Company Quick10K Filing
Quick10K
Alliancebernstein
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 2019-06-21 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
BBY Best Buy 19,360
ECA Encana 9,700
SLG SL Green Realty 7,090
SLGL Sol-Gel Technologies 136
EPSN Epsilon Energy 108
KODK Eastman Kodak 106
MHLD Maiden Holdings 59
APVO Aptevo Therapeutics 35
QRON Qrons 0
ASNS Arsanis 0
ABLP 2019-03-31
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 a33119exhibit311.htm
EX-31.2 a33119exhibit312.htm
EX-32.1 a33119exhibit321.htm
EX-32.2 a33119exhibit322.htm

Alliancebernstein Earnings 2019-03-31

ABLP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ablp_20190331x10q.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 March 31, 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



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 March 31, 2019 was 267,186,102.




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)
 
March 31,
2019
 
December 31,
2018
 
 
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
754,455

 
$
640,206

Cash and securities segregated, at fair value (cost: $1,253,200 and $1,164,375)
1,262,178

 
1,169,554

Receivables, net:
 

 
 

Brokers and dealers
207,437

 
197,048

Brokerage clients
1,617,628

 
1,718,629

AB funds fees
216,239

 
217,470

Other fees
122,065

 
127,462

Investments:
 

 
 

Long-term incentive compensation-related
49,717

 
52,429

Other
225,476

 
661,915

Assets of consolidated company-sponsored investment funds:
 
 
 
   Cash and cash equivalents
7,767

 
13,118

   Investments
385,309

 
351,696

   Other assets
26,190

 
22,840

Furniture, equipment and leasehold improvements, net
149,847

 
155,519

Goodwill
3,066,700

 
3,066,700

Intangible assets, net
72,014

 
79,424

Deferred sales commissions, net
16,821

 
17,148

Right-of-use assets
421,277

 

Other assets
257,718

 
297,940

Total assets
$
8,858,838

 
$
8,789,098

 
 
 
 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
 

 
 

Liabilities:
 

 
 

Payables:
 

 
 

Brokers and dealers
$
187,233

 
$
290,960

Securities sold not yet purchased
5,343

 
8,623

Brokerage clients
3,000,596

 
3,095,458

AB mutual funds
57,057

 
74,599

Accounts payable and accrued expenses
181,377

 
412,313

Lease liabilities
541,170

 

Liabilities of consolidated company-sponsored investment funds
29,648

 
22,610

Accrued compensation and benefits
313,526

 
273,250

Debt
540,258

 
546,267

Total liabilities
4,856,208

 
4,724,080


1


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


 


 
 
 
 
Redeemable non-controlling interest
158,873

 
148,809

 
 
 
 
Capital:
 

 
 

General Partner
39,403

 
40,240

Limited partners: 267,186,102 and 268,850,276 units issued and outstanding
3,992,590

 
4,075,306

Receivables from affiliates
(11,666
)
 
(11,430
)
AB Holding Units held for long-term incentive compensation plans
(69,503
)
 
(77,990
)
Accumulated other comprehensive loss
(108,012
)
 
(110,866
)
Partners’ capital attributable to AB Unitholders
3,842,812

 
3,915,260

Non-redeemable non-controlling interests in consolidated entities
945

 
949

Total capital
3,843,757

 
3,916,209

Total liabilities, redeemable non-controlling interest and capital
$
8,858,838

 
$
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 March 31,
 
 
2019
 
2018
Revenues:
 
 
 
 
Investment advisory and services fees
 
$
556,594

 
$
574,116

Bernstein research services
 
90,235

 
114,400

Distribution revenues
 
100,509

 
108,004

Dividend and interest income
 
27,346

 
28,215

Investment gains (losses)
 
15,735

 
26,082

Other revenues
 
22,206

 
26,510

Total revenues
 
812,625

 
877,327

Less: Interest expense
 
17,163

 
9,540

Net revenues
 
795,462

 
867,787

 
 
 
 
 
Expenses:
 
 

 
 

Employee compensation and benefits
 
339,309

 
343,825

Promotion and servicing:
 
 

 
 

Distribution-related payments
 
105,993

 
110,154

Amortization of deferred sales commissions
 
3,502

 
6,598

Trade execution, marketing, T&E and other
 
49,648

 
54,043

General and administrative:
 
 

 
 

General and administrative
 
117,848

 
121,234

Real estate (credit) charges
 

 
(264
)
Contingent payment arrangements
 
54

 
53

Interest on borrowings
 
3,983

 
2,612

Amortization of intangible assets
 
6,974

 
6,861

Total expenses
 
627,311

 
645,116

 
 
 
 
 
Operating income
 
168,151

 
222,671

 
 
 
 
 
Income taxes
 
8,921

 
15,825

 
 
 
 
 
Net income
 
159,230

 
206,846

 
 
 
 
 
Net income of consolidated entities attributable to non-controlling interests
 
10,116

 
22,650

 
 
 
 
 
Net income attributable to AB Unitholders
 
$
149,114

 
$
184,196

 
 
 
 
 
Net income per AB Unit:
 
 

 
 

Basic
 
$
0.55

 
$
0.68

Diluted
 
$
0.55

 
$
0.68


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 March 31,
 
 
2019
 
2018
 
 
 
 
 
Net income
 
$
159,230

 
$
206,846

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment, before tax
 
2,630

 
9,921

Income tax expense
 
(77
)
 

Foreign currency translation adjustments, net of tax
 
2,553

 
9,921

Changes in employee benefit related items:
 
 
 
 
Amortization of prior service cost
 
6

 
6

Recognized actuarial gain
 
267

 
282

Changes in employee benefit related items
 
273

 
288

Income tax benefit (expense)
 
10

 
(118
)
Employee benefit related items, net of tax
 
283

 
170

Other comprehensive income
 
2,836

 
10,091

Less: Comprehensive income in consolidated entities attributable to non-controlling interests
 
10,096

 
22,667

Comprehensive income attributable to AB Unitholders
 
$
151,970

 
$
194,270

 
See Accompanying Notes to Condensed Consolidated Financial Statements.


4



ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
159,230

 
$
206,846

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

 
 

Amortization of deferred sales commissions
3,502

 
6,598

Non-cash long-term incentive compensation expense
19,070

 
12,484

Depreciation and other amortization
41,892

 
17,737

Unrealized (gains) losses on investments
(10,543
)
 
3,239

Unrealized (gains) on investments of consolidated company-sponsored investment funds
(21,930
)
 
(23,393
)
Other, net
6,246

 
(2,885
)
Changes in assets and liabilities:
 

 
 

(Increase) in segregated cash and securities
(92,624
)
 
(208,179
)
Decrease (increase) in receivables
97,411

 
(145,051
)
Decrease in investments
449,556

 
35,028

(Increase) in investments of consolidated company-sponsored investment funds
(11,683
)
 
(686,794
)
(Increase) decrease in deferred sales commissions
(3,175
)
 
348

(Increase) in right-of-use assets
(577,842
)
 

Decrease (increase) in other assets
38,685

 
(62,304
)
Decrease in other assets and liabilities of consolidated company-sponsored investment funds, net
3,688

 
515,678

(Decrease) increase in payables
(222,472
)
 
425,449

Increase in lease liabilities
541,928

 

(Decrease) increase in accounts payable and accrued expenses
(29,114
)
 
3,900

Increase in accrued compensation and benefits
40,644

 
66,012

Net cash provided by operating activities
432,469

 
164,713

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchases of furniture, equipment and leasehold improvements
(5,567
)
 
(5,440
)
Net cash used in investing activities
(5,567
)
 
(5,440
)
 
 
 
 

5


 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from financing activities:
 

 
 

Issuance (repayment) of commercial paper, net
15,459

 
(3,069
)
Repayment of bank loans
(25,000
)
 
(75,000
)
(Decrease) increase in overdrafts payable
(65,352
)
 
7,410

Distributions to General Partner and Unitholders
(191,485
)
 
(247,773
)
(Redemptions) subscriptions of investments in consolidated company-sponsored investment funds, net
(36
)
 
372,785

Capital contributions to affiliates
(932
)
 
(1,677
)
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units
7,382

 
4,009

Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net
(58,452
)
 
(2,128
)
Other
(228
)
 
16

Net cash (used in) provided by financing activities
(318,644
)
 
54,573

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
640

 
8,261

 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
108,898

 
222,107

Cash and cash equivalents as of beginning of the period
653,324

 
998,448

Cash and cash equivalents as of end of the period
$
762,222

 
$
1,220,555

 
 
 
 
See Accompanying Notes to Condensed Consolidated Financial Statements.

6


ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 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.

7



Organization

During 2017, AXA announced its intention to pursue the sale of a minority stake in EQH through an initial public offering ("IPO"). During the second quarter of 2018, AXA completed the IPO. Since then, AXA has completed two additional offerings, most recently during the first quarter of 2019. As a result, AXA owns 48.3% of the outstanding common stock of EQH as of March 31, 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 March 31, 2019, EQH owns 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 March 31, 2019, the ownership structure of AB, including limited partnership units outstanding as well as the general partner's 1% interest, is as follows:

EQH and its subsidiaries
64.0
%
AB Holding
35.2

Unaffiliated holders
0.8

 
100.0
%

Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate 65.6% economic interest in AB as of March 31, 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 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.

8


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. The guidance is effective for all companies for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Companies may adopt the new guidance using one of two transition methods: (1) retrospective to each period (or periods) in which the income tax effect of the 2017 Tax Act related to items remaining in AOCI are recognized, or (2) at the beginning of the period of adoption. We adopted this standard on January 1, 2019. The adoption of this standard did not have an impact on our financial condition or results of operations.

Accounting Pronouncements Not Yet Adopted in 2019

In June 2016, the FASB issued ASU 2016-03, 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 revised guidance will be applied prospectively, and is effective in 2020. 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.


9


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 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 at adoption date 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 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.

10



3. Revenue Recognition

Revenues for the three months ended March 31, 2019 and 2018 consisted of the following:

 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in thousands)
Subject to contracts with customers:
 
 
 
 
    Investment advisory and services fees
 
 
 
 
        Base fees
 
$
552,230

 
$
567,856

        Performance-based fees
 
4,364

 
6,260

    Bernstein research services
 
90,235

 
114,400

    Distribution revenues
 
 
 
 
        All-in-management fees
 
61,773

 
66,748

        12b-1 fees
 
19,586

 
22,534

        Other
 
19,150

 
18,722

    Other revenues
 
 
 
 
        Shareholder servicing fees
 
17,830

 
19,530

        Other
 
4,018

 
5,753

 
 
769,186

 
821,803

Not subject to contracts with customers:
 
 
 
 
    Dividend and interest income, net of interest expense
 
10,183

 
18,675

    Investment gains (losses)
 
15,735

 
26,082

    Other revenues
 
358

 
1,227

 
 
26,276

 
45,984

 
 
 
 
 
Total net revenues
 
$
795,462

 
$
867,787


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 three months ended March 31, 2019 and 2018, we purchased 2.0 million and 0.1 million AB Holding Units for $58.6 million and $2.3 million, respectively (on a trade date basis). The 2019 amounts reflect open-market purchases of 1.9 million AB Holding Units for $55.2 million, 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. There were no open-market purchases during the first quarter of 2018. Purchases of AB Holding 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.


11


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. The plan adopted during the fourth quarter of 2018 expired at the close of business on February 12, 2019. There was no plan adopted during the first 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 three months of 2019 and 2018, we granted to employees and Eligible Directors 0.1 million and 0.7 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 three months of 2019 and 2018, AB Holding issued 0.3 million and 0.2 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $7.4 million and $4.0 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 March 31,
 
 
2019
 
2018
 
 
(in thousands, except per unit amounts)
Net income attributable to AB Unitholders
 
$
149,114

 
$
184,196

 
 
 
 
 
Weighted average limited partnership units outstanding – basic
 
267,336

 
269,184

Dilutive effect of compensatory options to buy AB Holding Units
 
72

 
336

Weighted average limited partnership units outstanding – diluted
 
267,408

 
269,520

Basic net income per AB Unit
 
$
0.55

 
$
0.68

Diluted net income per AB Unit
 
$
0.55

 
$
0.68


For the three months ended March 31, 2019 and 2018, we excluded 29,056 and 1,225,731 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 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 April 25, 2019, the General Partner declared a distribution of $0.56 per AB Unit, representing a distribution of Available Cash Flow for the three months ended March 31, 2019. The General Partner, as a result of its 1% general partnership interest,

12


is entitled to receive 1% of each distribution. The distribution is payable on May 16, 2019 to holders of record on May 6, 2019.

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

As of March 31, 2019 and December 31, 2018, $1.3 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:
 
 
 
 
March 31,
2019
 
December 31,
2018
 
(in thousands)
U.S. Treasury Bills
$

 
$
392,424

Equity securities:
 
 
 
    Long-term incentive compensation-related
36,137

 
38,883

    Seed capital
84,697

 
105,951

    Other
53,193

 
73,409

Exchange-traded options
3,046

 
2,568

Investments in limited partnership hedge funds:
 

 
 

Long-term incentive compensation-related
13,580

 
13,546

Seed capital
63,723

 
67,153

Time deposits
8,634

 
8,783

Other
12,183

 
11,627

Total investments
$
275,193

 
$
714,344


Total investments related to long-term incentive compensation obligations of $49.7 million and $52.4 million as of March 31, 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 March 31, 2019 and December 31, 2018, our total seed capital investments were $381.4 million and $391.6 million, respectively. Seed capital investments in unconsolidated company-sponsored investment funds are valued using 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.


13


The portion of unrealized gains (losses) related to equity securities, as defined by ASC 321-10, held as of March 31, 2019 and 2018 were as follows:

 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in thousands)
Net gains (losses) recognized during the period
 
$
13,994

 
$
(442
)
Less: net gains recognized during the period on equity securities sold during the period
 
3,132

 
2,895

Unrealized gains (losses) recognized during the period on equity securities held
 
$
10,862

 
$
(3,337
)

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 March 31, 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)
March 31, 2019:
 
 
 
 
 
Exchange-traded futures
$
168,743

 
$
231

 
$
1,672

Currency forwards
57,539

 
7,044

 
6,960

Interest rate swaps
99,922

 
1,391

 
1,815

Credit default swaps
96,504

 
1,347

 
3,481

Total return swaps
92,706

 
41

 
462

Total derivatives
$
515,414

 
$
10,054

 
$
14,390

 
 
 
 
 
 
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


As of March 31, 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.


14


The gains and losses for derivative instruments (excluding our options desk trading activities discussed below) for the three months ended March 31, 2019 and 2018 recognized in investment gains (losses) in the condensed consolidated statements of income were as follows:

 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in thousands)
Exchange-traded futures
 
$
(5,115
)
 
$
825

Currency forwards
 
(40
)
 
17

Interest rate swaps
 
(314
)
 
274

Credit default swaps
 
(2,340
)
 
74

Total return swaps
 
(11,956
)
 
1,177

Net (losses) gains on derivative instruments
 
$
(19,765
)
 
$
2,367


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 March 31, 2019 and December 31, 2018, we held $1.1 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 March 31, 2019 and December 31, 2018, we delivered $3.7 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 March 31, 2019 and December 31, 2018, we held $3.0 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 March 31, 2019 and December 31, 2018, we held $2.9 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 months ended March 31, 2019 and 2018, we recognized $7.6 million and $4.2 million, respectively, of losses on equity options activity. These losses are recognized in investment gains (losses) in the condensed consolidated statements of income.

15


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 March 31, 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)
March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Securities borrowed
$
55,031

 
$

 
$
55,031

 
$
(54,249
)
 
$

 
$
782

Derivatives
$
10,054

 
$

 
$
10,054

 
$

 
$
(1,141
)
 
$
8,913

Long exchange-traded options
$
3,046

 
$

 
$
3,046

 
$

 
$

 
$
3,046

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 March 31, 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)
March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Securities loaned
$

 
$

 
$

 
$

 
$

 
$

Derivatives
$
14,390

 
$

 
$
14,390

 
$

 
$
(3,655
)
 
$
10,735

Short exchange-traded options
$
2,878

 
$

 
$
2,878

 
$

 
$

 
$
2,878

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.

16


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 March 31, 2019 and December 31, 2018 was as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
NAV Expedient(1)
 
Other
 
Total
March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Money markets
$
93,286

 
$

 
$

 
$

 
$

 
$
93,286

Securities segregated (U.S. Treasury Bills)

 
1,262,178

 

 

 

 
1,262,178

Derivatives
231

 
9,823

 

 

 

 
10,054

Investments
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury Bills

 

 

 

 

 

  Equity securities
167,346

 
6,248

 
115

 
318

 

 
174,027

Long exchange-traded options
3,046

 

 

 

 

 
3,046

   Limited partnership hedge funds(2)

 

 

 

 
77,303

 
77,303

   Time deposits(3)

 

 

 

 
8,634

 
8,634

   Other investments
5,028

 

 

 

 
7,155

 
12,183

Total investments
175,420

 
6,248

 
115

 
318

 
93,092

 
275,193

Total assets measured at fair value
$
268,937

 
$
1,278,249

 
$
115

 
$
318

 
$
93,092

 
$
1,640,711

 
 
 
 
 
 
 
 
 
 
 
 
Securities sold not yet purchased
 

 
 

 
 

 
 
 
 
 
 

Short equities – corporate
$
2,465

 
$

 
$

 
$

 
$

 
$
2,465

Short exchange-traded options
2,878

 

 

 

 

 
2,878

Derivatives
1,672

 
12,718

 

 

 

 
14,390

Contingent payment arrangements

 

 
7,390

 

 

 
7,390

Total liabilities measured at fair value
$
7,015

 
$
12,718

 
$
7,390

 
$

 
$

 
$
27,123

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

17


 
Level 1
 
Level 2
 
Level 3
 
NAV Expedient(1)
 
Other
 
Total
December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
Money markets
$
102,888

 
$

 
$

 
$

 
$

 
$
102,888

Securities segregated (U.S. Treasury Bills)

 
1,169,554

 

 

 

 
1,169,554

Derivatives
1,594

 
15,485

 

 

 

 
17,079

Investments
 
 
 
 
 
 
 
 
 
 
 
  U.S. Treasury Bills

 
392,424

 

 

 

 
392,424

  Equity securities
209,414

 
8,372

 
142

 
315

 

 
218,243

  Long exchange-traded options
2,568

 

 

 

 

 
2,568

    Limited partnership hedge funds(2)

 

 

 

 
80,699

 
80,699

    Time deposits(3)

 

 

 

 
8,783

 
8,783

    Other investments
4,269

 

 

 

 
7,358

 
11,627

Total investments
216,251

 
400,796

 
142

 
315

 
96,840

 
714,344

Total assets measured at fair value
$
320,733

 
$
1,585,835

 
$
142

 
$
315

 
$
96,840

 
$
2,003,865

 
 
 
 
 
 
 
 
 
 
 
 
Securities sold not yet purchased
 

 
 

 
 

 
 
 
 
 
 

Short equities – corporate
$
4,841

 
$

 
$

 
$

 
$

 
$
4,841

Short exchange-traded options
3,782

 

 

 

 

 
3,782

Derivatives
2,534

 
12,288

 

 

 

 
14,822

Contingent payment arrangements

 

 
7,336

 

 

 
7,336

Total liabilities measured at fair value
$
11,157


$
12,288


$
7,336


$

 
$

 
$
30,781


(1) Investments measured at fair value using NAV (or its equivalent) as a practical expedient.
(2) Investments in equity method investees that are not measured at fair value in accordance with GAAP.
(3) Investments carried at amortized cost that are not measured at fair value in accordance with GAAP.

Other investments include (i) an investment in a start-up company that does not have a readily available fair value ($0.9 million as of March 31, 2019 and December 31, 2018), (ii) an investment in an equity method investee that is not measured at fair value in accordance with GAAP ($2.9 million as of March 31, 2019 and $3.4 million as of December 31, 2018), and (iii) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($3.3 million as of March 31, 2019 and $3.1 million as of December 31, 2018).
We provide below 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:

Money markets: 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.

Treasury Bills: We hold U.S. Treasury Bills, which are primarily 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.

Equity securities: Our equity securities consist principally of company-sponsored mutual funds with NAVs and various separately-managed portfolios consisting primarily of equity and fixed income mutual funds with quoted prices in active markets, which are included in Level 1 of the valuation hierarchy. In addition, some securities are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.

Derivatives: We hold exchange-traded futures with counterparties that are included in Level 1 of the valuation hierarchy. In addition, we also hold currency forward contracts, interest rate swaps, credit default swaps, option swaps and total

18


return swaps with counterparties that are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.

•    Options: We hold long exchange-traded options that are included in Level 1 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.

Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.
During the three months ended March 31, 2019, we had a transfer of $3.2 million from Level 2 to Level 1; there was no transfer between Level 2 and Level 3 securities.
The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as private equity and equity securities, is as follows:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in thousands)
Balance as of beginning of period
 
$
142

 
$
1,071

Purchases
 

 

Sales
 

 

Realized gains (losses), net
 

 

Unrealized gains (losses), net
 
(27
)
 

Balance as of end of period
 
$
115

 
$
1,071


Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the condensed consolidated statements of income.

As of March 31, 2018, we had an investment in a private equity fund focused exclusively on the energy sector (fair value of $1.0 million) that was classified as Level 3 and written off during the second quarter of 2018.This investment's valuation was based on a market approach, considering recent transactions in the fund and the industry.
We acquired Ramius Alternative Solutions LLC in 2016, which included contingent consideration arrangements as part of the purchase price. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in thousands)
Balance as of beginning of period
 
$
7,336

 
$
10,855

Accretion
 
54

 
53

Payments
 

 

Balance as of end of period
 
$
7,390

 
$
10,908


During 2018, we amended the contingent payment relating to our 2016 acquisition by modifying the earnout structure and extending it one year. As part of this amendment, we recorded a change in estimate and wrote off $2.4 million related to the contingent consideration in the fourth quarter. As of March 31, 2019 and December 31, 2018, the acquisition-related contingent liability with a fair value of $7.4 million and $7.3 million, respectively, remains relating to our 2016 acquisition, which was valued using a revenue growth rate of 18% and a discount rate ranging from 3.2% to 3.7%.

19


Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We did not have any material assets or liabilities that were measured at fair value for impairment on a nonrecurring basis during the three months ended March 31, 2019 or during the year ended December 31, 2018.

12.
Commitments and Contingencies

Legal Proceedings

With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected outcome of the litigation. 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 in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages. Such is also the case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose that we are unable to predict the outcome or estimate a possible loss or range of loss.

AB may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which may allege significant damages. It is reasonably possible that we could incur losses pertaining to these matters, but we cannot currently estimate any such losses.

Management, after consultation with legal counsel, currently believes that the outcome of any individual matter that is pending or threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or liquidity. However, any inquiry, proceeding or litigation has an element of uncertainty; management cannot determine whether further developments relating to any individual matter that is pending or threatened, or all of them combined, will have a material adverse effect on our results of operation, financial condition or liquidity in any future reporting period.
13.
Leases

We lease office space, furniture and office equipment under various operating and financing leases. Our current leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.
Since 2010, we have sub-leased over one million square feet of office space. The liability relating to our global space consolidation initiatives was $85.8 million as of December 31, 2018 ("Liability"). Upon adoption of ASC 842 on January 1, 2019, we recorded the Liability as a reduction to our operating right-of-use assets.
Leases included in the condensed consolidated statement of financial condition as of March 31, 2019 were as follows:
 
Classification
 
March 31, 2019
 
 
 
(in thousands)
Operating Leases
 
 
 
Operating lease right-of-use assets
Right-of-use assets
 
$
419,247

Operating lease liabilities
Lease liabilities
 
539,096

 
 
 
 
Finance Leases
 
 
 
Property and equipment, gross
Right-of-use assets
 
2,356

Accumulated depreciation
Right-of-use assets
 
(286
)
Property and equipment, net
 
 
2,070

Finance lease liabilities
Lease liabilities
 
2,074


20


The components of lease expense included in the condensed consolidated statement of income as of March 31, 2019 were as follows:
 
 
 
Three Months Ended March 31,
 
Classification
 
2019
 
 
 
(in thousands)
Operating lease cost
General and administrative
 
$
27,141

 
 
 
 
Financing lease cost:
 
 
 
Amortization of right-of-use assets
General and administrative
 
286

Interest on lease liabilities
Interest expense
 
17

Total finance lease cost
 
 
303

Variable lease cost (1)
General and administrative
 
9,873

Sublease income
General and administrative
 
(14,463
)
Net lease cost
 
 
$
22,854

(1) Variable lease expense includes operating expenses, real estate taxes and employee parking.
The sublease income represents all revenues received from subtenants. It is primarily fixed base rental payments combined with variable reimbursements such as operating expenses, real estate taxes and employee parking.  The vast majority of subtenant income is derived from our New York metro subtenant agreements. Subtenant income related to base rent is recorded on a straight-line basis. 
Maturities of lease liabilities were as follows:
 
Operating Leases
 
Financing Leases
 
Total
Year ending December 31,
(in thousands)
2019 (excluding the three months ended March 31, 2019)
$
93,535

 
$
898

 
$
94,433

2020
110,711

 
941

 
111,652

2021
101,977

 
297

 
102,274

2022
88,107

 

 
88,107

2023
81,356

 

 
81,356

Thereafter
120,326

 

 
120,326

Total lease payments
596,012

 
2,136

 
598,148

Less interest
(56,916
)
 
(62
)
 

Present value of lease liabilities
$
539,096

 
$
2,074

 

During October 2018, we signed a lease, which commences in mid-2020, relating to 205,000 square feet of space at our new Nashville headquarters. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 15 year initial lease term is $126 million. During April 2019, we signed a lease, which commences in 2024, relating to approximately 190,000 square feet of space in New York City. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 20 year lease term is approximately $448 million.

21


Lease term and discount rate:
 
Weighted average remaining lease term (years)

 
Operating leases
5.69

Finance leases
1.97

Weighted average discount rate
 
Operating leases
3.49
%
Finance leases
3.14
%
Supplemental cash flow information related to leases was as follows:
 
Three Months Ended March 31, 2019
 
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
35,728

Operating cash flows from financing leases
17

Financing cash flows from finance leases
282

Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
2,289

Finance leases

14. Consolidated Company-Sponsored Investment Funds

We regularly provide seed capital to new company-sponsored investment funds. As such, we may consolidate or de-consolidate a variety of company-sponsored investment funds each quarter. Due to the similarity of risks related to our involvement with each company-sponsored investment fund, disclosures required under the VIE model are aggregated, such as disclosures regarding the carrying amount and classification of assets.
We are not required to provide financial support to company-sponsored investment funds and only the assets of such funds are available to settle each fund's own liabilities. Our exposure to loss in regard to consolidated company-sponsored investment funds is limited to our investment in, and our management fee earned from, such funds. Equity and debt holders of such funds have no recourse to AB’s assets or to the general credit of AB.

22


The balances of consolidated VIEs and VOEs included in our condensed consolidated statements of financial condition were as follows:
 
 
March 31, 2019
 
December 31, 2018
 
 
(in thousands)
 
 
VIEs
 
VOEs
 
Total
 
VIEs
 
VOEs
 
Total
Cash and cash equivalents
 
$
5,948

 
$
1,819

 
$
7,767

 
$
11,880

 
$
1,238

 
$
13,118

Investments
 
230,755

 
154,554

 
385,309

 
217,840

 
133,856

 
351,696

Other assets
 
12,668

 
13,522

 
26,190

 
6,024

 
16,816

 
22,840

Total assets
 
$
249,371

 
$
169,895

 
$
419,266

 
$
235,744

 
$
151,910

 
$
387,654

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
$
14,050

 
$
15,598

 
$
29,648

 
$
5,215

 
$
17,395

 
$
22,610

Redeemable non-controlling interest
 
116,343

 
39,642

 
155,985

 
117,523

 
28,398

 
145,921

Partners' capital attributable to AB Unitholders
 
118,978

 
114,655

 
233,633

 
113,006

 
106,117

 
219,123

Total liabilities, redeemable non-controlling interest and partners' capital
 
$
249,371

 
$
169,895

 
$
419,266

 
$
235,744

 
$
151,910

 
$
387,654

 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value
Cash and cash equivalents include cash on hand, demand deposits, 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.


23


Valuation of consolidated company-sponsored investment funds' financial instruments by pricing observability levels as of March 31, 2019 and December 31, 2018 was as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
NAV Expedient
 
Total
March 31, 2019:
 
 
 
 
 
 
 
 
 
  Investments - VIEs
$
25,109

 
$
196,275

 
$
9,371

 
$

 
$
230,755

  Investments - VOEs
86,036

 
67,628

 
890

 

 
154,554

  Derivatives - VIEs
837

 
1,787

 

 

 
2,624

  Derivatives - VOEs
123

 
4,237

 

 

 
4,360

Total assets measured at fair value
$
112,105

 
$
269,927

 
$
10,261

 
$

 
$
392,293

 
 
 
 
 
 
 
 
 
 
Derivatives - VIEs
151

 
2,629

 

 

 
2,780

  Derivatives - VOEs
343

 
3,595

 

 

 
3,938

Total liabilities measured at fair value
$
494

 
$
6,224

 
$

 
$

 
$
6,718

 
 
 
 
 
 
 
 
 
 
December 31, 2018:
 
 
 
 
 
 
 
 
 
  Investments - VIEs
$
22,149

 
$
187,626

 
$
8,065

 
$

 
$