.50 |
06/20/10
|
— | — | — | — | ||||||||||||||||||||||||||||
Gerald
M. Lieberman(3)(5)
|
— | 296,297 | — | 17.05 |
1/23/19
|
157,898 | 4,436,934 | — | — |
_____________
(1)
|
Mr.
Kraus’s Restricted Holding Unit Award vests ratably on December 19, 2010,
2011, 2012 and 2013.
|
(2)
|
These
restricted Holding Unit awards vest ratably on December 1, 2010, 2011,
2012 and 2013.
|
(3)
|
These
option awards vest ratably on January 23, 2010, 2011, 2012, 2013 and
2014.
|
(4)
|
Mr.
Joseph’s option awards are fully
vested.
|
(5)
|
Mr.
Lieberman's restricted Holding Unit award vests ratably on July 31, 2010,
2011 and 2012.
|
Option
Exercises and Holding Units Vested in 2009
The
following table describes any Holding Units vested for our named executive
officers during 2009 (including Mr. Lieberman, who is no longer an executive
officer as a result of his retirement on July 31, 2009). None of our
named executive officers exercised options during 2009:
Option Awards
|
Holding Unit Awards
|
|||||||||||||||
Name
|
Number of Units Acquired on
Exercise
(#)
|
Value Realized on
Exercise
($)
|
Number of Holding Units Acquired on
Vesting
(#)
|
Value Realized on Vesting
($)
|
||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||||||
|
||||||||||||||||
Peter
S. Kraus
|
— | — | 544,410 | 14,116,562 | ||||||||||||
David
A. Steyn
|
— | — | — | — | ||||||||||||
James
A. Gingrich
|
— | — | — | — | ||||||||||||
Laurence
E. Cranch
|
— | — | — | — | ||||||||||||
Robert
H. Joseph, Jr.
|
— | — | — | — | ||||||||||||
Gerald
M. Lieberman
|
— | — | — | — |
Pension
Benefits for 2009
The
following table describes the accumulated benefit under our company pension plan
belonging to each of our named executive officers as of December 31, 2009, if
any (including Mr. Lieberman, who is no longer an executive officer as a result
of his retirement on July 31, 2009):
Name
|
Plan Name
|
Number of Years Credited
Service
(#)
|
Present Value of Accumulated
Benefit
($)
|
Payments During Last Fiscal
Year
($)
|
|||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|||||||||||
|
|
|
|
|
|||||||||||
Peter
S. Kraus
|
n/a | — | — | — | |||||||||||
David
A. Steyn
|
n/a | — | — | — | |||||||||||
James
A. Gingrich
|
n/a | — | — | — | |||||||||||
Laurence
E. Cranch
|
n/a | — | — | — | |||||||||||
Robert
H. Joseph, Jr.
|
Retirement Plan
|
24 | 537,972 | (1) | — | ||||||||||
Gerald
M. Lieberman
|
n/a | — | — | — |
_____________
(1)
|
The
Executive Committee 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 $100,000 or 100% of a participant’s
average aggregate compensation for the three consecutive years in which he or
she received the highest aggregate compensation from us or such lower limit as
may be imposed by the Code on certain participants by reason of their coverage
under another qualified retirement plan we maintain. A participant is fully
vested after the completion of five years of service. The Retirement Plan
generally provides for payments to, or on behalf of, each vested employee upon
such employee’s retirement at the normal retirement age provided under the plan
or later, although provision is made for payment of early retirement benefits on
an actuarially reduced basis. Normal retirement age under the plan is 65. Death
benefits are payable to the surviving spouse of an employee who dies with a
vested benefit under the Retirement Plan. For additional information regarding
interest rates and actuarial assumptions, see Note 14 to AllianceBernstein’s
consolidated financial statements in Item 8.
Non-Qualified
Deferred Compensation for 2009
The
following table describes our named executive officers’ non-qualified deferred
compensation contributions, earnings and distributions during 2009 and their
non-qualified deferred compensation plan balances as of December 31, 2009
(including Mr. Lieberman’s, although he is no longer an executive officer as a
result of his retirement on July 31, 2009):
Name
|
Executive Contributions in Last
FY
($)
|
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
|
— | — | — | — | — | |||||||||||||||
David
A. Steyn
|
— | — | 2,194,329 | (1,652,275 | ) | 6,722,898 | ||||||||||||||
James
A. Gingrich
|
— | — | 1,055,504 | (1,419,365 | ) | 4,326,464 | ||||||||||||||
Laurence
E. Cranch
|
— | — | 629,506 | — | 2,445,279 | |||||||||||||||
Robert
H. Joseph, Jr.
|
— | — | 1,331,215 | (954,879 | ) | 4,605,132 | ||||||||||||||
Gerald
M. Lieberman
|
— | — | 507,375 | (2,637,478 | ) | 1,679,427 |
For
Messrs. Steyn, Gingrich, Cranch, Joseph and Lieberman, amounts shown reflect
their respective interests from pre-2009 awards under the Incentive Compensation
Program. For additional information about the Incentive Compensation Program,
see Note 15 to
AllianceBernstein’s consolidated financial statements in Item
8. For individuals with notional investments in Holding Units
(Messrs. Gingrich, Cranch and Joseph), amounts of quarterly 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, 2009. As of that date, Messrs. Gingrich, Cranch and
Joseph notionally held 24,576 Holding Units, 7,703 Holding Units and 64,679
Holding Units, respectively, as a result of pre-2009 awards under the Incentive
Compensation Program. Mr. Steyn and Mr. Lieberman did not notionally
hold any Holding Units.
Potential
Payments upon Termination or Change in Control
In
connection with the commencement of Mr. Kraus’s employment, on December 19,
2008, he was granted 2,722,052 restricted Holding Units. 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 at 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 salary
and absent any additional awards the Board may choose to grant) 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 Chief Executive
Officer’s Compensation” in this Item 11.
The Kraus
Employment Agreement contains a number of accelerated vesting clauses, including
immediate vesting upon a “change in control” of our firm (i.e., AXA, our parent
company, ceasing to control the management of AllianceBernstein’s business or
Holding ceasing to be publicly traded); and immediate vesting upon certain
qualifying terminations of employment, including termination of Mr. Kraus’s
employment (i) by AllianceBernstein “without cause”, (ii) by Mr. Kraus for “good
reason” and (iii) due to death or disability.
The
change-in-control provisions in the Kraus Employment Agreement were required by
Mr. Kraus as part of his negotiation in order to assure him that
AllianceBernstein would continue to be operated as a separately-managed entity,
and with a certain degree of independence, and that Holding would continue as a
publicly-traded entity. Both AXA and Mr. Kraus believe that this
arrangement adds significant value to AllianceBernstein. The Board
understood that AXA had no intention of changing this arrangement during the
term of Mr. Kraus’s Employment Term and thus concluded that the
change-in-control provisions were acceptable and necessary in order to recruit
Mr. Kraus.
The
provisions requiring accelerated vesting upon termination without cause or for
good reason were required by Mr. Kraus in order to preserve the value of his
long-term incentive compensation arrangement. The Board agreed to
these provisions because they were typical of executive compensation agreements
for executives at Mr. Kraus’s level and because the Board concluded that they
were necessary to recruit Mr. Kraus.
The Board
concluded that the change-in-control and termination provisions in the Kraus
Employment Agreement fit into AllianceBernstein’s overall compensation
objectives because they permitted AllianceBernstein to attract and retain a
highly-qualified chief executive officer, were consistent with AXA’s and the
Board’s expectations with respect to the manner in which AllianceBernstein and
Holding would be operated from 2009 to 2013, were consistent with the Board’s
expectations that Mr. Kraus would not be terminated without cause and that no
steps would be taken that would provide him with the ability to terminate the
agreement with good reason (and thus that there was no inconsistency between
these provisions and AllianceBernstein’s goal of providing Mr. Kraus with
effective incentives for future performance), and to align his long-term
interests with those of AllianceBernstein’s Unitholders and
clients.
It is the
current intention and expectation of AllianceBernstein’s management and the
Board that provisions similar to those included in the Kraus Employment
Agreement, such as change-in-control, termination by AllianceBernstein without
cause and termination by an executive for good reason, will not be included in
employment agreements with other executives of AllianceBernstein, and thus that
the decisions made with respect to the Kraus Employment Agreement should not
affect the decisions made in the future regarding compensation elements for
other executives.
There are
no other amounts payable to the named executive officers upon a change in
control of the company.
The
following table sets forth estimated payments and benefits to which our named
executive officers (other than Mr. Lieberman) would be entitled upon a change in
control of AllianceBernstein or the specified terminations of employment as of
December 31, 2009, along with the actual payments and benefits that Mr.
Lieberman received in connection with his retirement on July 31,
2009:
Name
|
Cash Payments(1)
($)
|
Acceleration or Grant of Restricted Holding Unit
Awards(2)
($)
|
Option Awards(3)
($)
|
Other Benefits
($)
|
||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||||||
|
||||||||||||||||
Peter
S. Kraus
|
||||||||||||||||
Change
in control
|
— | 61,191,740 | — | — | ||||||||||||
Termination
by AllianceBernstein without cause
|
— | 61,191,740 | — | — | ||||||||||||
Termination
by Mr. Kraus for good reason
|
— | 61,191,740 | — | — | ||||||||||||
Death
or disability(4)(5)
|
— | 61,191,740 | — | — | ||||||||||||
David
A. Steyn
|
||||||||||||||||
Death
or disability(6)
|
— | 4,104,932 | — | — | ||||||||||||
James
A. Gingrich
|
||||||||||||||||
Death
or disability(6)
|
— | 2,659,665 | 2,912,040 | — | ||||||||||||
Laurence
E. Cranch
|
||||||||||||||||
Death
or disability(6)
|
— | 1,082,805 | 865,745 | — | ||||||||||||
Robert
H. Joseph, Jr.
|
||||||||||||||||
Death
or disability(6)
|
— | 431,026 | — | — | ||||||||||||
Gerald
M. Lieberman
|
||||||||||||||||
Retirement(6)(7)
|
2,600,000 | 4,436,934 | 3,274,082 | 1,246,263 |
_____________
(1)
|
Messrs.
Steyn, Gingrich, Cranch and Joseph are not entitled to any
payments or benefits upon termination of their employment by
AllianceBernstein without cause. Nevertheless, it is our
expectation that each would receive a cash severance
payment. As the amounts of any such payments would be
determined at the time of such termination, we are unable to estimate the
amount of any such payments.
|
(2)
|
Restricted
Holding Unit awards made in December 2009 to Messrs. Steyn, Gingrich,
Cranch and Joseph are subject to a “Rule of 65” retirement
provision. An award recipient qualifies for “retirement” if the
recipient is at least 55 years old and has completed at least 10 years of
service. Any award recipient who qualifies for “retirement”
retains the right to receive distribution of the underlying Holding Units
post-retirement provided the recipient complies with agreements and
covenants in the award agreement until the Holding Units have fully
vested.
|
(3)
|
Options
awarded to Messrs. Gingrich, Cranch and Lieberman, which
are set forth in the
“Outstanding Equity Awards at 2009 Fiscal Year-End” table above,
are subject to a “Rule of 70” retirement provision. An award
recipient qualifies for retirement if the recipient: (i) is at least 65
years old; or (ii) is at least 55 years old and the recipient’s age and
years of service added together equal or exceed 70. An award
recipient who qualifies for retirement continues to vest post-retirement
provided the recipient complies with any agreements and covenants enforced
by AllianceBernstein.
|
(4)
|
The
Kraus Employment Agreement defines “Disability” as a good faith
determination by AllianceBernstein that Mr. Kraus is physically or
mentally incapacitated and has been unable for a period of one hundred and
twenty (120) days in the aggregate during any twelve-month period to
perform substantially all of the duties for which he is responsible
immediately before the commencement of the
incapacity.
|
(5)
|
Upon
termination of Mr. Kraus’s employment due to death or disability,
AllianceBernstein will provide at its expense continued health and welfare
benefits for Mr. Kraus, his spouse and his dependants through the end of
the calendar year in which termination occurs. Thereafter,
until the date Mr. Kraus (or, in the case of his spouse, his spouse)
reaches age 65, AllianceBernstein shall provide Mr. Kraus and his spouse
with access to participation in AllianceBernstein’s medical plans at Mr.
Kraus’s (or his spouse’s) sole expense based on a reasonably determined
fair market value premium rate.
|
(6)
|
“Disability”
is defined in the Incentive Compensation Program award agreements of
Messrs. Steyn, Gingrich, Cranch and Joseph, and in the Special
Option Program award agreements of Messrs. Gingrich, Cranch and Lieberman,
as the inability to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that can be
expected to last for a continuous period of not less than 12 months,
as determined by the carrier of the long-term disability insurance program
maintained by AllianceBernstein or its affiliate that covers the executive
officer.
|
(7)
|
For
additional information relating to Mr. Lieberman’s $2,600,000 severance
payment, restricted Holding Unit award and other benefits that he received
in connection with his retirement, see “Compensation Elements for
Executive Officers—Former President and Chief Operating Officer
Arrangements”.
|
Director
Compensation in 2009
The
following table describes how we compensated our independent directors during
2009:
Name
|
Fees Earned or Paid in Cash
($)
|
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
|
56,500 | 30,000 | 30,000 | — | — | — | 116,500 | |||||||||||||||||||||
Weston
M. Hicks
|
67,000 | 30,000 | 30,000 | — | — | — | 127,000 | |||||||||||||||||||||
Lorie
A. Slutsky
|
77,500 | 30,000 | 30,000 | — | — | — | 137,500 | |||||||||||||||||||||
A.W.
(Pete) Smith, Jr.
|
76,000 | 30,000 | 30,000 | — | — | — | 136,000 | |||||||||||||||||||||
Peter
J. Tobin
|
94,000 | 30,000 | 30,000 | — | — | — | 154,000 |
_____________
(1)
|
As
of December 31, 2009, our independent directors had outstanding restricted
Holding Unit awards in the following amounts: Ms. Hechinger owned 2,450
Holding Units, Mr. Hicks owned 2,912 Holding Units, Ms. Slutsky owned
3,573 Holding Units, Mr. Smith owned 2,912 Holding Units and Mr. Tobin
owned 3,573 Holding Units.
|
(2)
|
As
of December 31, 2009, our independent directors had outstanding option
awards in the following amounts: Ms. Hechinger owned options to buy 10,945
Holding Units, Mr. Hicks owned options to buy 13,373 Holding Units, Ms.
Slutsky owned options to buy 42,524 Holding Units, Mr. Smith owned options
to buy 13,373 Holding Units and Mr. Tobin owned options to buy 57,774
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
21, 2009, at a regularly-scheduled meeting of the Board, 1,642 restricted
Holding Units and options to buy 6,224 Holding Units at $18.27 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 2008. 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 “cliff” vest after three years (i.e., 100% of the award vests
and gets distributed on the third anniversary of the grant date). 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, 2009:
Equity
Compensation Plan Information
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
|
12,047,522 | $ | 41.79 | 6,256,646 | ||||||||
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
Total
|
12,047,522 | $ | 41.79 | 6,256,646 |
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
December 31, 2009, we had no information that any person beneficially owned more
than 5% of the outstanding Holding Units.
As of
December 31, 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, Forms 3 and Forms 4
filed with the SEC on April 1, 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)
|
25
avenue Matignon 75008
Paris,
France
|
170,121,745 | (5) | 61.9 | % |
_____________
(1)
|
Based
on information provided by AXA Financial, on December 31, 2009, 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 AXA Management
Board. 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, 2009, 14.12% of the
issued ordinary shares (representing 22.20% of the voting power) of AXA
were owned directly and indirectly by two French mutual insurance
companies engaged in the Property & Casualty insurance business and
the Life & Savings insurance business in France (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 IM
Rose Inc. (a 95.29%-owned subsidiary of AXA), AXA Financial, AXA
Equitable, AXA Financial (Bermuda) Ltd. (a wholly-owned subsidiary of AXA
Financial), Coliseum Reinsurance Company (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 168,146,626 AllianceBernstein
Units.
|
(5)
|
As
indicated above in note 4, AXA IM Rose Inc. is a 95.29%-owned subsidiary
of AXA, meaning that 4.71% of the AllianceBernstein Units beneficially
owned by AXA IM Rose Inc. as of December 31, 2009 were not beneficially
owned by AXA. As a result, as of December 31, 2009, AXA
beneficially owned 168,146,626 AllianceBernstein Units, or 61.2% of the
issued and outstanding AllianceBernstein
Units.
|
As of
December 31, 2009, Holding was the record owner of 101,351,749, or 36.9%, of the
issued and outstanding AllianceBernstein Units.
Management
The
following table sets forth, as of December 31, 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)
|
2,441,789 | 2.4 | % | |||||
Dominique
Carrel-Billiard(1)
|
— | * | ||||||
Christopher
M. Condron(1)
|
35,000 | * | ||||||
Henri
de Castries(1)
|
2,000 | * | ||||||
Denis
Duverne(1)
|
2,000 | * | ||||||
Richard
S. Dziadzio(1)
|
— | * | ||||||
Deborah
S. Hechinger(3)
|
4,675 | * | ||||||
Weston
M. Hicks(4)
|
12,565 | * | ||||||
Nick
Lane(1)
|
— | * | ||||||
Lorie
A. Slutsky(1)(5)
|
38,415 | * | ||||||
A.W.
(Pete) Smith, Jr.(6)
|
9,084 | * | ||||||
Peter
J. Tobin(1)(7)
|
52,627 | * | ||||||
David
A. Steyn(1)(8)
|
155,662 | * | ||||||
James
A. Gingrich(1)(9)
|
201,142 | * | ||||||
Laurence
E. Cranch(1)(10)
|
61,905 | * | ||||||
Robert
H. Joseph, Jr.(1)(11)
|
214,114 | * | ||||||
Gerald
M. Lieberman(12)
|
217,157 | * | ||||||
All
directors and executive officers of the General Partner as a group (18
persons)(13)(14)
|
3,488,867 | 3.4 | % |
_____________
*
|
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, and Tobin are directors and/or officers of AXA, AXA IM,
AXA Financial, and/or AXA Equitable. Messrs. Kraus, Steyn, Gingrich,
Cranch 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. Mr. Kraus sold 280,263 Holding Units to cover withholding tax
obligations when his first tranche of Holding Units
vested.
|
(3)
|
Includes
2,225 Holding Units Ms. Hechinger can acquire within 60 days under an
AllianceBernstein option plan.
|
(4)
|
Includes
4,653 Holding Units Mr. Hicks can acquire within 60 days under an
AllianceBernstein option plan.
|
(5)
|
Includes
33,804 Holding Units Ms. Slutsky can acquire within 60 days under an
AllianceBernstein option plan.
|
(6)
|
Includes
4,653 Holding Units Mr. Smith can acquire within 60 days under an
AllianceBernstein option plan.
|
(7)
|
Includes
49,054 Holding Units Mr. Tobin can acquire within 60 days under an
AllianceBernstein option plan.
|
(8)
|
Includes
146,083 restricted Holding Units Mr. Steyn was awarded in December
2009.
|
(9)
|
Includes
52,706 Holding Units Mr. Gingrich can acquire within 60 days under an
AllianceBernstein option plan, 94,650 restricted Holding Units awarded in
December 2009 and 24,576 restricted Holding Units to which he previously
allocated portions of incentive compensation
awards.
|
(10)
|
Includes
15,669 Holding Units Mr. Cranch can acquire within 60 days under an
AllianceBernstein option plan, 38,533 restricted Holding Units awarded in
December 2009 and 7,703 restricted Holding Units to which he previously
allocated portions of incentive compensation
awards.
|
(11)
|
Includes
95,000 Holding Units Mr. Joseph can acquire within 60 days under
AllianceBernstein option plans, 15,339 restricted Holding Units awarded in
December 2009 and 64,679 restricted Holding Units to which he previously
allocated portions of incentive compensation
awards.
|
(12)
|
Includes
59,259 Holding Units Mr. Lieberman can acquire within 60 days under an
AllianceBernstein option plan and 157,898 restricted Holding Units awarded
under the Lieberman Retirement Agreement. For additional
information regarding he Lieberman Retirement Agreement, see “Compensation Elements for
Executive Officers—Former President and Chief Operating Officer
Arrangements” in Item 11.
|
(13)
|
Includes
317,023 Holding Units the directors and executive officers as a group can
acquire within 60 days under AllianceBernstein option
plans.
|
(14)
|
Includes
333,139 restricted Holding Units awarded in December 2009 to the executive
officers as a group and 98,608 restricted Holding Units to which the
executive officers as a group previously allocated portions of incentive
compensation awards.
|
As of
December 31, 2009, our directors and executive officers did not beneficially own
any AllianceBernstein Units.
The
following table sets forth, as of December 31, 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
|
— | * | ||||||
Dominique
Carrel-Billiard(2)
|
140,053 | * | ||||||
Christopher
M. Condron(3)
|
3,408,754 | * | ||||||
Henri
de Castries(4)
|
6,493,930 | * | ||||||
Denis
Duverne(5)
|
2,537,149 | * | ||||||
Richard
S. Dziadzio(6)
|
202,036 | * | ||||||
Deborah
S. Hechinger
|
— | * | ||||||
Weston
M. Hicks
|
— | * | ||||||
Nick
Lane(7)
|
9,232 | * | ||||||
Lorie
A. Slutsky(8)
|
5,804 | * | ||||||
A.W.
(Pete) Smith, Jr.
|
— | * | ||||||
Peter
J. Tobin(9)
|
23,969 | * | ||||||
David
A. Steyn
|
— | * | ||||||
James
A. Gingrich
|
— | * | ||||||
Laurence
E. Cranch
|
— | * | ||||||
Robert
H. Joseph, Jr.
|
— | * | ||||||
Gerald
M. Lieberman
|
— | * | ||||||
All
directors and executive officers of the General Partner as a group (18
persons)(10)
|
12,820,927 | * |
_____________
*
|
Number
of shares listed represents less than 1% of the outstanding AXA common
stock.
|
(1)
|
Holdings
of AXA American Depositary Shares (“ADS”) are expressed as their
equivalent in AXA common stock. Each AXA ADS represents the right to
receive one AXA ordinary share.
|
(2)
|
Includes
87,653 shares Mr. Carrel-Billiard can acquire within 60 days under option
plans. Also includes 268 unvested AXA performance shares, which are paid
out when vested based on the price of AXA at that
time.
|
(3)
|
Includes
1,051,533 shares and 1,544,743 ADSs Mr. Condron can acquire within 60 days
under option plans. Also includes 193,096 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.
|
(4)
|
Includes
4,831,150 shares Mr. de Castries can acquire within 60 days under option
plans. Also includes 175,099 unvested AXA performance shares, which are
paid out when vested based on the price of AXA at that
time.
|
(5)
|
Includes
1,708,368 shares Mr. Duverne can acquire within 60 days under option
plans. Also includes 143,766 unvested AXA performance shares, which are
paid out when vested based on the price of AXA at that
time.
|
(6)
|
Includes
169,880 shares Mr. Dziadzio can acquire within 60 days under option plans.
Also includes 21,080 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.
|
(7)
|
Includes
6,212 ADSs Mr. Lane can acquire within 60 days under options
plans.
|
(8)
|
Includes
944 ADSs Ms. Slutsky can acquire within 60 days under option
plans.
|
(9)
|
Includes
5,579 ADSs Mr. Tobin can acquire within 60 days under option
plans.
|
(10)
|
Includes
7,848,584 shares and 1,557,478 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 (i) in the reasonable and good faith
judgment of the General Partner, meets that unaffiliated party standard, or (ii)
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 2009 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 2009. 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
2009
|
||||
|
|
|||||
AXA
Asia Pacific(2)(3)
|
|
$ | 31,441,000 | |||
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.
|
$ |
29,751,000
(of
which $418,000 relates to the ancillary services)
|
|||
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.
|
$ | 27,619,000 | |||
AXA
Life Japan Limited(2)(3)
|
$ | 11,400,000 | ||||
MONY
Life Insurance Company and its subsidiaries(3)(4)
|
We
provide investment management services and ancillary accounting
services.
|
$ |
8,576,000
(of
which $150,000 relates to the ancillary services)
|
|||
AXA
Sun Life(2)(3)
|
$ | 4,271,000 | ||||
AXA
Bermuda(2)(3)
|
$ | 3,531,000 | ||||
AXA
France(2)(3)
|
$ | 2,179,000 | ||||
AXA
Winterthur(2)(3)
|
$ | 2,010,000 | ||||
AXA
Rosenberg Investment Management Asia Pacific(2)(3)
|
$ | 1,939,000 | ||||
AXA
(Canada)(2)(3)
|
$ | 1,710,000 | ||||
AXA
U.K. Group Pension Scheme(2)
|
$ | 1,634,000 | ||||
AXA
Corporate Solutions(2)(3)
|
$ | 1,313,000 | ||||
AXA
Germany(2)(3)
|
$ | 966,000 | ||||
AXA
Belgium(2)(3)
|
$ | 618,000 | ||||
AXA
Mediterranean(2)(3)
|
$ | 176,000 | ||||
AXA
Reinsurance Company(2)(3)
|
$ | 171,000 | ||||
AXA
Foundation, Inc., a subsidiary of AXA Financial(2)
|
$ | 159,000 | ||||
Other
AXA subsidiaries(2)
|
$ | 187,000 |
_____________
(1)
|
AllianceBernstein
or one of its subsidiaries 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 2009
|
||||
|
|
|
||||
AXA
Business Services Pvt. Ltd.
|
AXA
Business Services provides data processing services and support for
certain investment operations functions.
|
$ | 6,921,000 | |||
AXA
Advisors
|
AXA
Advisors distributes certain of our Retail Products and provides Private
Client referrals.
|
$ | 6,918,000 | |||
AXA
Equitable
|
We
are covered by various insurance policies maintained by AXA
Equitable.
|
$ | 3,872,000 | |||
AXA
Equitable
|
AXA
Equitable provides certain data processing services and related
functions.
|
$ | 2,591,000 | |||
AXA
Advisors
|
AXA
Advisors sells shares of our mutual funds under Distribution Services and
Educational Support agreements.
|
$ | 1,935,000 | |||
AXA
Group Solutions Pvt. Ltd.
|
AXA
Group Solution Pvt. Ltd provides maintenance and development support for
applications.
|
$ | 1,586,000 | |||
AXA
Technology Services India Pvt. Ltd.
|
AXA
Technology Services India Pvt. Ltd. provides certain data processing
services and functions.
|
$ | 1,317,000 | |||
GIE
Informatique AXA (“GIE”)
|
GIE
provides cooperative technology development and procurement services to us
and to various other subsidiaries of AXA.
|
$ | 998,000 |
_____________
(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
In
January 2008, AllianceBernstein and AXA executed guarantees in connection with a
three-year $950 million Revolving Credit Agreement (“SCB LLC Credit Agreement”).
If 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
arrangement remains in effect until the later of payment in full of any
borrowings under the SCB LLC Credit Agreement has been made or the credit
agreement expires.
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 $28.3 billion in client assets,
and earned approximately $40.9 million in management fees in 2009 (of which
$14.0 million is included in the table above). AllianceBernstein and AXA Asia
Pacific have agreed to combine their New Zealand operations with and into their
Australia operations. As a result, New Zealand client service,
portfolio management and operations will be performed in
Australia. The transition is expected to be completed during the
first quarter of 2010.
AXA
Advisors was our 18th
largest distributor of U.S. Funds in 2009, for which we paid AXA Advisors sales
concessions on sales of approximately $303 million. Various subsidiaries of AXA
distribute certain of our Non-U.S. Funds, for which such entities received
aggregate distribution payments of approximately $229,000 in 2009.
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
incentive 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 incentive 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 2009, 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
individuals who served as executive officers during a portion of 2009, one of
whom was 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 4,369 employees.
Gerald M.
Lieberman’s daughter, Andrea L. Feldman, is employed in Financial Planning &
Analysis and received 2009 compensation of $119,000 (salary, cash 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
2009 compensation of $237,086 (salary, cash bonus, long-term incentive
compensation, contribution to the Profit Sharing Plan and life insurance
premiums). Gerald M. Lieberman was Director of the General Partner and the
President and Chief Operating Officer of the General Partner, AllianceBernstein
and Holding until his retirement on July 31, 2009.
James G.
Reilly’s brother, Michael J. Reilly, is a U.S. Large Cap Growth portfolio
manager and received 2009 compensation of $1,380,971 (salary, cash bonus,
long-term incentive compensation, options amortization, contribution to the
Profit Sharing Plan and life insurance premiums). James G. Reilly is a Senior
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 2009 and 2008, respectively, and fees
for other services rendered by PwC:
2009
|
2008
|
|||||||
(in thousands) | ||||||||
Audit
fees(1)
|
$ | 6,173 | $ | 7,490 | ||||
Audit
related fees(2)
|
2,439 | 2,408 | ||||||
Tax
fees(3)
|
2,167 | 2,376 | ||||||
All
other fees(4)
|
5 | 5 | ||||||
Total
|
$ | 10,784 | $ | 12,279 |
_____________
(1)
|
Includes
$87,675 and $105,000 paid for audit services to Holding in 2009 and 2008,
respectively.
|
(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 2009 and 2008 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,
2009, 2008 and 2007. 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).
|
3.01
|
Amended
and Restated Certificate of Limited Partnership dated February 24, 2006 of
Holding (incorporated by reference to Exhibit 99.06 to Form 8-K, as filed
February 24, 2006).
|
3.02
|
Amendment
No. 1 dated February 24, 2006 to Amended and Restated Agreement of Limited
Partnership of Holding (incorporated by reference to Exhibit 3.1 to Form
10-Q for the quarterly period ended September 30, 2006, as filed November
8, 2006).
|
3.03
|
Amended
and Restated Agreement of Limited Partnership dated October 29, 1999 of
Alliance Capital Management Holding L.P. (incorporated by reference to
Exhibit 3.2 to Form 10-K for the fiscal year ended December 31, 2003, as
filed March 10, 2004).
|
3.04
|
Amended
and Restated Certificate of Limited Partnership dated February 24, 2006 of
AllianceBernstein (incorporated by reference to Exhibit 99.07 to Form 8-K,
as filed February 24, 2006).
|
3.05
|
Amendment
No. 1 dated February 24, 2006 to Amended and Restated Agreement of Limited
Partnership of AllianceBernstein (incorporated by reference to Exhibit 3.2
to Form 10-Q for the quarterly period ended September 30, 2006, as filed
November 8, 2006).
|
3.06
|
Amended
and Restated Agreement of Limited Partnership dated October 29, 1999 of
Alliance Capital Management L.P. (incorporated by reference to Exhibit 3.3
to Form 10-K for the fiscal year ended December 31, 2003, as filed March
10, 2004).
|
3.07
|
Certificate
of Amendment to the Certificate of Incorporation of AllianceBernstein
Corporation (incorporated by reference to Exhibit 99.08 to Form 8-K, as
filed February 24, 2006).
|
3.08
|
AllianceBernstein
Corporation By-Laws with amendments through February 24, 2006
(incorporated by reference to Exhibit 99.09 to Form 8-K, as filed February
24, 2006).
|
Amended
and Restated AllianceBernstein Incentive Compensation Award Program (as
amended and restated as of December 7, 2009).
|
|
Post-December
1, 2009 Award Provisions under the Amended and Restated AllianceBernstein
Incentive Compensation Award Program.
|
|
Form
of 2009 Award Agreement under Incentive Compensation Award Program and
1997 Long Term Incentive Plan.
|
|
Retirement
Agreement between Gerald M. Lieberman, AllianceBernstein Corporation and
AllianceBernstein L.P. dated as of June 9, 2009.
|
|
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.
|
|
10.07
|
Form
of Award Agreement under the Special Option Program (incorporated by
reference to Exhibit 10.05 to Form 10-K for the fiscal year ended December
31, 2008, as filed February 23, 2009).
|
10.08
|
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.
(incorporated by reference to Exhibit 10.11 to Form 10-K for the fiscal
year ended December 31, 2008, as filed February 23,
2009).
|
10.09
|
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).
|
10.10
|
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).
|
10.11
|
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).
|
10.12
|
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
10.14.)
|
Exhibit
|
Description
|
10.13
|
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).
|
10.14
|
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).
|
10.15
|
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).
|
10.16
|
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).
|
10.17
|
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).
|
10.18
|
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).
|
10.19
|
Alliance
Capital Management L.P. Annual Elective Deferral Plan (incorporated by
reference to Exhibit 99 to Form S-8, as filed November 6,
2000).
|
10.20
|
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).
|
10.21
|
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).
|
10.22
|
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).
|
10.23
|
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, 2009, 2008 and 2007.
|
|
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.
|
|
List
of comparable companies utilized by McLagan Partners to generate 2009
compensation benchmarking data.
|
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
AllianceBernstein
Holding L.P.
|
|
Date:
February 11, 2010
|
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 11, 2010
|
/s/ Robert H. Joseph,
Jr.
|
|
Robert
H. Joseph, Jr.
|
|
Chief
Financial Officer
|
Date:
February 11, 2010
|
/s/ Edward J. Farrell
|
|
Edward
J. Farrell
|
|
Chief
Accounting Officer
|
Directors
/s/ Peter S. Kraus
|
/s/ Deborah S. Hechinger
|
|
Peter
S. Kraus
|
Deborah
S. Hechinger
|
|
Chairman
of the Board
|
Director
|
|
/s/ Dominique
Carrel-Billiard
|
/s/ Weston M. Hicks
|
|
Dominique
Carrel-Billiard
|
Weston
M. Hicks
|
|
Director
|
Director
|
|
/s/ Christopher M. Condron
|
/s/ Nick Lane
|
|
Christopher
M. Condron
|
Nick
Lane
|
|
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
|
SCHEDULE
I I
AllianceBernstein
L.P.
Valuation
and Qualifying Account - Allowance for Doubtful Accounts
For
the Three Years Ending December 31, 2009, 2008 and 2007
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, 2007
|
$ | 1,113 | $ | 955 | $ | 276 | (a) | $ | 1,792 | |||||||
For
the year ended December 31, 2008
|
$ | 1,792 | $ | (192 | ) | $ | 112 | (b) | $ | 1,488 | ||||||
For
the year ended December 31, 2009
|
$ | 1,488 | $ | (88 | ) | $ | 7 | (c) | $ | 1,393 |
(a)
|
Includes
accounts written-off as uncollectible of $267 and a net reduction of the
allowance balance of $9.
|
(b)
|
Includes
accounts written-off as uncollectible of $31 and a net reduction to the
allowance balance of $81.
|
(c)
|
Includes
accounts written-off as uncollectible of $41 and a net addition to the
allowance balance of $34.
|
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 11, 2010 also included an audit of the financial statement schedule
listed in Item 15(a) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers
LLP
New York,
New York
February
11, 2010
132