Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Significant Accounting Policies

Significant Accounting Policies

Goodwill

Our acquisitions are accounted for under the purchase method, where the cost of the acquisition is allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, results in the recognition of goodwill.

On July 1, 2022, AB Holding acquired a 100% ownership interest in CarVal Investors L.P. (“CarVal”). Immediately following its acquisition of CarVal (the "CarVal acquisition"), AB Holding contributed 100% of its equity interests in CarVal to AB in exchange for AB Units and a receivable for future consideration to be paid (see Note 17 Acquisitions).

As of September 30, 2022, goodwill of $3.7 billion on the condensed consolidated statement of financial condition included $627.6 million as a result of the CarVal acquisition in the third quarter of 2022, $2.8 billion as a result of the Sanford C. Bernstein Inc. (“Bernstein”) acquisition in 2000, and $291.9 million in regard to various smaller acquisitions. As of December 31, 2021, goodwill was $3.1 billion on the condensed consolidated statement of financial condition and included $2.8 billion as a result of the Bernstein acquisition and $291.0 million in regard to various smaller acquisitions. We have determined that AB has only one reporting segment and reporting unit.

Goodwill is tested annually, as of September 30, for impairment utilizing the market approach where the fair value of the reporting unit is based on its unadjusted market valuation (AB Units outstanding multiplied by AB Holding's Unit price) and adjusted market valuations assuming a control premium (when applicable). The price of a publicly traded AB Holding Unit serves as a reasonable starting point for valuing an AB Unit because each represents the same fractional interest in our underlying business. Throughout the year, the carrying value of goodwill is also reviewed for impairment if certain events or changes in circumstances occur and trigger whether an interim impairment test may be required. Such changes in circumstances may include, but are not limited to, a sustained decrease in the price of an AB Holding Unit or declines in AB’s market capitalization that would suggest that the fair value of the reporting unit is less than the carrying amount; significant and unanticipated declines in AB’s assets under management or revenues; and/or lower than expected earnings per unit. Any of these changes in circumstances could suggest the possibility that goodwill is impaired, but none of these events or circumstances by itself would indicate that it is more likely than not that goodwill is impaired. Instead, they are merely recognized as triggering events for the consideration of impairment and must be viewed in combination with any mitigating or positive factors. A holistic evaluation of all events since the most recent quantitative impairment test must be done to determine whether it is more likely than not that the reporting unit is impaired. As of September 30, 2022, the impairment test indicated that goodwill was not impaired.

Under ASU 2017-04, Simplifying the Test for Goodwill Impairment, 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. Under this guidance, the goodwill impairment test no longer includes a determination by management of whether a decline in fair value is temporary; however, it is important that management's determination of fair value reflect the impact of changing market conditions, including the severity and anticipated duration of any such changes.

Intangible Assets, Net

Intangible assets consist primarily of costs assigned to acquired investment management contracts based on their estimated fair value at the time of acquisition, less accumulated amortization. Intangible assets are recognized at fair value and generally are amortized on a straight-line basis over their estimated useful life ranging from five to 20 years.

The CarVal acquisition resulted in recording of $303.0 million of finite-lived intangible assets primarily relating to investment management contracts and investor relationships with useful lives ranging from 5 to 10 years (see Note 17 Acquisitions). As of September 30, 2022, intangible assets, net of accumulated amortization, of $332.6 million on the condensed consolidated statement of financial condition consists of $317.4 million of finite-lived intangible assets subject to amortization and $15.2 million of indefinite-lived intangible assets not subject to amortization in regard to other acquisitions. As of December 31, 2021, intangible assets, net of accumulated amortization, of $41.5 million on the condensed consolidated statement of financial condition consists of $26.3 million of finite-lived intangible assets subject to amortization and $15.2 million of indefinite-lived intangible assets not subject to amortization.

The gross carrying amount of finite-lived intangible assets totaled $359.6 million as of September 30, 2022 and $53.8 million as of December 31, 2021, and accumulated amortization was $42.2 million as of September 30, 2022 and $27.5 million as of December 31, 2021.

Amortization expense was $14.7 million for the nine months ended September 30, 2022 and $4.5 million for the nine months ended September 30, 2021. Estimated annual amortization expense for 2023 is approximately $49.3 million, $49.1 million in year two, $48.0 million in year three, $46.6 million in year four and then approximately $25.5 million in year five.

We periodically review indefinite-lived intangible assets for impairment as events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value exceeds fair value, we perform additional impairment tests to measure the amount of the impairment loss, if any. During the third quarter of 2022 and 2021, there were no impairments of indefinite-lived intangible assets recorded in the condensed consolidated statements of income.

Contingent Payment Arrangements

We periodically enter into contingent payment arrangements in connection with our business combinations. In these arrangements, we agree to pay additional consideration to the sellers to the extent that certain performance targets are achieved. We estimate the fair value of these potential future obligations at the time a business combination is consummated and record a liability on our condensed consolidated statements of financial condition. We then accrete the obligation to its expected payment amount over the measurement period. If our expected payment amount subsequently changes, the obligation is modified in the current period resulting in a gain or loss. Both gains and losses resulting from changes to expected payments and the accretion of these obligations to their expected payment amounts are reflected within contingent payment arrangements in our condensed consolidated statements of income. The CarVal acquisition resulted in the recording of a contingent consideration payable of $227.1 million if certain performance targets are achieved over a six year period (see Note 11 Fair Value and Note 17 Acquisitions).

During the third quarters of 2022 and 2021, there were no impairments of contingent consideration payable recorded in the consolidate statements of income.

Recently Adopted Accounting Pronouncements or Accounting Pronouncements Not Yet Adopted

During the third quarter of 2022, there have been no recently adopted accounting pronouncements or pronouncements not yet adopted.