ALLIANCEBERNSTEIN HOLDING L.P. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the General Partner and Unitholders of AllianceBernstein Holding L.P. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying statements of financial condition of AllianceBernstein Holding L.P. (the “Company”) as of December 31, 2020 and 2019, and the related statements of income, of comprehensive income, of changes in partners’ capital and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 66 Table of Contents Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Measurement of Equity in Net Income Attributable to AB Unitholders – Performance-Based Fees As described in Notes 1 and 2 to the financial statements, the Company’s principal source of income and cash flow is attributable to its investment in AllianceBernstein L.P. (AB) limited partnership interests. The equity in net income attributable to AB unitholders was $308.4 million for the year ended December 31, 2020. The Company records its investment in AB using the equity method of accounting. The Company’s investment is increased to reflect its proportionate share of income of AB, decreased to reflect its proportionate share of losses of AB and cash distributions made by AB to its unitholders and adjusted to reflect its proportionate share of certain capital transactions of AB. The Company’s proportionate share of income of AB includes performance-based fees recognized by AB. As disclosed by management, the transaction price for the asset management performance obligation for certain hedge fund and alternative investment advisory contracts, provide for a performance-based fee, in addition to the 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. 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 and the level at which the fund’s value exceeds the contractual threshold required to earn such a fee. With respect to the constraining factors related to the fund’s market value, management measures assets under management (AUM) using established market-based valuation methods and fair valuation (non-observable market) methods. Fair valuation methods, including discounted cash flow models and other 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 principal considerations for our determination that performing procedures relating to the measurement of equity in net income attributable to AB unitholders - performance-based fees is a critical audit matter are the significant audit effort in performing procedures and evaluating evidence related to these fees, including evaluating evidence related to the constraining factors impacting the amount of variable consideration, and the audit effort also included the involvement of professionals with specialized skill and knowledge to assist in evaluating management’s estimate of the funds’ market value where fair valuation methods are used. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to equity in net income attributable to AB Unitholders, including controls relating to AB’s revenue recognition process for performance-based fees, including controls over the assessment of constraining factors and the valuation of AUM. These procedures also included, among others, testing management’s process for determining performance-based fees, including evaluating the appropriateness of the methods used, testing the contractual claw-back provisions to which the variable consideration is subject and, on a sample basis, evaluating the reasonableness of management’s assumptions related to the length of time to which the uncertainty of the consideration is subject, the number and range of possible consideration amounts and the probability of significant fluctuations in the funds’ market value and, as applicable, the level at which a fund’s value exceeded the contractual threshold required to earn such fees. In evaluating management’s estimates of the funds’ market value, procedures included the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of securities used in determining the underlying funds’ market value where fair valuation methods are used, and comparison of management’s estimate of the securities’ fair value to the independently developed ranges. Developing the independent estimate of securities’ fair value involved testing the completeness and accuracy of data provided by management and independently developing the significant assumptions for the sampled securities. /s/PricewaterhouseCoopers LLP New York, New York February 11, 202 1 We have served as the Company’s auditor since 2006. 67 Table of Contents AllianceBernstein Holding L.P. Statements of Financial Condition December 31, 2020 2019 (in thousands, except unit amounts) ASSETS Investment in AB $ 1,605,941 $ 1,554,203 Other assets 92 61 Total assets $ 1,606,033 $ 1,554,264 LIABILITIES AND PARTNERS’ CAPITAL Liabilities: Other liabilities $ 1,876 $ 1,726 Total liabilities 1,876 1,726 Commitments and contingencies ( See Note 7 ) Partners’ capital: General Partner: 100,000 general partnership units issued and outstanding 1,410 1,402 Limited partners: 98,222,942 and 98,092,098 limited partnership units issued and outstanding 1,656,816 1,619,200 AB Holding Units held by AB to fund long-term incentive compensation plans ( 20,171 ) ( 27,436 ) Accumulated other comprehensive loss ( 33,898 ) ( 40,628 ) Total partners’ capital 1,604,157 1,552,538 Total liabilities and partners’ capital $ 1,606,033 $ 1,554,264 See Accompanying Notes to Financial Statements. 68 Table of Contents AllianceBernstein Holding L.P. Statements of Income Years Ended December 31, 2020 2019 2018 (in thousands, except per unit amounts) Equity in net income attributable to AB Unitholders $ 308,404 $ 266,292 $ 270,647 Income taxes 29,024 27,729 28,250 Net income $ 279,380 $ 238,563 $ 242,397 Net income per unit: Basic $ 2.88 $ 2.49 $ 2.50 Diluted $ 2.88 $ 2.49 $ 2.50 See Accompanying Notes to Financial Statements. 69 Table of Contents AllianceBernstein Holding L.P. Statements of Comprehensive Income Years Ended December 31, 2020 2019 2018 (in thousands) Net income $ 279,380 $ 238,563 $ 242,397 Other comprehensive income (loss): Foreign currency translation adjustments, before reclassification and tax 8,579 1,900 ( 6,884 ) Less: reclassification adjustment for (losses) included in net income upon liquidation ( 77 ) — ( 36 ) Foreign currency translation adjustments, before tax 8,656 1,900 ( 6,848 ) Income tax (expense) benefit ( 310 ) ( 161 ) 217 Foreign currency translation adjustments, net of tax 8,346 1,739 ( 6,631 ) Changes in employee benefit related items: Amortization of prior service cost 8 6 8 Recognized actuarial (loss) gain ( 1,557 ) ( 3,011 ) 541 Changes in employee benefit related items ( 1,549 ) ( 3,005 ) 549 Income tax (expense) benefit ( 67 ) 99 ( 49 ) Employee benefit related items, net of tax ( 1,616 ) ( 2,906 ) 500 Other — — 133 Other comprehensive income (loss) 6,730 ( 1,167 ) ( 5,998 ) Comprehensive income $ 286,110 $ 237,396 $ 236,399 See Accompanying Notes to Financial Statements. 70 Table of Contents AllianceBernstein Holding L.P. Statements of Changes in Partners’ Capital Years Ended December 31, 2020 2019 2018 (in thousands) General Partner’s Capital Balance, beginning of year $ 1,402 $ 1,385 $ 1,411 Net income 288 249 250 Cash distributions to Unitholders ( 280 ) ( 232 ) ( 288 ) Impact of adoption of revenue recognition standard ASC 606 — — 12 Balance, end of year 1,410 1,402 1,385 Limited Partners’ Capital Balance, beginning of year 1,619,200 1,555,892 1,590,776 Net income 279,092 238,314 242,147 Cash distributions to Unitholders ( 270,601 ) ( 222,253 ) ( 280,434 ) Retirement of AB Holding Units ( 78,388 ) ( 110,752 ) ( 194,544 ) Issuance of AB Holding Units to fund long-term incentive compensation plan awards 107,366 146,488 168,955 Exercise of compensatory options to buy AB Holding Units 147 11,511 16,589 Impact of adoption of revenue recognition standard ASC 606 — — 12,536 Other — — ( 133 ) Balance, end of year 1,656,816 1,619,200 1,555,892 AB Holding Units held by AB to fund long-term incentive compensation plans Balance, beginning of year ( 27,436 ) ( 27,759 ) ( 15,174 ) Change in AB Holding Units held by AB to fund long-term incentive compensation plans 7,265 323 ( 12,585 ) Balance, end of year ( 20,171 ) ( 27,436 ) ( 27,759 ) Accumulated Other Comprehensive (Loss) Income Balance, beginning of year ( 40,628 ) ( 39,461 ) ( 33,463 ) Foreign currency translation adjustment, net of tax 8,346 1,739 ( 6,631 ) Changes in employee benefit related items, net of tax ( 1,616 ) ( 2,906 ) 500 Other — — 133 Balance, end of year ( 33,898 ) ( 40,628 ) ( 39,461 ) Total Partners’ Capital $ 1,604,157 $ 1,552,538 $ 1,490,057 See Accompanying Notes to Financial Statements. 71 Table of Contents AllianceBernstein Holding L.P. Statements of Cash Flows Years Ended December 31, 2020 2019 2018 (in thousands) Cash flows from operating activities: Net income $ 279,380 $ 238,563 $ 242,397 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income attributable to AB Unitholders ( 308,404 ) ( 266,292 ) ( 270,647 ) Cash distributions received from AB 298,919 249,463 308,042 Changes in assets and liabilities: (Increase) in other assets ( 31 ) ( 61 ) — Increase (decrease) in other liabilities 150 1,082 ( 510 ) Net cash provided by operating activities 270,014 222,755 279,282 Cash flows from investing activities: Investments in AB with proceeds from exercises of compensatory options to buy AB Holding Units ( 147 ) ( 11,511 ) ( 16,589 ) Net cash used in investing activities ( 147 ) ( 11,511 ) ( 16,589 ) Cash flows from financing activities: Cash distributions to Unitholders ( 270,881 ) ( 222,485 ) ( 280,722 ) Capital contributions from (to) AB 867 ( 270 ) 1,440 Proceeds from exercise of compensatory options to buy AB Holding Units 147 11,511 16,589 Net cash used in financing activities ( 269,867 ) ( 211,244 ) ( 262,693 ) Change in cash and cash equivalents — — — Cash and cash equivalents as of beginning of the year — — — Cash and cash equivalents as of end of the year $ — $ — $ — Cash paid: Income taxes $ 28,906 $ 26,650 $ 28,766 Non-cash investing activities: Issuance of AB Holding Units to fund long-term incentive compensation plan awards 107,366 146,488 168,955 Retirement of AB Holding Units ( 78,388 ) ( 110,752 ) ( 194,544 ) See Accompanying Notes to Financial Statements. 72 Table of Contents AllianceBernstein Holding L.P. Notes to Financial Statements 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. Cross-references are in italics. 1. Business Description and Organization AB Holding’s principal source of income and cash flow is attributable to its investment in AB limited partnership interests. AB provides diversified investment management, research 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 Equitable Holdings, Inc. (" EQH ") and its 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 expertise in multi-asset strategies, wealth management, environmental, social and corporate governance ( "ESG" ) 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; • Alternative investments, including hedge funds, fund of funds, direct lending, real estate and private equity; • Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds; and • Some passive management, including index and enhanced index strategies. Organization During the second quarter of 2018, AXA S.A. (" AXA ") completed the sale of a minority stake in EQH through an initial public offering (" IPO "). Since then, AXA has completed additional offerings and taken other steps, most recently during the fourth quarter of 2019. As a result, AXA owned less than 10 % of the outstanding common stock of EQH as of December 31, 2020. 73 Table of Contents As of December 31, 2020, EQH owns approximately 4.1 % 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 December 31, 2020, the ownership structure of AB, expressed as a percentage of general and limited partnership interests, was as follows: EQH and its subsidiaries 63.3 % AB Holding 36.0 Unaffiliated holders 0.7 100.0 % Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate 64.8 % economic interest in AB as of December 31, 2020. 2. Summary of Significant Accounting Policies Basis of Presentation The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. AB Holding’s financial statements and notes should be read in conjunction with the consolidated financial statements and notes of AB, which are included in this Form 10-K. Investment in AB 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. 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 February 11, 2021, the General Partner declared a distribution of $ 0.97 per unit, representing a distribution of Available Cash Flow for the three months ended December 31, 2020. 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 March 4, 2021 to holders of record at the close of business on February 22, 2021. Total cash distributions per Unit paid to Unitholders during 2020, 2019 and 2018 were $ 2.79 , $ 2.32 and $ 2.88 , respectively. 74 Table of Contents 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 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. Repurchases of AB Holding Units for the years ended December 31, 2020 and 2019 consisted of the following: Years Ended December 31, 2020 2019 (in millions) Total amount of AB Holding Units Purchased (1) 5.4 6.0 Total Cash Paid for AB Holding Units Purchased (1) $ 149.0 $ 172.6 Open Market Purchases of AB Holding Units Purchased (2) 3.1 2.9 Total Cash Paid for Open Market Purchases of AB Holding Units (2) $ 74.0 $ 82.7 (1) Purchased on a trade date basis. (2) The remainder related to purchases of AB Holding Units from employees 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 to repurchase AB Holding Units on AB’s behalf in accordance with the terms and limitations specified in the plan. Repurchases are subject to regulations promulgated by the U.S. Securities and Exchange Commission (“ SEC ”) as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the fourth quarter of 2020 expired at the close of business on February 10, 2021. 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 2020, AB granted to employees and Eligible Directors 5.7 million restricted AB Holding Units (including 5.0 million granted in December for 2020 year-end awards). During 2019, AB granted to employees and Eligible Directors 7.7 million restricted AB Holding Units (including 5.4 million granted in December for 2019 year-end awards). AB used AB Holding Units repurchased during the periods and newly-issued AB Holding Units to fund theses awards. During 2020 and 2019, AB Holding issued 5,182 and 0.5 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $ 0.1 million and $ 11.5 million, respectively, received from award recipients as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units. 75 Table of Contents 3. Net Income Per Unit Basic net income per unit is derived by dividing net income by the basic weighted average number of units outstanding for each year. Diluted net income per unit is derived by adjusting net income for the assumed dilutive effect of compensatory options (“ Net income - diluted ”) and dividing by the diluted weighted average number of units outstanding for each year. Years Ended December 31, 2020 2019 2018 (in thousands, except per unit amounts) Net income - basic $ 279,380 $ 238,563 $ 242,397 Additional allocation of equity in net income attributable to AB resulting from assumed dilutive effect of compensatory options 56 79 447 Net income - diluted $ 279,436 $ 238,642 $ 242,844 Weighted average units outstanding - basic 96,870 95,884 97,041 Dilutive effect of compensatory options 27 44 251 Weighted average units outstanding - diluted 96,897 95,928 97,292 Basic net income per unit $ 2.88 $ 2.49 $ 2.50 Diluted net income per unit $ 2.88 $ 2.49 $ 2.50 Years Ended December 31, 2020 2019 2018 Anti-dilutive options excluded from diluted net income 29,056 29,056 49,784 4. Investment in AB Changes in AB Holding’s investment in AB for the years ended December 31, 2020 and 2019 are as follows: 2020 2019 (in thousands) Investment in AB as of January 1, $ 1,554,203 $ 1,490,701 Equity in net income attributable to AB Unitholders 308,404 266,292 Changes in accumulated other comprehensive income (loss) 6,730 ( 1,167 ) Cash distributions received from AB ( 298,919 ) ( 249,463 ) Additional investments with proceeds from exercises of compensatory options to buy AB Holding Units 147 11,511 Capital contributions (from) to AB ( 867 ) 270 AB Holding Units retired ( 78,388 ) ( 110,752 ) AB Holding Units issued to fund long-term incentive compensation plans 107,366 146,488 Change in AB Holding Units held by AB for long-term incentive compensation plans 7,265 323 Investment in AB as of December 31, $ 1,605,941 $ 1,554,203 76 Table of Contents 5. Units Outstanding Changes in AB Holding Units outstanding for the years ended December 31, 2020 and 2019 are as follows: 2020 2019 Outstanding as of January 1, 98,192,098 96,658,278 Options exercised 5,182 511,894 Units issued 3,363,132 4,833,715 Units retired ( 3,237,470 ) ( 3,811,789 ) Outstanding as of December 31, 98,322,942 98,192,098 6. 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. The principal reasons for the difference between AB Holding’s effective tax rates and the UBT statutory tax rate of 4.0 % are as follows: Years Ended December 31, 2020 2019 2018 (in thousands) UBT statutory rate $ 12,336 4.0 % $ 10,652 4.0 % $ 10,826 4.0 % Federal tax on partnership gross business income 28,522 9.2 27,197 10.2 27,674 10.2 State income taxes 502 0.2 532 0.2 576 0.2 Credit for UBT paid by AB ( 12,336 ) ( 4.0 ) ( 10,652 ) ( 4.0 ) ( 10,826 ) ( 4.0 ) Income tax expense and effective tax rate $ 29,024 9.4 $ 27,729 10.4 $ 28,250 10.4 AB Holding’s federal income tax is computed by multiplying certain AB qualifying revenues (primarily U.S. investment advisory fees, research payments 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. Years Ended December 31, % Change 2020 2019 2018 2020-19 2019-18 (in thousands) Net income attributable to AB Unitholders $ 865,952 $ 752,042 $ 757,588 15.1 % ( 0.7 ) % Multiplied by: weighted average equity ownership interest 35.6 % 35.4 % 35.7 % Equity in net income attributable to AB Unitholders $ 308,404 $ 266,292 $ 270,647 15.8 ( 1.6 ) AB qualifying revenues $ 2,704,137 $ 2,640,169 $ 2,647,254 2.4 ( 0.3 ) Multiplied by: weighted average equity ownership interest for calculating tax 30.1 % 29.4 % 29.9 % Multiplied by: federal tax 3.5 % 3.5 % 3.5 % Federal income taxes 28,522 27,197 27,674 State income taxes 502 532 576 Total income taxes $ 29,024 $ 27,729 $ 28,250 4.7 ( 1.8 ) 77 Table of Contents 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. We recognize the effects of a tax position in the financial statements only if, as of the reporting date, it is “more likely than not” to be sustained based solely on its technical merits. In making this assessment, we assume that the taxing authority will examine the tax position and have full knowledge of all relevant information. Accordingly, we have no liability for unrecognized tax benefits as of December 31, 2020 and 2019. A liability for unrecognized tax benefits, if required, would be recorded in income tax expense and affect the company’s effective tax rate. As of December 31, 2020, AB Holding is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2016. 7. 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 the 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. 78 Table of Contents 8. Quarterly Financial Data (Unaudited) Quarters Ended 2020 December 31 September 30 June 30 March 31 (in thousands, except per unit amounts) Equity in net income attributable to AB Unitholders $ 101,415 $ 73,874 $ 63,201 $ 69,914 Net income $ 93,196 $ 66,999 $ 56,926 $ 62,259 Basic net income per unit (1) $ 0.97 $ 0.70 $ 0.59 $ 0.63 Diluted net income per unit (1) $ 0.97 $ 0.70 $ 0.59 $ 0.63 Cash distributions per unit (2)(3) $ 0.97 $ 0.69 $ 0.61 $ 0.64 Quarters Ended 2019 December 31 September 30 June 30 March 31 (in thousands, except per unit amounts) Equity in net income attributable to AB Unitholders $ 87,909 $ 66,722 $ 59,023 $ 52,638 Net income $ 80,022 $ 59,828 $ 52,274 $ 46,439 Basic net income per unit (1) $ 0.84 $ 0.62 $ 0.54 $ 0.49 Diluted net income per unit (1) $ 0.84 $ 0.62 $ 0.54 $ 0.49 Cash distributions per unit (2)(3) $ 0.85 $ 0.63 $ 0.56 $ 0.49 ________________________ (1) Basic and diluted net income per unit are computed independently for each of the periods presented. Accordingly, the sum of the quarterly net income per unit amounts may not agree to the total for the year. (2) Declared and paid during the following quarter. (3) Cash distributions reflect the impact of AB’s non-GAAP adjustments. 79 Table of Contents R eport of Independent Registered Public Accounting Firm To the General Partner and Unitholders of AllianceBernstein L.P. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of financial condition of AllianceBernstein L.P. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, of comprehensive income, of changes in partners’ capital and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 80 Table of Contents Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Performance-Based Fees As described in Notes 2 and 3 to the consolidated financial statements, performance-based fees earned were $132.6 million for the year ended December 31, 2020. The transaction price for the asset management performance obligation for certain hedge fund and alternative investment advisory contracts, provide for a performance-based fee, in addition to the 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. 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 and the level at which the fund’s value exceeds the contractual threshold required to earn such a fee. With respect to the constraining factors related to the fund’s market value, management measures assets under management (AUM) using established market-based valuation methods and fair valuation (non-observable market) methods. Fair valuation methods, including discounted cash flow models and other 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 principal considerations for our determination that performing procedures relating to performance-based fees is a critical audit matter are the significant audit effort in performing procedures and evaluating evidence related to these fees, including evaluating evidence related to the constraining factors impacting the amount of variable consideration, and the audit effort also included the involvement of professionals with specialized skill and knowledge to assist in evaluating management's estimate of the funds' market value where fair valuation methods are used. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s revenue recognition process for performance-based fees, including controls over the assessment of constraining factors and the valuation of AUM. These procedures also included, among others, testing management’s process for determining performance-based fees, including evaluating the appropriateness of the methods used, testing the contractual claw-back provisions to which the variable consideration is subject and, on a sample basis, evaluating the reasonableness of management’s assumptions related to the length of time to which the uncertainty of the consideration is subject, the number and range of possible consideration amounts and the probability of significant fluctuations in the funds’ market value and, as applicable, the level at which a fund’s value exceeded the contractual threshold required to earn such fees. In evaluating management’s estimates of the funds’ market value, procedures included the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of securities used in determining the underlying funds’ market value where fair valuation methods are used, and comparison of management’s estimate of the securities’ fair value to the independently developed ranges. Developing the independent estimate of securities’ fair value involved testing the completeness and accuracy of data provided by management and independently developing the significant assumptions for the sampled securities. /s/PricewaterhouseCooper LLP New York, New York February 11, 2021 We have served as the Company’s auditor since 2006. 81 Table of Contents AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Financial Condition December 31, 2020 2019 (in thousands, except unit amounts) ASSETS Cash and cash equivalents $ 1,037,400 $ 679,738 Cash and securities segregated, at fair value (cost $1,752,483 and $1,090,443) 1,753,478 1,094,866 Receivables, net: Brokers and dealers 92,638 97,966 Brokerage clients 1,713,377 1,536,674 AB funds fees 325,407 261,588 Other fees 148,746 148,744 Investments: Long-term incentive compensation-related 60,114 50,902 Other 193,261 215,892 Assets of consolidated company-sponsored investment funds: Cash and cash equivalents 36,506 11,433 Investments 302,582 581,004 Other assets 12,244 19,810 Furniture, equipment and leasehold improvements, net 147,874 145,251 Goodwill 3,082,778 3,076,926 Intangible assets, net 44,496 55,366 Deferred sales commissions, net 64,066 36,296 Right-of-use assets 418,455 362,693 Other assets 264,418 330,943 Total assets $ 9,697,840 $ 8,706,092 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL Liabilities: Payables: Brokers and dealers $ 216,403 $ 201,778 Securities sold not yet purchased 17,791 30,157 Brokerage clients 3,440,266 2,531,946 AB mutual funds 65,550 71,142 Accounts payable and accrued expenses 197,657 192,110 Lease liabilities 505,549 468,451 Liabilities of consolidated company-sponsored investment funds 30,620 31,017 Accrued compensation and benefits 335,122 276,829 Debt 675,000 560,000 Total liabilities 5,483,958 4,363,430 82 Table of Contents December 31, 2020 2019 Commitments and contingencies (See Note 14) Redeemable non-controlling interest 102,359 325,561 Capital: General Partner 41,776 41,225 Limited partners: 270,509.658 and 270,380.314 units issued and outstanding 4,229,485 4,174,201 Receivables from affiliates (8,316) (9,011) AB Holding Units held for long-term incentive compensation plans (57,219) (76,310) Accumulated other comprehensive loss (94,203) (113,004) Partners’ capital attributable to AB Unitholders 4,111,523 4,017,101 Total liabilities, redeemable non-controlling interest and capital $ 9,697,840 $ 8,706,092 See Accompanying Notes to Consolidated Financial Statements. 83 Table of Contents AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Income Years Ended December 31, 2020 2019 2018 (in thousands, except per unit amounts) Revenues: Investment advisory and services fees $ 2,595,436 $ 2,472,044 $ 2,362,211 Bernstein research services 459,744 407,911 439,432 Distribution revenues 529,781 455,043 418,562 Dividend and interest income 50,923 104,421 98,226 Investment (losses) gains (16,401) 38,659 2,653 Other revenues 104,703 97,559 98,676 Total revenues 3,724,186 3,575,637 3,419,760 Less: Interest expense 15,650 57,205 52,399 Net revenues 3,708,536 3,518,432 3,367,361 Expenses: Employee compensation and benefits 1,494,198 1,442,783 1,378,811 Promotion and servicing: Distribution-related payments 569,283 487,965 427,186 Amortization of deferred sales commissions 27,355 15,029 21,343 Trade execution, marketing, T&E and other 189,787 219,860 222,630 General and administrative: General and administrative 485,544 484,750 448,996 Real estate charges 5,526 3,324 7,160 Contingent payment arrangements 1,855 (510) (2,219) Interest on borrowings 6,180 13,035 10,359 Amortization of intangible assets 21,372 28,759 27,781 Total expenses 2,801,100 2,694,995 2,542,047 Operating income 907,436 823,437 825,314 Income tax 45,653 41,754 45,816 Net income 861,783 781,683 779,498 Net (loss) income of consolidated entities attributable to non-controlling interests (4,169) 29,641 21,910 Net income attributable to AB Unitholders $ 865,952 $ 752,042 $ 757,588 Net income per AB Unit: Basic $ 3.19 $ 2.78 $ 2.79 Diluted $ 3.19 $ 2.78 $ 2.78 See Accompanying Notes to Consolidated Financial Statements. 84 Table of Contents AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31, 2020 2019 2018 (in thousands) Net income $ 861,783 $ 781,683 $ 779,498 Other comprehensive income: Foreign currency translation adjustments, before reclassification and tax: 23,882 5,986 (19,337) Less: reclassification adjustment for losses included in net income upon liquidation (216) — (100) Foreign currency translation adjustments, before tax 24,098 5,986 (19,237) Income tax (expense) benefit (854) (383) 620 Foreign currency translation adjustments, net of tax 23,244 5,603 (18,617) Changes in employee benefit related items: Amortization of prior service cost 24 24 24 Recognized actuarial (loss) gain (4,280) (7,891) 1,586 Changes in employee benefit related items (4,256) (7,867) 1,610 Income tax benefit (expense) (187) 274 (139) Employee benefit related items, net of tax (4,443) (7,593) 1,471 Other — — 374 Other comprehensive gain (loss) 18,801 (1,990) (16,772) Less: Comprehensive (loss) income in consolidated entities attributable to non-controlling interests (4,169) 29,788 21,864 Comprehensive income attributable to AB Unitholders $ 884,753 $ 749,905 $ 740,862 See Accompanying Notes to Consolidated Financial Statements. 85 Table of Contents AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Changes in Partners’ Capital Years Ended December 31, 2020 2019 2018 (in thousands) General Partner’s Capital Balance, beginning of year $ 41,225 $ 40,240 $ 41,221 Net income 8,660 7,521 7,576 Cash distributions to General Partner (8,376) (7,042) (8,608) Long-term incentive compensation plans activity (23) 149 (39) Issuance (retirement) of AB Units, net 290 357 (256) Impact of adoption of revenue recognition standard ASC 606 — — 349 Other — — (3) Balance, end of year 41,776 41,225 40,240 Limited Partners' Capital Balance, beginning of year 4,174,201 4,075,306 4,168,841 Net income 857,292 744,521 750,012 Cash distributions to Unitholders (828,503) (696,470) (849,585) Long-term incentive compensation plans activity (2,147) 14,741 (3,880) Issuance (retirement) of AB Units, net 28,642 35,259 (25,486) Impact of adoption of revenue recognition standard ASC 606 — — 34,601 Other — 844 803 Balance, end of year 4,229,485 4,174,201 4,075,306 Receivables from Affiliates Balance, beginning of year (9,011) (11,430) (11,494) Capital contributions from General Partner — — 19 Compensation plan accrual — — 352 Long-term incentive compensation awards expense 802 1,125 — Capital contributions from AB Holding (107) 1,294 (307) Balance, end of year (8,316) (9,011) (11,430) AB Holding Units held for Long-term Incentive Compensation Plans Balance, beginning of year (76,310) (77,990) (42,688) Purchases of AB Holding Units to fund long-term compensation plans, net (148,624) (171,930) (267,427) (Issuance) retirement of AB Units, net (28,696) (35,736) 25,589 Long-term incentive compensation awards expense 194,840 207,057 187,514 Re-valuation of AB Holding Units held in rabbi trust 1,556 (4,403) 19,022 Other 15 6,692 — Balance, end of year (57,219) (76,310) (77,990) Accumulated Other Comprehensive Income (Loss) Balance, beginning of year (113,004) (110,866) (94,140) Foreign currency translation adjustment, net of tax 23,244 5,455 (18,571) Changes in employee benefit related items, net of tax (4,443) (7,593) 1,471 Unrealized gain on investments, net of tax — — — Other — — 374 Balance, end of year (94,203) (113,004) (110,866) Total Partners' Capital attributable to AB Unitholders 4,111,523 4,017,101 3,915,260 86 Table of Contents Years Ended December 31, 2020 2019 2018 Non-redeemable Non-controlling Interests in Consolidated Entities Balance, beginning of year — 949 1,564 Net income — 91 69 Foreign currency translation adjustment — 147 (46) Purchase of non-controlling interest — (1,187) — Distributions (to) non-controlling interests of our consolidated venture capital fund activities — — (638) Balance, end of year — — 949 Total Capital $ 4,111,523 $ 4,017,101 $ 3,916,209 See Accompanying Notes to Consolidated Financial Statements. 87 Table of Contents AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2020 2019 2018 (in thousands) Cash flows from operating activities: Net income $ 861,783 $ 781,683 $ 779,498 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred sales commissions 27,355 15,029 21,343 Non-cash long-term incentive compensation expense 195,642 208,182 187,514 Depreciation and other amortization 138,240 166,542 70,000 Unrealized losses (gains) on investments 10,405 (13,431) 23,164 Unrealized (gains) on investments of consolidated company-sponsored investment funds (854) (36,150) (14,217) Other, net (2,914) 10,281 (6,446) Changes in assets and liabilities: (Increase) decrease in securities, segregated (658,612) 74,688 (353,204) (Increase) decrease in receivables (182,684) 223,137 (207,000) Decrease (increase) in investments 7,597 460,347 (294,383) Decrease (increase) in investments of consolidated company-sponsored investment funds 279,276 (193,158) 908,804 (Increase) in deferred sales commissions (55,125) (34,177) (8,365) (Increase) in right-of-use assets (131,765) (11,141) — Decrease (increase) in other assets 69,160 (23,140) (152,726) Increase (decrease) in other assets and liabilities of consolidated company-sponsored investment funds, net 7,169 11,437 (662,934) Increase (decrease) in payables 861,502 (641,369) 1,024,317 Increase (decrease) in lease liabilities 37,695 (107,276) — Increase (decrease) in accounts payable and accrued expenses 10,666 (56,518) (11,225) Increase (decrease) in accrued compensation and benefits 46,885 (7,486) 4,341 Net cash provided by operating activities 1,521,421 827,480 1,308,481 Cash flows from investing activities: Purchases of equity method investments (4,079) — — Purchases of furniture, equipment and leasehold improvements (41,504) (28,303) (32,789) Acquisition of businesses, net of cash acquired (13,552) 5,255 — Net cash used in investing activities (59,135) (23,048) (32,789) 88 Table of Contents Years Ended December 31, 2020 2019 2018 Cash flows from financing activities: Proceeds (repayment) of debt 115,000 2,105 (25,454) (Decrease) increase in overdrafts payable (12,633) (59,924) 3,273 Distributions to General Partner and Unitholders (836,879) (703,512) (858,193) Capital contributions (to) non-controlling interests in consolidated entities — — (638) (Redemptions) subscriptions of non-controlling interests of consolidated company-sponsored investment funds, net (219,033) 150,091 (472,143) Capital contributions (to) from affiliates (867) 269 (1,421) Interest accretion, net of (payments) on contingent payment arrangements 1,921 (1,991) (1,093) Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units 147 11,511 16,589 Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net (148,624) (171,930) (267,427) Other (1,615) (1,580) (2,151) Net cash used in financing activities (1,102,583) (774,961) (1,608,658) Effect of exchange rate changes on cash and cash equivalents 23,032 8,376 (12,158) Net increase (decrease) in cash and cash equivalents 382,735 37,847 (345,124) Cash and cash equivalents as of beginning of the period 691,171 653,324 998,448 Cash and cash equivalents as of end of the period $ 1,073,906 $ 691,171 $ 653,324 Cash paid: Interest paid $ 18,858 $ 66,002 $ 60,286 Income taxes paid 59,791 52,444 41,946 Non-cash investing activities: Fair value of assets acquired (excluding cash acquired of $0.6 million and $11.8 million) 18,389 28,966 — Fair value of liabilities assumed 437 16,837 — Non-cash financing activities: Payables recorded under contingent payment arrangements 4,400 17,384 — See Accompanying Notes to Consolidated Financial Statements. 89 Table of Contents AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements 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. Cross-references are in italics. 1. Business Description and Organization We provide diversified investment management, research 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 Equitable Holdings, Inc. (" EQH ") and its 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 expertise in multi-asset strategies, wealth management, environmental, social and corporate governance ( "ESG" ) 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; • Alternative investments, including hedge funds, fund of funds, direct lending, real estate and private equity; • Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds; and • Some passive management, including index and enhanced index strategies. Organization During the second quarter of 2018, AXA S.A. (" AXA ") completed the sale of a minority stake in EQH through an initial public offering (" IPO "). Since then, AXA has completed additional offerings and taken other steps, most recently during the fourth quarter of 2019. As a result, AXA owned less than 10% of the outstanding common stock of EQH as of December 31, 2020. As of December 31, 2020, EQH owned approximately 4.1% 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. 90 Table of Contents As of December 31, 2020, the ownership structure of AB, including limited partnership units outstanding as well as the general partner's 1% interest, was as follows: EQH and its subsidiaries 63.3 % AB Holding 36.0 Unaffiliated holders 0.7 100.0 % Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate 64.8% economic interest in AB as of December 31, 2020. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ( "US GAAP" ). The preparation of the consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include 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 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. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) . This new guidance related to the accounting for credit losses on financial instruments and introduced 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. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment . The guidance removed Step 2 of the goodwill impairment test, which had required 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. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not 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 modified the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations. In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendment aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements that currently exist in GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software. Implementation costs are either capitalized or expensed as incurred depending on the project stage. All costs in the preliminary and post-implementation project stages are expensed as incurred, while certain costs within the application development stage are capitalized. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations. 91 Table of Contents In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The amendment was intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance was effective beginning on March 12, 2020, and can be applied to amendments prospectively through December 31, 2022. An entity may elect to apply the amendments in this update, as well as amendments include in ASU 2021-01 issued in January 2021, as of the beginning of the interim period that includes March 12, 2020. We adopted these standards prospectively on January 1, 2020. The adoption of these standards did not have a material impact on our financial condition or results of operations. Accounting Pronouncements Not Yet Adopted in 2020 In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20) . The amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The revised guidance is effective for financial statements issued for fiscal years beginning after December 15, 2020. The revised guidance will not have a material impact on our financial condition or results of operations. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The revised guidance is effective for financial statements issued for fiscal years beginning after December 15, 2020. The revised guidance will not 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 on the value of the investors’ assets under management (“ AUM ”). 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 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 92 Table of Contents 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. Bernstein Research Services Bernstein Research Services revenue consists principally of commissions received, and to a lesser but increasing extent, direct payments 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. The variable consideration can be determined in different ways, as discussed below , as we satisfy the performance obligation depending on the contractual arrangements with the customer and the specific product sold. 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. 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 on 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. Our Luxembourg subsidiary, the management company for most of our non-U.S. funds, earns a management fee that is accrued daily and paid monthly, at an annual rate, based on the average daily net assets of the fund. With respect to certain share classes, the management fee may also contain a component that is paid to distributors and other financial intermediaries and service providers to cover shareholder servicing and other administrative expenses (also referred to as an All-in-Fee). As we have concluded that asset management is distinct from distribution, we allocate a portion of the investment and advisory fee to distribution revenues for the servicing component based on standalone selling prices. Other Revenues Revenues from contracts with customers include a portion of other revenues, which consists primarily of shareholder servicing fees, as well as mutual fund reimbursements and other brokerage income. We provide shareholder services, which include transfer agency, administrative and recordkeeping services provided to company-sponsored mutual funds. The consideration for these services is based on a percentage of the NAV of the fund or a fixed-fee based on the number of shareholder accounts being serviced. The revenues are recorded at month-end when the constraining factors involved with determining NAV or the number of shareholders’ accounts are resolved. 93 Table of Contents Non-Contractual Revenues Dividend and interest income is accrued as earned. Investment gains and losses on the consolidated statements of income include unrealized gains and losses of trading and private equity investments stated at fair value, equity in earnings of our limited partnership hedge fund investments, and realized gains and losses on investments sold. Contract Assets and Liabilities We use the practical expedient for contracts that have an original duration of one year or less. Accordingly, we do not consider the time value of money and, instead, accrue the incremental costs of obtaining the contract when incurred. As of December 31, 2020, the balances of contract assets and contract liabilities are not considered material and, accordingly, no further disclosures are necessary. Consolidation of company-sponsored investment funds For legal entities (company-sponsored investment funds) evaluated for consolidation, we first determine whether the fees we receive and the interests we hold qualify as a variable interest in the entity, including an evaluation of fees paid to us as a decision maker or service provider to the entity being evaluated. Fees received by us are not variable interests if (i) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, conditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length, and (iii) our other economic interests in the entity held directly and indirectly through our related parties, as well as economic interests held by related parties under common control, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignificant amount of the entity’s benefits. For those entities in which we have a variable interest, we perform an analysis to determine whether the entity is a VIE by considering whether the entity’s equity investment at risk is insufficient, whether the investors lack decision making rights proportional to their ownership percentage of the entity, and whether the investors lack the obligation to absorb an entity’s expected losses or the right to receive an entity’s expected income. A VIE must be consolidated by its primary beneficiary, which generally is defined as the party that has a controlling financial interest in the VIE. We are deemed to have a controlling financial interest in a VIE if we have (i) the power to direct the activities of the VIE that most significantly affect the VIE's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive income from the VIE that could potentially be significant to the VIE. For purposes of evaluating (ii) above, fees paid to us as a decision maker or service provider are excluded if the amount of fees is commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length. The primary beneficiary evaluation generally is performed qualitatively based on all facts and circumstances, as well as quantitatively, as appropriate. If we have a variable interest in an entity that is determined not to be a VIE, the entity is then evaluated for consolidation under the VOE model. For limited partnerships and similar entities, we are deemed to have a controlling financial interest in a VOE, and would be required to consolidate the entity, if we own a majority of the entity’s kick-out rights through voting limited partnership interests and limited partners do not hold substantive participating rights (or other rights that would indicate that we do not control the entity). For entities other than limited partnerships, we are deemed to have a controlling financial interest in a VOE if we own a majority voting interest in the entity. The analysis performed regarding the determination of variable interests held, whether entities are VIEs or VOEs, and whether we have a controlling financial interest in such entities, requires the exercise of judgment. The analysis is updated continuously as circumstances change or new entities are formed. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits, money market accounts, overnight commercial paper and highly liquid investments with original maturities of three months or less. Due to the short-term nature of these instruments, the recorded value has been determined to approximate fair value (and considered Level 1 securities in the fair value hierarchy). Fees Receivable, Net Fees receivable are shown net of allowances. An allowance for doubtful accounts related to investment advisory and services fees is determined through an analysis of the aging of receivables, assessments of collectability based on historical trends and other qualitative and quantitative factors, including our relationship with the client, the financial health (or ability to pay) of the client, current economic conditions and whether the account is active or closed. The allowance for doubtful accounts is not material to fees receivable. 94 Table of Contents Brokerage Transactions Customers’ securities transactions are recorded on a settlement date basis, with related commission income and expenses reported on a trade date basis. Receivables from and payables to clients include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables; such collateral is not reflected in the consolidated financial statements. We have the ability by contract or custom to sell or re-pledge this collateral, and have done so at various times. As of December 31, 2020, there were no re-pledged securities. Principal securities transactions and related expenses are recorded on a trade date basis. Securities borrowed and securities loaned by our broker-dealer subsidiaries are recorded at the amount of cash collateral advanced or received in connection with the transaction and are included in receivables from and payables to brokers and dealers in the consolidated statements of financial condition. Securities borrowed transactions require us to deposit cash collateral with the lender. With respect to securities loaned, we receive cash collateral from the borrower. See Note 8 for securities borrowed and loaned amounts recorded in our consolidated statements of financial condition as of December 31, 2020 and 2019. The initial collateral advanced or received approximates or is greater than the fair value of securities borrowed or loaned. We monitor the fair value of the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate. As of December 31, 2020 and 2019, there is no allowance provision required for the collateral advanced. Income or expense is recognized over the life of the transaction. As of December 31, 2020 and 2019, we had $130.0 million and $204.0 million, respectively, of cash on deposit with clearing organizations for trade facilitation purposes, which are reported in other assets in our consolidated statements of financial condition. As of December 31, 2020 and 2019, we held no U.S. Treasury bills pledged as collateral. These clearing organizations have the ability by contract or custom to sell or re-pledge the collateral, if any. Current Expected Credit Losses- Receivables from Brokerage clients Receivables from clients is primarily composed of margin loan balances. The value of the securities owned by clients and held as collateral for these receivables is not reflected in the Consolidated Financial Statements and the collateral was not repledged or sold as of December 31, 2020 and 2019. We consider these financing receivables to be of good credit quality due to the fact that these receivables are primarily collateralized by the related client investments. To estimate expected credit losses on margin loans, we applied the collateral maintenance practical expedient by comparing the amortized cost basis of the margin loans with the fair value of the collateral at the reporting date. Margin loans are limited to a percentage of the total value of the securities held in the client's account against those loans. AB requires, in the event of a decline in the market value of the securities in a margin account, the client to deposit additional securities or cash so that, at all times, the value of the securities in the account, at a minimum, cover the loan to the client. As such, AB reasonably expects that the borrower will be able to continually replenish collateral securing the financial asset and does not expect the fair value of collateral to fall below the amortized cost bases of the margin loans and, as a result, we consider the credit risk associated with these receivables to be minimal. In circumstances when a loan becomes undercollateralized and the client fails to deposit additional securities or cash, AB reserves the right to liquidate the account. Current Expected Credit Losses - Receivables from Revenue Contracts with Customers The majority of our revenue receivables are from investment advisory and service fees, and distribution revenues, that are typically paid out of the client accounts or third-party products consisting of cash and securities. Due to the size of the fees in relation to the value of the cash and securities in account or funds, the account value always exceeds the amortized cost basis of the receivables, resulting in a remote risk of loss. These receivables have a short duration, generally due within 30-90 days and there is minimal historical evidence of non-payment or market declines that would cause the fair value of the underlying securities to decline below the amortized cost of the receivables. AB maintains an allowance for credit losses based upon an estimate of the amount of potential credit losses in existing accounts receivable, as determined from a review of aging schedules, past due balances, historical collection experience and other specific account data. Once determined uncollectible, aged balances are written off as credit loss expense. This determination is based on careful analysis of individual receivables and aging schedules, and generally occurs when the receivable becomes over 360 days past due. Our aged receivables and amounts written off related to credit losses in any year are not material. Furniture, Equipment and Leasehold Improvements, Net Furniture, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is recognized on a straight-line basis over the estimated useful lives of eight years for furniture and three to six years for equipment and software. Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the terms of the related leases. 95 Table of Contents Goodwill In 2000, AB acquired SCB Inc., an investment research and management company formerly known as Sanford C. Bernstein Inc. (“ Bernstein ”). The Bernstein acquisition was accounted for under the purchase method, and the cost of the acquisition was allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, resulted in the recognition of goodwill of approximately $3.0 billion. As of December 31, 2020, goodwill of $3.1 billion on the consolidated statement of financial condition included $2.8 billion as a result of the Bernstein acquisition and $282 million in regard to various smaller acquisitions. We have determined that AB has only one reporting segment and reporting unit. Goodwill is tested annually, as of September 30, for impairment utilizing the market approach where the fair value of the reporting unit is based on its unadjusted market valuation (AB Units outstanding multiplied by AB Holding's Unit price) and adjusted market valuations assuming a control premium (when applicable). The price of a publicly-traded AB Holding Unit serves as a reasonable starting point for valuing an AB Unit because each represents the same fractional interest in our underlying business. Throughout the year, the carrying value of goodwill is also reviewed for impairment if certain events or changes in circumstances occur, and trigger whether an interim impairment test may be required. Such changes in circumstances may include, but are not limited to, a sustained decrease in the price of an AB Holding Unit or declines in AB's market capitalization that would suggest that the fair value of the reporting unit is less than the carrying amount; significant and unanticipated declines in AB’s assets under management or revenues; and/or lower than expected earnings per unit. Any of these changes in circumstances could suggest the possibility that goodwill is impaired, but none of these events or circumstances by itself would indicate that it is more likely than not that goodwill is impaired. Instead, they are merely recognized as triggering events for the consideration of impairment and must be viewed in combination with any mitigating or positive factors. A holistic evaluation of all events since the most recent quantitative impairment test must be done to determine whether it is more likely than not that the reporting unit is impaired. As of September 30, 2020, the impairment test indicated that goodwill was not impaired. There were no facts or circumstances occurring in the fourth quarter of 2020 suggesting possible impairment. As of January 1, 2020, we adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment . The guidance removed Step 2 of the goodwill impairment test, which had required 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. Under this guidance, the goodwill impairment test no longer includes a determination by management of whether a decline in fair value is temporary; however, it is important to consider the impact of changing market conditions, including the severity and anticipated duration, is reflected in management's determination of fair value. Intangible Assets, Net Intangible assets consist primarily of costs assigned to acquired investment management contracts based on their estimated fair value at the time of acquisition, less accumulated amortization. Intangible assets are recognized at fair value and generally are amortized on a straight-line basis over their estimated useful life ranging from six years to 20 years. As of December 31, 2020, intangible assets, net of accumulated amortization, of $44.5 million on the consolidated statement of financial condition consists of $29.2 million of finite-lived intangible assets subject to amortization and $15.3 million of indefinite-lived intangible assets not subject to amortization. As of December 31, 2019, intangible assets, net of accumulated amortization, of $55.4 million on the consolidated statement of financial condition consisted of $41.9 million of finite-lived intangible assets subject to amortization, of which $15.5 million related to the Bernstein acquisition (which was fully amortized as of December 31, 2020), and $13.5 million of indefinite-lived intangible assets not subject to amortization in regard to other acquisitions. The gross carrying amount of finite-lived intangible assets totaled $65.1 million as of December 31, 2020 and $468.9 million as of December 31, 2019, and accumulated amortization was $35.9 million as of December 31, 2020 and $427.0 million as of December 31, 2019. Amortization expense was $21.4 million for 2020, $28.8 million for 2019 and $27.8 million for 2018. Estimated annual amortization expense for 2021 is approximately $6 million, $5 million in years two through four, then approximately $4 million in year five. We periodically review indefinite-lived intangible assets for impairment as events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value exceeds fair value, we perform additional impairment tests to measure the amount of the impairment loss, if any. During the fourth quarter of 2020, we recorded an impairment of $1.5 million relating to our 2016 acquisition of Ramius Alternative Solutions LLC. Due to the loss of acquired investment management contracts during 2020, the carrying value of the finite-lived intangible assets exceeded the fair value of the 96 Table of Contents contracts. We determined the fair value of the contracts using a discounted cashflow model. The impairment charge was recorded in general and administrative expenses in the consolidated statements of income. Deferred Sales Commissions, Net We pay commissions to financial intermediaries in connection with the sale of shares of open-end company-sponsored mutual funds sold without a front-end sales charge (“ back-end load shares ”). These commissions are capitalized as deferred sales commissions and amortized over periods not exceeding one year for U.S. fund shares and four years for Non-U.S. Fund shares, the periods of time during which deferred sales commissions generally are recovered. We recover these commissions from distribution services fees received from those funds and from CDSC received from shareholders of those funds upon the redemption of their shares. CDSC cash recoveries are recorded as reductions of unamortized deferred sales commissions when received. Since January 31, 2009, our U.S. mutual funds have not offered back-end load shares to new investors. We periodically review the deferred sales commission asset for impairment as events or changes in circumstances indicate that the carrying value may not be recoverable. If these factors indicate impairment in value, we compare the carrying value to the undiscounted cash flows expected to be generated by the asset over its remaining life. If we determine the deferred sales commission asset is not fully recoverable, the asset will be deemed impaired and a loss will be recorded in the amount by which the recorded amount of the asset exceeds its estimated fair value. There were no impairment charges recorded during 2020 or 2019. Leases We determine if an arrangement is a lease at inception. Both operating and finance leases are included in the right-of-use ( “ROU” ) assets and lease liabilities in our consolidated statement of financial condition. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available as of the lease commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. When calculating the measurement of ROU assets and lease liabilities, we utilize the fixed payments associated with the lease and do not include other variable contractual obligations, such as operating expenses, real estate taxes and employee parking. These costs are accounted for as period costs and expensed as incurred. Additionally, we exclude any intangible assets such as software licensing agreements as stated in ASC 842-10-15-1. These arrangements will continue to follow the guidance of ASC 350, Intangibles - Goodwill and Other . Loss Contingencies With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of the possible loss or range of loss 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. Contingent Payment Arrangements We periodically enter into contingent payment arrangements in connection with our business combinations. In these arrangements, we agree to pay additional consideration to the sellers to the extent that certain performance targets are achieved. We estimate the fair value of these potential future obligations at the time a business combination is consummated and record a liability on our consolidated statements of financial condition. We then accrete the obligation to its expected payment amount over the measurement period. If our expected payment amount subsequently changes, the obligation is modified in the current period resulting in a gain or loss. Both gains and losses resulting from changes to expected payments and the accretion of these obligations to their expected payment amounts are reflected within contingent payment arrangements in our consolidated 97 Table of Contents statements of income. During the fourth quarter of 2020, we recorded an impairment of the contingent consideration payable of $1.4 million relating to our 2016 acquisition of Ramius Alternative Solutions LLC. Mutual Fund Underwriting Activities Purchases and sales of shares of company-sponsored mutual funds in connection with the underwriting activities of our subsidiaries, including related commission income, are recorded on the trade date. Receivables from brokers and dealers for sale of shares of company-sponsored mutual funds generally are realized within three business days from the trade date, in conjunction with the settlement of the related payables to company-sponsored mutual funds for share purchases. Distribution plan and other promotion and servicing payments are recognized as expense when incurred. Long-term Incentive Compensation Plans We maintain several unfunded, non-qualified long-term incentive compensation plans, under which we grant annual awards to employees, generally in the fourth quarter, and to members of the Board of Directors of the General Partner, who are not employed by our company or by any of our affiliates (" Eligible Directors "). Awards granted in December 2020, 2019 and 2018 allowed employee participants to allocate their awards between restricted AB Holding Units and deferred cash. Participants (except certain members of senior management) generally could allocate up to 50% of their awards to deferred cash, not to exceed a total of $250,000 per award. Each of our employees based outside of the United States (other than expatriates), who received an award of $100,000 or less, could have allocated up to 100% of his or her award to deferred cash. Participants allocated their awards prior to the date on which the Compensation Committee granted awards in December 2020, 2019 and 2018. For these awards, the number of AB Holding Units awarded was based on the closing price of an AB Holding Unit on the grant date. For awards granted in 2020, 2019 and 2018: • We engage in open-market purchases of AB Holding Units or purchase newly-issued AB Holding Units from AB Holding that are awarded to participants and keep them in a consolidated rabbi trust. • Quarterly distributions on vested and unvested AB Holding Units are paid currently to participants, regardless of whether or not a long-term deferral election has been made. • Interest on deferred cash is accrued monthly based on our monthly weighted average cost of funds. We recognize compensation expense related to equity compensation grants in the financial statements using the fair value method. Fair value of restricted AB Holding Unit awards is the closing price of an AB Holding Unit on the grant date; fair value of options is determined using the Black-Scholes option valuation model. Under the fair value method, compensatory expense is measured at the grant date based on the estimated fair value of the award and is recognized over the required service period. For year-end long-term incentive compensation awards, employees who resign or are terminated without cause may retain their awards, subject to compliance with certain agreements and restrictive covenants set forth in the applicable award agreement, including restrictions on competition and employee and client solicitation, and a claw-back for failing to follow existing risk management policies. Because there is no service requirement, we fully expense these awards on the grant date. Most equity replacement, sign-on or similar deferred compensation awards included in separate employment agreements or arrangements include a required service period. Regardless of whether or not the award agreement includes employee service requirements, AB Holding Units typically are delivered to employees ratably over four years, unless the employee has made a long-term deferral election. Grants of restricted AB Holding Units can be awarded to Eligible Directors. Generally, these restricted AB Holding Units vest ratably over four years. These restricted AB Holding Units are not forfeitable (except if the Eligible Director is terminated for “Cause,” as that term is defined in the applicable award agreement). We fully expense these awards on grant date, as there is no service requirement. We fund our restricted AB Holding Unit awards either by purchasing AB Holding Units on the open market or purchasing newly-issued AB Holding Units from AB Holding, and then keeping these AB Holding Units in a consolidated rabbi trust until delivering them or retiring them. In accordance with the Amended and Restated Agreement of Limited Partnership of AB (“ AB Partnership Agreement ”), when AB purchases newly-issued AB Holding Units from AB Holding, AB Holding is required to use the proceeds it receives from AB to purchase the equivalent number of newly-issued AB Units, thus increasing its percentage ownership interest in AB. AB Holding Units held in the consolidated rabbi trust are corporate assets in the name of the trust and are available to the general creditors of AB. 98 Table of Contents Repurchases of AB Holding Units for the years ended December 31, 2020 and 2019 consisted of the following: Years Ended December 31, 2020 2019 (in millions) Total amount of AB Holding Units Purchased (1) 5.4 6.0 Total Cash Paid for AB Holding Units Purchased (1) $ 149.0 $ 172.6 Open Market Purchases of AB Holding Units Purchased (2) 3.1 2.9 Total Cash Paid for Open Market Purchases of AB Holding Units (2) $ 74.0 $ 82.7 (1) Purchased on a trade date basis. (2) The remainder related to purchases of AB Holding Units from employees to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards. Each quarter, we consider 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 we select has the authority to repurchase AB Holding Units on our behalf in accordance with the terms and limitations specified in the plan. Repurchases are subject to regulations promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the fourth quarter of 2020 expired at the close of business on February 10, 2021. We may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes. During 2020, we granted to employees and Eligible Directors 5.7 million restricted AB Holding Units (including 5.0 million granted in December for 2020 year-end awards to employees). During 2019, we granted to employees and Eligible Directors 7.7 million restricted AB Holding Units (including 5.4 million granted in December for 2019 year-end awards to employees). We used AB Holding Units repurchased during the periods and newly-issued AB Holding Units to fund these awards. During 2020 and 2019, AB Holding issued 5,182 and 0.5 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $0.1 million and $11.5 million, respectively, received from award recipients as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units. Foreign Currency Translation and Transactions Assets and liabilities of foreign subsidiaries are translated from functional currencies into United States dollars (“ US$ ”) at exchange rates in effect at the balance sheet dates, and related revenues and expenses are translated into US$ at average exchange rates in effect during each period. Net foreign currency gains and losses resulting from the translation of assets and liabilities of foreign operations into US$ are reported as a separate component of other comprehensive income in the consolidated statements of comprehensive income. Net foreign currency transaction losses were $3.3 million, $2.0 million and $0.1 million for 2020, 2019 and 2018, respectively, and are reported in general and administrative expenses on the consolidated statements of income. Cash Distributions AB is required to distribute all of its Available Cash Flow, as defined in the AB Partnership Agreement, to its Unitholders and to the General Partner. Available Cash Flow can be summarized as the cash flow received by AB from operations minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB for use in its business, or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow. Typically, Available Cash Flow has been the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow will be based on adjusted diluted net income per unit, unless management determines, with the concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. On February 11, 2021, the General Partner declared a distribution of $1.05 per AB Unit, representing a distribution of Available Cash Flow for the three months ended December 31, 2020. The General Partner, as a result of its 1% general partnership interest, is entitled to receive 1% of each distribution. The distribution is payable on March 4, 2021 to holders of record on February 22, 2021. 99 Table of Contents Total cash distributions per Unit paid to the General Partner and Unitholders during 2020, 2019 and 2018 were $3.08, $2.60 and $3.16, respectively. Comprehensive Income We report all changes in comprehensive income in the consolidated statements of comprehensive income. Comprehensive income includes net income, as well as foreign currency translation adjustments, actuarial gains (losses) and prior service cost. Deferred taxes were not recognized on foreign currency translation adjustments for foreign subsidiaries which had earnings that were considered permanently invested outside the United States. 3. Revenue Recognition Revenues for the years ended December 31, 2020, 2019 and 2018 consisted of the following: Year Ended December 31, 2020 2019 2018 (in thousands) Subject to contracts with customers: Investment advisory and services fees Base fees $ 2,462,810 $ 2,372,429 $ 2,244,068 Performance-based fees 132,626 99,615 118,143 Bernstein research services 459,744 407,911 439,432 Distribution revenues All-in-management fees 331,268 291,999 254,477 12b-1 fees 75,973 80,268 87,166 Other 122,540 82,776 76,919 Other revenues Shareholder servicing fees 82,317 77,394 75,974 Other 21,240 17,924 19,211 3,688,518 3,430,316 3,315,390 Not subject to contracts with customers: Dividend and interest income, net of interest expense 35,273 47,216 45,827 Investment (losses) gains (16,401) 38,659 2,653 Other revenues 1,146 2,241 3,491 20,018 88,116 51,971 Total net revenues $ 3,708,536 $ 3,518,432 $ 3,367,361 100 Table of Contents 4. Net Income Per Unit Basic net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the basic weighted average number of limited partnership units outstanding for each year. Diluted net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the total of the diluted weighted average number of limited partnership units outstanding for each year. Year Ended December 31, 2020 2019 2018 (in thousands, except per unit amounts) Net income attributable to AB Unitholders $ 865,952 $ 752,042 $ 757,588 Weighted average units outstanding—basic 269,058 268,075 269,236 Dilutive effect of compensatory options to buy AB Holding Units 27 44 251 Weighted average units outstanding—diluted 269,085 268,119 269,487 Basic net income per AB Unit $ 3.19 $ 2.78 $ 2.79 Diluted net income per AB Unit $ 3.19 $ 2.78 $ 2.78 Years Ended December 31, 2020 2019 2018 Anti-dilutive options excluded from diluted net income 29,056 29,056 49,784 5. Cash and Securities Segregated Under Federal Regulations and Other Requirements As of December 31, 2020 and 2019, $1.8 billion and $1.1 billion, respectively, of U.S. Treasury Bills were segregated in a special reserve bank custody account for the exclusive benefit of our brokerage customers under Rule 15c3-3 of the Exchange Act. 6. Investments Investments consist of: December 31, 2020 2019 (in thousands) Equity securities: Long-term incentive compensation-related $ 34,351 $ 36,665 Seed capital 75,766 70,464 Other 55,439 73,202 Exchange-traded options 7,527 6,931 Investments in limited partnership hedge funds: Long-term incentive compensation-related 25,762 14,237 Seed capital 16,646 33,124 Time deposits 18,602 18,281 Other 19,282 13,890 Total investments $ 253,375 $ 266,794 Total investments related to long-term incentive compensation obligations of $60.1 million and $50.9 million as of December 31, 2020 and 2019, respectively, consist of company-sponsored mutual funds and hedge funds. For long-term incentive compensation awards granted before 2009, we typically made investments in company-sponsored mutual funds and hedge funds that were notionally elected by plan participants and maintained them (and continue to maintain them) in a consolidated 101 Table of Contents rabbi trust or separate custodial account. The rabbi trust and custodial account enable us to hold such investments separate from our other assets for the purpose of settling our obligations to participants. The investments held in the rabbi trust and custodial account remain available to the general creditors of AB. The underlying investments of hedge funds in which we invest include long and short positions in equity securities, fixed income securities (including various agency and non-agency asset-based securities), currencies, commodities and derivatives (including various swaps and forward contracts). These investments are valued at quoted market prices or, where quoted market prices are not available, are fair valued based on the pricing policies and procedures of the underlying funds. We allocate seed capital to our investment teams to help develop new products and services for our clients. A portion of our seed capital trading investments are equity and fixed income products, primarily in the form of separately-managed account portfolios, U.S. mutual funds, Luxembourg funds, Japanese investment trust management funds or Delaware business trusts. We also may allocate seed capital to investments in private equity funds. In regard to our seed capital investments, the amounts above reflect those funds in which we are not the primary beneficiary of a VIE or hold a controlling financial interest in a VOE. See Note 15, Consolidated Company-Sponsored Investment Funds , for a description of the seed capital investments that we consolidated. As of December 31, 2020 and 2019, our total seed capital investments were $310.3 million and $358.1 million, respectively. Seed capital investments in unconsolidated company-sponsored investment funds are valued using published net asset values or non-published net asset values if they are not listed on an active exchange but have net asset values that are comparable to funds with published net asset values and have no redemption restrictions. In addition, we also have long positions in corporate equities and long exchange-traded options traded through our options desk. The portion of unrealized gains (losses) related to equity securities, as defined by ASC 321-10, held as of December 31, 2020 and 2019 were as follows: December 31, 2020 2019 (in thousands) Net gain (losses) recognized during the period $ 17,927 $ 31,890 Less: net gains recognized during the period on equity securities sold during the period 27,357 18,138 Unrealized gains (losses) recognized during the period on equity securities held $ (9,430) $ 13,752 7. Derivative Instruments See Note 15, Consolidated Company-Sponsored Investment Funds , for disclosure of derivative instruments held by our consolidated company-sponsored investment funds. We enter into various futures, forwards, options and swaps to economically hedge certain seed capital investments. Also, we have currency forwards that help us to economically hedge certain balance sheet exposures. In addition, our options desk trades long and short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging . 102 Table of Contents The notional value, fair value and gains and losses recognized in investment gains (losses) as of December 31, 2020 and 2019 for derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below ) not designated as hedging instruments were as follows: Notional Value Derivative Assets Derivative Liabilities Gains (Losses) (in thousands) December 31, 2020 Exchange-traded futures $ 142,886 $ 118 $ 1,834 $ (15,743) Currency forwards 63,906 8,576 8,451 (1,779) Interest rate swaps 60,997 2,043 2,955 (347) Credit default swaps 167,649 10,910 13,304 (104) Total return swaps 52,061 94 1,847 (15,242) Option swaps 2,486 — 2,146 (2,374) Total derivatives $ 489,985 $ 21,741 $ 30,537 $ (35,589) December 31, 2019 Exchange-traded futures $ 171,112 $ 939 $ 871 $ (10,840) Currency forwards 60,809 8,545 8,633 738 Interest rate swaps 92,756 1,746 2,254 (616) Credit default swaps 168,303 2,151 5,611 (6,413) Total return swaps 91,201 110 1,764 (21,164) Option swaps 354 — 126 (126) Total derivatives $ 584,535 $ 13,491 $ 19,259 $ (38,421) As of December 31, 2020 and 2019, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our consolidated statements of financial condition. Gains and losses on derivative instruments are reported in investment gains (losses) on the consolidated statements of income. We may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. We minimize our counterparty exposure through a credit review and approval process. In addition, we have executed various collateral arrangements with counterparties to the over-the-counter derivative transactions that require both pledging and accepting collateral in the form of cash. As of December 31, 2020 and 2019, we held $0.4 million and $0.3 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our consolidated statements of financial condition. Although notional amount is the most commonly used measure of volume in the derivatives market, it is not used as a measure of credit risk. Generally, the current credit exposure of our derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received. A derivative with positive value (a derivative asset) indicates existence of credit risk because the counterparty would owe us if the contract were closed. Alternatively, a derivative contract with negative value (a derivative liability) indicates we would owe money to the counterparty if the contract were closed. Generally, if there is more than one derivative transaction with a single counterparty, a master netting arrangement exists with respect to derivative transactions with that counterparty to provide for aggregate net settlement. Certain of our standardized contracts for over-the-counter derivative transactions (“ ISDA Master Agreements ”) contain credit risk related contingent provisions pertaining to each counterparty's credit rating. In some ISDA Master Agreements, if the counterparty’s credit rating, or in some agreements, our AUM, falls below a specified threshold, either a default or a termination event permitting the counterparty to terminate the ISDA Master Agreement would be triggered. In all agreements that provide for collateralization, various levels of collateralization of net liability positions are applicable, depending on the credit rating of the counterparty. As of December 31, 2020 and 2019, we delivered $6.4 million and $4.3 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our consolidated statements of financial condition. As of December 31, 2020 and 2019, we held $7.5 million and $6.9 million, respectively, of long exchange-traded equity options, which are included in other investments on our consolidated statements of financial condition. In addition, as of December 31, 2020 and 2019, we held $12.5 million and $12.3 million, respectively, of short exchange-traded equity options, 103 Table of Contents which are included in securities sold not yet purchased on our consolidated statements of financial condition. Our options desk provides our clients with equity derivative strategies and execution for exchange-traded options on single stocks, exchange-traded funds and indices. While predominately agency-based, the options desk may commit capital to facilitate a client's transaction. Our options desk hedges the risk associated with this activity by taking offsetting positions in equities. For the years ended December 31, 2020 and 2019 we recognized $11.9 million and $22.2 million, respectively, of losses on equity options activity. These losses are recognized in investment gains (losses) in the consolidated statements of income. 8. Offsetting Assets and Liabilities See Note 15, Consolidated Company-Sponsored Investment Funds , for disclosure of offsetting assets and liabilities of our consolidated company-sponsored investment funds. Offsetting of assets as of December 31, 2020 and 2019 was as follows: Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Condition Net Amounts of Assets Presented in the Statement of Financial Condition Financial Instruments Collateral Cash Collateral Received Net Amount (in thousands) December 31, 2020 Securities borrowed $ 7,808 $ — $ 7,808 $ (7,344) $ — $ 464 Derivatives $ 21,741 $ — $ 21,741 $ — $ (380) $ 21,361 Long exchange-traded options $ 7,527 $ — $ 7,527 $ — $ — $ 7,527 December 31, 2019 Securities borrowed $ 38,993 $ — $ 38,993 $ (38,993) $ — $ — Derivatives $ 13,491 $ — $ 13,491 $ — $ (251) $ 13,240 Long exchange-traded options $ 6,931 $ — $ 6,931 $ — $ — $ 6,931 Offsetting of liabilities as of December 31, 2020 and 2019 was as follows: Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Condition Net Amounts of Liabilities Presented in the Statement of Financial Condition Financial Instruments Collateral Cash Collateral Pledged Net Amount (in thousands) December 31, 2020 Derivatives $ 30,537 $ — $ 30,537 $ — $ (6,374) $ 24,163 Short exchange-traded options $ 12,486 $ — $ 12,486 $ — $ — $ 12,486 December 31, 2019 Derivatives $ 19,259 $ — $ 19,259 $ — $ (4,276) $ 14,983 Short exchange-traded options $ 12,348 $ — $ 12,348 $ — $ — $ 12,348 Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty. 104 Table of Contents 9. Fair Value See Note 15, Consolidated Company-Sponsored Investment Funds , for disclosure of fair value of our consolidated company-sponsored investment funds. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability ( i.e. , the “exit price” ) in an orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows: • Level 1—Quoted prices in active markets are available for identical assets or liabilities as of the reported date. • Level 2—Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as of the reported date. • Level 3—Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Assets and Liabilities Measured at Fair Value on a Recurring Basis Valuation of our financial instruments by pricing observability levels as of December 31, 2020 and 2019 was as follows (in thousands): Level 1 Level 2 Level 3 NAV Expedient (1) Other Total December 31, 2020: Money markets $ 130,675 $ — $ — $ — $ — $ 130,675 Securities segregated (U.S. Treasury Bills) — 1,752,906 — — — 1,752,906 Derivatives 118 21,623 — — — 21,741 Investments: Equity securities 147,705 17,565 125 161 — 165,556 Long exchange-traded options 7,527 — — — — 7,527 Limited partnership hedge funds (2) — — — — 42,408 42,408 Time deposits (3) — — — — 18,602 18,602 Other investments 7,011 — — — 12,271 19,282 Total investments 162,243 17,565 125 161 73,281 253,375 Total assets measured at fair value $ 293,036 $ 1,792,094 $ 125 $ 161 $ 73,281 $ 2,158,697 Securities sold not yet purchased: Short equities – corporate $ 5,305 $ — $ — $ — $ — $ 5,305 Short exchange-traded options 12,486 — — — — 12,486 Derivatives 1,834 28,703 — — — 30,537 Contingent payment arrangements — — 27,750 — — 27,750 Total liabilities measured at fair value $ 19,625 $ 28,703 $ 27,750 $ — $ — $ 76,078 105 Table of Contents Level 1 Level 2 Level 3 NAV Expedient (1) Other Total December 31, 2019: Money markets $ 126,401 $ — $ — $ — $ — $ 126,401 Securities segregated (U.S. Treasury Bills) — 1,094,866 — — — 1,094,866 Derivatives 939 12,552 — — — 13,491 Investments: Equity securities 170,946 8,952 119 314 — 180,331 Long exchange-traded options 6,931 — — — — 6,931 Limited partnership hedge funds (2) — — — — 47,361 47,361 Time deposits (3) — — — — 18,281 18,281 Other investments 5,883 — — — 8,007 13,890 Total investments 183,760 8,952 119 314 73,649 266,794 Total assets measured at fair value $ 311,100 $ 1,116,370 $ 119 $ 314 $ 73,649 $ 1,501,552 Securities sold not yet purchased: Short equities – corporate $ 17,809 $ — $ — $ — $ — $ 17,809 Short exchange-traded options 12,348 — — — — 12,348 Derivatives 871 18,388 — — — 19,259 Contingent payment arrangements — — 22,911 — — 22,911 Total liabilities measured at fair value $ 31,028 $ 18,388 $ 22,911 $ — $ — $ 72,327 (1) Investments measured at fair value using NAV (or its equivalent) as a practical expedient. (2) Investments in equity method investees that are not measured at fair value in accordance with GAAP. (3) Investments carried at amortized cost that are not measured at fair value in accordance with GAAP. Other investments include (i) an investment in a software publishing company that does not have a readily available fair value ($2.1 million and $1.0 million as of December 31, 2020 and 2019, respectively), (ii) investments in start-up companies that do not have a readily available fair value (these investments were $0.3 million and $0.9 million as of December 31, 2020 and 2019, respectively), (iii) investments in equity method investees that are not measured at fair value in accordance with GAAP ($6.5 million and $2.9 million as of December 31, 2020 and 2019, respectively), and (iv) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($3.3 million and $3.2 million as of December 31, 2020 and 2019, respectively). We provide below a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy: • Money markets: We invest excess cash in various money market funds that are valued based on quoted prices in active markets; these are included in Level 1 of the valuation hierarchy. • Treasury Bills: We hold U.S. Treasury Bills, which are primarily segregated in a special reserve bank custody account as required by Rule 15c3-3 of the Exchange Act. These securities are valued based on quoted yields in secondary markets and are included in Level 2 of the valuation hierarchy. • Equity securities: Our equity securities consist principally of company-sponsored mutual funds with NAVs and various separately-managed portfolios consisting primarily of equity and fixed income mutual funds with quoted prices in active markets, which are included in Level 1 of the valuation hierarchy. In addition, some securities are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy. • Derivatives: We hold exchange-traded futures with counterparties that are included in Level 1 of the valuation hierarchy. In addition, we also hold currency forward contracts, interest rate swaps, credit default swaps, option swaps 106 Table of Contents and total return swaps with counterparties that are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy. • Options: We hold exchange-traded options that are included in Level 1 of the valuation hierarchy. • Securities sold not yet purchased: Securities sold not yet purchased, primarily reflecting short positions in equities and exchange-traded options, are included in Level 1 of the valuation hierarchy. • Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy. During the years ended December 31, 2020 and 2019, there were no transfers between Level 2 and Level 3 securities. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as equity securities, is as follows: December 31, 2020 December 31, 2019 (in thousands) Balance as of beginning of period $ 119 $ 142 Purchases — — Sales — — Realized gains (losses), net — — Unrealized (losses) gains, net 6 (23) Balance as of end of period $ 125 $ 119 Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the consolidated statements of income. As part of acquisitions made by the Company, we may enter into contingent consideration arrangements as part of the purchase price. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows: December 31, 2020 December 31, 2019 (in thousands) Balance as of beginning of period $ 22,911 $ 7,336 Addition 4,400 17,384 Accretion 3,105 2,542 Changes in estimates (1,366) (3,051) Payments (1,300) (1,300) Balance as of end of period $ 27,750 $ 22,911 The liabilities were valued using expected revenue growth rates and discount rates. The expected revenue growth rates range from 0.7% to 50.0%, with a weighted average of 4.9%, calculated using cumulative revenues and range of revenue growth rates (excluding revenue growth from additional AUM contributed from existing clients). The discount rates ranged from 1.9% to 10.4%, with a weighted average of 8.0%, calculated using total contingent liabilities and range of discount rates. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis We did not have any material assets or liabilities that were measured at fair value for impairment on a nonrecurring basis during the years ended December 31, 2020 or 2019. 107 Table of Contents 10. Furniture, Equipment and Leasehold Improvements, Net Furniture, equipment and leasehold improvements, net consist of: December 31, 2020 2019 (in thousands) Furniture and equipment $ 556,966 $ 575,378 Leasehold improvements 284,080 266,365 841,046 841,743 Less: Accumulated depreciation and amortization (693,172) (696,492) Furniture, equipment and leasehold improvements, net $ 147,874 $ 145,251 Depreciation and amortization expense on furniture, equipment and leasehold improvements were $39.2 million, $38.1 million and $34.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. 11. Deferred Sales Commissions, Net The components of deferred sales commissions, net for the years ended December 31, 2020 and 2019 were as follows (excluding amounts related to fully amortized deferred sales commissions): December 31, 2020 2019 (in thousands) Carrying amount of deferred sales commissions $ 116,484 $ 68,371 Less: Accumulated amortization (30,001) (19,348) Cumulative CDSC received (22,417) (12,727) Deferred sales commissions, net $ 64,066 $ 36,296 Amortization expense was $27.4 million, $15.0 million and $21.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Estimated future amortization expense related to the December 31, 2020 net asset balance, assuming no additional CDSC is received in future periods, is as follows (in thousands): 2021 $ 28,980 2022 23,631 2023 10,787 2024 668 $ 64,066 12. Debt AB has an $800.0 million committed, unsecured senior revolving credit facility (the " Credit Facility ") with a group of commercial banks and other lenders, which matures on September 27, 2023. The Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $200.0 million; any such increase is subject to the consent of the affected lenders. The Credit Facility is available for AB and Sanford C. Bernstein & Co., LLC (" SCB LLC ") business purposes, including the support of AB’s commercial paper program. Both AB and SCB LLC can draw directly under the Credit Facility and management may draw on the Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Credit Facility. The Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of December 31, 2020, we were in compliance with these covenants. The Credit Facility also includes customary events of default (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the 108 Table of Contents Credit Facility would automatically become immediately due and payable, and the lender’s commitments automatically would terminate. Amounts under the Credit Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. Voluntary prepayments and commitment reductions requested by us are permitted at any time without a fee (other than customary breakage costs relating to the prepayment of any drawn loans) upon proper notice and subject to a minimum dollar requirement. Borrowings under the Credit Facility bear interest at a rate per annum, which will be, at our option, a rate equal to an applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indices: London Interbank Offered Rate; a floating base rate; or the Federal Funds rate. As of December 31, 2020 and 2019, we had no amounts outstanding under the Credit Facility. During 2020 and 2019, we did not draw upon the Credit Facility. AB also has a $900.0 million committed, unsecured senior credit facility (“ EQH Facility ”) with EQH. The EQH Facility matures on November 4, 2024 and is available for AB's general business purposes. Borrowings under the EQH Facility generally bear interest at a rate per annum based on prevailing overnight commercial paper rates. The EQH Facility contains affirmative, negative and financial covenants which are substantially similar to those in AB’s committed bank facilities. The EQH Facility also includes customary events of default substantially similar to those in AB’s committed bank facilities, including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or the lender’s commitment may be terminated. Amounts under the EQH Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. AB or EQH may reduce or terminate the commitment at any time without penalty upon proper notice. EQH also may terminate the facility immediately upon a change of control of our general partner. As of December 31, 2020 and 2019, AB had $675.0 million and $560.0 million outstanding under the EQH Facility with interest rates of approximately 0.2% and 1.6%, respectively. Average daily borrowings on the EQH Facility during 2020 and for the 57 days it was available in 2019 were $470.8 million and $358.6 million, respectively, with weighted average interest rates of approximately 0.5% and 1.6%, respectively. In addition to the EQH Facility, on September 1, 2020, AB established a new $300.0 million uncommitted, unsecured senior credit facility (“ EQH Uncommitted Facility ”) with EQH. The EQH Uncommitted Facility matures on September 1, 2024 and is available for AB's general business purposes. Borrowings under the EQH Unsecured Facility generally bear interest at a rate per annum based on prevailing overnight commercial paper rates. The EQH Uncommitted Facility contains affirmative, negative and financial covenants which are substantially similar to those in the EQH Facility. As of December 31, 2020, we had no amounts outstanding on the EQH Uncommitted Facility and have not drawn on it since its inception. As of both December 31, 2020 and 2019, we had no commercial paper outstanding. The commercial paper is short term in nature, and as such, recorded value is estimated to approximate fair value (and considered a Level 2 security in the fair value hierarchy). Average daily borrowings of commercial paper for 2020 were $83.2 million with a weighted average interest rate of 0.4%. Average daily borrowings of commercial paper for the 317 days commercial paper was outstanding in 2019 were $438.6 million with a weighted average interest rate of approximately 2.6%. AB has a $200.0 million committed, unsecured senior revolving credit facility (the " Revolver ") with a leading international bank, which matures on November 16, 2021. The Revolver is available for AB's and SCB LLC's business purposes, including the provision of additional liquidity to meet funding requirements primarily related to SCB LLC's operations. Both AB and SCB LLC can draw directly under the Revolver and management expects to draw on the Revolver from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Revolver. The Revolver contains affirmative, negative and financial covenants that are identical to those of the Credit Facility. Borrowings under the Revolver bear interest at a rate per annum, which will be, at our option, a rate equal to an applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indices: London Interbank Offered Rate; a floating base rate; or the Federal Funds rate. As of both December 31, 2020 and 2019 we had no amounts outstanding under the Revolver. Average daily borrowings for 2020 and 2019 were $16.5 million and $23.5 million, respectively, with weighted average interest rates of 1.6% and 3.2%, respectively. In addition, SCB LLC currently has three uncommitted lines of credit with three financial institutions. Two of these lines of credit permit us to borrow up to an aggregate of approximately $165.0 million, with AB named as an additional borrower, while the other line has no stated limit. As of December 31, 2020 and 2019, SCB LLC had no outstanding balance on these lines of credit. Average daily borrowings on the lines of credit during 2020 and 2019 were $0.9 million and $1.9 million, respectively, with weighted average interest rates of approximately 1.6% and 1.9%, respectively. 109 Table of Contents 13. Leases We lease office space, office equipment and technology under various operating and financing leases. Our current leases have remaining lease terms of one year to 15 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Since 2010, we have sub-leased over one million square feet of office space. On January 1, 2019, the previously recorded liability related to our global space consolidation initiatives of $85.8 million was offset as a reduction to our operating right-of-use assets. Leases included in the consolidated statements of financial condition as of December 31, 2020 and 2019 were as follows: Classification December 31, 2020 December 31, 2019 (in thousands) Operating Leases Operating lease right-of-use assets Right-of-use assets $ 416,007 $ 360,185 Operating lease liabilities Lease liabilities 503,174 465,907 Finance Leases Property and equipment, gross Right-of-use assets 5,167 3,825 Amortization of right-of-use assets Right-of-use assets (2,719) (1,317) Property and equipment, net 2,448 2,508 Finance lease liabilities Lease liabilities 2,375 2,544 The components of lease expense included in the consolidated statements of income for the years ended December 31, 2020 and 2019 were as follows: Year Ended December 31, Classification 2020 2019 (in thousands) Operating lease cost General and administrative $ 90,212 $ 106,085 Financing lease cost: Amortization of right-of-use assets General and administrative 1,755 1,317 Interest on lease liabilities Interest expense 86 71 Total finance lease cost 1,841 1,388 Variable lease cost (1) General and administrative 38,208 40,786 Sublease income General and administrative (38,622) (55,522) Net lease cost $ 91,639 $ 92,737 (1) Variable lease expense includes operating expenses, real estate taxes and employee parking. The sublease income represents all revenues received from sub-tenants. It is primarily fixed base rental payments combined with variable reimbursements such as operating expenses, real estate taxes and employee parking. The vast majority of sub-tenant income is derived from our New York metro sub-tenant agreements. Sub-tenant income related to base rent is recorded on a straight-line basis. 110 Table of Contents Maturities of lease liabilities are as follows: Operating Leases Financing Leases Total Year ending December 31, (in thousands) 2021 $ 110,046 $ 1,142 $ 111,188 2022 100,631 757 101,388 2023 93,379 526 93,905 2024 90,359 23 90,382 2025 25,516 — 25,516 Thereafter 136,759 — 136,759 Total lease payments 556,690 2,448 $ 559,138 Less interest (53,516) (73) Present value of lease liabilities $ 503,174 $ 2,375 During October 2018, we signed a lease, which commenced in the fourth quarter of 2020, relating to 218,976 square feet of space at our newly constructed Nashville headquarters. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 15-year initial lease term is $134.0 million. During April 2019, we signed a lease, which commences in 2024, relating to approximately 190,000 square feet of space in New York City. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 20 year lease term is approximately $448.0 million. During the fourth quarter of 2020, we exercised an option to return a half floor of this space, which reduced our square footage from approximately 190,000 to 166,000 square feet and our base rent obligation from $448.0 million to $393.0 million. Lease term and discount rate: Weighted average remaining lease term (years): Operating leases 7.13 Finance leases 2.46 Weighted average discount rate: Operating leases 3.12 % Finance leases 2.64 % Supplemental cash flow information related to leases are as follows: Year Ended December 31, 2020 2019 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 115,684 $ 132,669 Operating cash flows from financing leases 86 71 Financing cash flows from finance leases 1,864 1,281 Right-of-use assets obtained in exchange for lease obligations (1) : Operating leases (2) 135,919 11,108 Finance leases 1,695 1,469 (1) Represents non-cash activity and, accordingly, is not reflected in the consolidated statements of cash flows. (2) Represents net non-cash activity of new lease obligations, extensions and reductions of existing lease obligations. 111 Table of Contents 14. Commitments and Contingencies Leases We lease office space, office equipment and technology under various leasing arrangements. The future minimum payments under non-cancelable leases, sublease commitments and related payments we are obligated to make, net of sublease commitments of third party lessees to make payments to us, as of December 31, 2020, are as follows: Payments Sublease Receipts Net Payments (in millions) 2021 $ 115.4 $ 35.5 $ 79.9 2022 103.8 31.8 72.0 2023 96.5 31.3 65.2 2024 93.1 30.8 62.3 2025 45.4 — 45.4 2026 and thereafter 526.6 — 526.6 Total future minimum payments $ 980.8 $ 129.4 $ 851.4 See Note 13 for material lease commitments. Legal Proceedings AB may be involved in various matters, including regulatory inquires, administrative proceedings and litigation, some of which may allege significant damages. It is reasonably possible that we could incur losses pertaining to these matters, but we cannot currently estimate any such losses. Management, after consultation with legal counsel, currently believes that the outcome of any individual matter that is pending or threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or liquidity. However, any inquiry, proceeding or litigation has an element of uncertainty; management cannot determine whether further developments relating to any individual matter that is pending or threatened, or all of them combined, will have a material adverse effect on our results of operation, financial condition or liquidity in any future reporting period. Other During 2010, as general partner of AllianceBernstein U.S. Real Estate L.P. (“ Real Estate Fund ”), we committed to invest $25.0 million in the Real Estate Fund. As of December 31, 2020, we had funded $22.4 million of this commitment. During 2014, as general partner of AllianceBernstein U.S. Real Estate II L.P. (“ Real Estate Fund II ”), we committed to invest $27.3 million, as amended in 2020, in the Real Estate Fund II. As of December 31, 2020, we had funded $20.8 million of this commitment. 15. Consolidated Company-Sponsored Investment Funds We regularly provide seed capital to new company-sponsored investment funds. As such, we may consolidate or de-consolidate a variety of company-sponsored investment funds each quarter. Due to the similarity of risks related to our involvement with each company-sponsored investment fund, disclosures required under the VIE model are aggregated, such as disclosures regarding the carrying amount and classification of assets. We are not required to provide financial support to company-sponsored investment funds and only the assets of such funds are available to settle each fund's own liabilities. Our exposure to loss in regard to consolidated company-sponsored investment funds is limited to our investment in, and our management fee earned from, such funds. Equity and debt holders of such funds have no recourse to AB’s assets or to the general credit of AB. 112 Table of Contents The balances of consolidated VIEs and VOEs included in our consolidated statements of financial condition were as follows: December 31, 2020 December 31, 2019 (in thousands) VIEs VOEs Total VIEs VOEs Total Cash and cash equivalents $ 36,370 $ 136 $ 36,506 $ 9,623 $ 1,810 $ 11,433 Investments 242,541 60,041 302,582 404,624 176,380 581,004 Other assets 4,859 7,385 12,244 9,618 10,192 19,810 Total assets $ 283,770 $ 67,562 $ 351,332 $ 423,865 $ 188,382 $ 612,247 Liabilities $ 7,741 $ 22,879 $ 30,620 $ 12,147 $ 18,870 $ 31,017 Redeemable non-controlling interest 82,753 19,606 102,359 273,219 52,342 325,561 Partners' capital attributable to AB Unitholders 193,276 25,077 218,353 138,499 117,170 255,669 Total liabilities, redeemable non-controlling interest and partners' capital $ 283,770 $ 67,562 $ 351,332 $ 423,865 $ 188,382 $ 612,247 During 2020, we deconsolidated five funds in which we had a seed investment of approximately $94.6 million due to no longer having a controlling financial interest. These funds had significant consolidated assets and liabilities as of December 31, 2019. Fair Value Cash and cash equivalents include cash on hand, demand deposits, overnight commercial paper and highly liquid investments with original maturities of three months or less. Due to the short-term nature of these instruments, the recorded value has been determined to approximate fair value. 113 Table of Contents Valuation of consolidated company-sponsored investment funds' financial instruments by pricing observability levels as of December 31, 2020 and 2019 was as follows (in thousands): Level 1 Level 2 Level 3 Total December 31, 2020: Investments - VIEs $ 73,909 $ 168,114 $ 518 $ 242,541 Investments - VOEs — 59,940 101 60,041 Derivatives - VIEs 442 2,782 — 3,224 Derivatives - VOEs — 464 — 464 Total assets measured at fair value $ 74,351 $ 231,300 $ 619 $ 306,270 Derivatives - VIEs $ 1,649 $ 5,244 $ — $ 6,893 Derivatives - VOEs — 664 — 664 Total liabilities measured at fair value $ 1,649 $ 5,908 $ — $ 7,557 December 31, 2019: Investments - VIEs $ 28,270 $ 375,559 $ 795 $ 404,624 Investments - VOEs 104,069 72,252 59 176,380 Derivatives - VIEs 139 4,694 — 4,833 Derivatives - VOEs 76 4,263 — 4,339 Total assets measured at fair value $ 132,554 $ 456,768 $ 854 $ 590,176 Derivatives - VIEs $ 835 $ 3,724 $ — $ 4,559 Derivatives - VOEs 101 4,982 — 5,083 Total liabilities measured at fair value $ 936 $ 8,706 $ — $ 9,642 See Note 9 for a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. The change in carrying value associated with Level 3 financial instruments carried at fair value within consolidated company-sponsored investment funds was as follows: December 31, 2020 2019 (in thousands) Balance as of beginning of period $ 854 $ 8,373 Deconsolidated funds (135) — Transfers (out) in 552 (9,445) Purchases 259 9,213 Sales (571) (7,467) Realized (losses) gains, net (99) 14 Unrealized (losses) gains, net (242) 143 Accrued discounts 1 23 Balance as of end of period $ 619 $ 854 The Level 3 securities primarily consist of corporate bonds that are vendor priced with no ratings available, bank loans, non-agency collateralized mortgage obligations and asset-backed securities. Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the consolidated statements of income. 114 Table of Contents Derivative Instruments As of December 31, 2020 and 2019, the VIEs held $3.7 million and $0.3 million (net), respectively, of futures, forwards, options and swaps within their portfolios. For the years ended December 31, 2020 and 2019, we recognized $0.6 million of losses and $3.3 million of gains, respectively, on these derivatives. These gains and losses are recognized in investment gains (losses) in the consolidated statements of income. As of December 31, 2020 and 2019, the VIEs held $0.5 million and $1.6 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in our consolidated statements of financial condition. As of December 31, 2020 and 2019, the VIEs delivered $4.2 million and $3.2 million, respectively, of cash collateral into brokerage accounts. The VIEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our consolidated statements of financial condition. As of December 31, 2020 and 2019, the VOEs held $0.2 million and $0.7 million (net), respectively, of futures, forwards, options and swaps within their portfolios. For the years ended December 31, 2020 and 2019, we recognized $0.2 million and $0.5 million of gains, respectively, on these derivatives. These gains and losses are recognized in the investment gains (losses) in the consolidated statements of income. As of December 31, 2020 and 2019, the VOEs held zero and $0.5 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in our consolidated statements of financial condition. As of December 31, 2020 and 2019, the VOEs delivered $0.1 million and $1.2 million, respectively, of cash collateral into brokerage accounts. The VOEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our consolidated statements of financial condition. Offsetting Assets and Liabilities Offsetting of derivative assets of consolidated company-sponsored investment funds as of December 31, 2020 and 2019 was as follows: Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Condition Net Amounts of Assets Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Received Net Amount (in thousands) December 31, 2020: Derivatives - VIEs $ 3,224 $ — $ 3,224 $ — $ (513) $ 2,711 Derivatives - VOEs $ 464 $ — $ 464 $ — $ — $ 464 December 31, 2019: Derivatives - VIEs $ 4,833 $ — $ 4,833 $ — $ (1,631) $ 3,202 Derivatives - VOEs $ 4,339 $ — $ 4,339 $ — $ (534) $ 3,805 115 Table of Contents Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of December 31, 2020 and 2019 was as follows: Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Condition Net Amounts of Liabilities Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount (in thousands) December 31, 2020: Derivatives - VIEs $ 6,893 $ — $ 6,893 $ — $ (4,201) $ 2,692 Derivatives - VOEs $ 664 $ — $ 664 $ — $ (138) $ 526 December 31, 2019: Derivatives - VIEs $ 4,559 $ — $ 4,559 $ — $ (3,155) $ 1,404 Derivatives - VOEs $ 5,083 $ — $ 5,083 $ — $ (1,201) $ 3,882 Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty. Non-Consolidated VIEs As of December 31, 2020, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately $73.4 billion, our maximum risk of loss is our investment of $7.1 million in these VIEs and our advisory fees receivable from these VIEs are $77.6 million. 16. Net Capital SCB LLC is registered as a broker-dealer under the Exchange Act and is subject to the minimum net capital requirements imposed by the U.S. Securities and Exchange Commission (" SEC "). SCB LLC computes its net capital under the alternative method permitted by the applicable rule, which requires that minimum net capital, as defined, equals the greater of $1 million or two percent of aggregate debit items arising from customer transactions, as defined. As of December 31, 2020, SCB LLC had net capital of $277.0 million, which was $243.0 million in excess of the minimum net capital requirement of $34.0 million. Advances, dividend payments and other equity withdrawals by SCB LLC are restricted by regulations imposed by the SEC, the Financial Industry Regulatory Authority, Inc., and other securities agencies. Our U.K.-based broker-dealer is a member of the London Stock Exchange. As of December 31, 2020, it was subject to financial resources requirements of $47.5 million imposed by the Financial Conduct Authority of the United Kingdom and had aggregate regulatory financial resources of $53.4 million, an excess of $5.9 million over the required level. AllianceBernstein Investments, Inc., another one of our subsidiaries and the distributor and/or underwriter for certain company-sponsored mutual funds, is registered as a broker-dealer under the Exchange Act and is subject to the minimum net capital requirements imposed by the SEC. As of December 31, 2020, it had net capital of $32.1 million, which was $31.8 million in excess of its required net capital of $0.3 million. Many of our subsidiaries around the world are subject to minimum net capital requirements by the local laws and regulations to which they are subject. As of December 31, 2020, each of our subsidiaries subject to a minimum net capital requirement satisfied the applicable requirement. 17. Counterparty Risk Customer Activities In the normal course of business, brokerage activities involve the execution, settlement and financing of various customer securities trades, which may expose our broker-dealer operations to off-balance sheet risk by requiring us to purchase or sell securities at prevailing market prices in the event the customer is unable to fulfill its contractual obligations. Our customer securities activities are transacted on either a cash or margin basis. In margin transactions, we extend credit to the customer, subject to various regulatory and internal margin requirements. These transactions are collateralized by cash or 116 Table of Contents securities in the customer’s account. In connection with these activities, we may execute and clear customer transactions involving the sale of securities not yet purchased. We seek to control the risks associated with margin transactions by requiring customers to maintain collateral in compliance with the aforementioned regulatory and internal guidelines. We monitor required margin levels daily and, pursuant to such guidelines, require customers to deposit additional collateral, or reduce positions, when necessary. A majority of our customer margin accounts are managed on a discretionary basis whereby we maintain control over the investment activity in the accounts. For these discretionary accounts, our margin deficiency exposure is minimized by our maintaining a diversified portfolio of securities in the accounts, our discretionary authority and our U.S-based broker-dealer's role as custodian. In accordance with industry practice, we record customer transactions on a settlement date basis, which generally is two business days after trade date for our U.K. and U.S. operations. We are exposed to risk of loss on these transactions in the event of the customer’s inability to meet the terms of their contracts, in which case we may have to purchase or sell financial instruments at prevailing market prices. The risks we assume in connection with these transactions are not expected to have a material adverse effect on our financial condition or results of operations. Other Counterparties We are engaged in various brokerage activities on behalf of clients, in which counterparties primarily include broker-dealers, banks and other financial institutions. In the event these counterparties do not fulfill their obligations, we may be exposed to loss. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. It is our policy to review, as necessary, each counterparty’s creditworthiness. In connection with security borrowing and lending arrangements, we enter into collateralized agreements, which may result in potential loss in the event the counterparty to a transaction is unable to fulfill its contractual obligations. Security borrowing arrangements require us to deposit cash collateral with the lender. With respect to security lending arrangements, we receive collateral in the form of cash in amounts generally in excess of the market value of the securities loaned. We attempt to mitigate credit risk associated with these activities by establishing credit limits for each broker and monitoring these limits on a daily basis. Additionally, security borrowing and lending collateral is marked to market on a daily basis, and additional collateral is deposited by or returned to us as necessary. We enter into various futures, forwards, options and swaps primarily to economically hedge certain of our seed money investments. We may be exposed to credit losses in the event of nonperformance by counterparties to these derivative financial instruments. See Note 7, Derivative Instruments for further discussion. 18. Qualified Employee Benefit Plans We maintain a qualified profit sharing plan covering U.S. employees and certain foreign employees. Employer contributions are discretionary and generally limited to the maximum amount deductible for federal income tax purposes. Aggregate contributions were $15.6 million, $14.4 million and $15.0 million for 2020, 2019 and 2018, respectively. We maintain several defined contribution plans for foreign employees working for our subsidiaries in the United Kingdom, Australia, Japan and other locations outside the United States. Employer contributions generally are consistent with regulatory requirements and tax limits. Defined contribution expense for foreign entities was $8.4 million, $7.7 million and $7.1 million in 2020, 2019 and 2018, respectively. We maintain a qualified, noncontributory, defined benefit retirement plan (“ Retirement Plan ”) covering current and former employees who were employed by AB in the United States prior to October 2, 2000. Benefits are based on years of credited service, average final base salary (as defined in the Retirement Plan) and primary Social Security benefits. Service and compensation after December 31, 2008 are not taken into account in determining participants’ retirement benefits. Our policy is to satisfy our funding obligation for each year in an amount not less than the minimum required by the Employee Retirement Income Security Act of 1974, as amended, and not greater than the maximum amount we can deduct for federal income tax purposes. We did not make a contribution to the Retirement Plan during 2020. We do not currently anticipate that we will contribute to the Retirement Plan during 2021. Contribution estimates, which are subject to change, are based on regulatory requirements, future market conditions and assumptions used for actuarial computations of the Retirement Plan’s obligations and assets. Management, at the present time, has not determined the amount, if any, of additional future contributions that may be required. 117 Table of Contents The Retirement Plan’s projected benefit obligation, fair value of plan assets and funded status (amounts recognized in the consolidated statements of financial condition) were as follows: Years Ended December 31, 2020 2019 (in thousands) Change in projected benefit obligation: Projected benefit obligation at beginning of year $ 136,113 $ 116,233 Interest cost 4,443 4,944 Actuarial loss (gain) 16,131 20,411 Benefits paid (5,563) (5,475) Projected benefit obligation at end of year 151,124 136,113 Change in plan assets: Plan assets at fair value at beginning of year 114,080 98,584 Actual return on plan assets 16,505 16,971 Employer contribution — 4,000 Benefits paid (5,563) (5,475) Plan assets at fair value at end of year 125,022 114,080 Funded status $ (26,102) $ (22,033) Effective December 31, 2015, the Retirement Plan was amended to change the actuarial basis used for converting a life annuity benefit to optional forms of payment and converting benefits payable at age 65 to earlier commencement dates. This prior service cost will be amortized over future years. The amounts recognized in other comprehensive income (loss) for the Retirement Plan for 2020, 2019 and 2018 were as follows: 2020 2019 2018 (in thousands) Unrecognized net (loss) gain from experience different from that assumed and effects of changes and assumptions $ (4,089) $ (7,934) $ 1,870 Prior service cost 24 24 24 (4,065) (7,910) 1,894 Income tax (expense) benefit (216) 312 (207) Other comprehensive (loss) income $ (4,281) $ (7,598) $ 1,687 The loss of $4.3 million recognized in 2020 was primarily due to changes in the discount rate and lump sum interest rates ($16.7 million), offset by actual earnings exceeding expected earnings on plan assets ($10.4 million), changes in the mortality assumption ($1.0 million), the recognized actuarial loss ($1.4 million) and changes in the census data ($0.4 million). The loss of $7.6 million recognized in 2019 was primarily due to changes in the discount rate and lump sum interest rates ($21.7 million), offset by actual earnings exceeding expected earnings on plan assets ($11.3 million), changes in the mortality assumption ($1.2 million), the recognized actuarial loss ($1.1 million) and changes in the census data ($0.1 million). The gain of $1.7 million recognized in 2018 primarily was due to changes in the discount rate and lump sum interest rates ($9.7 million), the recognized actuarial loss ($1.1 million) and changes in the mortality assumption ($0.4 million), offset by actual earnings exceeding expected earnings on plan assets ($9.2 million), and changes in the census data ($0.2 million). 118 Table of Contents Foreign retirement plans and an individual's retirement plan maintained by AB are not material to AB's consolidated financial statements. As such, disclosure for these plans is not necessary. The reconciliation of the 2020 amounts recognized in other comprehensive income for the Retirement Plan as compared to the consolidated statement of comprehensive income ( "OCI Statement" ) is as follows: Retirement Plan Retired Individual Plan Foreign Retirement Plans OCI Statement (in thousands) Recognized actuarial (loss) gain $ (4,089) $ (56) $ (135) $ (4,280) Amortization of prior service cost 24 — — 24 Changes in employee benefit related items (4,065) (56) (135) (4,256) Income tax (expense) benefit (216) (2) 31 (187) Employee benefit related items, net of tax $ (4,281) $ (58) $ (104) $ (4,443) The amounts included in accumulated other comprehensive income (loss) for the Retirement Plan as of December 31, 2020 and 2019 were as follows: 2020 2019 (in thousands) Unrecognized net loss from experience different from that assumed and effects of changes and assumptions $ (59,625) $ (55,537) Prior service cost (707) (731) (60,332) (56,268) Income tax benefit 296 513 Accumulated other comprehensive loss $ (60,036) $ (55,755) The amortization period over which we are amortizing the loss for the Retirement Plan from accumulated other comprehensive income is 29.9 years. The estimated prior service cost and amortization of loss for the Retirement Plan that will be amortized from accumulated other comprehensive income over the next year are $24 thousand and $1.5 million, respectively. The accumulated benefit obligation for the plan was $151.1 million and $136.1 million as of December 31, 2020 and 2019, respectively. The discount rates used to determine benefit obligations as of December 31, 2020 and 2019 (measurement dates) were 2.55% and 3.35%, respectively. 119 Table of Contents Benefit payments are expected to be paid as follows (in thousands): 2021 $ 7,606 2022 9,373 2023 7,782 2024 7,811 2025 10,055 2026 - 2030 45,955 Net expense under the Retirement Plan consisted of: Year Ended December 31, 2020 2019 2018 (in thousands) Interest cost on projected benefit obligations $ 4,443 $ 4,944 $ 4,771 Expected return on plan assets (6,084) (5,639) (5,893) Amortization of prior service cost 24 24 24 Recognized actuarial loss 1,386 1,146 1,146 Net pension expense $ (231) $ 475 $ 48 Actuarial computations used to determine net periodic costs were made utilizing the following weighted-average assumptions: Years Ended December 31, 2020 2019 2018 Discount rate on benefit obligations 3.35 % 4.40 % 3.90 % Expected long-term rate of return on plan assets 5.50 % 5.75 % 5.75 % In developing the expected long-term rate of return on plan assets of 5.50%, management considered the historical returns and future expectations for returns for each asset category, as well as the target asset allocation of the portfolio. The expected long-term rate of return on assets is based on weighted average expected returns for each asset class. As of December 31, 2020, the mortality projection assumption has been updated to use the generational MP-2020 improvement scale. Previously, mortality was projected generationally using the MP-2019 improvements scale. The base mortality assumption used is the Society of Actuaries Pri-2012 base mortality table for private sector plans, with a white-collar adjustment, using the contingent annuitant table for beneficiaries of deceased participants. The Internal Revenue Service (“ IRS ”) recently updated the mortality tables used to determine lump sums. For fiscal year-end 2020, we reflected the most recently published IRS table for lump sums assumed to be paid in 2022. We projected future mortality for lump sums assumed to be paid after 2022 using the current base mortality tables (RP-2014 backed off to 2006) and projection scale of MP-2020. The Retirement Plan’s asset allocation percentages consisted of: December 31, 2020 2019 Equity 55 % 47 % Debt securities 36 41 Other 9 12 100 % 100 % The guidelines regarding allocation of assets are formalized in the Investment Policy Statement adopted by the Investment Committee for the Retirement Plan. The objective of the investment program is to enhance the portfolio of the Retirement Plan through total return (capital appreciation and income), thereby promoting the ongoing ability of the plan to meet future liabilities and obligations, while minimizing the need for additional contributions. The guidelines specify an allocation 120 Table of Contents weighting of 10% to 35% for liability hedging investments (target of 20%), 15% to 40% for return seeking investments (target of 27%), 5% to 35% for risk mitigating investments (target of 14%), 10% to 35% for diversifying investments (target of 21%) and 5% to 35% for dynamic asset allocation (target of 18%). Investments in mutual funds, hedge funds (and other alternative investments), and other commingled investment vehicles are permitted under the guidelines. Investments are permitted in overlay portfolios (regulated mutual funds), which are designed to manage short-term portfolio risk and mitigate the effect of extreme outcomes by varying the asset allocation of a portfolio. See Note 9, Fair Value for a description of how we measure the fair value of our plan assets. The valuation of our Retirement Plan assets by pricing observability levels as of December 31, 2020 and 2019 was as follows (in thousands): Level 1 Level 2 Level 3 Total December 31, 2020 Cash $ 458 $ — $ — $ 458 U.S. Treasury Strips — 26,599 — 26,599 Fixed income mutual funds 17,834 — — 17,834 Equity mutual fund 44,020 — — 44,020 Equity securities 14,376 — — 14,376 Total assets in the fair value hierarchy 76,688 26,599 — 103,287 Investments measured at net assets value — — — 21,735 Investments at fair value $ 76,688 $ 26,599 $ — $ 125,022 Level 1 Level 2 Level 3 Total December 31, 2019 Cash $ 230 $ — $ — $ 230 U.S. Treasury Strips — 27,318 — 27,318 Fixed income mutual funds 19,518 — — 19,518 Equity mutual fund 33,875 — — 33,875 Equity securities 11,182 — — 11,182 Total assets in the fair value hierarchy 64,805 27,318 — 92,123 Investments measured at net assets value — — — 21,957 Investments at fair value $ 64,805 $ 27,318 $ — $ 114,080 During 2020 and 2019, the Retirement Plan's investments include the following: • U.S. Treasury strips, (zero-coupon bonds); • two fixed income mutual funds, which seek to generate income consistent with preservation of capital. One fund invests in a portfolio of investment-grade securities primarily in the U.S. with additional non-U.S. securities. One fund invests in inflation-indexed fixed-income securities and similar bonds issued by non-U.S. governments and various commodities; • seven equity mutual funds, four of which focus on U.S.-based equity securities of various capitalization sizes ranging from small to large capitalizations and diversified portfolios within those capitalization ranges; and three funds that focus on non-U.S. based equity securities of various capitalization sizes ranging from small to large capitalizations and diversified portfolios therein across non-U.S. regions; • separate equity and fixed income mutual funds, which seek to moderate the volatility of equity and fixed income oriented asset allocation over the long term, as part of the overall asset allocation managed by AB; • a multi-style, multi-cap integrated portfolio adding U.S. equity diversification to its value and growth equity selections, designed to deliver a long-term premium to the S&P 500 with greater consistency across a range of market environments; and • investments measured at net asset value, including three hedge funds that seek to provide attractive risk-adjusted returns over full market cycles with less volatility than the broad equity markets by allocating all or substantially all of 121 Table of Contents their assets among portfolio managers through portfolio funds that employ a broad range of investment strategies; one private investment trust that invests primarily in equity securities of non-U.S. companies located in emerging market countries; and one collective investment trust that invests in U.S. and non-U.S. equities of various capitalization sizes. 19. Long-term Incentive Compensation Plans We maintain an unfunded, non-qualified incentive compensation program known as the AllianceBernstein Incentive Compensation Award Program (“ Incentive Compensation Program ”), under which annual awards may be granted to eligible employees. See Note 2, "Summary of Significant Accounting Policies – Long-Term Incentive Compensation Plans" for a discussion of the award provisions. Under the Incentive Compensation Program, we made awards in 2020, 2019 and 2018 aggregating $177.4 million, $175.5 million and $183.3 million, respectively. The amounts charged to employee compensation and benefits for the years ended December 31, 2020, 2019 and 2018 were $176.8 million, $177.2 million and $161.0 million, respectively. Effective as of September 30, 2017, we established the AB 2017 Long Term Incentive Plan (“ 2017 Plan ”), which was adopted at a special meeting of AB Holding Unitholders held on September 29, 2017. The following forms of awards may be granted to employees and Eligible Directors under the 2017 Plan: (i) restricted AB Holding Units or phantom restricted AB Holding Units (a “phantom” award is a contractual right to receive AB Holding Units at a later date or upon a specified event); (ii) options to buy AB Holding Units; and (iii) other AB Holding Unit-based awards (including, without limitation, AB Holding Unit appreciation rights and performance awards). The purpose of the 2017 Plan is to promote the interest of AB by: (i) attracting and retaining talented officers, employees and directors, (ii) motivating such officers, employees and directors by means of performance-related incentives to achieve longer-range business and operational goals, (iii) enabling such officers, employees and directors to participate in the long-term growth and financial success of AB, and (iv) aligning the interests of such officers, employees and directors with those of AB Holding Unitholders. The 2017 Plan will expire on September 30, 2027, and no awards under the 2017 Plan will be made after that date. Under the 2017 Plan, the aggregate number of AB Holding Units with respect to which awards may be granted is 60 million, including no more than 30 million newly-issued AB Holding Units. As of December 31, 2020, no options to buy AB Holding Units had been granted and 24,444,406 AB Holding Units, net of withholding tax requirements, were subject to other AB Holding Unit awards made under the 2017 Plan or the AllianceBernstein 2010 Long Term Incentive Plan, as amended, an equity compensation plan with similar terms that was canceled on September 30, 2017. AB Holding Unit-based awards (including options) in respect of 35,555,594 AB Holding Units were available for grant under the 2017 Plan as of December 31, 2020. Option Awards We did not grant any options to buy AB Holding Units during 2020, 2019 or 2018. Historically, options granted to employees generally were exercisable at a rate of 20% of the AB Holding Units subject to such options on each of the first five anniversary dates of the date of grant; options granted to Eligible Directors generally were exercisable at a rate of 33.3% of the AB Holding Units subject to such options on each of the first three anniversary dates of the date of grant. 122 Table of Contents The option-related activity in our equity compensation plans during 2020 is as follows: Options to Buy AB Holding Units Weighted Average Exercise Price Per Option Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of December 31, 2019 159,349 $ 23.93 2.1 Granted — — Exercised (5,182) 28.46 Forfeited — — Expired (5,182) 28.46 Outstanding as of December 31, 2020 148,985 23.61 1.2 $ 1.5 Exercisable as of December 31, 2020 148,985 23.61 1.2 1.5 Vested or expected to vest as of December 31, 2020 148,985 23.61 1.2 1.5 The total intrinsic value of options exercised during 2020, 2019 and 2018 was $32,368, $3.7 million and $8.9 million, respectively. Under the fair value method, compensation expense is measured at the grant date based on the estimated fair value of the options awarded (determined using the Black-Scholes option valuation model) and is recognized over the requisite service period. We recorded no compensation expense related to option grants in 2020, 2019 or 2018 as no options were granted. As of December 31, 2020, there was no compensation expense related to unvested option grants not yet recognized in the consolidated statement of income. Restricted AB Holding Unit Awards In 2020, 2019 and 2018, the Board granted restricted AB Holding Unit awards to Eligible Directors. These AB Holding Units give the Eligible Directors, in most instances, all the rights of other AB Holding Unitholders, subject to such restrictions on transfer as the Board may impose. We award restricted AB Holding Units that vest ratably over three or four years. We fully expensed these awards on each grant date, as there is no service requirement. Grant details related to these awards is as follows: 2020 2019 2018 Restricted Units Awarded 50,232 45,420 53,720 Weighted Average Grant Date Fair Value (1) $ 23.69 $ 29.33 $ 26.90 Compensation Expense (in millions) $ 1.2 $ 1.3 $ 1.4 (1) Prior period amounts have been adjusted to conform with current period presentation. On April 28, 2017, Seth P. Bernstein was appointed President and Chief Executive Officer (" CEO") pursuant to an employment agreement, effective May 1, 2017. In connection with the commencement of his employment, Mr. Bernstein was granted restricted AB Holding Units with a grant date fair value of $3.5 million (164,706 AB Holding Units based on the $21.25 grant date AB Holding Unit price on May 16, 2017) and a four-year service requirement. Mr. Bernstein's restricted AB Holding Units vest ratably on each of the first four anniversaries of his commencement date and will be delivered to Mr. Bernstein as soon as administratively feasible after May 1, 2021, subject to accelerated vesting clauses in his employment agreement. We recorded compensation expense relating to Mr. Bernstein's restricted AB Holding Unit grants of $0.9 million for each of the years ended December 31, 2020, 2019 and 2018, respectively. Under the Incentive Compensation Program, we awarded 5.3 million restricted AB Holding Units in 2020 (which included 5.0 million restricted AB Holding Units in December for the 2020 year-end awards as well as 0.3 million additional restricted AB Holding Units granted earlier during the year relating to the 2019 year-end awards), with grant date fair values per restricted AB holding unit ranging between $28.75 to $32.10. We awarded 5.8 million restricted AB Holding Units in 2019 (which included 5.4 million restricted AB Holding Units in December for the 2019 year-end awards as well as 0.4 million additional restricted AB Holding Units granted earlier during the year relating to the 2018 year-end awards), with grant date fair values per restricted AB holding unit ranging between $26.69 to $30.01. 123 Table of Contents We awarded 6.5 million restricted AB Holding Units in 2018 (which included 6.2 million restricted AB Holding Units in December for the 2018 year-end awards as well as 0.3 million additional restricted AB Holding Units granted earlier during the year related to the 2017 year-end awards), with grant date fair values per restricted AB holding unit ranging between $24.95 to $26.69. Restricted AB Holding Units awarded under the Incentive Compensation Program generally vest in 25% increments on December 1 st of each of the four years immediately following the year in which the award is granted. We also award restricted AB Holding Units in connection with certain employment and separation agreements, as well as relocation-related performance awards, with vesting schedules ranging between two and five years. Grant details related to these awards is as follows: 2020 2019 2018 (in millions excluding share prices) Restricted Units Awarded 0.4 1.9 2.6 Grant Date Fair Value Range $18.80 - $35.42 $27.32 - $30.85 $25.05 - $30.25 Compensation Expense $ 32.1 $ 36.7 $ 32.2 The fair value of the restricted AB Holding Units is amortized over the requisite service period as compensation expense. Changes in unvested restricted AB Holding Units during 2020 are as follows: AB Holding Units Weighted Average Grant Date Fair Value per AB Holding Unit Unvested as of December 31, 2019 19,287,080 $ 26.88 Granted 5,702,830 31.66 Vested (5,946,667) 26.07 Forfeited (178,669) 26.50 Unvested as of December 31, 2020 18,864,574 28.58 The total grant date fair value of restricted AB Holding Units that vested was $155.0 million, $201.4 million and $169.1 million during 2020, 2019 and 2018, respectively. As of December 31, 2020, the 18,864,574 unvested restricted AB Holding Units consist of 13,957,907 restricted AB Holding Units that do not have a service requirement and have been fully expensed on the grant date and 4,906,667 restricted AB Holding Units that have a service requirement and will be expensed over the required service period. As of December 31, 2020, there was $68.7 million of compensation expense related to unvested restricted AB Holding Unit awards granted and not yet recognized in the consolidated statement of income. We expect to recognize the expense over a weighted average period of 2.9 years. 20. Units Outstanding Changes in AB Units outstanding for the years ended December 31, 2020 and 2019 were as follows: 2020 2019 Outstanding as of January 1, 270,380,314 268,850,276 Options exercised 5,182 511,894 Units issued 3,363,132 4,833,715 Units retired (1) (3,238,970) (3,815,571) Outstanding as of December 31, 270,509,658 270,380,314 (1) During 2020 and 2019, we purchased 1,500 and 3,782 AB Units, respectively, in private transactions and retired them. 124 Table of Contents 21. Income Taxes AB is a private partnership for federal income tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, AB is subject to a 4.0% New York City unincorporated business tax ( “UBT” ). Domestic corporate subsidiaries of AB, which are subject to federal, state and local income taxes, generally are included in the filing of a consolidated federal income tax return with separate state and local income tax returns being filed. Foreign corporate subsidiaries are generally subject to taxes in the foreign jurisdictions where they are located. In order to preserve AB’s status as a private partnership for federal income tax purposes, AB Units must not be considered publicly traded. The AB Partnership Agreement provides that all transfers of AB Units must be approved by EQH and the General Partner; EQH and the General Partner approve only those transfers permitted pursuant to one or more of the safe harbors contained in the relevant Treasury regulations. If AB Units were considered readily tradable, AB’s net income would be subject to federal and state corporate income tax, significantly reducing its quarterly distributions to AB Holding. Furthermore, should AB enter into a substantial new line of business, AB Holding, by virtue of its ownership of AB, would lose its status as a “grandfathered” publicly-traded partnership and would become subject to corporate income tax, which would reduce materially AB Holding’s net income and its quarterly distributions to AB Holding Unitholders. Earnings before income taxes and income tax expense consist of: Years Ended December 31, 2020 2019 2018 (in thousands) Earnings before income taxes: United States $ 743,687 $ 697,501 $ 672,221 Foreign 163,749 125,936 153,093 Total $ 907,436 $ 823,437 $ 825,314 Income tax expense: Partnership UBT $ 3,356 $ 9,196 $ 5,251 Corporate subsidiaries: Federal 1,495 (943) (4,030) State and local 904 975 2,888 Foreign 44,086 32,290 36,529 Current tax expense 49,841 41,518 40,638 Deferred tax (4,188) 236 5,178 Income tax expense $ 45,653 $ 41,754 $ 45,816 125 Table of Contents The principal reasons for the difference between the effective tax rates and the UBT statutory tax rate of 4.0% are as follows: Years Ended December 31, 2020 2019 2018 (in thousands) UBT statutory rate $ 36,297 4.0 % $ 32,937 4.0 % $ 33,012 4.0 % Corporate subsidiaries' federal, state, and local 2,025 0.2 4,000 0.5 1,522 0.2 Foreign subsidiaries taxed at different rates 33,969 3.7 26,719 3.3 30,689 3.7 2017 Tax Act — — — — 1,155 0.1 FIN 48 reserve (release) (1,886) (0.2) 2,765 0.3 (5,177) (0.6) UBT business allocation percentage rate change 8 — (79) — 2,657 0.3 Deferred tax and payable write-offs (887) (0.1) 314 — 2,932 0.4 Foreign outside basis difference 3 — 155 — 2,273 0.3 Amended 2017 return (221) — (3,853) (0.5) — — Effect of ASC 740 adjustments, miscellaneous taxes, and other 2,654 0.3 2,305 0.3 (2,521) (0.3) Income not taxable resulting from use of UBT business apportionment factors and effect of compensation charge (26,309) (2.9) (23,509) (2.8) (20,726) (2.5) Income tax expense and effective tax rate $ 45,653 5.0 $ 41,754 5.1 $ 45,816 5.6 We recognize the effects of a tax position in the financial statements only if, as of the reporting date, it is “more likely than not” to be sustained based on its technical merits and their applicability to the facts and circumstances of the tax position. In making this assessment, we assume that the taxing authority will examine the tax position and have full knowledge of all relevant information. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Years Ended December 31, 2020 2019 2018 (in thousands) Balance as of beginning of period $ 5,706 $ 3,893 $ 8,478 Additions for prior year tax positions — 1,813 — Reductions for prior year tax positions — — — Additions for current year tax positions — — — Reductions for current year tax positions — — — Reductions related to closed years/settlements with tax authorities (2,868) — (4,585) Balance as of end of period $ 2,838 $ 5,706 $ 3,893 The amount of unrecognized tax benefits as of December 31, 2020, 2019 and 2018, when recognized, is recorded as a reduction to income tax expense and reduces the company’s effective tax rate. Interest and penalties, if any, relating to tax positions are recorded in income tax expense on the consolidated statements of income. The total amount of interest expense recorded in income tax expense (credit) during 2020, 2019 and 2018 was $(0.4) million, $0.7 million and $0.1 million, respectively. As of December 31, 2020, there is no accrued interest recorded on the consolidated statements of financial condition. The total amount of accrued interest recorded on the consolidated statements of financial condition as of December 31, 2019 and 2018 was $1.1 million and $0.3 million, respectively. There were no penalties accrued as of December 31, 2020. There was $0.2 million of penalties accrued as of December 31, 2019 and there were no accrued penalties as of December 31, 2018. Generally, the company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for any year prior to 2016, except as set forth below. 126 Table of Contents As a result of the settlement of the New York City UBT tax audit for the years 2013 through 2016, the gross unrecognized tax benefit was reduced by approximately $2.9 million. The company also reduced the amount of accrued interest and penalties by $1.3 million. During the fourth quarter of 2020, the City of New York notified us of an examination of AB's UBT returns for the years 2017 through 2019. The examination is ongoing and no provision with respect to this examination has been recorded. Currently, there are no income tax examinations at our significant non-U.S. subsidiaries. Years that remain open and may be subject to examination vary under local law and range from one to seven years. At December 31, 2020, it is not reasonably possible that any of our unrecognized tax benefits will change within the next twelve months due to completion of tax authority exams. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effect of significant items comprising the net deferred tax asset (liability) is as follows: December 31, 2020 2019 (in thousands) Deferred tax asset: Differences between book and tax basis: Benefits from net operating loss carryforwards $ 7,112 $ 5,551 Long-term incentive compensation plans 22,363 20,907 Investment basis differences 5,256 4,376 Depreciation and amortization 2,065 1,554 Lease liability 5,994 6,409 Other, primarily accrued expenses deductible when paid 4,737 3,106 47,527 41,903 Less: valuation allowance (3,025) (2,026) Deferred tax asset 44,502 39,877 Deferred tax liability: Differences between book and tax basis: Intangible assets 7,933 8,013 Investment in foreign subsidiaries 3,048 2,191 Right-of-use asset 4,975 5,191 Other 1,760 1,672 Deferred tax liability 17,716 17,067 Net deferred tax asset $ 26,786 $ 22,810 Valuation allowances of $3.0 million and $2.0 million were established as of December 31, 2020 and 2019, respectively, primarily due to significant negative evidence that net operating loss ( "NOL" ) carryforwards will not be utilized, given the future losses expected to be incurred by the applicable subsidiaries. We had NOL carryforwards at December 31, 2020 and 2019 of approximately $51.0 million and $46.2 million, respectively, in certain foreign locations with an indefinite expiration period. The deferred tax asset is included in other assets in our consolidated statement of financial condition. Management believes there will be sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets recognized that are not subject to valuation allowances. The company provides income taxes on the unremitted earnings of non-U.S. corporate subsidiaries except to the extent that such earnings are indefinitely reinvested outside the United States. As of December 31, 2020, $29.6 million of undistributed earnings of non-U.S. corporate subsidiaries were indefinitely invested outside the U.S. At existing applicable income tax rates, additional taxes of approximately $6.4 million would need to be paid if such earnings are remitted. 127 Table of Contents 22. Business Segment Information Management has assessed the requirements of ASC 280, Segment Reporting , and determined that, because we utilize a consolidated approach to assess performance and allocate resources, we have only one operating segment. Enterprise-wide disclosures as of and for the years ended December 31, 2020, 2019 and 2018 were as follows: Services Net revenues derived from our investment management, research and related services were as follows: Years Ended December 31, 2020 2019 2018 (in thousands) Institutions $ 512,914 $ 480,144 $ 479,068 Retail 1,811,948 1,619,832 1,494,445 Private Wealth Management 882,672 904,505 883,234 Bernstein Research Services 459,744 407,911 439,432 Other 56,908 163,245 123,581 Total revenues 3,724,186 3,575,637 3,419,760 Less: Interest expense 15,650 57,205 52,399 Net revenues $ 3,708,536 $ 3,518,432 $ 3,367,361 Our AllianceBernstein Global High Yield Portfolio, an open-end fund incorporated in Luxembourg (ACATEUH: LX), generated approximately 8%, 9% and 10% of our investment advisory and service fees and 8%, 9% and 10% of our net revenues during 2020, 2019 and 2018, respectively. Geographic Information Net revenues and long-lived assets, related to our U.S. and international operations, as of and for the years ended December 31, were as follows: 2020 2019 2018 (in thousands) Net revenues: United States $ 1,959,528 $ 1,975,105 $ 1,940,267 International 1,749,008 1,543,327 1,427,094 Total $ 3,708,536 $ 3,518,432 $ 3,367,361 Long-lived assets: United States $ 3,285,761 $ 3,259,490 International 53,453 54,349 Total $ 3,339,214 $ 3,313,839 Major Customers Company-sponsored mutual funds are distributed to individual investors through broker-dealers, insurance sales representatives, banks, registered investment advisers, financial planners and other financial intermediaries. HSBC (not affiliated with AB) was responsible for approximately 6%, 14% and 7% of our open-end mutual fund sales in 2020, 2019 and 2018, respectively. HSBC is not under any obligation to sell a specific amount of AB Fund shares. EQH and the general and separate accounts of Equitable Financial Life Insurance Company (" Equitable Financial ") (including investments by the separate accounts of Equitable Financial in the funding vehicle EQ Advisors Trust) accounted for approximately 3% of our total revenues for each of the years ended December 31, 2020, 2019 and 2018. AXA and its subsidiaries accounted for approximately 2% of our total revenues for each of the years ended December 31, 2020, 2019 and 2018. No single institutional client other than EQH, AXA and their respective subsidiaries accounted for more than 1% of our total revenues for the years ended December 31, 2020, 2019 and 2018. 128 Table of Contents 23. Related Party Transactions Mutual Funds We provide investment management, distribution, shareholder, administrative and brokerage services to individual investors by means of retail mutual funds sponsored by our company, our subsidiaries and our affiliated joint venture companies. We provide substantially all of these services under contracts that specify the services to be provided and the fees to be charged. The contracts are subject to annual review and approval by each mutual fund’s board of directors or trustees and, in certain circumstances, by the mutual fund’s shareholders. Revenues for services provided or related to the mutual funds are as follows: Years Ended December 31, 2020 2019 2018 (in thousands) Investment advisory and services fees $ 1,368,484 $ 1,275,677 $ 1,207,086 Distribution revenues 516,336 441,437 403,965 Shareholder servicing fees 79,394 75,122 74,019 Other revenues 8,314 7,303 7,262 Bernstein Research Services 3 2 33 $ 1,972,531 $ 1,799,541 $ 1,692,365 EQH, AXA and their respective Subsidiaries We provide investment management and certain administration services to EQH, AXA and their respective subsidiaries. In addition, EQH, AXA and their respective subsidiaries distribute company-sponsored mutual funds, for which they receive commissions and distribution payments. Also, we are covered by various insurance policies maintained by EQH and we pay fees for technology and other services provided by EQH, AXA and their respective subsidiaries. Additionally, see Note 12, Debt , for disclosures related to our credit facility with EQH. 129 Table of Contents Aggregate amounts included in the consolidated financial statements for transactions with EQH, AXA and their respective subsidiaries, as of and for the years ended December 31, are as follows: EQH AXA 2020 2019 2018 2020 2019 2018 (in thousands) Revenues: Investment advisory and services fees $ 115,901 $ 109,316 $ 104,810 $ 73,482 $ 65,086 $ 64,347 Bernstein Research Services — — — 23 45 134 Distribution revenues — — — 12,925 12,968 13,897 Other revenues 1,330 1,013 1,104 353 482 625 $ 117,231 $ 110,329 $ 105,914 $ 86,783 $ 78,581 $ 79,003 Expenses: Commissions and distribution payments to financial intermediaries $ 3,952 $ 3,956 $ 3,964 $ 14,848 $ 16,693 $ 17,603 General and administrative 2,281 2,466 2,615 8,928 11,501 12,391 Other (1) 5,463 3,644 1,485 — — — $ 11,696 $ 10,066 $ 8,064 $ 23,776 $ 28,194 $ 29,994 Balance Sheet: Institutional investment advisory and services fees receivable $ 8,343 $ 8,716 $ 5,262 $ 10,842 Prepaid expenses 404 238 — — Other due to EQH, AXA and their respective subsidiaries (1,280) (2,111) (4,703) (5,234) EQH Facility (675,000) (560,000) — — $ (667,533) $ (553,157) $ 559 $ 5,608 (1) Prior period EQH 2019 is now presented to conform to current periods presentation. Other Related Parties The consolidated statements of financial condition include a net receivable from AB Holding as a result of cash transactions for fees and expense reimbursements. The net receivable balance included in the consolidated statements of financial condition as of December 31, 2020 and 2019 was $10.2 million and $10.1 million, respectively. Related Party Master Repurchase Agreement During April 2020, we provided a $125 million credit facility, through a Master Repurchase Agreement (" MRA "), to one of our sponsored private investment funds, of which $30 million was drawn upon as of April 28, 2020 and repaid in full in May 2020. No additional amounts were drawn during the remainder of 2020. The amounts drawn upon the MRA, which were payable on demand, were collateralized by assets of the fund, could have been repaid at any time prior to maturity and bore interest based upon the interest rate established at the time of each borrowing. This credit facility expired on December 31, 2020. 130 Table of Contents 24. Non-controlling Interests Non-controlling interest in net income for the years ended December 31, 2020, 2019 and 2018 consisted of the following: 2020 2019 2018 (in thousands) Non-redeemable non-controlling interests: Consolidated company-sponsored investment funds $ — $ — $ (119) Other — 92 188 Total non-redeemable non-controlling interest — 92 69 Redeemable non-controlling interests: Consolidated company-sponsored investment funds (4,169) 29,549 21,841 Total non-controlling interest in net income (loss) $ (4,169) $ 29,641 $ 21,910 Redeemable non-controlling interest as of December 31, 2020 and 2019 consisted of the following: 2020 2019 (in thousands) Consolidated company-sponsored investment funds $ 102,359 $ 325,561 Total redeemable non-controlling interest $ 102,359 $ 325,561 25. Quarterly Financial Data (Unaudited) Quarters Ended 2020 December 31 September 30 June 30 March 31 (in thousands, except per unit amounts) Net revenues $ 1,062,893 $ 900,038 $ 871,449 $ 874,156 Net income attributable to AB Unitholders $ 286,335 $ 207,976 $ 177,321 $ 194,320 Basic net income per AB Unit (1) $ 1.06 $ 0.77 $ 0.65 $ 0.71 Diluted net income per AB Unit (1) $ 1.06 $ 0.77 $ 0.65 $ 0.71 Cash distributions per AB Unit (2)(3) $ 1.05 $ 0.76 $ 0.68 $ 0.71 Quarters Ended 2019 December 31 September 30 June 30 March 31 (in thousands, except per unit amounts) Net revenues $ 987,304 $ 877,867 $ 857,799 $ 795,462 Net income attributable to AB Unitholders $ 248,865 $ 187,811 $ 166,252 $ 149,114 Basic net income per AB Unit (1) $ 0.92 $ 0.69 $ 0.61 $ 0.55 Diluted net income per AB Unit (1) $ 0.92 $ 0.69 $ 0.61 $ 0.55 Cash distributions per AB Unit (2)(3) $ 0.93 $ 0.70 $ 0.63 $ 0.56 (1) Basic and diluted net income per unit are computed independently for each of the periods presented. Accordingly, the sum of the quarterly net income per unit amounts may not agree to the total for the year. (2) Declared and paid during the following quarter. (3) Cash distributions reflect the impact of our non-GAAP adjustments. 131 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Neither AB nor AB Holding had any changes in or disagreements with accountants in respect of accounting or financial disclosure.