Company Quick10K Filing
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Alliancebernstein
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-09 Regulation FD, Exhibits
8-K 2019-09-11 Regulation FD, Exhibits
8-K 2019-08-13 Regulation FD, Exhibits
8-K 2019-07-25 Earnings, Regulation FD, Exhibits
8-K 2019-07-11 Regulation FD, Exhibits
8-K 2019-06-21 Officers
8-K 2019-06-12 Regulation FD, Exhibits
8-K 2019-06-05 Officers, Exhibits
8-K 2019-05-13 Regulation FD, Exhibits
8-K 2019-04-25 Earnings, Regulation FD, Exhibits
8-K 2019-04-15 Enter Agreement, Regulation FD, Exhibits
8-K 2019-04-02 Regulation FD, Exhibits
8-K 2019-03-26 Officers, Regulation FD, Exhibits
8-K 2019-03-11 Regulation FD, Exhibits
8-K 2019-02-13 Earnings, Regulation FD, Exhibits
8-K 2019-01-10 Regulation FD, Exhibits
8-K 2018-12-13 Regulation FD, Exhibits
8-K 2018-11-20 Regulation FD, Exhibits
8-K 2018-11-13 Regulation FD, Exhibits
8-K 2018-10-24 Earnings, Regulation FD, Exhibits
8-K 2018-10-19 Enter Agreement, Regulation FD, Exhibits
8-K 2018-10-10 Regulation FD, Exhibits
8-K 2018-10-03 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-09-14 Regulation FD, Exhibits
8-K 2018-08-09 Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Regulation FD, Exhibits
8-K 2018-07-20 Regulation FD, Exhibits
8-K 2018-07-12 Regulation FD, Exhibits
8-K 2018-06-12 Regulation FD, Exhibits
8-K 2018-05-11 Regulation FD, Exhibits
8-K 2018-05-02 Other Events
8-K 2018-04-24 Officers, Exhibits
8-K 2018-04-18 Officers
8-K 2018-04-10 Regulation FD, Exhibits
8-K 2018-03-13 Regulation FD, Exhibits
8-K 2018-01-31 Regulation FD, Exhibits
8-K 2018-01-11 Regulation FD, Exhibits
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ABLP 2019-06-30
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a63019exhibit311.htm
EX-31.2 a63019exhibit312.htm
EX-32.1 a63019exhibit321.htm
EX-32.2 a63019exhibit322.htm

Alliancebernstein Earnings 2019-06-30

ABLP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ablp_20190630x10q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                         to
Commission File No.  000-29961
ALLIANCEBERNSTEIN L.P.
(Exact name of registrant as specified in its charter)
Delaware
 
13-4064930
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1345 Avenue of the Americas, New York, NY  10105
(Address of principal executive offices)
(Zip Code)
(212) 969-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
 
No
o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes
x
 
No
o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
 
Accelerated filer o
 
 
 
Non-accelerated filer x 
 
Smaller reporting company o
 
 
 
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
None
 
None
 
None

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
 
No
x
 
The number of units of limited partnership interest outstanding as of June 30, 2019 was 268,815,565.




ALLIANCEBERNSTEIN L.P.
Index to Form 10-Q

 
 
Page
 
 
 
 
Part I
 
 
 
 
 
FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Part II
 
 
 
 
 
OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 




Part I
FINANCIAL INFORMATION
Item 1. Financial Statements
ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(in thousands, except unit amounts)
(unaudited)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
710,335

 
$
640,206

Cash and securities segregated, at fair value (cost: $1,099,679 and $1,164,375)
1,109,589

 
1,169,554

Receivables, net:
 

 
 

Brokers and dealers
172,457

 
197,048

Brokerage clients
1,715,075

 
1,718,629

AB funds fees
191,216

 
217,470

Other fees
133,006

 
127,462

Investments:
 

 
 

Long-term incentive compensation-related
48,906

 
52,429

Other
175,797

 
661,915

Assets of consolidated company-sponsored investment funds:
 
 
 
   Cash and cash equivalents
10,665

 
13,118

   Investments
470,435

 
351,696

   Other assets
28,619

 
22,840

Furniture, equipment and leasehold improvements, net
146,616

 
155,519

Goodwill
3,076,926

 
3,066,700

Intangible assets, net
72,848

 
79,424

Deferred sales commissions, net
20,714

 
17,148

Right-of-use assets
398,966

 

Other assets
311,836

 
297,940

Total assets
$
8,794,006

 
$
8,789,098

 
 
 
 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
 

 
 

Liabilities:
 

 
 

Payables:
 

 
 

Brokers and dealers
$
263,603

 
$
290,960

Securities sold not yet purchased
5,404

 
8,623

Brokerage clients
2,686,086

 
3,095,458

AB mutual funds
72,058

 
74,599

Accounts payable and accrued expenses
229,606

 
412,313

Lease liabilities
515,664

 

Liabilities of consolidated company-sponsored investment funds
35,583

 
22,610

Accrued compensation and benefits
453,802

 
273,250

Debt
442,425

 
546,267

Total liabilities
4,704,231

 
4,724,080


1


 
June 30,
2019
 
December 31,
2018
 
 
 
 
Commitments and contingencies (See Note 12)


 


 
 
 
 
Redeemable non-controlling interest
215,634

 
148,809

 
 
 
 
Capital:
 

 
 

General Partner
40,016

 
40,240

Limited partners: 268,815,565 and 268,850,276 units issued and outstanding
4,053,360

 
4,075,306

Receivables from affiliates
(9,839
)
 
(11,430
)
AB Holding Units held for long-term incentive compensation plans
(100,453
)
 
(77,990
)
Accumulated other comprehensive loss
(109,963
)
 
(110,866
)
Partners’ capital attributable to AB Unitholders
3,873,121

 
3,915,260

Non-redeemable non-controlling interests in consolidated entities
1,020

 
949

Total capital
3,874,141

 
3,916,209

Total liabilities, redeemable non-controlling interest and capital
$
8,794,006

 
$
8,789,098

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

2


ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per unit amounts)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Investment advisory and services fees
 
$
596,364

 
$
598,108

 
$
1,152,958

 
$
1,172,224

Bernstein research services
 
105,991

 
106,211

 
196,226

 
220,611

Distribution revenues
 
108,347

 
105,118

 
208,856

 
213,122

Dividend and interest income
 
27,654

 
21,194

 
55,000

 
49,409

Investment gains (losses)
 
10,949

 
213

 
26,684

 
26,295

Other revenues
 
24,796

 
26,026

 
47,002

 
52,536

Total revenues
 
874,101

 
856,870

 
1,686,726

 
1,734,197

Less: Interest expense
 
16,302

 
12,132

 
33,465

 
21,672

Net revenues
 
857,799

 
844,738

 
1,653,261

 
1,712,525

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

Employee compensation and benefits
 
363,702

 
358,248

 
703,011

 
702,073

Promotion and servicing:
 
 
 
 
 
 

 
 

Distribution-related payments
 
116,254

 
106,301

 
222,247

 
216,455

Amortization of deferred sales commissions
 
3,241

 
6,113

 
6,743

 
12,711

Trade execution, marketing, T&E and other
 
57,550

 
59,259

 
107,198

 
113,302

General and administrative:
 
 
 
 
 
 

 
 

General and administrative
 
120,180

 
108,836

 
238,028

 
230,070

Real estate charges
 
548

 
6,909

 
548

 
6,645

Contingent payment arrangements
 
829

 
52

 
883

 
105

Interest on borrowings
 
3,990

 
2,629

 
7,973

 
5,241

Amortization of intangible assets
 
7,285

 
6,927

 
14,259

 
13,788

Total expenses
 
673,579

 
655,274

 
1,300,890

 
1,300,390

 
 
 
 
 
 
 
 
 
Operating income
 
184,220

 
189,464

 
352,371

 
412,135

 
 
 
 
 
 
 
 
 
Income taxes
 
10,211

 
7,538

 
19,132

 
23,363

 
 
 
 
 
 
 
 
 
Net income
 
174,009

 
181,926

 
333,239

 
388,772

 
 
 
 
 
 
 
 
 
Net income of consolidated entities attributable to non-controlling interests
 
7,757

 
261

 
17,873

 
22,911

 
 
 
 
 
 
 
 
 
Net income attributable to AB Unitholders
 
$
166,252

 
$
181,665

 
$
315,366

 
$
365,861

 
 
 
 
 
 
 
 
 
Net income per AB Unit:
 
 

 
 

 
 

 
 

Basic
 
$
0.61

 
$
0.66

 
$
1.17

 
$
1.34

Diluted
 
$
0.61

 
$
0.66

 
$
1.17

 
$
1.34


See Accompanying Notes to Condensed Consolidated Financial Statements.

3


ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net income
 
$
174,009

 
$
181,926

 
$
333,239

 
$
388,772

Other comprehensive income (loss):
 
 

 
 

 
 
 
 
Foreign currency translation adjustment, before reclassification and tax
 
(2,178
)
 
(20,656
)
 
452

 
(10,735
)
Less: reclassification adjustment for (losses) included in net income upon liquidation
 

 
(100
)
 

 
(100
)
Foreign currency translation adjustments, before tax
 
(2,178
)
 
(20,556
)
 
452

 
(10,635
)
Income tax expense
 
(73
)
 

 
(150
)
 

Foreign currency translation adjustments, net of tax
 
(2,251
)
 
(20,556
)
 
302

 
(10,635
)
Changes in employee benefit related items:
 
 

 
 

 
 
 
 
Amortization of prior service cost
 
6

 
5

 
12

 
11

Recognized actuarial gain
 
285

 
286

 
552

 
568

Changes in employee benefit related items
 
291

 
291

 
564

 
579

Income tax benefit (expense)
 
25

 
2

 
35

 
(116
)
Employee benefit related items, net of tax
 
316

 
293

 
599

 
463

  Other
 

 
374

 

 
374

Other comprehensive (loss) income
 
(1,935
)
 
(19,889
)
 
901

 
(9,798
)
Less: Comprehensive income in consolidated entities attributable to non-controlling interests
 
7,774

 
220

 
17,870

 
22,887

Comprehensive income attributable to AB Unitholders
 
$
164,300

 
$
161,817

 
$
316,270

 
$
356,087

 
See Accompanying Notes to Condensed Consolidated Financial Statements.


4


ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Partners' Capital
(in thousands)
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
General Partner’s Capital
 
 
 
 
 
 
 
Balance, beginning of period
$
39,403

 
$
41,218

 
$
40,240

 
$
41,221

Net income
1,663

 
1,816

 
3,154

 
3,658

Cash distributions to General Partner
(1,521
)
 
(2,191
)
 
(3,438
)
 
(4,670
)
Long-term incentive compensation plans activity
12

 
30

 
185

 
52

Issuance (retirement) of AB Units, net
459

 
16

 
(125
)
 
279

Impact of adoption of revenue recognition standard ASC 606

 

 

 
349

Other

 
(3
)
 

 
(3
)
Balance, end of period
40,016

 
40,886

 
40,016

 
40,886

Limited Partners' Capital
 
 
 
 
 
 
 
Balance, beginning of period
3,992,590

 
4,168,548

 
4,075,306

 
4,168,841

Net income
164,589

 
179,849

 
312,212

 
362,203

Cash distributions to Unitholders
(150,465
)
 
(216,558
)
 
(340,033
)
 
(461,852
)
Long-term incentive compensation plans activity
1,270

 
2,968

 
18,255

 
5,036

Issuance (retirement) of AB Units, net
45,376

 
1,513

 
(12,380
)
 
27,491

Impact of adoption of revenue recognition standard ASC 606

 

 

 
34,601

Other

 
(370
)
 

 
(370
)
Balance, end of period
4,053,360

 
4,135,950

 
4,053,360

 
4,135,950

Receivables from Affiliates
 
 
 
 
 
 
 
Balance, beginning of period
(11,666
)
 
(12,489
)
 
(11,430
)
 
(11,494
)
Capital contributions from General Partner

 

 

 
19

Compensation plan accrual

 

 

 
352

Long-term incentive compensation awards expense
227

 

 
692

 

Capital contributions from AB Holding
1,600

 
784

 
899

 
(582
)
Balance, end of period
(9,839
)
 
(11,705
)
 
(9,839
)
 
(11,705
)
AB Holding Units held for Long-term Incentive Compensation Plans
 
 
 
 
 
 
 
Balance, beginning of period
(69,503
)
 
(57,366
)
 
(77,990
)
 
(42,688
)
Purchases of AB Holding Units to fund long-term compensation plans, net
94

 
(32,737
)
 
(58,358
)
 
(34,864
)
(Issuance) retirement of AB Units, net
(45,860
)
 
(1,604
)
 
12,480

 
(27,875
)
Long-term incentive compensation awards expense
8,011

 
2,341

 
26,615

 
14,825

Re-valuation of AB Holding Units held in rabbi trust
113

 
1,049

 
(9,892
)
 
2,285

Other
6,692

 

 
6,692

 

Balance, end of period
(100,453
)
 
(88,317
)
 
(100,453
)
 
(88,317
)
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
Balance, beginning of period
(108,012
)
 
(84,066
)
 
(110,866
)
 
(94,140
)
Foreign currency translation adjustment, net of tax
(2,267
)
 
(20,516
)
 
304

 
(10,612
)
Changes in employee benefit related items, net of tax
316

 
293

 
599

 
463

Other

 
374

 

 
374

Balance, end of period
(109,963
)
 
(103,915
)
 
(109,963
)
 
(103,915
)

5


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Total Partners' Capital attributable to AB Unitholders
3,873,121

 
3,972,899

 
3,873,121

 
3,972,899

Non-redeemable Non-controlling Interests in Consolidated Entities
 

 
 

 
 
 
 

Balance, beginning of period
945

 
1,630

 
949

 
1,564

Net income
58

 
63

 
74

 
118

Foreign currency translation adjustment
17

 
(39
)
 
(3
)
 
(23
)
Distributions from non-controlling interests of our consolidated venture capital fund activities

 
5

 

 

Balance, end of period
1,020

 
1,659

 
1,020

 
1,659

Total Capital
$
3,874,141

 
$
3,974,558

 
$
3,874,141

 
$
3,974,558

See Accompanying Notes to Condensed Consolidated Financial Statements.


6



ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
333,239

 
$
388,772

 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Amortization of deferred sales commissions
6,743

 
12,711

Non-cash long-term incentive compensation expense
27,307

 
14,825

Depreciation and other amortization
83,997

 
35,626

Unrealized (gains) on investments
(16,724
)
 
(3,257
)
Unrealized (gains) on investments of consolidated company-sponsored investment funds
(32,173
)
 
(20,463
)
Other, net
11,537

 
(1,907
)
Changes in assets and liabilities:
 

 
 

Decrease (increase) in segregated cash and securities
59,965

 
(472,517
)
Decrease (increase) in receivables
43,325

 
(220,343
)
Decrease (increase) in investments
506,061

 
(59,219
)
(Increase) decrease in investments of consolidated company-sponsored investment funds
(86,566
)
 
965,121

(Increase) decrease in deferred sales commissions
(10,309
)
 
653

(Increase) in right-of-use assets
(577,992
)
 

(Increase) in other assets
(4,515
)
 
(108,751
)
Increase (decrease) in other assets and liabilities of consolidated company-sponsored investment funds, net
7,194

 
(663,910
)
(Decrease) increase in payables
(440,029
)
 
682,703

Increase in lease liabilities
516,918

 

(Decrease) in accounts payable and accrued expenses
(61,705
)
 
(10,141
)
Increase in accrued compensation and benefits
180,701

 
225,571

Net cash provided by operating activities
546,974

 
765,474

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchases of furniture, equipment and leasehold improvements
(11,276
)
 
(11,458
)
Acquisition of business, net of cash acquired
5,255

 

Net cash used in investing activities
(6,021
)
 
(11,458
)
 
 
 
 

7


 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from financing activities:
 

 
 

(Repayment) issuance of commercial paper, net
(85,888
)
 
20,058

Repayment of bank loans
(25,000
)
 
(75,000
)
(Decrease) in overdrafts payable
(19,144
)
 
(28,952
)
Distributions to General Partner and Unitholders
(343,471
)
 
(466,522
)
Subscriptions (redemptions) of investments in consolidated company-sponsored investment funds, net
49,026

 
(515,856
)
Capital contributions from (to) affiliates
495

 
(1,178
)
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units
8,951

 
8,340

Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net
(58,358
)
 
(34,864
)
Other
291

 

Net cash used in financing activities
(473,098
)
 
(1,093,974
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(179
)
 
(6,039
)
 
 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
67,676

 
(345,997
)
Cash and cash equivalents as of beginning of the period
653,324

 
998,448

Cash and cash equivalents as of end of the period
$
721,000

 
$
652,451

 
 
 
 
Non-cash investing activities:
 
 
 
Fair value of assets acquired (excluding cash acquired of $11.8 million)
$
28,966

 
$

Fair value of liabilities assumed
$
16,837

 
$

 
 
 
 
Non-cash financing activities:
 
 
 
Payables recorded under contingent payment arrangements
$
17,384

 
$

See Accompanying Notes to Condensed Consolidated Financial Statements.

8


ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2019
(unaudited)

The words “we” and “our” refer collectively to AllianceBernstein L.P. and its subsidiaries (“AB”), or to their officers and employees. Similarly, the word “company” refers to AB. These statements should be read in conjunction with AB’s audited consolidated financial statements included in AB’s Form 10-K for the year ended December 31, 2018.

1. Business Description Organization and Basis of Presentation

Business Description

We provide 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 private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and affiliates such as AXA S.A. ("AXA"), AXA Equitable Holdings, Inc. ("EQH") and their respective 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 retail clients, primarily by means of retail mutual funds sponsored by AB or an affiliated company, sub-advisory relationships with mutual funds sponsored by third parties, separately-managed account programs sponsored by financial intermediaries worldwide and other investment vehicles.

Private Wealth Management Services – servicing our private clients, including high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities, by means of separately-managed accounts, hedge funds, mutual funds and other investment vehicles.

Bernstein Research Services – servicing institutional investors, such as pension fund, hedge fund and mutual fund managers, seeking high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options.

We also provide distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds we sponsor.
 
Our high-quality, in-depth research is the foundation of our business.  Our research disciplines include economic, fundamental equity, fixed income and quantitative research.  In addition, we have experts focused on multi-asset strategies, wealth management and alternative investments.

We provide a broad range of investment services with expertise in:

Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and investment strategies, including value, growth and core equities;

Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;

Passive management, including index and enhanced index strategies;

Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct lending); and

Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds.

Our services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term (e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging markets, regional and local), in major markets around the world.

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Organization

During the second quarter of 2018, AXA completed the sale of a minority stake in EQH through an initial public offering ("IPO"). Since then, AXA has completed additional offerings, most recently during the second quarter of 2019. As a result, AXA owned 40.1% of the outstanding common stock of EQH as of June 30, 2019. As part of the latest offering, the underwriters exercised their over-allotment option resulting in AXA owning 38.9% of EQH as of July 8, 2019. AXA has announced its intention to sell its entire remaining interest in EQH over time, subject to market conditions and other factors. AXA is under no obligation to do so and retains the sole discretion to determine the timing of any future sales of shares of EQH common stock.

As of June 30, 2019, EQH owned approximately 4.2% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AllianceBernstein Holding L.P. (“AB Holding Units”). AllianceBernstein Corporation (an indirect wholly-owned subsidiary of EQH, “General Partner”) is the general partner of both AllianceBernstein Holding L.P. (“AB Holding”) and AB. AllianceBernstein Corporation owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB.

As of June 30, 2019, the ownership structure of AB, including limited partnership units outstanding as well as the general partner's 1% interest, was as follows:

EQH and its subsidiaries
63.7
%
AB Holding
35.6

Unaffiliated holders
0.7

 
100.0
%

Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate 65.2% economic interest in AB as of June 30, 2019.

Basis of Presentation

The interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the interim results, have been made. The preparation of the condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the interim reporting periods. Actual results could differ from those estimates. The condensed consolidated statement of financial condition as of December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The condensed consolidated financial statements include AB and its majority-owned and/or controlled subsidiaries, and the consolidated entities that are considered to be variable interest entities (“VIEs”) and voting interest entities (“VOEs”) in which AB has a controlling financial interest. Non-controlling interests on the condensed consolidated statements of financial condition include the portion of consolidated company-sponsored investment funds in which we do not have direct equity ownership. All significant inter-company transactions and balances among the consolidated entities have been eliminated.

Reclassification

During 2019, prior period amounts for revenues related to our middle market lending business have been reclassified from other revenues to investment advisory fees in the condensed consolidated statements of income to conform to the current period's presentation.

During 2019, prior period amounts for research and miscellaneous fees related to our brokers dealers previously presented as changes in other assets are now presented as changes in receivables; and certain income taxes payable and receivable as

10


well as deferred tax assets and liabilities previously presented as changes in payables are now presented as changes in other assets in the condensed consolidated statements of cash flows to conform to the current period's presentation.

2.
Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases. This pronouncement, along with subsequent ASUs issued to clarify certain provisions of ASU 2016-02 is now referred to as Accounting Standards Codification 842 ("ASC 842"). The standard requires a lessee to record most leases on its balance sheet while also disclosing key information about those lease arrangements. The classification criteria to distinguish between finance and operating leases are generally consistent with the classification criteria to distinguish between capital and operating leases under previous lease accounting guidance. We adopted this new standard on January 1, 2019 using the modified retrospective method. Prior comparable periods will not be adjusted under this method.
 
We applied several practical expedients offered by ASC 842 upon adoption of this standard. These included continuing to account for existing leases based on judgments made under legacy GAAP as it relates to determining classification of leases, unamortized initial direct costs and whether contracts are leases or contain leases. We also used a practical expedient to use hindsight in determining the lease terms (using knowledge and expectations as of the standard's adoption date instead of the previous assumptions under legacy GAAP) and evaluating impairment of our right-of-use assets in the transition period (using our most up-to-date information).
 
Adoption of this standard resulted in the recording of operating right-of-use assets and lease liabilities of $438.7 million and $574.5 million, respectively, and financing right-of-use assets and lease liabilities of $2.4 million as of January 1, 2019. The operating right-of-use assets recognized as of January 1, 2019 are net of deferred rent of $50.0 million and liabilities associated with previously recognized impairments of $85.8 million. See Note 13, Leases, for additional disclosures.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits a company to reclassify the disproportionate income tax effects of the 2017 Tax Cuts and Job Act ("2017 Tax Act") on items within Accumulated Other Comprehensive Income ("AOCI") to retained earnings. The FASB refers to these amounts as "stranded tax effects." The ASU also requires certain new disclosures, some of which are applicable for all companies. We adopted this standard on January 1, 2019. The adoption of this standard had no impact on our financial condition or results of operations.

Accounting Pronouncements Not Yet Adopted in 2019

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This new guidance relates to the accounting for credit losses on financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, with early adoption permitted. Management currently is evaluating the impact that adoption of this standard will have on our financial condition and results of operations.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. As a result of the revised guidance, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019 and will be applied prospectively. The revised guidance is not expected to have a material impact on our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendment modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The revised guidance is effective for all companies for fiscal years beginning after December 15, 2019, and interim periods within those years. Companies are permitted to early adopt any eliminated or modified disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The revised guidance is not expected to have a material impact on our financial condition or results of operations.

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In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20). The amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The revised guidance is effective for financial statements issued for fiscal years ending after December 15, 2020, with early adoption permitted. The revised guidance is not expected to have a material impact on our financial condition or results of operations.

Leases
We determine if an arrangement is a lease at inception. Both operating and finance leases are included in the right-of-use (“ROU”) assets and lease liabilities in our condensed consolidated statement of financial condition.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available as of the date we adopted ASC 842 in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised.

When calculating the measurement of ROU assets and lease liabilities, we utilize the fixed payments associated with the lease and do not include other variable contractual obligations, such as operating expenses, real estate taxes and employee parking. These costs are accounted for as period costs and expensed as incurred.

Additionally, we exclude any intangible assets such as software licensing agreements as stated in ASC 842-10-15-1. These arrangements will continue to follow the guidance of ASC 350, Intangibles - Goodwill and Other.

12


3. Revenue Recognition

Revenues for the three and six months ended June 30, 2019 and 2018 consisted of the following:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Subject to contracts with customers:
 
 
 
 
 
 
 
 
    Investment advisory and services fees
 
 
 
 
 
 
 
 
        Base fees
 
$
585,077

 
$
562,810

 
$
1,137,307

 
$
1,130,666

        Performance-based fees
 
11,287

 
35,298

 
15,651

 
41,558

    Bernstein research services
 
105,991

 
106,211

 
196,226

 
220,611

    Distribution revenues
 
 
 
 
 
 
 
 
        All-in-management fees
 
68,494

 
64,329

 
130,267

 
131,077

        12b-1 fees
 
20,182

 
22,075

 
39,768

 
44,609

        Other
 
19,671

 
18,714

 
38,821

 
37,436

    Other revenues
 
 
 
 
 
 
 
 
        Shareholder servicing fees
 
19,563

 
18,985

 
37,393

 
38,515

        Other
 
4,496

 
5,781

 
8,514

 
11,534

 
 
834,761

 
834,203

 
1,603,947

 
1,656,006

Not subject to contracts with customers:
 
 
 
 
 
 
 
 
    Dividend and interest income, net of interest
    expense
 
11,352

 
9,062

 
21,535

 
27,737

    Investment gains (losses)
 
10,949

 
213

 
26,684

 
26,295

    Other revenues
 
737

 
1,260

 
1,095

 
2,487

 
 
23,038

 
10,535

 
49,314

 
56,519

 
 
 
 
 
 
 
 
 
Total net revenues
 
$
857,799

 
$
844,738

 
$
1,653,261

 
$
1,712,525


4.
Long-term Incentive Compensation Plans

We maintain several unfunded, non-qualified long-term incentive compensation plans, under which we grant annual awards to employees, generally in the fourth quarter, and to members of the Board of Directors of the General Partner, who are not employed by our company or by any of our affiliates (“Eligible Directors”).

We fund our restricted AB Holding Unit awards either by purchasing AB Holding Units on the open market or purchasing newly-issued AB Holding Units from AB Holding, and then keeping all of these AB Holding Units in a consolidated rabbi trust until delivering them or retiring them. In accordance with the Amended and Restated Agreement of Limited Partnership of AB (“AB Partnership Agreement”), when AB purchases newly-issued AB Holding Units from AB Holding, AB Holding is required to use the proceeds it receives from AB to purchase the equivalent number of newly-issued AB Units, thus increasing its percentage ownership interest in AB. AB Holding Units held in the consolidated rabbi trust are corporate assets in the name of the trust and are available to the general creditors of AB.

During the six months ended June 30, 2019, we purchased 2.0 million AB Holding Units for $58.6 million (on a trade date basis). As there were no open-market purchases during the second quarter of 2019, these amounts reflect open-market purchases of 1.9 million AB Holding Units for $55.2 million during the three months ended March 31, 2019, with the remainder relating to purchases of AB Holding Units from employees to allow them to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards. During the three and six months ended June 30, 2018, AB purchased approximately 1.2 million and 1.2 million AB Holding Units for $32.9 million and $35.2 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 1.2 million AB Holding Units for $32.9 million during the second quarter of 2018 with the remainder relating to purchases of AB Holding Units from employees to allow them to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards. Purchases of AB Holding

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Units reflected on the condensed consolidated statements of cash flows are net of AB Holding Unit purchases by employees as part of a distribution reinvestment election.

Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. A plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker we select has the authority under the terms and limitations specified in the plan to repurchase AB Holding Units on our behalf in accordance with the terms of the plan. Repurchases are subject to regulations promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. There was no plan adopted during the first or second quarter of 2019. We may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes.

During the first six months of 2019 and 2018, we granted to employees and Eligible Directors 1.7 million and 2.4 million restricted AB Holding Unit awards, respectively. We used AB Holding Units repurchased during the periods and newly-issued AB Holding Units to fund these awards.

During the first six months of 2019 and 2018, AB Holding issued 0.4 million and 0.5 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $9.0 million and $8.3 million, respectively, received from employees as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.

5.
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 limited partnership units outstanding for each period. 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 diluted weighted average number of limited partnership units outstanding for each period.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands, except per unit amounts)
Net income attributable to AB Unitholders
 
$
166,252

 
$
181,665

 
$
315,366

 
$
365,861

 
 
 
 
 
 
 
 
 
Weighted average limited partnership units outstanding – basic
 
268,475

 
270,564

 
267,909

 
269,870

Dilutive effect of compensatory options to buy AB Holding Units
 
48

 
272

 
60

 
303

Weighted average limited partnership units outstanding – diluted
 
268,523

 
270,836

 
267,969

 
270,173

Basic net income per AB Unit
 
$
0.61

 
$
0.66

 
$
1.17

 
$
1.34

Diluted net income per AB Unit
 
$
0.61

 
$
0.66

 
$
1.17

 
$
1.34


For both the three and six months ended June 30, 2019, we excluded 29,056 options from the diluted net income computation due to their anti-dilutive effect. For the three and six months ended June 30, 2018 , we excluded 850,155 options and 1,211,906 options, respectively, from the diluted net income computation due to their anti-dilutive effect.

6. Cash Distributions

AB is required to distribute all of its Available Cash Flow, as defined in the AB Partnership Agreement, to its Unitholders and to the General Partner. Available Cash Flow can be summarized as the cash flow received by AB from operations minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB for use in its business, or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow.

Typically, Available Cash Flow has been the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available

14


Cash Flow will be based on adjusted diluted net income per unit, unless management determines, with the concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation.

On July 25, 2019, the General Partner declared a distribution of $0.63 per AB Unit, representing a distribution of Available Cash Flow for the three months ended June 30, 2019. 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 August 22, 2019 to holders of record on August 5, 2019.

7.
Cash and Securities Segregated Under Federal Regulations and Other Requirements

As of June 30, 2019 and December 31, 2018, $1.1 billion and $1.2 billion, respectively, of U.S. Treasury Bills were segregated in a special reserve bank custody account for the exclusive benefit of our brokerage customers under Rule 15c3-3 of the Exchange Act.

8.
Investments

Investments consist of:
 
 
 
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
U.S. Treasury Bills
$

 
$
392,424

Equity securities:
 
 
 
    Long-term incentive compensation-related
34,956

 
38,883

    Seed capital
84,947

 
105,951

    Other
14,917

 
73,409

Exchange-traded options
2,291

 
2,568

Investments in limited partnership hedge funds:
 

 
 

Long-term incentive compensation-related
13,950

 
13,546

Seed capital
52,881

 
67,153

Time deposits
8,487

 
8,783

Other
12,274

 
11,627

Total investments
$
224,703

 
$
714,344


Total investments related to long-term incentive compensation obligations of $48.9 million and $52.4 million as of June 30, 2019 and December 31, 2018, respectively, consist of company-sponsored mutual funds and hedge funds. For long-term incentive compensation awards granted before 2009, we typically made investments in company-sponsored mutual funds and hedge funds that were notionally elected by plan participants and maintained them (and continue to 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 AB.

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). These investments are valued at quoted market prices or, where quoted market prices are not available, are fair valued based on the pricing policies and procedures of the underlying funds.

We allocate seed capital to our investment teams to help develop new products and services for our clients. A portion of our seed capital investments are equity and fixed income products, primarily in the form of separately-managed account portfolios, U.S. mutual funds, Luxembourg funds, Japanese investment trust management funds or Delaware business trusts. We also may allocate seed capital to investments in private equity funds. In regard to our seed capital investments, the amounts above reflect those funds in which we are not the primary beneficiary of a VIE or hold a controlling financial interest in a VOE. See Note 14, Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidate. As of June 30, 2019 and December 31, 2018, our total seed capital investments were $398.9 million and $391.6 million, respectively. Seed capital investments in unconsolidated company-sponsored investment funds are valued using

15


published net asset values or non-published net asset values if they are not listed on an active exchange but have net asset values that are comparable to funds with published net asset values and have no redemption restrictions.

In addition, we also have long positions in corporate equities and long exchange-traded options traded through our options desk.

The portion of unrealized gains (losses) related to equity securities, as defined by ASC 321-10, held as of June 30, 2019 and 2018 were as follows:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Net gains recognized during the period
 
$
7,586

 
$
1,774

 
$
21,580

 
$
1,332

Less: net gains (losses) recognized during the period on equity securities sold during the period
 
1,409

 
(4,674
)
 
4,541

 
(1,779
)
Unrealized gains recognized during the period on equity securities held
 
$
6,177

 
$
6,448

 
$
17,039

 
$
3,111


9.
Derivative Instruments

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of derivative instruments held by our consolidated company-sponsored investment funds.

We enter into various futures, forwards, options and swaps to economically hedge certain seed capital investments.  Also, we have currency forwards that help us to economically hedge certain balance sheet exposures. In addition, our options desk trades long and short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging.

The notional value and fair value as of June 30, 2019 and December 31, 2018 for derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below) not designated as hedging instruments were as follows:

 
 
 
Fair Value
 
Notional Value
 
Asset Derivatives
 
Liability Derivatives
 
(in thousands)
June 30, 2019:
 
 
 
 
 
Exchange-traded futures
$
185,680

 
$
220

 
$
3,075

Currency forwards
90,925

 
7,116

 
7,241

Interest rate swaps
95,146

 
1,885

 
2,537

Credit default swaps
150,244

 
2,211

 
5,832

Total return swaps
98,083

 
39

 
2,644

Total derivatives
$
620,078

 
$
11,471

 
$
21,329

 
 
 
 
 
 
December 31, 2018:
 
 
 
 
 
Exchange-traded futures
$
218,657

 
$
1,594

 
$
2,534

Currency forwards
87,019

 
7,647

 
7,582

Interest rate swaps
112,658

 
1,649

 
1,959

Credit default swaps
94,657

 
2,888

 
2,685

Total return swaps
99,038

 
3,301

 
62

Total derivatives
$
612,029

 
$
17,079

 
$
14,822



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As of June 30, 2019 and December 31, 2018, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our condensed consolidated statements of financial condition.

The gains and losses for derivative instruments (excluding our options desk trading activities discussed below) for the three and six months ended June 30, 2019 and 2018 recognized in investment gains (losses) in the condensed consolidated statements of income were as follows:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Exchange-traded futures
 
$
(3,436
)
 
$
717

 
$
(8,551
)
 
$
1,542

Currency forwards
 
(75
)
 
257

 
(115
)
 
274

Interest rate swaps
 
(331
)
 
(7
)
 
(645
)
 
267

Credit default swaps
 
(1,465
)
 
(169
)
 
(3,805
)
 
(95
)
Total return swaps
 
(3,810
)
 
(1,217
)
 
(15,766
)
 
(40
)
Net (losses) gains on derivative instruments
 
$
(9,117
)
 
$
(419
)
 
$
(28,882
)
 
$
1,948


We may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We minimize our counterparty exposure through a credit review and approval process. In addition, we have executed various collateral arrangements with counterparties to the over-the-counter derivative transactions that require both pledging and accepting collateral in the form of cash. As of June 30, 2019 and December 31, 2018, we held $0.3 million and $4.8 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our condensed consolidated statements of financial condition.

Although notional amount is the most commonly used measure of volume in the derivative market, it is not used as a measure of credit risk. Generally, the current credit exposure of our derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received. A derivative with positive value (a derivative asset) indicates existence of credit risk because the counterparty would owe us if the contract were closed. Alternatively, a derivative contract with negative value (a derivative liability) indicates we would owe money to the counterparty if the contract were closed. Generally, if there is more than one derivative transaction with a single counterparty, a master netting arrangement exists with respect to derivative transactions with that counterparty to provide for aggregate net settlement.

Certain of our standardized contracts for over-the-counter derivative transactions (“ISDA Master Agreements”) contain credit risk related contingent provisions pertaining to each counterparty’s credit rating. In some ISDA Master Agreements, if the counterparty’s credit rating, or in some agreements, our assets under management (“AUM”), falls below a specified threshold, either a default or a termination event permitting the counterparty to terminate the ISDA Master Agreement would be triggered. In all agreements that provide for collateralization, various levels of collateralization of net liability positions are applicable, depending on the credit rating of the counterparty. As of June 30, 2019 and December 31, 2018, we delivered $6.9 million and $4.5 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our condensed consolidated statements of financial condition.

As of June 30, 2019 and December 31, 2018, we held $2.3 million and $2.6 million, respectively, of long exchange-traded equity options, which are included in other investments on our condensed consolidated statements of financial condition. In addition, as of June 30, 2019 and December 31, 2018, we held $2.2 million and $3.8 million, respectively, of short exchange-traded equity options, which are included in securities sold not yet purchased on our condensed consolidated statements of financial condition. Our options desk provides our clients with equity derivative strategies and execution for exchange-traded options on single stocks, exchange-traded funds and indices. While predominately agency-based, the options desk may commit capital to facilitate a client’s transaction. Our options desk hedges the risks associated with this activity by taking offsetting positions in equities. For the three and six months ended June 30, 2019, we recognized $3.5 million and $11.1 million, respectively, of losses on equity option activity. For the three and six months ended June 30, 2018, we recognized $4.7 million and $8.9 million, respectively, of losses on equity options activity. These losses are recognized in investment gains (losses) in the condensed consolidated statements of income.

17


10.
Offsetting Assets and Liabilities

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of offsetting assets and liabilities of our consolidated company-sponsored investment funds.

Offsetting of assets as of June 30, 2019 and December 31, 2018 was as follows:
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Condition
 
Net Amounts of Assets Presented in the Statement of Financial Condition
 
Financial
Instruments
 
Cash Collateral
Received
 
Net
Amount
 
(in thousands)
June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
Securities borrowed
$
70,481

 
$

 
$
70,481

 
$
(69,582
)
 
$

 
$
899

Derivatives
$
11,471

 
$

 
$
11,471

 
$

 
$
(280
)
 
$
11,191

Long exchange-traded options
$
2,291

 
$

 
$
2,291

 
$

 
$

 
$
2,291

December 31, 2018:
 

 
 

 
 

 
 

 
 

 
 

Securities borrowed
$
64,856

 
$

 
$
64,856

 
$
(64,217
)
 
$

 
$
639

Derivatives
$
17,079

 
$

 
$
17,079

 
$

 
$
(4,831
)
 
$
12,248

Long exchange-traded options
$
2,568

 
$

 
$
2,568

 
$

 
$

 
$
2,568

       
Offsetting of liabilities as of June 30, 2019 and December 31, 2018 was as follows:
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Condition
 
Net Amounts of Liabilities Presented in the Statement of Financial Condition
 
Financial
Instruments
 
Cash Collateral
Pledged
 
Net Amount
 
(in thousands)
June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
Securities loaned
$

 
$

 
$

 
$

 
$

 
$

Derivatives
$
21,329

 
$

 
$
21,329

 
$

 
$
(6,881
)
 
$
14,448

Short exchange-traded options
$
2,177

 
$

 
$
2,177

 
$

 
$

 
$
2,177

December 31, 2018:
 

 
 

 
 

 
 

 
 

 
 

Securities loaned
$
59,526

 
$

 
$
59,526

 
$
(59,526
)
 
$

 
$

Derivatives
$
14,822

 
$

 
$
14,822

 
$

 
$
(4,458
)
 
$
10,364

Short exchange-traded options
$
3,782

 
$

 
$
3,782

 
$

 
$

 
$
3,782


Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty.

18


11.
Fair Value

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of fair value of our consolidated company-sponsored investment funds.

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 and Liabilities Measured at Fair Value on a Recurring Basis

Valuation of our financial instruments by pricing observability levels as of June 30, 2019 and December 31, 2018 was as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
NAV Expedient(1)
 
Other
 
Total
June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
Money markets
$
114,136

 
$

 
$

 
$

 
$

 
$
114,136

Securities segregated (U.S. Treasury Bills)

 
1,109,589

 

 

 

 
1,109,589

Derivatives
220

 
11,251

 

 

 

 
11,471

Investments
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury Bills

 

 

 

 

 

  Equity securities
126,007

 
8,378

 
117

 
318

 

 
134,820

Long exchange-traded options
2,291

 

 

 

 

 
2,291

   Limited partnership hedge funds(2)

 

 

 

 
66,831

 
66,831

   Time deposits(3)

 

 

 

 
8,487

 
8,487

   Other investments
5,374

 

 

 

 
6,900

 
12,274

Total investments
133,672

 
8,378

 
117

 
318

 
82,218

 
224,703

Total assets measured at fair value
$
248,028

 
$
1,129,218

 
$
117

 
$
318

 
$
82,218

 
$
1,459,899

 
 
 
 
 
 
 
 
 
 
 
 
Securities sold not yet purchased
 

 
 

 
 

 
 
 
 
 
 

Short equities – corporate
$
3,227

 
$

 
$

 
$

 
$

 
$
3,227

Short exchange-traded options
2,177

 

 

 

 

 
2,177

Derivatives
3,075

 
18,254

 

 

 

 
21,329

Contingent payment arrangements

 

 
25,603

 

 

 
25,603

Total liabilities measured at fair value
$
8,479

 
$
18,254

 
$
25,603

 
$

 
$

 
$
52,336