0000825313-18-000058.txt : 20181024 0000825313-18-000058.hdr.sgml : 20181024 20181024065339 ACCESSION NUMBER: 0000825313-18-000058 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 43 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181024 DATE AS OF CHANGE: 20181024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCEBERNSTEIN HOLDING L.P. CENTRAL INDEX KEY: 0000825313 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 133434400 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09818 FILM NUMBER: 181135248 BUSINESS ADDRESS: STREET 1: 1345 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2129691000 MAIL ADDRESS: STREET 1: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 FORMER COMPANY: FORMER CONFORMED NAME: ALLIANCE CAPITAL MANAGEMENT HOLDING LP DATE OF NAME CHANGE: 19991101 FORMER COMPANY: FORMER CONFORMED NAME: ALLIANCE CAPITAL MANAGEMENT LP DATE OF NAME CHANGE: 19961231 10-Q 1 ab-20180930x10q.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 September 30, 2018
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.  001-09818
ALLIANCEBERNSTEIN HOLDING L.P.
(Exact name of registrant as specified in its charter)
Delaware
13-3434400
(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 x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
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 representing assignments of beneficial ownership of limited partnership interests outstanding as of September 30, 2018 was 96,372,964.*
*includes 100,000 units of general partnership interest having economic interests equivalent to the economic interests of the units representing assignments of beneficial ownership of limited partnership interests.
 



ALLIANCEBERNSTEIN HOLDING 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 HOLDING L.P.
Condensed Statements of Financial Condition
(in thousands, except unit amounts)
(unaudited)

 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Investment in AB
$
1,489,182

 
$
1,544,704

Total assets
$
1,489,182

 
$
1,544,704

 
 
 
 
LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Liabilities:
 
 
 
Other liabilities
$
525

 
$
1,154

Total liabilities
525

 
1,154

 
 
 
 
Commitments and contingencies (See Note 8)


 


 
 
 
 
Partners’ capital:
 
 
 
General Partner: 100,000 general partnership units issued and outstanding
1,392

 
1,411

Limited partners: 96,272,964 and 96,361,989 limited partnership units issued and outstanding
1,556,446

 
1,590,776

AB Holding Units held by AB to fund long-term incentive compensation plans
(30,893
)
 
(15,174
)
Accumulated other comprehensive loss
(38,288
)
 
(33,463
)
Total partners’ capital
1,488,657

 
1,543,550

Total liabilities and partners’ capital
$
1,489,182

 
$
1,544,704


See Accompanying Notes to Condensed Financial Statements.


1


ALLIANCEBERNSTEIN HOLDING L.P.
Condensed Statements of Income
(in thousands, except per unit amounts)
(unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Equity in net income attributable to AB Unitholders
 
$
72,802

 
$
49,055

 
$
203,888

 
$
146,668

 
 
 
 
 
 
 
 
 
Income taxes
 
6,902

 
5,877

 
21,371

 
17,839

 
 
 
 
 
 
 
 
 
Net income
 
$
65,900

 
$
43,178

 
$
182,517

 
$
128,829

 
 
 
 
 
 
 
 
 
Net income per unit:
 
 
 
 
 
 
 
 
Basic
 
$
0.68

 
$
0.46

 
$
1.87

 
$
1.35

Diluted
 
$
0.68

 
$
0.46

 
$
1.87

 
$
1.35


See Accompanying Notes to Condensed Financial Statements.


2


ALLIANCEBERNSTEIN HOLDING L.P.
Condensed Statements of Comprehensive Income
(in thousands)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income
$
65,900

 
$
43,178

 
$
182,517

 
$
128,829

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments, before reclassification and tax
(1,291
)
 
2,672

 
(5,272
)
 
8,514

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

 

 
(36
)
 

Foreign currency translation adjustments, before tax
(1,291
)
 
2,672

 
(5,236
)
 
8,514

Income tax benefit (expense)
26

 
(2
)
 
1

 
50

Foreign currency translation adjustments, net of tax
(1,265
)
 
2,670

 
(5,235
)
 
8,564

Unrealized gains on investments:
 

 
 

 
 
 
 
Unrealized (losses) gains arising during period

 
(2
)
 

 
2

Less: reclassification adjustments for gains included in net income

 

 

 

Changes in unrealized (losses) gains on investments

 
(2
)
 

 
2

Income tax benefit

 
2

 

 
4

Unrealized gains on investments, net of tax

 

 

 
6

Changes in employee benefit related items:
 

 
 

 
 
 
 
Amortization of prior service cost
5

 
2

 
6

 
12

Recognized actuarial gain
295

 
88

 
314

 
621

Changes in employee benefit related items
300

 
90

 
320

 
633

Income tax expense
(3
)
 

 
(43
)
 
(31
)
Employee benefit related items, net of tax
297

 
90

 
277

 
602

Other

 

 
133

 

Other comprehensive (loss) income
(968
)
 
2,760

 
(4,825
)
 
9,172

Comprehensive income
$
64,932

 
$
45,938

 
$
177,692

 
$
138,001


See Accompanying Notes to Condensed Financial Statements.

3


ALLIANCEBERNSTEIN HOLDING L.P.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
 
Nine Months Ended
September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
182,517

 
$
128,829

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Equity in net income attributable to AB Unitholders
(203,888
)
 
(146,668
)
Cash distributions received from AB
235,307

 
173,025

Changes in assets and liabilities:
 
 
 
Decrease in other liabilities
(629
)
 
(395
)
Net cash provided by operating activities
213,307

 
154,791

 
 
 
 
Cash flows from investing activities:
 
 
 
Investments in AB with proceeds from exercise of compensatory options to buy AB Holding Units
(10,802
)
 
(17,672
)
Net cash used in investing activities
(10,802
)
 
(17,672
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Cash distributions to Unitholders
(214,670
)
 
(155,056
)
Capital contributions from AB
1,363

 
265

Proceeds from exercise of compensatory options to buy AB Holding Units
10,802

 
17,672

Net cash used in financing activities
(202,505
)
 
(137,119
)
 
 
 
 
Change in cash and cash equivalents

 

Cash and cash equivalents as of beginning of period

 

Cash and cash equivalents as of end of period
$

 
$


See Accompanying Notes to Condensed Financial Statements.


4


ALLIANCEBERNSTEIN HOLDING L.P.
Notes to Condensed Financial Statements
September 30, 2018
(unaudited)

The words “we” and “our” refer collectively to AllianceBernstein Holding L.P. (“AB Holding”) and AllianceBernstein L.P.  and its subsidiaries (“AB”), or to their officers and employees. Similarly, the word “company” refers to both AB Holding and AB. Where the context requires distinguishing between AB Holding and AB, we identify which of them is being discussed.

1.
Business Description, Organization and Basis of Presentation

Business Description

AB Holding’s principal source of income and cash flow is attributable to its investment in AB limited partnership interests. The condensed financial statements and notes of AB Holding should be read in conjunction with the condensed consolidated financial statements and notes of AB included as an exhibit to this quarterly report on Form 10-Q and with AB Holding’s and AB’s audited financial statements included in AB Holding’s Form 10-K for the year ended December 31, 2017.

AB provides research, diversified investment management and related services globally to a broad range of clients. Its principal services include:

Institutional Services – servicing its institutional clients, including 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 its 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 its 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.

AB also provides distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds it sponsors.

AB’s high-quality, in-depth research is the foundation of its business. AB’s research disciplines include economic, fundamental equity, fixed income and quantitative research. In addition, AB has experts focused on multi-asset strategies, wealth management and alternative investments.

AB provides 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 real estate investing and direct lending); and

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

5



AB’s 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.

Organization

During the second quarter of 2018, AXA Equitable Holdings, Inc. ("EQH"), the holding company for a diversified financial services organization, conducted an initial public offering; AXA, a French holding company for AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management owns approximately 72% of the outstanding common stock of EQH as of September 30, 2018. AXA has announced its intention to sell its entire 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 September 30, 2018, EQH owns approximately 3.9% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AB Holding (“AB Holding Units”). AllianceBernstein Corporation (an indirect wholly-owned subsidiary of EQH, “General Partner”) is the general partner of both 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 September 30, 2018, the ownership structure of AB, expressed as a percentage of general and limited partnership interests, is as follows:

EQH and its subsidiaries
63.7
%
AB Holding
35.5

Unaffiliated holders
0.8

 
100.0
%

Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries have an approximate 65.1% economic interest in AB as of September 30, 2018.

Basis of Presentation

The interim condensed 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 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 financial statements and the reported amounts of revenues and expenses during the interim reporting periods. Actual results could differ from those estimates. The condensed statement of financial condition as of December 31, 2017 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”).

AB Holding records its investment in AB using the equity method of accounting. AB Holding’s investment is increased to reflect its proportionate share of income of AB and decreased to reflect its proportionate share of losses of AB and cash distributions made by AB to its Unitholders. In addition, AB Holding's investment is adjusted to reflect its proportionate share of certain capital transactions of AB.

AB's ASC 606 Implementation

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which outlines a single comprehensive revenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. This standard had no impact on AB Holding’s statement of income. AB adopted this new standard on January 1, 2018 on a modified retrospective basis for contracts that were not completed as of the date of adoption.


6


On January 1, 2018, AB recorded a cumulative effect adjustment, net of tax, of a $35.0 million increase to partners’ capital in its condensed consolidated statement of financial condition. Accordingly, AB Holding, as a result of its 35.5% ownership interest in AB as of January 1, 2018, recorded a cumulative effect adjustment, net of tax, of $12.5 million to partners’ capital in its condensed statement of financial condition.

2.
Cash Distributions

AB Holding is required to distribute all of its Available Cash Flow, as defined in the Amended and Restated Agreement of Limited Partnership of AB Holding (“AB Holding Partnership Agreement”), to its Unitholders pro rata in accordance with their percentage interests in AB Holding. Available Cash Flow is defined as the cash distributions AB Holding receives from AB minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB Holding for use in its business (such as the payment of taxes) or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow.

On October 24, 2018, the General Partner declared a distribution of $0.69 per unit, representing a distribution of Available Cash Flow for the three months ended September 30, 2018. Each general partnership unit in AB Holding is entitled to receive distributions equal to those received by each AB Holding Unit. The distribution is payable on November 15, 2018 to holders of record at the close of business on November 5, 2018.
3.
Long-term Incentive Compensation Plans

AB maintains several unfunded, non-qualified long-term incentive compensation plans, under which the company grants awards of restricted AB Holding Units to its employees and members of the Board of Directors, who are not employed by AB or by any of AB’s affiliates (“Eligible Directors”).

AB funds its 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 AB Holding 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 and nine months ended September 30, 2018, AB purchased 1.6 million and 2.9 million AB Holding Units for $48.0 million and $83.2 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 1.6 million and 2.8 million AB Holding Units for $48.0 million and $80.9 million, respectively, 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 nine months ended September 30, 2017, AB purchased 0.3 million and 5.9 million AB Holding Units for $6.9 million and $134.6 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 0.3 million and 5.2 million AB Holding Units for $6.8 million and $117.1 million, respectively, 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.

Each quarter, AB considers whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (“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 selected by AB has the authority under the terms and limitations specified in the plan to repurchase AB Holding Units on AB’s 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 third quarter of 2018 expired at the close of business on October 22, 2018. AB may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under its incentive compensation award program and for other corporate purposes.

During the first nine months of 2018 and 2017, AB granted to employees and Eligible Directors 2.5 million and 2.1 million restricted AB Holding Unit awards, respectively. AB used AB Holding Units repurchased during the periods and newly-issued AB Holding Units to fund these restricted AB Holding Unit awards.


7


During the first nine months of 2018 and 2017, AB Holding issued 0.6 million and 1.0 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $10.8 million and $17.7 million, respectively, received as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.
4.
Net Income per Unit

Basic net income per unit is derived by dividing net income by the basic weighted average number of units outstanding for each period. Diluted net income per unit is derived by adjusting net income for the assumed dilutive effect of compensatory options (“Net income – diluted”) and dividing by the diluted weighted average number of units outstanding for each period.

 
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands, except per unit amounts)
 
 
 
 
 
 
 
 
 
Net income – basic
 
$
65,900

 
$
43,178

 
$
182,517

 
$
128,829

Additional allocation of equity in net income attributable to AB resulting from assumed dilutive effect of compensatory options
 
117

 
136

 
376

 
450

Net income – diluted
 
$
66,017

 
$
43,314

 
$
182,893

 
$
129,279

 
 
 
 
 
 
 
 
 
Weighted average units outstanding – basic
 
97,409

 
93,374

 
97,587

 
95,218

Dilutive effect of compensatory options
 
245

 
400

 
282

 
455

Weighted average units outstanding – diluted
 
97,654

 
93,774

 
97,869

 
95,673

 
 
 
 
 
 
 
 
 
Basic net income per unit
 
$
0.68

 
$
0.46

 
$
1.87

 
$
1.35

Diluted net income per unit
 
$
0.68

 
$
0.46

 
$
1.87

 
$
1.35


For the three and nine months ended September 30, 2018, we excluded 824,245 options and 844,973 options, respectively, from the diluted net income computation due to their anti-dilutive effect. For the three and nine months ended September 30, 2017, we excluded 2,427,527 options from the diluted net income computation due to their anti-dilutive effect.
5.
Investment in AB

Changes in AB Holding’s investment in AB during the nine-month period ended September 30, 2018 are as follows (in thousands):

Investment in AB as of December 31, 2017
$
1,544,704

Equity in net income attributable to AB Unitholders
203,888

Changes in accumulated other comprehensive income (loss)
(4,825
)
Additional investments with proceeds from exercise of compensatory options to buy AB Holding Units
10,802

Cash distributions received from AB
(235,307
)
Capital contributions from AB
(1,363
)
AB Holding Units retired
(100,330
)
AB Holding Units issued to fund long-term incentive compensation plans
74,916

Change in AB Holding Units held by AB for long-term incentive compensation plans
(15,719
)
Impact of AB's adoption of revenue recognition standard ASC 606
12,549

Other
(133
)
Investment in AB as of September 30, 2018
$
1,489,182



8


6.
Units Outstanding

Changes in AB Holding Units outstanding during the nine-month period ended September 30, 2018 are as follows:

Outstanding as of December 31, 2017
96,461,989

Options exercised
629,493

Units issued
2,712,263

Units retired
(3,430,781
)
Outstanding as of September 30, 2018
96,372,964


7.
Income Taxes

AB Holding is a “grandfathered” publicly-traded partnership (“PTP”) for federal tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, AB Holding is subject to the 4.0% New York City unincorporated business tax (“UBT”), net of credits for UBT paid by AB, and to a 3.5% federal tax on partnership gross income from the active conduct of a trade or business. AB Holding’s partnership gross income is derived from its interest in AB.

AB Holding’s federal income tax is computed by multiplying certain AB qualifying revenues (primarily U.S. investment advisory fees and brokerage commissions) by AB Holding’s ownership interest in AB, multiplied by the 3.5% tax rate. AB Holding Units in AB’s consolidated rabbi trust are not considered outstanding for purposes of calculating AB Holding’s ownership interest in AB.

 
 
Three Months Ended September 30,
 
 
 
Nine Months Ended
September 30,
 
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
 
 
(in thousands)
Net income attributable to AB Unitholders
 
$
203,674

 
$
140,954

 
44.5
%
 
$
569,535

 
$
415,994

 
36.9
%
Multiplied by: weighted average equity ownership interest
 
35.7
%
 
34.8
%
 
 
 
35.8
%
 
35.3
%
 
 
Equity in net income attributable to AB Unitholders
 
$
72,802

 
$
49,055

 
48.4

 
$
203,888

 
$
146,668

 
39.0

 
 
 
 
 
 
 
 
 
 
 
 
 
AB qualifying revenues
 
$
649,270

 
$
581,410

 
11.7

 
$
1,995,197

 
$
1,714,065

 
16.4

Multiplied by: weighted average equity ownership interest for calculating tax
 
29.8
%
 
28.3
%
 
 
 
30.0
%
 
29.2
%
 
 
Multiplied by: federal tax
 
3.5
%
 
3.5
%
 
 
 
3.5
%
 
3.5
%
 
 
Federal income taxes
 
6,775

 
5,767

 
 
 
20,979

 
17,517

 
 
State income taxes
 
127

 
110

 
 
 
392

 
322

 
 
Total income taxes
 
$
6,902

 
$
5,877

 
17.4

 
$
21,371

 
$
17,839

 
19.8

 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
 
9.5
%
 
12.0
%
 
 
 
10.5
%
 
12.2
%
 
 

In order to preserve AB Holding’s status as a “grandfathered” PTP for federal income tax purposes, management ensures that AB Holding does not directly or indirectly (through AB) enter into a substantial new line of business. If AB Holding were to lose its status as a “grandfathered” PTP, it would be subject to corporate income tax, which would reduce materially AB Holding’s net income and its quarterly distributions to AB Holding Unitholders.

9


8.
Commitments and Contingencies

Legal and regulatory matters described below pertain to AB and are included here due to their potential significance to AB Holding's investment in AB.

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 AB could incur losses pertaining to these matters, but management 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 operations, financial condition or liquidity in any future reporting period.


10


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

AB Holding’s principal source of income and cash flow is attributable to its investment in AB Units. AB Holding’s interim condensed financial statements and notes and management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with those of AB included as an exhibit to this Form 10-Q. They also should be read in conjunction with AB’s audited financial statements and notes and MD&A included in AB Holding’s Form 10-K for the year ended December 31, 2017.

Results of Operations

 
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
 
 
(in thousands, except per unit amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to AB Unitholders
 
$
203,674

 
$
140,954

 
44.5
%
 
$
569,535

 
$
415,994

 
36.9
%
Weighted average equity ownership interest
 
35.7
%
 
34.8
%
 
 
 
35.8
%
 
35.3
%
 
 
Equity in net income attributable to AB Unitholders
 
72,802

 
49,055

 
48.4

 
203,888

 
146,668

 
39.0

Income taxes
 
6,902

 
5,877

 
17.4

 
21,371

 
17,839

 
19.8

Net income of AB Holding
 
$
65,900

 
$
43,178

 
52.6

 
$
182,517

 
$
128,829

 
41.7

Diluted net income per AB Holding Unit
 
$
0.68

 
$
0.46

 
47.8

 
$
1.87

 
$
1.35

 
38.5

Distribution per AB Holding Unit(1)
 
$
0.69

 
$
0.51

 
35.3

 
$
2.04

 
$
1.46

 
39.7

________________________
(1) 
Distributions reflect the impact of AB’s non-GAAP adjustments.

Net income for the three and nine months ended September 30, 2018 increased $22.7 million and $53.7 million, respectively, due to higher net income attributable to AB Unitholders and a higher weighted average equity ownership interest.

AB Holding’s partnership gross income is derived from its interest in AB. AB Holding’s income taxes, which reflect a 3.5% federal tax on its partnership gross income from the active conduct of a trade or business, are computed by multiplying certain AB qualifying revenues (primarily U.S. investment advisory fees and brokerage commissions) by AB Holding’s ownership interest in AB, multiplied by the 3.5% tax rate. AB Holding’s effective tax rate was 9.5% in the third quarter of 2018 compared to 12.0% during the third quarter of 2017. AB Holding's effective tax rate during the nine months ended September 30, 2018 was 10.5% compared to 12.2% during the nine months ended September 30, 2017. See Note 7 to the condensed financial statements contained in Item 1 for the calculation of income tax expense.

Management Operating Metrics

As supplemental information, AB provides the performance measures “adjusted net revenues”, “adjusted operating income” and “adjusted operating margin”, which are the principal metrics management uses in evaluating and comparing the period-to-period operating performance of AB. Management principally uses these metrics in evaluating performance because they present a clearer picture of AB's operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, real estate consolidation charges and other adjustment items. Similarly, management believes that these management operating metrics help investors better understand the underlying trends in AB's results and, accordingly, provide a valuable perspective for investors. Such measures are not based on generally accepted accounting principles (“non-GAAP measures”). These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both GAAP and non-GAAP measures in evaluating the company’s financial performance. The non-GAAP measures alone may pose limitations because they do not include all of AB’s revenues and expenses. Further, adjusted diluted net income per AB Holding Unit is not a liquidity measure and should not be used in place of cash flow measures. See AB’s MD&A contained in Exhibit 99.1.


11


The impact of these adjustments on AB Holding’s net income and diluted net income per AB Holding Unit is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands, except per Unit amounts)
 
 
 
 
 
 
 
 
 
AB non-GAAP adjustments, before taxes
 
$
2,665

 
$
19,892

 
$
45,515

 
$
37,439

AB income tax expense on non-GAAP adjustments
 
(95
)
 
(5,641
)
 
(1,164
)
 
(4,642
)
AB non-GAAP adjustments, after taxes
 
2,570

 
14,251

 
44,351

 
32,797

AB Holding’s weighted average equity ownership interest in AB
 
35.7
%
 
34.8
%
 
35.8
%
 
35.3
%
Impact on AB Holding’s net income of AB non-GAAP adjustments
 
$
919

 
$
4,960

 
$
15,877

 
$
11,564

 
 
 
 
 
 
 
 
 
Net income – diluted, GAAP basis
 
$
66,017

 
$
43,314

 
$
182,893

 
$
129,279

Impact on AB Holding’s net income of AB non-GAAP adjustments
 
919

 
4,960

 
15,877

 
11,564

Adjusted net income – diluted
 
$
66,936

 
$
48,274

 
$
198,770

 
$
140,843

 
 
 
 
 
 
 
 
 
Diluted net income per AB Holding Unit, GAAP basis
 
$
0.68

 
$
0.46

 
$
1.87

 
$
1.35

Impact of AB non-GAAP adjustments
 
0.01

 
0.05

 
0.16

 
0.12

Adjusted diluted net income per AB Holding Unit
 
$
0.69

 
$
0.51

 
$
2.03

 
$
1.47


The degree to which AB's non-GAAP adjustments impact AB Holding's net income fluctuates based on AB Holding's ownership percentage in AB.

Cash Distributions

AB Holding is required to distribute all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement, to its Unitholders (including the General Partner). Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the number of units outstanding at the end of the quarter. Management anticipates that Available Cash Flow will continue to 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. See Note 2 to the condensed financial statements contained in Item 1 for a description of Available Cash Flow.

Capital Resources and Liquidity

During the nine months ended September 30, 2018, net cash provided by operating activities was $213.3 million, compared to $154.8 million during the corresponding 2017 period. The increase primarily resulted from higher cash distributions received from AB of $62.3 million.

During the nine months ended September 30, 2018, net cash used in investing activities was $10.8 million, compared to $17.7 million during the corresponding 2017 period. The activity in both periods reflects the investments in AB with proceeds from exercises of compensatory options to buy AB Holding Units.

During the nine months ended September 30, 2018, net cash used in financing activities was $202.5 million, compared to $137.1 million during the corresponding 2017 period. The increase primarily was due to higher cash distributions to Unitholders of $59.6 million and lower proceeds from exercise of compensatory options to buy AB Holding units of $6.9 million.

Management believes that AB Holding will have the resources it needs to meet its financial obligations as a result of the cash flow AB Holding realizes from its investment in AB.



12


Commitments and Contingencies

See Note 8 to the condensed financial statements contained in Item 1.

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS

Certain statements provided by management in this report and in the portion of AB’s Form 10-Q attached hereto as Exhibit 99.1 are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately-managed accounts, general economic conditions, industry trends, future acquisitions, integration of acquired companies, competitive conditions and government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. We caution readers to carefully consider such factors. Further, these forward-looking statements speak only as of the date on which such statements are made; we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ, see “Risk Factors” in Part I, Item 1A of our Form 10-K for the year ended December 31, 2017 and Part II, Item 1A in this Form 10-Q. Any or all of the forward-looking statements that we make in our Form 10-K, this Form 10-Q, other documents we file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in “Risk Factors” and those listed below could also adversely impact our revenues, financial condition, results of operations and business prospects.

The forward-looking statements referred to in the preceding paragraph, most of which directly affect AB but also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB, include statements regarding:

Our belief that the cash flow AB Holding realizes from its investment in AB will provide AB Holding with the resources it needs to meet its financial obligations: AB Holding’s cash flow is dependent on the quarterly cash distributions it receives from AB. Accordingly, AB Holding’s ability to meet its financial obligations is dependent on AB’s cash flow from its operations, which is subject to the performance of the capital markets and other factors beyond our control.

Our financial condition and ability to access the public and private capital markets providing adequate liquidity for our general business needs: Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to access public and private capital markets on reasonable terms may be limited by adverse market conditions, our firm’s credit ratings, our profitability and changes in government regulations, including tax rates and interest rates.

The outcome of litigation: Litigation is inherently unpredictable, and excessive damage awards do occur. Though we have stated that we do not expect any pending legal proceedings to have a material adverse effect on our results of operations, financial condition or liquidity, any settlement or judgment with respect to a pending or future legal proceeding could be significant, and could have such an effect.

The possibility that we will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases.

Our determination that adjusted employee compensation expense should not exceed 50% of our adjusted net revenues:  Aggregate employee compensation reflects employee performance and competitive compensation levels.  Fluctuations in our revenues and/or changes in competitive compensation levels could result in adjusted employee compensation expense exceeding 50% of our adjusted net revenues.
Our Relocation Strategy: While the expenses, expense savings and EPU impact we expect will result from our Relocation Strategy are presented with numerical specificity, and we believe these figures to be reasonable as of the date of this report, the uncertainties surrounding the assumptions on which our estimates are based create a significant risk that our current estimates may not be realized. These assumptions include:


13


the amount and timing of employee relocation costs, severance and overlapping compensation and occupancy costs we experience; and
the timing for execution of each phase of our relocation implementation plan.
Our 2020 Margin Target: While our 2020 Margin Target is presented with numerical specificity, and we believe the target to be reasonable as of the date of this report, the uncertainties surrounding the assumptions on which the 2020 Margin Target is based create a significant risk that these assumptions may not be realized. These assumptions include:
the levels of positive net flows into our investment services;
the level of growth (in terms of additional AUM) in our alternatives product business;
the rate of increase in our fixed costs due to inflation and similar factors, the transitional costs related to our relocation strategy and the timing of such costs, the success we have in achieving planned new cost reductions (including those relating to our relocation strategy) and the timing of such cost reductions, and the investments we make in our business; and
general conditions of the markets in which our business operates, including modest appreciation in both equity and fixed income total investment returns.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in AB Holding’s market risk from the information provided under “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of AB Holding's Form 10-K for the year ended December 31, 2017.

Item 4.
Controls and Procedures

Disclosure Controls and Procedures

Each of AB Holding and AB maintains a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our reports under the Exchange Act is (i) recorded, processed, summarized and reported in a timely manner, and (ii) accumulated and communicated to management, including the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), to permit timely decisions regarding our disclosure.

As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the CEO and the CFO, of the effectiveness of the design and operation of the disclosure controls and procedures. Based on this evaluation, the CEO and the CFO concluded that the disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the third quarter of 2018 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


14


Part II

OTHER INFORMATION

Item 1.
Legal Proceedings

See Note 8 to the condensed financial statements contained in Part I, Item 1.

Item 1A.
Risk Factors

In AB Holding’s 10-K for the year ended December 31, 2017, we indicated that AB’s revenues and results of operations depend on the market value and composition of AB’s AUM, which can fluctuate significantly based on various factors. We then described these factors, one of which, market factors, has evolved significantly during October 2018.

Market volatility has accelerated significantly during October 2018, and has accelerated during October, resulting from increasing concerns about global trade wars, the slowing pace of global growth, inflation and more aggressive monetary policy in the U.S. These factors may adversely impact the global economy and the capital markets, as a result of which AB’s AUM and revenues would be expected to decline.

Otherwise, there have been no material changes in our risk factors from those disclosed in AB Holding’s Form 10-K for the year ended December 31, 2017.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

There were no AB Holding Units sold by AB Holding in the period covered by this report that were not registered under the Securities Act.

Each quarter, since the third quarter of 2011, AB has implemented plans to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. The plan adopted during the third quarter of 2018 expired at the close of business on October 22, 2018. AB may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under the firm's incentive compensation award program and for other corporate purposes. See Note 3 to the condensed financial statements contained in Part 1, Item 1.

AB Holding Units bought by us or one of our affiliates during the third quarter of 2018 are as follows:

ISSUER PURCHASES OF EQUITY SECURITIES
 
Period
 
Total Number
of AB Holding Units
Purchased
 
Average Price
Paid Per
AB Holding Unit, net of
Commissions
 
Total Number of
AB Holding Units Purchased as
Part of Publicly
Announced Plans
or Programs
 
Maximum Number
(or Approximate
Dollar Value) of
AB Holding Units that May Yet
Be Purchased Under
the Plans or
Programs
7/1/18 - 7/31/18(1)(2)
 
242,062

 
$
29.21

 

 

8/1/18 - 8/31/18(2)
 
913,873

 
29.68

 

 

9/1/18 - 9/30/18(2)
 
453,373

 
30.42

 

 

Total
 
1,609,308

 
$
29.81

 

 


(1) 
During the third quarter of 2018, AB purchased from employees 416 AB Holding Units to allow them to fulfill statutory withholding tax requirements at the time of distribution of long-term incentive compensation awards.

15


(2) 
During the third quarter of 2018, AB purchased 1,608,892 AB Holding Units on the open market pursuant to a Rule 10b5-1 plan to help fund anticipated obligations under our incentive compensation award program.

AB Units bought by us or one of our affiliates during the third quarter of 2018 are as follows:

ISSUER PURCHASES OF EQUITY SECURITIES
 
Period
 
Total Number
of AB Units
Purchased
 
Average Price
Paid Per
AB Unit, net of
Commissions
 
Total Number of
AB Units Purchased as
Part of Publicly
Announced Plans
or Programs
 
Maximum Number
(or Approximate
Dollar Value) of
AB Units that May Yet
Be Purchased Under
the Plans or
Programs
7/1/18 - 7/31/18
 

 
$

 

 

8/1/18 - 8/31/18
 

 

 

 

9/1/18 - 9/30/18(1)
 
796

 
30.21

 

 

Total
 
796

 
$
30.21

 

 

(1) During the third quarter of 2018, AB purchased 796 AB Units in private transactions.

Item 3.
Defaults Upon Senior Securities

None.

Item 4.
Mine Safety Disclosures

None.

Item 5.
Other Information

Iran Threat Reduction and Syria Human Rights Act

AB, AB Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act (“Iran Act”), nor were they involved in the AXA Group matters described immediately below.

The non-U.S. based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions in which they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see Note 1 to the condensed financial statements in Part 1, Item 1.

AXA has informed us that AXA Konzern AG, an AXA insurance subsidiary organized under the laws of Germany, provides, accident and health insurance to diplomats based at the Iranian embassy in Berlin, Germany. The total annual premium of these policies is approximately $139,700 before tax and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $24,272.

AXA has informed us that AXA Belgium, an AXA insurance subsidiary organized under the laws of Belgium, has two policies providing for car insurance for Global Trading NV, who were designated on 17th May 2018 under (E.O.) 13224, and subsequently changed its name to Energy Engineers Procurement & Construction on August 20, 2018. The total annual premium of these policies is approximately $6,559 before tax and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $983.


16


In addition, AXA has informed us that AXA Insurance Ireland, an AXA insurance subsidiary, provides statutorily required car insurance under four separate policies to the Iranian Embassy in Dublin, Ireland. AXA has informed us that compliance with the Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to assume the coverage. The total annual premium for these policies is approximately $7,115 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $853.

Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of Republic of Turkey, provides car insurance coverage for vehicle pools of the Iranian General Consulate and the Iranian Embassy in Istanbul, Turkey. Motor third party liability insurance coverage is compulsory in Turkey and cannot be canceled unilaterally. The total annual premium in respect of these policies is approximately $3,150 and the annual net profit, which is difficult to calculate with precision, is estimated to be $473.

Additionally, AXA has informed us that AXA Winterthur, an AXA insurance subsidiary organized under the laws of Switzerland, provides Naftiran Intertrade, a wholly-owned subsidiary of the Iranian state-owned National Iranian Oil Company, with life, disability and accident coverage for its employees. In addition, AXA Winterthur also provides car and property insurance coverage for the Iranian Embassy in Bern. The provision of these forms of coverage is mandatory in Switzerland. The total annual premium of these policies is approximately $396,597 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $59,489.

In addition, AXA has informed us that AXA Egypt, an AXA insurance subsidiary organized under the laws of Egypt, provides the Iranian state-owned Iran Development Bank two life insurance contracts, covering individuals who have loans with the bank. The total annual premium of these policies is approximately $19,839 and annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $2,000.

Furthermore, AXA has informed us that AXA XL, which AXA acquired during the third quarter of 2018, through various non-U.S. subsidiaries, provides insurance to marine policyholders located outside of the U.S. or reinsurance coverage to non-U.S. insurers of marine risks as well as mutual associations of ship owners that provide their members with protection and liability coverage. The provision of these coverages may involve entities or activities related to Iran, including transporting crude oil, petrochemicals and refined petroleum products. AXA XL’s non-U.S. subsidiaries insure or reinsure multiple voyages and fleets containing multiple ships, so they are unable to attribute gross revenues and net profits from such marine policies to activities with Iran. As the activities of these insureds and reinsureds are permitted under applicable laws and regulations, AXA XL intends for its non-U.S. subsidiaries to continue providing such coverage to its insureds and reinsureds to the extent permitted by applicable law.

Lastly, a non-U.S. subsidiary of AXA XL provided accident & health insurance coverage to the diplomatic personnel of the Embassy of Iran in Brussels, Belgium during the third quarter of 2018. AXA XL’s non-U.S. subsidiary received no payments for this insurance during the three months ended September 30, 2018 and the aggregate payments received by this non-U.S. subsidiary for this insurance from inception through the three months ended September 30, 2018 are approximately $73,451. Benefits of approximately $2,994 were paid to beneficiaries during the three months ended September 30, 2018. These activities are permitted pursuant to applicable law. The policy has been cancelled and is no longer in force.

The aggregate annual premium for the above-referenced insurance policies is approximately $646,411, representing approximately 0.0007% of AXA’s 2017 consolidated revenues, which exceed $100 billion. The related net profit, which is difficult to calculate with precision, is estimated to be $88,070, representing approximately 0.002% of AXA’s 2017 aggregate net profit.

17


Item 6.
Exhibits  

31.1
 
 
31.2
 
 
32.1
 
 
32.2
 
 
99.1
 
 
101.INS
XBRL Instance Document.
 
 
101.SCH
XBRL Taxonomy Extension Schema.
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase.
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase.



18


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 24, 2018
ALLIANCEBERNSTEIN HOLDING L.P.
 
 
 
 
 
By:
/s/ John C. Weisenseel
 
 
 
John C. Weisenseel
 
 
 
Chief Financial Officer
 
 
 
 
By:
/s/ William R. Siemers
 
 
 
William R. Siemers
 
 
 
Chief Accounting Officer

19
EX-31.1 2 ab-20180930xex311.htm EXHIBIT 31.1 Exhibit


Exhibit 31.1

I, Seth P. Bernstein, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of AllianceBernstein Holding L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2018
/s/ Seth P. Bernstein
 
 
Seth P. Bernstein
 
 
Chief Executive Officer
 
AllianceBernstein Holding L.P.



EX-31.2 3 ab-20180930xex312.htm EXHIBIT 31.2 Exhibit


Exhibit 31.2

I, John C. Weisenseel, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of AllianceBernstein Holding L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial  reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2018
/s/ John C. Weisenseel
 
 
John C. Weisenseel
 
 
Chief Financial Officer
 
 
AllianceBernstein Holding L.P.
 



EX-32.1 4 ab-20180930xex321.htm EXHIBIT 32.1 Exhibit


Exhibit 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AllianceBernstein Holding L.P. (the “Company”) on Form 10-Q for the period ending September 30, 2018 to be filed with the Securities and Exchange Commission on or about October 24, 2018 (the “Report”), I, Seth P. Bernstein, Chief Executive Officer of the Company, certify, for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Exchange Act; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 24, 2018
/s/ Seth P. Bernstein
 
 
Seth P. Bernstein
 
 
Chief Executive Officer
 
 
AllianceBernstein Holding L.P.
 

 




EX-32.2 5 ab-20180930xex322.htm EXHIBIT 32.2 Exhibit


Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AllianceBernstein Holding L.P. (the “Company”) on Form 10-Q for the period ending September 30, 2018 to be filed with the Securities and Exchange Commission on or about October 24, 2018 (the “Report”), I, John C. Weisenseel, Chief Financial Officer of the Company, certify, for the purpose of complying with Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Exchange Act; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 24, 2018
/s/ John C. Weisenseel
 
 
John C. Weisenseel
 
 
Chief Financial Officer
 
 
AllianceBernstein Holding L.P.
 



EX-99.1 6 exhibit991q318.htm EXHIBIT 99.1 Exhibit

Part I
FINANCIAL INFORMATION
Item 1. Financial Statements
Exhibit 99.1
ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(in thousands, except unit amounts)
(unaudited)
 
September 30,
2018
 
December 31,
2017
 
 
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
607,109

 
$
671,930

Cash and securities segregated, at fair value (cost: $1,262,899 and $816,350)
1,262,906

 
816,350

Receivables, net:
 

 
 

Brokers and dealers
303,542

 
199,690

Brokerage clients
1,627,419

 
1,647,059

AB funds fees
209,677

 
212,115

Other fees
111,231

 
124,164

Investments:
 

 
 

Long-term incentive compensation-related
58,414

 
66,034

Other
420,133

 
377,555

Assets of consolidated company-sponsored investment funds:
 
 
 
   Cash and cash equivalents
10,438

 
326,518

   Investments
303,301

 
1,246,283

   Other assets
9,095

 
35,397

Furniture, equipment and leasehold improvements, net
158,475

 
157,569

Goodwill
3,066,700

 
3,066,700

Intangible assets, net
85,463

 
105,784

Deferred sales commissions, net
16,738

 
30,126

Other assets
297,995

 
211,893

Total assets
$
8,548,636

 
$
9,295,167

 
 
 
 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
 

 
 

Liabilities:
 

 
 

Payables:
 

 
 

Brokers and dealers
$
204,986

 
$
237,861

Securities sold not yet purchased
20,961

 
29,961

Brokerage clients
2,781,140

 
2,229,371

AB mutual funds
50,436

 
82,967

Accounts payable and accrued expenses
373,596

 
515,660

Liabilities of consolidated company-sponsored investment funds
8,579

 
698,101

Accrued compensation and benefits
664,947

 
270,610

Debt
398,242

 
565,745

Total liabilities
4,502,887

 
4,630,276

 
 
 
 

1


 
September 30,
2018
 
December 31,
2017
Commitments and contingencies (See Note 13)
 
 
 
 
 
 
 
Redeemable non-controlling interest
103,997

 
601,587

 
 
 
 
Capital:
 

 
 

General Partner
40,553

 
41,221

Limited partners: 268,565,762 and 268,659,333 units issued and outstanding
4,105,882

 
4,168,841

Receivables from affiliates
(11,630
)
 
(11,494
)
AB Holding Units held for long-term incentive compensation plans
(86,961
)
 
(42,688
)
Accumulated other comprehensive loss
(107,777
)
 
(94,140
)
Partners’ capital attributable to AB Unitholders
3,940,067

 
4,061,740

Non-redeemable non-controlling interests in consolidated entities
1,685

 
1,564

Total capital
3,941,752

 
4,063,304

Total liabilities, redeemable non-controlling interest and capital
$
8,548,636

 
$
9,295,167

 
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 September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Investment advisory and services fees
 
$
610,063

 
$
543,107

 
$
1,782,287

 
$
1,572,560

Bernstein research services
 
103,581

 
108,385

 
324,192

 
330,596

Distribution revenues
 
104,488

 
106,042

 
317,610

 
302,745

Dividend and interest income
 
21,942

 
17,619

 
71,351

 
51,023

Investment gains (losses)
 
565

 
18,808

 
26,860

 
68,122

Other revenues
 
24,012

 
24,902

 
76,548

 
71,532

Total revenues
 
864,651

 
818,863

 
2,598,848

 
2,396,578

Less: Interest expense
 
14,475

 
6,713

 
36,147

 
17,198

Net revenues
 
850,176

 
812,150

 
2,562,701

 
2,379,380

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

Employee compensation and benefits
 
357,442

 
329,777

 
1,059,515

 
979,387

Promotion and servicing:
 
 
 
 
 
 

 
 

Distribution-related payments
 
106,372

 
106,106

 
322,827

 
300,951

Amortization of deferred sales commissions
 
4,651

 
7,629

 
17,362

 
25,015

Trade execution, marketing, T&E and other
 
50,793

 
50,266

 
164,095

 
155,993

General and administrative:
 
 
 
 
 
 

 
 

General and administrative
 
107,526

 
128,712

 
337,596

 
360,395

Real estate (credit) charges
 
(155
)
 
18,655

 
6,490

 
39,400

Contingent payment arrangements
 
52

 
(140
)
 
157

 
215

Interest on borrowings
 
2,711

 
2,105

 
7,952

 
6,227

Amortization of intangible assets
 
6,965

 
7,013

 
20,753

 
20,921

Total expenses
 
636,357

 
650,123

 
1,936,747

 
1,888,504

 
 
 
 
 
 
 
 
 
Operating income
 
213,819

 
162,027

 
625,954

 
490,876

 
 
 
 
 
 
 
 
 
Income taxes
 
9,419

 
4,547

 
32,782

 
24,869

 
 
 
 
 
 
 
 
 
Net income
 
204,400

 
157,480

 
593,172

 
466,007

 
 
 
 
 
 
 
 
 
Net income of consolidated entities attributable to non-controlling interests
 
726

 
16,526

 
23,637

 
50,013

 
 
 
 
 
 
 
 
 
Net income attributable to AB Unitholders
 
$
203,674

 
$
140,954

 
$
569,535

 
$
415,994

 
 
 
 
 
 
 
 
 
Net income per AB Unit:
 
 

 
 

 
 

 
 

Basic
 
$
0.75

 
$
0.53

 
$
2.09

 
$
1.54

Diluted
 
$
0.75

 
$
0.52

 
$
2.09

 
$
1.54


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 September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net income
 
$
204,400

 
$
157,480

 
$
593,172

 
$
466,007

Other comprehensive income (loss):
 
 

 
 

 
 
 
 
Foreign currency translation adjustment, before reclassification and tax
 
(4,154
)
 
7,735

 
(14,889
)
 
24,091

Less: reclassification adjustment for losses included in net income upon liquidation
 

 

 
(100
)
 

Foreign currency translation adjustments, before tax
 
(4,154
)
 
7,735

 
(14,789
)
 
24,091

Income tax benefit
 

 

 

 

Foreign currency translation adjustments, net of tax
 
(4,154
)
 
7,735

 
(14,789
)
 
24,091

Unrealized gains on investments:
 
 

 
 

 
 
 
 
Unrealized (losses) gains arising during period
 

 
(4
)
 

 
6

Less: reclassification adjustment for gains included in net income
 

 

 

 

Change in unrealized (losses) gains on investments
 

 
(4
)
 

 
6

Income tax benefit
 

 
5

 

 
3

Unrealized gains on investments, net of tax
 

 
1

 

 
9

Changes in employee benefit related items:
 
 

 
 

 
 
 
 
Amortization of prior service cost
 
6

 
6

 
17

 
18

Recognized actuarial gain
 
285

 
295

 
853

 
818

Changes in employee benefit related items
 
291

 
301

 
870

 
836

Income tax expense
 
(5
)
 
(2
)
 
(121
)
 
(81
)
Employee benefit related items, net of tax
 
286

 
299

 
749

 
755

  Other
 

 

 
374

 

Other comprehensive (loss) income
 
(3,868
)
 
8,035

 
(13,666
)
 
24,855

Less: Comprehensive income in consolidated entities attributable to non-controlling interests
 
721

 
16,554

 
23,608

 
50,990

Comprehensive income attributable to AB Unitholders
 
$
199,811

 
$
148,961

 
$
555,898

 
$
439,872

 
See Accompanying Notes to Condensed Consolidated Financial Statements.


4



ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Nine Months Ended September 30,
 
2018
 
2017
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
593,172

 
$
466,007

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

 
 

Amortization of deferred sales commissions
17,362

 
25,015

Non-cash long-term incentive compensation expense
13,051

 
26,947

Depreciation and other amortization
52,599

 
49,995

Unrealized (gains) losses on investments
(5,226
)
 
3,323

Unrealized gains on investments of consolidated company-sponsored investment funds
(23,755
)
 
(33,062
)
Other, net
585

 
10,195

Changes in assets and liabilities:
 

 
 

(Increase) decrease in segregated cash and securities
(446,556
)
 
161,531

(Increase) decrease in receivables
(179,020
)
 
8,079

Increase in investments
(30,130
)
 
(76,780
)
Decrease (increase) in investments of consolidated company-sponsored investment funds
966,737

 
(180,966
)
(Increase) decrease in deferred sales commissions
(3,974
)
 
1,871

Increase in other assets
(134,259
)
 
(33,003
)
(Decrease) increase in other assets and liabilities of consolidated company-sponsored investment funds, net
(663,220
)
 
327,284

Increase (decrease) in payables
584,282

 
(58,126
)
(Decrease) increase in accounts payable and accrued expenses
(22,908
)
 
23,982

Increase in accrued compensation and benefits
395,643

 
358,586

Net cash provided by operating activities
1,114,383

 
1,080,878

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchases of investments

 
(11
)
Proceeds from sales of investments

 
10

Purchases of furniture, equipment and leasehold improvements
(26,993
)
 
(24,952
)
Proceeds from sales of furniture, equipment and leasehold improvements

 
39

Net cash used in investing activities
(26,993
)
 
(24,914
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Repayment of commercial paper, net
(97,303
)
 
(220,363
)
(Repayment) proceeds of bank loans
(75,000
)
 

(Decrease) increase in overdrafts payable
(39,025
)
 
66,134

Distributions to General Partner and Unitholders
(652,991
)
 
(489,049
)
Redemptions of investments in consolidated company-sponsored investment funds, net
(518,601
)
 
(8,373
)
Capital contributions to non-controlling interests in consolidated entities

 
(43,217
)
Purchase of non-controlling interest

 
(1,833
)
Capital contributions (to) from affiliates
(1,344
)
 
79

Payments of contingent payment arrangements
(1,146
)
 
(6,344
)
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units
10,802

 
17,672

Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net
(82,710
)
 
(134,186
)
Purchases of AB Units
(129
)
 
(993
)

5


Debt issuance costs
(1,705
)
 

Net cash used in financing activities
(1,459,152
)
 
(820,473
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(9,139
)
 
17,458

 
 
 
 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(380,901
)
 
252,949

Cash and cash equivalents as of beginning of the period
998,448

 
994,510

Cash and cash equivalents as of end of the period
$
617,547

 
$
1,247,459

 
 
 
 
See Accompanying Notes to Condensed Consolidated Financial Statements.

6


ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2018
(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, 2017.

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 real estate investing and 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 the second quarter of 2018, AXA Equitable Holdings, Inc. ("EQH"), the holding company for a diversified financial services organization, conducted an initial public offering; AXA, a French holding company for AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management owns approximately 72% of the outstanding common stock of EQH as of September 30, 2018. AXA has announced its intention to sell its entire 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 September 30, 2018, EQH owns approximately 3.9% 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 September 30, 2018, 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
63.7
%
AB Holding
35.5

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 65.1% economic interest in AB as of September 30, 2018.

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, 2017 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 2018, prior period amounts for payments to financial intermediaries for administrative services, sub-accounting services and maintenance of books and records for certain funds previously presented as distribution-related payments are now presented as trade execution, marketing, T&E and other expenses in the condensed consolidated statements of income to conform to the current period's presentation.


8


2.
Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which outlines a single comprehensive revenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. We adopted this new standard on January 1, 2018 on a modified retrospective basis for contracts that were not completed as of the date of adoption.

The new standard did not change the timing of revenue recognition for our base fees, distribution revenues, shareholder servicing fees and broker-dealer revenues. However, performance-based fees, which, prior to the adoption of ASC 606, were recognized at the end of the applicable measurement period when no risk of reversal remained, and carried-interest distributions received (considered performance-based fees), recorded as deferred revenues until no risk of reversal remained, may in certain instances be recognized earlier under the new standard, if it is probable that significant reversal of performance-based fees recognized will not occur.

On January 1, 2018, we recorded a cumulative effect adjustment, net of tax, of a $35.0 million increase to partners’ capital in the condensed consolidated statement of financial condition. This amount represents carried interest distributions of $77.9 million previously received, net of revenue sharing payments to investment team members of $42.7 million, with respect to which it is probable that significant reversal will not occur.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendment addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The amendment is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard requires that the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Companies are also required to reconcile such total amounts in the balance sheet and disclose the nature of the restrictions. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendment requires that an employer disaggregate the service cost component from the other components of net benefit costs on the income statement. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation, Scope of Modification Accounting. The amendment provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases. This pronouncement, along with subsequent ASUs issued to clarify certain provisions of ASU 2016-02, requires lessees to record most leases on their 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 existing lease accounting guidance. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. We plan to adopt the new standard for our fiscal year beginning January 1, 2019, using the simplified transition method.
As of January 1, 2019, we expect to record an increase in assets ranging between $400 million to $450 million and an increase in liabilities ranging between $550 million to $600 million, respectively, on our statement of financial condition as a result

9


of recognizing right-of-use assets and lease liabilities for our real estate leases. The right-of-use assets recognized as of January 1, 2019 are substantially net of deferred rent and liabilities associated with previously recognized impairments as of December 31, 2018. These estimated ranges are based on our anticipated real estate lease portfolio as of January 1, 2019, and it does not include the potential impacts of re-measurement due to changes in our assessment of the lease term subsequent to our adoption of the standard. In addition, we are evaluating the impact of recording right-of-use assets and lease liabilities for non-real estate leases on our statement of financial condition. The adoption of this standard will not have a material impact on our results of operations.
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 ending after December 15, 2019, with early adoption permitted. Management currently is evaluating the impact that adoption of this standard will have on our consolidated financial statements.
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 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. The adoption of this standard 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.

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 postretirement 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.

Revenue Recognition

Investment advisory and services fees
AB provides asset management services by managing customer assets and seeking to deliver investment returns to investors. Each investment management contract between AB and a customer creates a distinct, separately identifiable performance obligation for each day the customer’s assets are managed as the customer can benefit from each day of service. In accordance with ASC 606, a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer are treated as a single performance obligation. Accordingly, we have determined that our investment and advisory services are performed over time and entitle us to variable consideration earned based upon the value of the investors’ assets under management (“AUM”).


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We calculate AUM using established market-based valuation methods and fair valuation (non-observable market) methods. Market-based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures; evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; mid prices from recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing vendors and brokers for other derivative products. Fair valuation methods include: discounted cash flow models, evaluation of assets versus liabilities or any other methodology that is validated and approved by our Valuation Committee (see paragraph immediately below for additional information about our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-based valuation methods, such as in the case of private equity or illiquid securities.

The Valuation Committee, which consists of senior officers and employees, is responsible for overseeing the pricing and valuation of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which reports to the Valuation Committee and is responsible for overseeing the pricing process for all investments.

We record as revenue investment advisory and services base fees, which we generally calculate as a percentage of AUM. At month-end, all the components of the transaction price (i.e., the base fee calculation) are no longer variable and the value of the consideration is determined. These fees are not subject to claw back and there is minimal probability that a significant reversal of the revenue recorded will occur. 

The transaction price for the asset management performance obligation for certain investment advisory contracts, including those associated with hedge funds or other alternative investments, provide for a performance-based fee (including carried interest), in addition to a base advisory fee, which is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. The performance-based fees are forms of variable consideration and are therefore excluded from the transaction price until it becomes probable that there will not be significant reversal of the cumulative revenue recognized. At each reporting date, we evaluate the constraining factors, discussed below, surrounding the variable consideration to determine the extent to which, if any, revenues associated with the performance-based fee can be recognized.

Constraining factors impacting the amount of variable consideration included in the transaction price include: the contractual claw-back provisions to which the variable consideration is subject, the length of time to which the uncertainty of the consideration is subject, the number and range of possible consideration amounts, the probability of significant fluctuations in the fund’s market value, the level at which the fund’s value exceeds the contractual threshold required to earn such a fee, and the materiality of the amount being evaluated.

Prior to the adoption of ASC 606 on January 1, 2018, we recognized performance-based fees at the end of the applicable measurement period when no risk of reversal remained, and carried-interest distributions received as deferred revenues until no risk of reversal remained.

Bernstein Research Services
Bernstein Research Services revenue consists principally of commissions received for trade execution services and providing equity research services to institutional clients. Brokerage commissions for trade execution services and related expenses are recorded on a trade-date basis when the performance obligations are satisfied. Generally, the transaction price is agreed upon at the point of each trade and based upon the number of shares traded or the value of the consideration traded. Research revenues are recognized when the transaction price is quantified, collectability is assured and significant reversal of such revenue is not probable.

Distribution Revenues
Two of our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. Depending upon the contractual arrangements with the customer and the specific product sold, the variable consideration can be determined in different ways, as discussed below, as we satisfy the performance obligation.

Most open-end U.S. funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out of assets of the fund, distribution and service fees for the distribution and sale of its shares (“Rule 12b-1 Fees”). The open-end U.S. funds have such agreements with us, and we have selling and distribution agreements pursuant to which we pay sales commissions to the financial intermediaries that distribute our open-end U.S. funds. These agreements are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares.

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We record 12b-1 fees monthly based upon a percentage of the net asset value (“NAV”) of the funds. At month-end, the variable consideration of the transaction price is no longer constrained as the NAV can be calculated and the value of consideration is determined. These services are separate and distinct from other asset management services as the customer can benefit from these services independently of other services. We accrue the corresponding 12b-1 fees paid to sub-distributors monthly as the expenses are incurred. We are acting in a principal capacity in these transactions; as such, these revenues and expenses are recorded on a gross basis.

We offer back-end load shares in limited instances and charge the investor a contingent deferred sales charge (“CDSC”) if the investment is redeemed within a certain period. The variable consideration for these contracts is contingent upon the timing of the redemption by the investor and the value of the sale proceeds. Due to these constraining factors, we exclude the CDSC fee from the transaction price until the investor redeems the investment. Upon redemption, the cash consideration received for these contractual arrangements are recorded as reductions of unamortized deferred sales commissions.