blk-10q_20160331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2016

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the transition period from                                 to                                 .

Commission file number 001-33099

 

BlackRock, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

32-0174431

(State or Other Jurisdiction of

Incorporation or Organization)

 

    (I.R.S. Employer Identification No.)

55 East 52nd Street, New York, NY 10055

(Address of Principal Executive Offices)

(Zip Code)

(212) 810-5300

(Registrant’s Telephone Number, Including Area Code)

 

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

Yes

 

X

 

No

 

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

Yes

 

X

 

No

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or, a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer           X      

Accelerated filer                      

Non-accelerated filer               

Smaller reporting company                  

(Do not check if a smaller

reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

Yes

 

 

 

No

 

X

 

As of April 30, 2016, there were 163,366,741 shares of the registrant’s common stock outstanding.

 

 


BlackRock, Inc.

Index to Form 10-Q

PART I

FINANCIAL INFORMATION

 

 

 

Page

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Financial Condition

1

 

 

 

 

Condensed Consolidated Statements of Income

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income

3

 

 

 

 

Condensed Consolidated Statements of Changes in Equity

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

 

 

 

Item 4.

Controls and Procedures

61

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

62

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63

 

 

 

Item 6.

Exhibits

64

 

 

 

i


PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(unaudited)

 

(in millions, except shares and per share data)

 

March 31,

2016

 

 

December 31,

2015

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,981

 

 

$

6,083

 

Accounts receivable

 

 

2,526

 

 

 

2,237

 

Investments

 

 

1,504

 

 

 

1,578

 

Assets of consolidated variable interest entities:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

103

 

 

 

148

 

Investments

 

 

1,256

 

 

 

1,030

 

Other assets

 

 

85

 

 

 

67

 

Separate account assets

 

 

150,165

 

 

 

150,851

 

Separate account collateral held under securities lending agreements

 

 

30,389

 

 

 

31,336

 

Property and equipment (net of accumulated depreciation of $592 and $570 at March 31, 2016

   and December 31, 2015, respectively)

 

 

581

 

 

 

581

 

Intangible assets (net of accumulated amortization of $769 and $745 at March 31, 2016

   and December 31, 2015, respectively)

 

 

17,347

 

 

 

17,372

 

Goodwill

 

 

13,119

 

 

 

13,123

 

Other assets

 

 

902

 

 

 

855

 

Total assets

 

$

222,958

 

 

$

225,261

 

Liabilities

 

 

 

 

 

 

 

 

Accrued compensation and benefits

 

$

672

 

 

$

1,971

 

Accounts payable and accrued liabilities

 

 

1,385

 

 

 

1,068

 

Liabilities of consolidated variable interest entities

 

 

187

 

 

 

177

 

Borrowings

 

 

4,968

 

 

 

4,930

 

Separate account liabilities

 

 

150,165

 

 

 

150,851

 

Separate account collateral liabilities under securities lending agreements

 

 

30,389

 

 

 

31,336

 

Deferred income tax liabilities

 

 

4,937

 

 

 

4,851

 

Other liabilities

 

 

1,269

 

 

 

1,033

 

Total liabilities

 

 

193,972

 

 

 

196,217

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Temporary equity

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

517

 

 

 

464

 

Permanent Equity

 

 

 

 

 

 

 

 

BlackRock, Inc. stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value;

 

 

2

 

 

 

2

 

Shares authorized: 500,000,000 at March 31, 2016 and December 31, 2015;

 

 

 

 

 

 

 

 

Shares issued: 171,252,185 at March 31, 2016 and December 31, 2015;

 

 

 

 

 

 

 

 

Shares outstanding: 163,587,221 and 163,461,064 at March 31, 2016 and

December 31, 2015, respectively

 

 

 

 

 

 

 

 

Preferred stock (Note 15)

 

 

 

 

 

 

Additional paid-in capital

 

 

19,027

 

 

 

19,405

 

Retained earnings

 

 

12,271

 

 

 

12,033

 

Accumulated other comprehensive loss

 

 

(474

)

 

 

(448

)

Treasury stock, common, at cost (7,664,964 and 7,791,121 shares held at March 31, 2016 and December 31, 2015, respectively)

 

 

(2,432

)

 

 

(2,489

)

Total BlackRock, Inc. stockholders’ equity

 

 

28,394

 

 

 

28,503

 

Nonredeemable noncontrolling interests

 

 

75

 

 

 

77

 

Total permanent equity

 

 

28,469

 

 

 

28,580

 

Total liabilities, temporary equity and permanent equity

 

$

222,958

 

 

$

225,261

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

1


BlackRock, Inc.

Condensed Consolidated Statements of Income

(unaudited)

 

(in millions, except shares and per share data)

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Revenue

 

 

 

 

 

 

 

 

Investment advisory, administration fees and securities

   lending revenue

 

 

 

 

 

 

 

 

Related parties

 

$

1,617

 

 

$

1,681

 

Other third parties

 

 

742

 

 

 

709

 

Total investment advisory, administration fees and

   securities lending revenue

 

 

2,359

 

 

 

2,390

 

Investment advisory performance fees

 

 

34

 

 

 

108

 

BlackRock Solutions and advisory

 

 

171

 

 

 

147

 

Distribution fees

 

 

11

 

 

 

17

 

Other revenue

 

 

49

 

 

 

61

 

Total revenue

 

 

2,624

 

 

 

2,723

 

Expense

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

947

 

 

 

981

 

Distribution and servicing costs

 

 

97

 

 

 

99

 

Amortization of deferred sales commissions

 

 

10

 

 

 

13

 

Direct fund expense

 

 

188

 

 

 

189

 

General and administration

 

 

318

 

 

 

339

 

Restructuring charge

 

 

76

 

 

 

 

Amortization of intangible assets

 

 

25

 

 

 

35

 

Total expense

 

 

1,661

 

 

 

1,656

 

Operating income

 

 

963

 

 

 

1,067

 

Nonoperating income (expense)

 

 

 

 

 

 

 

 

Net gain (loss) on investments

 

 

(2

)

 

 

63

 

Interest and dividend income

 

 

5

 

 

 

4

 

Interest expense

 

 

(51

)

 

 

(51

)

Total nonoperating income (expense)

 

 

(48

)

 

 

16

 

Income before income taxes

 

 

915

 

 

 

1,083

 

Income tax expense

 

 

268

 

 

 

258

 

Net income

 

 

647

 

 

 

825

 

Less:

 

 

 

 

 

 

 

 

Net income (loss) attributable to noncontrolling

   interests

 

 

(10

)

 

 

3

 

Net income attributable to BlackRock, Inc.

 

$

657

 

 

$

822

 

Earnings per share attributable to BlackRock, Inc.

   common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

3.97

 

 

$

4.92

 

Diluted

 

$

3.92

 

 

$

4.84

 

Cash dividends declared and paid per share

 

$

2.29

 

 

$

2.18

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

165,388,130

 

 

 

167,089,037

 

Diluted

 

 

167,398,938

 

 

 

169,723,167

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

 

(in millions)

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Net income

 

$

647

 

 

$

825

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Change in net unrealized gains (losses) from

   available-for-sale investments, net of tax:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses)(1)

 

 

(2

)

 

 

 

Less: reclassification adjustment

   included in net income(1)

 

 

(1

)

 

 

 

Net change from available-for-sale investments

 

 

(1

)

 

 

 

Benefit plans, net

 

 

1

 

 

 

(1

)

Foreign currency translation adjustments(2)

 

 

(26

)

 

 

(165

)

Other comprehensive income (loss)

 

 

(26

)

 

 

(166

)

Comprehensive income

 

 

621

 

 

 

659

 

Less: Comprehensive income (loss) attributable to

   noncontrolling interests

 

 

(10

)

 

 

3

 

Comprehensive income attributable to BlackRock, Inc.

 

$

631

 

 

$

656

 

 

(1)

The tax benefit (expense) was not material for the three months ended March 31, 2016.

(2) 

Amount for the three months ended March 31, 2016 includes losses from a net investment hedge of $23 million, net of tax of $14 million.

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(unaudited)

 

(in millions)

 

Additional

Paid-in

Capital(1)

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

Common

 

 

Total

BlackRock

Stockholders’

Equity

 

 

Nonredeemable

Noncontrolling

Interests

 

 

Total

Permanent

Equity

 

 

Redeemable

Noncontrolling

Interests /

Temporary

Equity

 

December 31, 2015

 

$

19,407

 

 

$

12,033

 

 

$

(448

)

 

$

(2,489

)

 

$

28,503

 

 

$

77

 

 

$

28,580

 

 

$

464

 

Net income

 

 

 

 

 

657

 

 

 

 

 

 

 

 

 

657

 

 

 

 

 

 

657

 

 

 

(10

)

Dividends paid

 

 

 

 

 

(419

)

 

 

 

 

 

 

 

 

(419

)

 

 

 

 

 

(419

)

 

 

 

Stock-based compensation

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

172

 

 

 

 

 

 

172

 

 

 

 

PNC preferred stock capital contribution

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

172

 

 

 

 

 

 

172

 

 

 

 

Retirement of preferred stock

 

 

(172

)

 

 

 

 

 

 

 

 

 

 

 

(172

)

 

 

 

 

 

(172

)

 

 

 

Issuance of common shares related to employee stock

   transactions

 

 

(616

)

 

 

 

 

 

 

 

 

619

 

 

 

3

 

 

 

 

 

 

3

 

 

 

 

Employee tax withholdings related to employee stock

   transactions

 

 

 

 

 

 

 

 

 

 

 

(262

)

 

 

(262

)

 

 

 

 

 

(262

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

(300

)

 

 

(300

)

 

 

 

 

 

(300

)

 

 

 

Net tax benefit (shortfall) from stock-based

   compensation

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

66

 

 

 

 

 

 

66

 

 

 

 

Subscriptions (redemptions/ distributions) —

   noncontrolling interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

 

 

363

 

Net consolidations (deconsolidations) of sponsored

   investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(300

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

(26

)

 

 

 

 

 

(26

)

 

 

 

March 31, 2016

 

$

19,029

 

 

$

12,271

 

 

$

(474

)

 

$

(2,432

)

 

$

28,394

 

 

$

75

 

 

$

28,469

 

 

$

517

 

 

(1) 

Amounts include $2 million of common stock at both March 31, 2016 and December 31, 2015.

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(unaudited)

 

(in millions)

 

Additional

Paid-in

Capital(1)

 

 

Retained

Earnings

 

 

Appropriated

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

Common

 

 

Total

BlackRock

Stockholders’

Equity

 

 

Nonredeemable

Noncontrolling

Interests

 

 

Total

Permanent

Equity

 

 

Redeemable

Noncontrolling

Interests /

Temporary

Equity

 

December 31, 2014

 

$

19,388

 

 

$

10,164

 

 

$

(19

)

 

$

(273

)

 

$

(1,894

)

 

$

27,366

 

 

$

119

 

 

$

27,485

 

 

$

35

 

Net income

 

 

 

 

 

822

 

 

 

 

 

 

 

 

 

 

 

 

822

 

 

 

(1

)

 

 

821

 

 

 

4

 

Net consolidation (deconsolidation) of VIEs due to adoption

   of new accounting pronouncement

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

19

 

 

 

(8

)

 

 

11

 

 

 

194

 

Dividends paid

 

 

 

 

 

(389

)

 

 

 

 

 

 

 

 

 

 

 

(389

)

 

 

 

 

 

(389

)

 

 

 

Stock-based compensation

 

 

143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

143

 

 

 

 

 

 

143

 

 

 

 

Issuance of common shares related

   to employee stock transactions

 

 

(458

)

 

 

 

 

 

 

 

 

 

 

 

465

 

 

 

7

 

 

 

 

 

 

7

 

 

 

 

Employee tax withholdings related to

   employee stock transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(223

)

 

 

(223

)

 

 

 

 

 

(223

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(275

)

 

 

(275

)

 

 

 

 

 

(275

)

 

 

 

Net tax benefit (shortfall) from

   stock-based compensation

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

55

 

 

 

 

Subscriptions (redemptions/ distributions)-

   noncontrolling interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(14

)

 

 

123

 

Net consolidations (deconsolidations)

   of sponsored investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(166

)

 

 

 

 

 

(166

)

 

 

 

 

 

(166

)

 

 

 

March 31, 2015

 

$

19,128

 

 

$

10,597

 

 

$

 

 

$

(439

)

 

$

(1,927

)

 

$

27,359

 

 

$

96

 

 

$

27,455

 

 

$

374

 

 

(1) 

Amounts include $2 million of common stock at both March 31, 2015 and December 31, 2014.

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


 BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

(in millions)

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

647

 

 

$

825

 

Adjustments to reconcile net income to cash flows from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

56

 

 

 

63

 

Amortization of deferred sales commissions

 

 

10

 

 

 

13

 

Stock-based compensation

 

 

172

 

 

 

143

 

Deferred income tax expense (benefit)

 

 

98

 

 

 

87

 

Other gains

 

 

 

 

 

(40

)

Net (gains) losses on nontrading investments

 

 

3

 

 

 

19

 

Assets and liabilities of consolidated VIEs:

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

(46

)

 

 

15

 

Net (gains) losses within consolidated VIEs

 

 

(2

)

 

 

(4

)

Net (purchases) proceeds within consolidated VIEs

 

 

(373

)

 

 

17

 

(Earnings) losses from equity method investees

 

 

(3

)

 

 

(33

)

Distributions of earnings from equity method investees

 

 

10

 

 

 

9

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(270

)

 

 

(750

)

Investments, trading

 

 

(85

)

 

 

(334

)

Other assets

 

 

(58

)

 

 

(97

)

Accrued compensation and benefits

 

 

(1,296

)

 

 

(1,188

)

Accounts payable and accrued liabilities

 

 

326

 

 

 

654

 

Other liabilities

 

 

246

 

 

 

92

 

Cash flows from operating activities

 

 

(565

)

 

 

(509

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(55

)

 

 

(91

)

Proceeds from sales and maturities of investments

 

 

133

 

 

 

143

 

Distributions of capital from equity method investees

 

 

6

 

 

 

9

 

Net consolidations (deconsolidations) of sponsored investment funds

 

 

(8

)

 

 

(3

)

Acquisitions, net of cash acquired

 

 

 

 

 

(88

)

Purchases of property and equipment

 

 

(30

)

 

 

(98

)

Cash flows from investing activities

 

 

46

 

 

 

(128

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Cash dividends paid

 

 

(419

)

 

 

(389

)

Repurchases of common stock

 

 

(562

)

 

 

(498

)

Net (redemptions/distributions paid)/subscriptions received from noncontrolling

   interest holders

 

 

361

 

 

 

109

 

Excess tax benefit from stock-based compensation

 

 

70

 

 

 

55

 

Other financing activities

 

 

3

 

 

 

7

 

Cash flows from financing activities

 

 

(547

)

 

 

(716

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(36

)

 

 

(93

)

Net increase (decrease) in cash and cash equivalents

 

 

(1,102

)

 

 

(1,446

)

Cash and cash equivalents, beginning of period

 

 

6,083

 

 

 

5,723

 

Cash and cash equivalents, end of period

 

$

4,981

 

 

$

4,277

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

40

 

 

$

40

 

Income taxes (net of refunds)

 

$

107

 

 

$

133

 

Supplemental schedule of noncash investing and financing transactions:

 

 

 

 

 

 

 

 

Issuance of common stock

 

$

616

 

 

$

458

 

PNC preferred stock capital contribution

 

$

172

 

 

$

 

Increase (decrease) in noncontrolling interests due to net consolidation (deconsolidation) of

   sponsored investment funds

 

$

(300

)

 

$

204

 

Increase (decrease) in borrowings due to consolidation/deconsolidation of VIEs

 

$

 

 

$

(3,389

)

 

See accompanying notes to condensed consolidated financial statements.

 

6


BlackRock, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

 

1.  Business Overview

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) is a leading publicly traded investment management firm providing a broad range of investment and risk management services to institutional and retail clients worldwide.

BlackRock’s diverse platform of active (alpha) and index (beta) investment strategies across asset classes enables the Company to tailor investment outcomes and asset allocation solutions for clients. Product offerings include single- and multi-asset class portfolios investing in equities, fixed income, alternatives and money market instruments. Products are offered directly and through intermediaries in a variety of vehicles, including open-end and closed-end mutual funds, iShares® exchange-traded funds (“ETFs”), separate accounts, collective investment funds and other pooled investment vehicles. BlackRock also offers the BlackRock Solutions® investment and risk management technology platform, Aladdin®, risk analytics and advisory services and solutions to a broad base of institutional investors.

At March 31, 2016, The PNC Financial Services Group, Inc. (“PNC”) held 21.1% of the Company’s voting common stock and 21.8% of the Company’s capital stock, which includes outstanding common and nonvoting preferred stock.

 

 

2.  Significant Accounting Policies

Basis of Presentation.    These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its controlled subsidiaries. Noncontrolling interests on the condensed consolidated statements of financial condition represents the portion of consolidated sponsored investment funds in which the Company does not have direct equity ownership. Accounts and transactions between consolidated entities have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.

Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, is not required for interim reporting purposes and has been condensed or omitted herein. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the Securities and Exchange Commission (“SEC”) on February 26, 2016 (“2015 Form 10-K”).

The interim financial information at March 31, 2016 and for the three months ended March 31, 2016 and 2015 is unaudited. However, in the opinion of management, the interim information includes all normal recurring adjustments necessary for the fair presentation of the Company’s results for the periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

During the second quarter of 2015, the Company adopted ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis (“ASU 2015-02”). The interim financial information for the three months ended March 31, 2015 presented herein reflects the adoption of ASU 2015-02 effective January 1, 2015. See Note 2 to the consolidated financial statements, Significant Accounting Policies, in the 2015 Form 10-K for further information on ASU 2015-02.

Certain items previously reported have been reclassified to conform to the current year presentation.

7


Fair Value Measurements.

Hierarchy of Fair Value Inputs.    The Company uses a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 Inputs:

Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

 

Level 1 assets may include listed mutual funds, ETFs, listed equities and certain exchange-traded derivatives.

Level 2 Inputs:

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies.

 

Level 2 assets may include debt securities, bank loans, short-term floating-rate notes, asset-backed securities, securities held within consolidated hedge funds, restricted public securities valued at a discount, as well as over-the-counter derivatives, including interest and inflation rate swaps and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.

Level 3 Inputs:

Unobservable inputs for the valuation of the asset or liability, which may include nonbinding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation.

 

Level 3 assets may include direct private equity investments held within consolidated funds and investments in collateralized loan obligations (“CLOs”).

 

Level 3 liabilities include contingent liabilities related to acquisitions valued based upon discounted cash flow analysis using unobservable market data.

Significance of Inputs.    The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

Valuation Techniques.    The fair values of certain Level 3 assets and liabilities were determined using various methodologies as appropriate, including third-party pricing vendors, broker quotes and market and income approaches. Such quotes and modeled prices are evaluated for reasonableness through various procedures, including due diligence reviews of third-party pricing vendors, variance analyses, consideration of the current market environment and other analytical procedures.

A significant number of inputs used to value equity, debt securities and bank loans is sourced from third-party pricing vendors. Generally, prices obtained from pricing vendors are categorized as Level 1 inputs for identical securities traded in active markets and as Level 2 for other similar securities if the vendor uses observable inputs in determining the price. Annually, BlackRock’s internal valuation committee or other designated groups review both the valuation methodologies, including the general assumptions and methods used to value various asset classes, and operational processes with these vendors. On a quarterly basis, meetings are held with key vendors to identify any significant changes to the vendors’ processes.

In addition, quotes obtained from brokers generally are nonbinding and categorized as Level 3 inputs. However, if the Company is able to determine that market participants have transacted for the asset in an orderly manner near the quoted price or if the Company can determine that the inputs used by the broker are observable, the quote is classified as a Level 2 input.

8


Investments Measured at Net Asset Values.    As a practical expedient, the Company uses NAV as the fair value for certain investments. The inputs to value these investments may include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, opportunistic funds, real assets and private equity funds, which may be adjusted by using the returns of certain market indices. The various partnerships generally are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the fund to utilize pricing/valuation information from third-party sources, including independent appraisals. However, in some instances, current valuation information for illiquid securities or securities in markets that are not active may not be available from any third-party source or fund management may conclude that the valuations that are available from third-party sources are not reliable. In these instances, fund management may perform model-based analytical valuations that may be used as an input to value these investments.

Derivative Instruments and Hedging Activities.    The Company does not use derivative financial instruments for trading or speculative purposes. The Company uses derivative financial instruments primarily for purposes of hedging exposures to fluctuations in foreign currency exchange rates of certain assets and liabilities, and market exposures for certain seed investments. The Company may also use derivatives within its separate account assets, which are segregated for purposes of funding individual and group pension contracts. In addition, certain consolidated sponsored investment funds may also invest in derivatives as a part of their investment strategy.

Changes in the fair value of the Company’s derivative financial instruments are recognized in earnings and, where applicable, are offset by the corresponding gain or loss on the related foreign-denominated assets or liabilities or hedged investments, on the condensed consolidated statements of income.

The Company may also use financial instruments designated as net investment hedges for accounting purposes to hedge net investments in international subsidiaries whose functional currency is different from the reporting currency of the parent company. The gain or loss from revaluing accounting hedges of net investments in foreign operations at the spot rate is deferred and reported within accumulated other comprehensive income on the condensed consolidated statements of financial condition. The Company reassesses the effectiveness of its net investment hedge on a quarterly basis.

Money Market Fee Waivers.    The Company is currently voluntarily waiving a portion of its management fees on certain money market funds to ensure that they maintain a minimum level of daily net investment income (the “Yield Support waivers”). During the three months ended March 31, 2016 and 2015, these waivers resulted in a reduction of management fees of approximately $12 million and $43 million, respectively. Approximately 83% and 42%, respectively, of Yield Support waivers were offset by a reduction of BlackRock’s distribution and servicing costs paid to a financial intermediary. BlackRock has provided Yield Support waivers in prior periods and may increase or decrease the level of fee waivers in future periods.

Separate Account Assets and Liabilities.    Separate account assets are maintained by BlackRock Life Limited, a wholly owned subsidiary of the Company, which is a registered life insurance company in the United Kingdom, and represent segregated assets held for purposes of funding individual and group pension contracts. The life insurance company does not underwrite any insurance contracts that involve any insurance risk transfer from the insured to the life insurance company. The separate account assets primarily include equity securities, debt securities, money market funds and derivatives. The separate account assets are not subject to general claims of the creditors of BlackRock. These separate account assets and the related equal and offsetting liabilities are recorded as separate account assets and separate account liabilities on the condensed consolidated statements of financial condition.

The net investment income attributable to separate account assets supporting individual and group pension contracts accrues directly to the contract owner and is not reported on the condensed consolidated statements of income. While BlackRock has no economic interest in these separate account assets and liabilities, BlackRock earns policy administration and management fees associated with these products, which are included in investment advisory, administration fees and securities lending revenue on the condensed consolidated statements of income.

9


Separate Account Collateral Assets Held and Liabilities Under Securities Lending Agreements.    The Company facilitates securities lending arrangements whereby securities held by separate accounts maintained by BlackRock Life Limited are lent to third parties under global master securities lending agreements. In exchange, the Company receives legal title to the collateral with minimum values generally ranging from approximately 102% to 112% of the value of the securities lent in order to reduce counterparty risk. The required collateral value is calculated on a daily basis. The global master securities lending agreements provide the Company the right to request additional collateral or, in the event of borrower default, the right to liquidate collateral. The securities lending transactions entered into by the Company are accompanied by an agreement that entitles the Company to request the borrower to return the securities at any time; therefore, these transactions are not reported as sales.

The Company records on the condensed consolidated statements of financial condition the cash and noncash collateral received under these BlackRock Life Limited securities lending arrangements as its own asset in addition to an equal and offsetting collateral liability for the obligation to return the collateral. During the three months ended March 31, 2016 and 2015, the Company had not resold or repledged any of the collateral received under these arrangements. At March 31, 2016 and December 31, 2015, the fair value of loaned securities held by separate accounts was approximately $28.4 billion and $28.8 billion, respectively, and the fair value of the collateral held under these securities lending agreements was approximately $30.4 billion and $31.3 billion, respectively.

Recent Accounting Pronouncements Adopted  in the Three Months Ended March 31, 2016

Accounting for Measurement-Period Adjustments. In September 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”).  Under ASU 2015-16, an acquirer must recognize, upon determination, adjustments to the original amounts recorded for a business acquisition that are identified during the one-year period following the acquisition date. Previously, prior period information was required to be restated.  The Company adopted ASU 2015-16 prospectively on January 1, 2016 and will apply the ASU to any adjustments related to business acquisitions.

Transition to Equity Method Accounting. In March 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting (“ASU 2016-07”). ASU 2016-07 eliminates the requirement to apply the equity method of accounting retrospectively to an investment that subsequently qualifies for such accounting as a result of obtaining significant influence. The Company adopted ASU 2016-07 prospectively on January 1, 2016.

Recent Accounting Pronouncements Not Yet Adopted

Revenue from Contracts with Customers.    In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The Company is currently evaluating the impact of adopting ASU 2014-09, which is effective for the Company on January 1, 2018.

Recognition and Measurement of Financial Instruments. In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”).  ASU 2016-01 amends guidance on the classification and measurement of financial instruments, including significant revisions in accounting related to the classification and measurement of investments in equity securities and presentation of certain fair value changes for financial liabilities when the fair value option is elected.  ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments.  The Company is currently evaluating the impact of adopting ASU 2016-01, which is effective for the Company on January 1, 2018.

Leases. In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize assets and liabilities arising from most operating leases on the statement of financial position. The Company is currently evaluating the impact of adopting ASU 2016-02, which is effective for the Company on January 1, 2019.

Principal-Versus-Agent Guidance. In March 2016, the FASB issued ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net) (“ASU 2016-08”). ASU 2016-08 amends the principal-versus-agent implementation guidance in ASU 2014-09, which will impact whether an entity reports revenue on a gross or net basis. The Company is currently evaluating the impact of adopting ASU 2016-08, which is effective for the Company in conjunction with the adoption of ASU 2014-09.

Accounting for Share-Based Payments. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies accounting for employee share-based

10


payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company is currently evaluating the impact of adopting ASU 2016-09, which is effective for the Company on January 1, 2017.  

Identifying Performance Obligations and Licensing.  In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing (“ASU 2016-10”).   ASU 2016-10 clarifies aspects of ASU 2014-09 pertaining to the identification of performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The Company is currently evaluating the impact of adopting ASU 2016-10, which is effective for the Company in conjunction with the adoption of ASU 2014-09.

Narrow-Scope Improvements and Practical Expedients. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”). ASU 2016-12 clarifies aspects of ASU 2014-09, including clarification of noncash consideration, and provides a practical expedient for reflecting contract modifications at transition. The Company is currently evaluating the impact of adopting ASU 2016-12, which is effective for the Company in conjunction with the adoption of ASU 2014-09.

                

 

3.  Investments

A summary of the carrying value of total investments is as follows:

 

(in millions)

 

March 31,

2016

 

 

December 31,

2015

 

Available-for-sale investments

 

$

77

 

 

$

44

 

Held-to-maturity investments

 

 

33

 

 

 

108

 

Trading investments:

 

 

 

 

 

 

 

 

Consolidated sponsored investment funds

 

 

636

 

 

 

700

 

Other equity and debt securities

 

 

30

 

 

 

20

 

Deferred compensation plan mutual funds

 

 

56

 

 

 

65

 

Total trading investments

 

 

722

 

 

 

785

 

Other investments:

 

 

 

 

 

 

 

 

Equity method investments

 

 

545

 

 

 

513

 

Deferred compensation plan equity method

   investments

 

 

14

 

 

 

14

 

Cost method investments(1)

 

 

95

 

 

 

95

 

Carried interest

 

 

18

 

 

 

19

 

Total other investments

 

 

672

 

 

 

641

 

Total investments

 

$

1,504

 

 

$

1,578

 

 

(1) 

Amounts primarily include Federal Reserve Bank (“FRB”) Stock.

                    

Available-for-Sale Investments

A summary of the cost and carrying value of investments classified as available-for-sale investments is as follows:

 

(in millions)

 

 

 

 

 

 

 

 

 

Gross Unrealized

 

 

Carrying

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

March 31, 2016

 

$

80

 

 

$

1

 

 

$

(4

)

 

$

77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

$

45

 

 

$

2

 

 

$

(3

)

 

$

44

 

 

At March 31, 2016 and December 31, 2015 available-for-sale investments included investments in CLOs and seed investments in BlackRock sponsored mutual funds.  

Held-to-Maturity Investments

The carrying value of held-to-maturity investments was $33 million and $108 million at March 31, 2016 and December 31, 2015, respectively. Held-to-maturity investments included foreign government debt held primarily for regulatory purposes and investments in CLOs. The amortized cost (carrying value) of these investments approximated

11


fair value. At March 31, 2016, $12 million of these investments mature after five years through ten years and $21 million mature after ten years.

Trading Investments

A summary of the cost and carrying value of trading investments is as follows:

 

(in millions)

 

March 31,

2016

 

 

December 31,

2015

 

 

 

Cost

 

 

Carrying

Value

 

 

Cost

 

 

Carrying

Value

 

Trading investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan mutual funds

 

$

41

 

 

$

56

 

 

$

48

 

 

$

65

 

Equity securities/multi-asset mutual funds

 

 

353

 

 

 

330

 

 

 

294

 

 

 

279

 

Debt securities/fixed income mutual funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt

 

 

149

 

 

 

146

 

 

 

194

 

 

 

190

 

Government debt

 

 

140

 

 

 

145

 

 

 

202

 

 

 

202

 

Asset/mortgage backed debt

 

 

47

 

 

 

45

 

 

 

49

 

 

 

49

 

Total trading investments

 

$

730

 

 

$

722

 

 

$

787

 

 

$

785

 

 

At March 31, 2016, trading investments included $331 million of debt securities and $305 million of equity securities held by consolidated sponsored investment funds accounted for as voting rights entities (“VREs”), $56 million of certain deferred compensation plan mutual fund investments and $30 million of other equity and debt securities.

At December 31, 2015, trading investments included $437 million of debt securities and $263 million of equity securities held by consolidated sponsored investment funds accounted for as VREs, $65 million of certain deferred compensation plan mutual fund investments and $20 million of other equity and debt securities.

Other Investments

A summary of the carrying value of other investments is as follows:

 

(in millions)

 

March 31,

2016

 

 

December 31,

2015

 

Other investments:

 

 

 

 

 

 

 

 

Equity method investments

 

$

545

 

 

$

513

 

Deferred compensation plan equity method

   investments

 

 

14

 

 

 

14

 

Cost method investments:

 

 

 

 

 

 

 

 

Federal Reserve Bank stock

 

 

93

 

 

 

93

 

Other

 

 

2

 

 

 

2

 

Total cost method investments

 

 

95

 

 

 

95

 

Carried interest(1)

 

 

18

 

 

 

19

 

Total other investments

 

$

672

 

 

$

641

 

 

(1) 

Carried interest of VREs.

Equity method investments primarily include BlackRock’s direct investments in certain BlackRock sponsored investment funds.

In addition, the Company accounts for its interest in PennyMac Financial Services, Inc. (“PennyMac”) as an equity method investment. At March 31, 2016 and December 31, 2015 the Company’s investment in PennyMac was excluded from the balances in the table above and included in other assets on the condensed consolidated statements of financial condition. The carrying value and fair value of the Company’s interest (approximately 20% or 16 million shares and units) was approximately $223 million and $181 million, respectively, at March 31, 2016 and approximately $222 million and $239 million, respectively, at December 31, 2015. The fair value of the Company’s interest reflected the PennyMac stock price at March 31, 2016 and December 31, 2015, respectively (a Level 1 input).  The Company performed an other-than-temporary impairment analysis as of March 31, 2016 and determined the decline in fair value below the carrying value was temporary.

12


Cost method investments include nonmarketable securities, primarily FRB stock, which is held for regulatory purposes and is restricted from sale. At March 31, 2016 and December 31, 2015, there were no indicators of impairment on these investments.

Carried interest represents allocations to BlackRock’s general partner capital accounts from certain funds. These balances are subject to change upon cash distributions, additional allocations or reallocations back to limited partners within the respective funds.

 

 

4.   Consolidated Voting Rights Entities

The Company consolidates certain sponsored investment funds accounted for as VREs because it is deemed to control such funds. The investments owned by these consolidated VREs are classified as trading investments. The following table presents the balances related to these consolidated VREs that were recorded on the condensed consolidated statements of financial condition, including BlackRock’s net interest in these funds:

 

(in millions)

 

March 31,

2016

 

 

December 31,

2015

 

Cash and cash equivalents

 

$

84

 

 

$

100

 

Trading investments

 

 

636

 

 

 

700

 

Other assets

 

 

23

 

 

 

18

 

Other liabilities

 

 

(68

)

 

 

(77

)

Noncontrolling interests

 

 

(131

)

 

 

(125

)

BlackRock’s net interests in consolidated VREs

 

$

544

 

 

$

616

 

 

BlackRock’s total exposure to consolidated VREs represents the value of its economic ownership interest in these sponsored investment funds. Valuation changes associated with investments held at fair value by these consolidated VREs are reflected in nonoperating income (expense) and partially offset in net income (loss) attributable to noncontrolling interests for the portion not attributable to BlackRock.

The Company cannot readily access cash and cash equivalents held by consolidated VREs to use in its operating activities.

 

 

 

5.   Variable Interest Entities

In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, which may be considered variable interest entities (“VIEs”). The Company may from time to time own equity or debt securities or enter into derivatives with the vehicles, each of which are considered variable interests. The Company’s involvement in financing the operations of the VIEs is generally limited to its investments in the entity. The Company consolidates entities when it is determined to be the primary beneficiary (“PB”).  

Consolidated VIEs.    The Company’s consolidated VIEs as of March 31, 2016 and December 31, 2015 include certain sponsored investment funds in which BlackRock has an investment and as the investment manager is deemed to have both the power to direct the most significant activities of the funds and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to these sponsored investment funds. The assets of these VIEs are not available to creditors of the Company. In addition, the investors in these VIEs have no recourse to the credit of the Company.

13


Consolidated VIE assets and liabilities are presented after intercompany eliminations at March 31, 2016 and December 31, 2015 in the following table:

 

(in millions)

 

March 31,

2016

 

 

December 31,

2015

 

Assets of consolidated VIEs:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

103

 

 

$

148

 

Investments

 

 

1,256

 

 

 

1,030

 

Other assets

 

 

85

 

 

 

67

 

Total investments and other assets

 

 

1,341

 

 

 

1,097

 

Liabilities of consolidated VIEs

 

 

(187

)

 

 

(177

)

Noncontrolling interests of consolidated VIEs

 

 

(461

)

 

 

(416

)

BlackRock's net interests in consolidated VIEs

 

$

796

 

 

$

652

 

 

The Company recorded a $2 million and a $4 million nonoperating net gain during the three months ended March 31, 2016 and 2015, respectively, related to consolidated VIEs.  The net loss attributable to noncontrolling interest related to consolidated VIEs for the three months ended March 31, 2016 was $6 million. There was no net income attributable to noncontrolling interest related to consolidated VIEs during the three months ended March 31, 2015.               

Non-consolidated VIEs.    At March 31, 2016 and December 31, 2015, the Company’s carrying value of assets and liabilities included on the condensed consolidated statements of financial condition pertaining to nonconsolidated VIEs and its maximum risk of loss related to VIEs for which it held a variable interest, but for which it was not the PB, was as follows:

 

(in millions)

At March 31, 2016

 

Investments

 

 

Advisory

Fee

Receivables

 

 

Other Net

Assets

(Liabilities)

 

 

Maximum

Risk of Loss(1)

 

Sponsored investment products

 

$

88

 

 

$

7

 

 

$

(6

)

 

$

112

 

At December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sponsored investment products

 

$

64

 

 

$

3

 

 

$

(7

)

 

$

84

 

 

 

(1)

At both March 31, 2016 and December 31, 2015, BlackRock’s maximum risk of loss associated with these VIEs primarily related to collecting advisory fee receivables and BlackRock’s investments.

The net assets of sponsored investment products that are nonconsolidated VIEs approximated $3 billion at both March 31, 2016 and December 31, 2015.                   

 

 

14


6.  Fair Value Disclosures

Fair Value Hierarchy

Assets and liabilities measured at fair value on a recurring basis and other assets not held at fair value

 

March 31, 2016

(in millions)

 

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Investments

Measured at

NAV(1)

 

 

Other Assets

Not Held at

Fair Value(2)

 

 

March 31,

2016

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

$

29

 

 

$

25

 

 

$

23

 

 

$

 

 

$

 

 

$

77

 

Held-to-maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan mutual funds

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56

 

Equity securities/Multi-asset mutual funds

 

 

330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

330

 

Debt securities / fixed income mutual funds

 

 

2

 

 

 

330

 

 

 

4

 

 

 

 

 

 

 

 

 

336

 

Total trading

 

 

388

 

 

 

330

 

 

 

4

 

 

 

 

 

 

 

 

 

722

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity method:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity and fixed income mutual funds

 

 

111

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

141

 

Other

 

 

 

 

 

 

 

 

 

 

 

394

 

 

 

10

 

 

 

404

 

Total equity method

 

 

111

 

 

 

 

 

 

 

 

 

424

 

 

 

10

 

 

 

545

 

Deferred compensation plan equity method investments

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Cost method investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95

 

 

 

95

 

Carried interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

18

 

Total investments

 

 

528

 

 

 

355

 

 

 

27

 

 

 

438

 

 

 

156

 

 

 

1,504

 

Separate account assets

 

 

108,322

 

 

 

40,634

 

 

 

 

 

 

 

 

 

1,209

 

 

 

150,165

 

Separate account collateral held under securities lending

   agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

17,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,657

 

Debt securities

 

 

 

 

 

12,732

 

 

 

 

 

 

 

 

 

 

 

 

12,732

 

Total separate account collateral held under securities

   lending agreements

 

 

17,657

 

 

 

12,732

 

 

 

 

 

 

 

 

 

 

 

 

30,389

 

Investments of consolidated VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private / public equity(3)

 

 

7

 

 

 

2

 

 

 

192

 

 

 

130

 

 

 

 

 

 

331

 

Equity securities

 

 

470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

470

 

Debt securities

 

 

 

 

 

334

 

 

 

 

 

 

 

 

 

 

 

 

334

 

Other

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Carried interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

76

 

Total investments of consolidated VIEs

 

 

477

 

 

 

336

 

 

 

192

 

 

 

175

 

 

 

76

 

 

 

1,256

 

Total

 

$

126,984

 

 

$

54,057

 

 

$

219

 

 

$

613

 

 

$

1,441

 

 

$

183,314

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Separate account collateral liabilities under securities

   lending agreements

 

$

17,657

 

 

$

12,732

 

 

$

 

 

$

 

 

$

 

 

$

30,389

 

Other liabilities(4)

 

 

 

 

 

6

 

 

 

49

 

 

 

 

 

 

 

 

 

55

 

Total

 

$

17,657

 

 

$

12,738

 

 

$

49

 

 

$

 

 

$

 

 

$

30,444

 

 

(1) 

Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy.

(2) 

Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include sponsored investment funds and other assets, which are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.

(3) 

Level 3 amounts primarily include direct investments in private equity companies held by private equity funds.

(4) 

Amounts include a derivative (see Note 7, Derivatives and Hedging, for more information) and recorded contingent liabilities related to certain acquisitions (see Note 11, Commitments and Contingencies, for more information).

 

15


Assets and liabilities measured at fair value on a recurring basis and other assets not held at fair value

 

December 31, 2015

(in millions)

 

Quoted Prices in

Active

Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Investments Measured at NAV(1)

 

 

Other Assets

Not Held at Fair

Value(2)

 

 

December 31,

2015

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

$

19

 

 

$

2

 

 

$

23

 

 

$

 

 

$

 

 

$

44

 

Held-to-maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108

 

 

 

108

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan mutual funds

 

 

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65

 

Equity/Multi-asset mutual funds

 

 

278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

278

 

Debt securities / fixed income mutual funds

 

 

2

 

 

 

438

 

 

 

2

 

 

 

 

 

 

 

 

 

442

 

Total trading

 

 

345

 

 

 

438

 

 

 

2

 

 

 

 

 

 

 

 

 

785

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity method:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity and fixed income mutual funds

 

 

73

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

103

 

Other

 

 

 

 

 

 

 

 

 

 

 

400

 

 

 

10

 

 

 

410

 

Total equity method

 

 

73

 

 

 

 

 

 

 

 

 

430

 

 

 

10

 

 

 

513

 

Deferred compensation plan equity method investments

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Cost method investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95

 

 

 

95

 

Carried interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

19

 

Total investments

 

 

437

 

 

 

440

 

 

 

25

 

 

 

444

 

 

 

232

 

 

 

1,578

 

Separate account assets

 

 

109,761

 

 

 

40,152

 

 

 

 

 

 

 

 

 

938

 

 

 

150,851

 

Separate account collateral held under securities lending agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

26,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,062

 

Debt securities

 

 

 

 

 

5,274

 

 

 

 

 

 

 

 

 

 

 

 

5,274

 

Total separate account collateral held under securities lending agreements

 

 

26,062

 

 

 

5,274

 

 

 

 

 

 

 

 

 

 

 

 

31,336

 

Investments of consolidated VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private / public equity(3)

 

 

6

 

 

 

4

 

 

 

196

 

 

 

145

 

 

 

 

 

 

351

 

Equity securities

 

 

298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

298

 

Debt securities

 

 

 

 

 

242

 

 

 

 

 

 

 

 

 

 

 

 

242

 

Other

 

 

 

 

 

 

 

 

 

 

 

58

 

 

 

 

 

 

58

 

Carried interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

81

 

 

 

81

 

Total investments of consolidated VIEs

 

 

304

 

 

 

246

 

 

 

196

 

 

 

203

 

 

 

81

 

 

 

1,030

 

Total

 

$

136,564

 

 

$

46,112

 

 

$

221

 

 

$

647

 

 

$

1,251

 

 

$

184,795

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Separate account collateral liabilities under securities lending agreements

 

$

26,062

 

 

$

5,274

 

 

$

 

 

$

 

 

$

 

 

$

31,336

 

Other liabilities(4)

 

 

 

 

 

6

 

 

 

48

 

 

 

 

 

 

 

 

 

54

 

Total

 

$

26,062

 

 

$

5,280

 

 

$

48

 

 

$

 

 

$

 

 

$

31,390

 

 

(1) 

Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy.

(2) 

Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include sponsored investment funds and other assets, which are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.

(3) 

Level 3 amounts include direct investments in private equity companies held by private equity funds.

(4) 

Amounts include a derivative (see Note 7, Derivatives and Hedging, for more information) and contingent liabilities related to certain acquisitions (see Note 11, Commitments and Contingencies, for more information).

 


16


Level 3 Assets.    Level 3 investments of consolidated VIEs of $192 million and $196 million at March 31, 2016 and December 31, 2015, respectively, related to direct investments in private equity companies held by consolidated private equity funds. Direct investments in private equity companies may be valued using the market approach or the income approach, or a combination thereof, and were valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third-party financing, changes in valuations of comparable peer companies, the business environment of the companies, market indices, assumptions relating to appropriate risk adjustments for nonperformance and legal restrictions on disposition, among other factors. The fair value derived from the methods used is evaluated and weighted, as appropriate, considering the reasonableness of the range of values indicated. Under the market approach, fair value may be determined by reference to multiples of market-comparable companies or transactions, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. Under the income approach, fair value may be determined by discounting the expected cash flows to a single present value amount using current expectations about those future amounts. Unobservable inputs used in a discounted cash flow model may include projections of operating performance generally covering a five-year period and a terminal value of the private equity direct investment. For investments utilizing the discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, risk premium or discount for lack of marketability in isolation could result in a significantly lower (higher) fair value measurement. For investments utilizing the market-comparable valuation technique, a significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.

Level 3 assets may include bank loans, investments in CLOs, and bonds valued based on single-broker nonbinding quotes and direct private equity investments valued using the market approach or the income approach as described above.

Level 3 Liabilities. Level 3 other liabilities primarily include recorded contingent liabilities related to certain acquisitions, which were valued based upon discounted cash flow analyses using unobservable market data inputs.

 

 

17


Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2016

 

(in millions)

 

December 31,

2015

 

 

Realized

and

Unrealized

Gains

(Losses) in

Earnings

and OCI

 

 

Purchases

 

 

Sales and

Maturities

 

 

Issuances and

other

settlements

 

 

Transfers

into

Level 3

 

 

Transfers

out of

Level 3

 

 

March 31, 2016

 

 

Total Net

Unrealized

Gains (Losses)

Included in

Earnings(1)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities(2)

 

$

23

 

 

$

 

 

$

23

 

 

$

 

 

$

 

 

$

 

 

$

(23

)

 

$

23

 

 

 

 

 

Trading

 

 

2

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

4

 

 

 

 

 

Total investments

 

 

25

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

27

 

 

 

 

 

Assets of consolidated VIEs - Private equity

 

 

196

 

 

 

2

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

192

 

 

$

2

 

Total Level 3 assets

 

$

221

 

 

$

2

 

 

$

27

 

 

$

(6

)

 

$

 

 

$

 

 

$

(25

)

 

$

219

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities(3)

 

$

48

 

 

$

(1

)

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

49

 

 

 

 

 

 

(1) 

Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

(2) 

Amounts include investments in CLOs.

(3) 

Other liabilities amount includes contingent liabilities in connection with certain acquisitions.

 

18


Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2015

 

(in millions)

 

December 31,

2014

 

 

Realized

and

Unrealized

Gains

(Losses) in

Earnings

and OCI

 

 

Purchases

 

 

Sales and

Maturities

 

 

Issuances and

other

settlements(1)

 

 

Transfers

into

Level 3

 

 

Transfers

out of

Level 3

 

 

March 31,

2015

 

 

Total Net

Unrealized

Gains (Losses)

Included in

Earnings(3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated sponsored

   investment funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private equity

 

$

80

 

 

$

 

 

$

 

 

$

 

 

$

(80

)

 

$

 

 

$

 

 

$

 

 

 

 

 

Assets of consolidated VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank loans

 

 

302

 

 

 

 

 

 

 

 

 

 

 

 

(302

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Private equity

 

 

 

 

 

(1

)

 

 

70

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

149

 

 

$

(1

)

Total Level 3 assets of

   consolidated VIEs

 

 

320

 

 

 

(1

)

 

 

70

 

 

 

 

 

 

(240

)

 

 

 

 

 

 

 

 

149

 

 

 

 

 

Total Level 3 assets

 

$

400

 

 

$

(1

)

 

$

70

 

 

$

 

 

$

(320

)

 

$

 

 

$

 

 

$

149

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings of consolidated VIEs

 

$

3,389

 

 

$

 

 

$

 

 

$

 

 

$

(3,389

)

 

$

 

 

$

 

 

$

 

 

 

 

 

Other liabilities(2)

 

 

39

 

 

 

2

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

Total Level 3 liabilities

 

$

3,428

 

 

$

2

 

 

$

 

 

$

 

 

$

(3,375

)

 

$

 

 

$

 

 

$

51

 

 

 

 

 

 

(1) 

Amounts primarily included the consolidation (deconsolidation) of VIEs due to the adoption of ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis, (“ASU 2015-02”).  See Note 2, Significant Accounting Policies, in the 2015 10-K for further information on ASU 2015-02.                        

(2) 

Other liabilities amount includes contingent liabilities related to certain acquisitions.

(3) 

Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

 

19


 

Realized and Unrealized Gains (Losses) for Level 3 Assets and Liabilities.    Realized and unrealized gains (losses) recorded for Level 3 assets and liabilities are reported in nonoperating income (expense) on the condensed consolidated statements of income. A portion of net income (loss) for consolidated sponsored investment funds are allocated to noncontrolling interests to reflect net income (loss) not attributable to the Company.

Transfers in and/or out of Levels.    Transfers in and/or out of levels are reflected when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable/unobservable, or when the carrying value of certain equity method investments no longer represents fair value as determined under valuation methodologies.

Disclosures of Fair Value for Financial Instruments Not Held at Fair Value.    At March 31, 2016 and December 31, 2015, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below:

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

 

(in millions)

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Fair Value

Hierarchy

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,981

 

 

$

4,981

 

 

$

6,083

 

 

$

6,083

 

 

Level 1

(1),(2)

Accounts receivable

 

 

2,526

 

 

 

2,526

 

 

 

2,237

 

 

 

2,237

 

 

Level 1

(3)

Cash and cash equivalents of consolidated VIEs

 

 

103

 

 

 

103

 

 

 

148

 

 

 

148

 

 

Level 1

(1),(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

1,385

 

 

 

1,385

 

 

 

1,068

 

 

 

1,068

 

 

Level 1

(3)

Long-term borrowings

 

 

4,968

 

 

 

5,354

 

 

 

4,930

 

 

 

5,223

 

 

Level 2

(4)

 

 

(1) 

Cash and cash equivalents are carried at either cost or amortized cost, which approximates fair value due to their short-term maturities.

(2) 

At March 31, 2016 and December 31, 2015, approximately $116 million and $132 million, respectively, of money market funds were recorded within cash and cash equivalents on the condensed consolidated statements of financial condition. In addition, at March 31, 2016 and December 31, 2015, approximately $12 million and $68 million, respectively, of money market funds were recorded within cash and cash equivalents of consolidated VIEs.  Money market funds are valued based on quoted market prices, or $1.00 per share, which generally is the NAV of the fund.

(3) 

The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short-term nature.

(4) 

Long-term borrowings are recorded at amortized cost net of debt issuance costs. The fair value of the long-term borrowings, including the current portion of long-term borrowings, is estimated using market prices at the end of March 2016 and December 2015, respectively. See Note 10, Borrowings, for the fair value of each of the Company’s long-term borrowings.

20


Investments in Certain Entities that Calculate Net Asset Value Per Share.

As a practical expedient to value certain investments that do not have a readily determinable fair value and have attributes of an investment company, the Company uses NAV as the fair value. The following tables list information regarding all investments that use a fair value measurement to account for both their financial assets and financial liabilities in their calculation of a NAV per share (or equivalent).

March 31, 2016

 

(in millions)

 

Ref

 

Fair Value

 

 

Total

Unfunded

Commitments

 

 

Redemption

Frequency

 

Redemption

Notice Period

Equity method:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge funds/funds of hedge funds

 

(a)

 

$

218

 

 

$

29

 

 

Daily/Monthly (22%)

Quarterly (53%)

N/R (25%)

 

1 – 90 days

Private equity funds

 

(b)

 

 

83

 

 

 

65

 

 

N/R

 

N/R

Real assets funds

 

(c)

 

 

93

 

 

 

43

 

 

Quarterly (25%)

N/R (75%)

 

60 days

Other

 

(d)

 

 

44

 

 

 

5

 

 

Daily/Monthly (69%)

N/R (31%)

 

3-5 days

Consolidated VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private equity funds of funds

 

(e)

 

 

130

 

 

 

17

 

 

N/R

 

N/R

Hedge fund

 

(a)

 

 

45

 

 

 

 

 

Quarterly

 

90 days

Total

 

 

 

$

613

 

 

$

159

 

 

 

 

 

 

December 31, 2015

 

(in millions)

 

Ref

 

Fair Value

 

 

Total

Unfunded

Commitments

 

 

Redemption

Frequency

 

Redemption

Notice Period

Equity method:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge funds/funds of hedge funds

 

(a)

 

$

217

 

 

$

30

 

 

Daily/Monthly (22%)

Quarterly (52%)

N/R (26%)

 

30 – 90 days

Private equity funds

 

(b)

 

 

89

 

 

 

67

 

 

N/R

 

N/R

Real assets funds

 

(c)

 

 

94

 

 

 

31

 

 

Quarterly (25%)

N/R (75%)

 

60 days

Other

 

(d)

 

 

44

 

 

 

5

 

 

Daily/Monthly (68%)

N/R (32%)

 

3-5 days

Consolidated VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private equity funds of funds

 

(e)

 

 

145

 

 

 

19

 

 

N/R

 

N/R

Hedge fund

 

(a)

 

 

58

 

 

 

 

 

Quarterly

 

90 days

Total

 

 

 

$

647

 

 

$

152

 

 

 

 

 

 

N/R – not redeemable

(1) 

Comprised of equity method investments, which include investments in investment companies, which account for their financial assets and most financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.

(a) 

This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit, opportunistic and mortgage instruments and other third-party hedge funds. The fair values of the investments have been estimated using the NAV of the Company’s ownership interest in partners’ capital. It was estimated that the investments in the funds that are not subject to redemption will be liquidated over a weighted-average period of approximately one year at both March 31, 2016 and December 31, 2015.

(b) 

This category includes several private equity funds that initially invest in nonmarketable securities of private companies, which ultimately may become public in the future. The fair values of these investments have been estimated using capital accounts representing the Company’s ownership interest in the funds as well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying assets of the private equity funds. It was estimated that the investments in these funds will be liquidated over a weighted-average period of approximately four years at both March 31, 2016 and December 31, 2015.

21


(c) 

This category includes several real assets funds that invest directly in real estate, real estate related assets and infrastructure. The fair values of the investments have been estimated using capital accounts representing the Company’s ownership interest in the funds. A majority of the Company’s investments are not subject to redemption or are not currently redeemable and are normally returned through distributions as a result of the liquidation of the underlying assets of the funds. It is estimated that the investments in these funds not subject to redemptions will be liquidated over a weighted-average period of approximately six years at both March 31, 2016 and December 31, 2015, respectively.

(d) 

This category primarily includes a multi-asset fund that is redeemable. The fair values of the investments have been estimated using capital accounts representing the Company’s ownership interest in partners’ capital.

(e)  This category includes the underlying third-party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds, the Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately  five years at both March 31, 2016 and December 31, 2015. The total remaining unfunded commitments to other third-party funds were $17 million at March 31, 2016 and $19 million at December 31, 2015. The Company had contractual obligations to the consolidated funds of $31 million at both March 31, 2016 and December 31, 2015.     

 

7.  Derivatives and Hedging

The Company maintains a program to enter into swaps to hedge against market price and interest rate exposures with respect to certain seed investments in sponsored investment products. At March 31, 2016, the Company had outstanding total return swaps and interest rate swaps with aggregate notional values of approximately $419 million and $46 million, respectively. At December 31, 2015, the Company had outstanding total return swaps and interest rate swaps with aggregate notional values of approximately $360 million and $46 million, respectively. Gains (losses) on total return swaps and interest rate swaps are recorded in nonoperating income (expense) and were not material to the condensed consolidated statements of income for the three months ended March 31, 2016 and 2015.

The Company has entered into a derivative providing credit protection to a counterparty of approximately $17 million, representing the Company’s maximum risk of loss with respect to the provision of credit protection. The Company carries the derivative at fair value based on the expected discounted future cash flows under the arrangement.

The Company executes forward foreign currency exchange contracts to mitigate the risk of certain foreign exchange movements. At March 31, 2016 and December 31, 2015, the Company had outstanding forward foreign currency exchange contracts with aggregate notional values of approximately $111 million and $169 million, respectively.   Gains (losses) on forward foreign currency exchange contracts are recorded in other general and administration expense and were not material to the condensed consolidated statements of income for the three months ended March 31, 2016 and 2015.

The Company consolidates certain sponsored investment funds, which may utilize derivative instruments as a part of the funds’ investment strategies.  The change in fair value of such derivatives, which is recorded in nonoperating income (expense) was not material for the three months ended March 31, 2016 and 2015.

The fair value of the outstanding derivatives mentioned above were not material to the condensed consolidated statements of financial condition at March 31, 2016 and December 31, 2015.

See Note 12, Borrowings, in the 2015 Form 10-K for more information on the Company’s net investment hedge.

 

 

8.  Goodwill

Goodwill activity during the three months ended March 31, 2016 was as follows:

 

(in millions)

 

 

 

 

December 31, 2015

 

$

13,123

 

Goodwill adjustment related to Quellos(1)

 

 

(4

)

March 31, 2016

 

$

13,119

 

 

 

(1)

The decrease in goodwill during the three months ended March 31, 2016 primarily resulted from a decline related to tax benefits realized from tax-deductible goodwill in excess of book goodwill from the acquisition of the fund-of-funds business of Quellos Group, LLC in October 2007 (the “Quellos Transaction”). Goodwill related to the Quellos Transaction will continue to be reduced in future periods by the amount of tax benefits realized from tax-deductible goodwill in excess of book goodwill from the Quellos Transaction. The balance of the Quellos tax-deductible goodwill in excess of book goodwill was approximately $223 million and $231 million at March 31, 2016 and December 31, 2015, respectively.

 

          

 

22


 

9.  Intangible Assets

The carrying amounts of identifiable intangible assets are summarized as follows:

 

(in millions)

 

Indefinite-lived

intangible assets

 

 

Finite-lived

intangible assets

 

 

Total

intangible assets

 

December 31, 2015

 

$

17,108

 

 

$

264

 

 

$

17,372

 

Amortization expense

 

 

-

 

 

 

(25

)

 

 

(25

)

March 31, 2016

 

$

17,108

 

 

$

239

 

 

$

17,347

 

    

 

 

10.  Borrowings

Short-Term Borrowings

2016 Revolving Credit Facility.    The Company’s credit facility has an aggregate commitment amount of $4.0 billion and was further amended in April 2016 to extend the maturity date to March 2021 (the “2016 credit facility”). The 2016 credit facility permits the Company to request up to an additional $1.0 billion of borrowing capacity, subject to lender credit approval, increasing the overall size of the 2016 credit facility to an aggregate principal amount not to exceed $5.0 billion. Interest on borrowings outstanding accrues at a rate based on the applicable London Interbank Offered Rate plus a spread. The 2016 credit facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to earnings before interest, taxes, depreciation and amortization, where net debt equals total debt less unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 1 to 1 at March 31, 2016. The 2016 credit facility provides back-up liquidity to fund ongoing working capital for general corporate purposes and various investment opportunities. At March 31, 2016, the Company had no amount outstanding under the 2016 credit facility.

Commercial Paper Program.    The Company can issue unsecured commercial paper notes (the “CP Notes”) on a private-placement basis up to a maximum aggregate amount outstanding at any time of $4.0 billion. The commercial paper program is currently supported by the 2016 credit facility. At March 31, 2016, BlackRock had no CP Notes outstanding.

Long-Term Borrowings

The carrying value and fair value of long-term borrowings estimated using market prices and foreign exchange rates at March 31, 2016 included the following:

 

(in millions)

 

Maturity Amount

 

 

Unamortized

Discount

and Debt

Issuance Costs

 

 

Carrying Value

 

 

Fair Value

 

6.25% Notes due 2017

 

$

700

 

 

$

(1

)

 

$

699

 

 

$

752

 

5.00% Notes due 2019

 

 

1,000

 

 

 

(3

)

 

 

997

 

 

 

1,117

 

4.25% Notes due 2021

 

 

750

 

 

 

(5

)

 

 

745

 

 

 

830

 

3.375% Notes due 2022

 

 

750

 

 

 

(6

)

 

 

744

 

 

 

796

 

3.50% Notes due 2024

 

 

1,000

 

 

 

(8

)

 

 

992

 

 

 

1,059

 

1.25% Notes due 2025

 

 

798

 

 

 

(7

)

 

 

791

 

 

 

800

 

Total Long-term Borrowings

 

$

4,998

 

 

$

(30

)

 

$

4,968

 

 

$

5,354

 

 

Long-term borrowings at December 31, 2015 had a carrying value of $4.9 billion and a fair value of $5.2 billion determined using market prices at the end of December 2015.           

See Note 12, Borrowings, in the 2015 Form 10-K for more information regarding the Company’s borrowings.

 

 

23


11.  Commitments and Contingencies

Investment Commitments.    At March 31, 2016, the Company had $191 million of various capital commitments to fund sponsored investment funds, including consolidated VIEs. These funds include private equity funds, real assets funds and opportunistic funds. This amount excludes additional commitments made by consolidated funds of funds to underlying third-party funds as third-party noncontrolling interest holders have the legal obligation to fund the respective commitments of such funds of funds. In addition to the capital commitments of $191 million, the Company had approximately $27 million of contingent commitments for certain funds which have investment periods that have expired. Generally, the timing of the funding of these commitments is unknown and the commitments are callable on demand at any time prior to the expiration of the commitment. These unfunded commitments are not recorded on the condensed consolidated statements of financial condition. These commitments do not include potential future commitments approved by the Company that are not yet legally binding. The Company intends to make additional capital commitments from time to time to fund additional investment products for, and with, its clients.

Contingencies

Contingent Payments.    The Company acts as the portfolio manager in a series of derivative transactions and has a maximum potential exposure of $17 million between the Company and counterparty. See Note 7, Derivatives and Hedging, for further discussion.

Contingent Payments Related to Business Acquisitions.    In connection with certain acquisitions, BlackRock is required to make contingent payments, subject to the acquired businesses achieving specified performance targets over a certain period subsequent to the applicable acquisition date. The fair value of the remaining aggregate contingent payments at March 31, 2016 is not significant to the condensed consolidated statement of financial condition and is included in other liabilities.

 

Legal Proceedings.    From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and domestic and international regulatory authorities in connection with certain industry-wide or other investigations or proceedings. It is BlackRock’s policy to cooperate fully with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations and other litigation arising in connection with BlackRock’s activities. Additionally, BlackRock advised investment portfolios may be subject to lawsuits, any of which potentially could harm the investment returns of the applicable portfolio or result in the Company being liable to the portfolios for any resulting damages.

 

On May 27, 2014, certain purported investors in the BlackRock Global Allocation Fund, Inc. and the BlackRock Equity Dividend Fund (collectively, the “Funds”) filed a consolidated complaint (the “Consolidated Complaint”) in the U.S. District Court for the District of New Jersey against BlackRock Advisors, LLC, BlackRock Investment Management, LLC and BlackRock International Limited (collectively, the “Defendants”) under the caption In re BlackRock Mutual Funds Advisory Fee Litigation. The Consolidated Complaint, which purports to be brought derivatively on behalf of the Funds, alleges that the Defendants violated Section 36(b) of the Investment Company Act by receiving allegedly excessive investment advisory fees from the Funds. On February 24, 2015, the same plaintiffs filed another complaint in the same court against BlackRock Investment Management, LLC and BlackRock Advisors, LLC. The allegations and legal claims in both complaints are substantially similar, with the new complaint purporting to challenge fees received by Defendants after the plaintiffs filed their prior complaint. Both complaints seek, among other things, to recover on behalf of the Funds all allegedly excessive advisory fees received by Defendants in the twelve month period preceding the start of each lawsuit, along with purported lost investment returns on those amounts, plus interest. On March 25, 2015, Defendants’ motion to dismiss the Consolidated Complaint was denied. The Defendants believe the claims in both lawsuits are without merit and intend to vigorously defend the actions.

 

Between November 12, 2015 and November 16, 2015, BlackRock, Inc., BlackRock Realty Advisors, Inc. (“BRA”) and the BlackRock Granite Property Fund, Inc. (“Granite Fund”), along with certain other Granite Fund-related entities (collectively, the “BlackRock Parties”) were named as defendants in thirteen separate lawsuits filed in the Superior Court of the State of California for the County of Alameda arising out of the June 16, 2015 collapse of a balcony at the Library Gardens apartment complex in Berkeley, California (the “Property”). The Property is indirectly owned by the Granite Fund, which is managed by BRA. The plaintiffs also named as defendants in the lawsuits Greystar, which is the property manager of the Property, and certain other entities, including the developer of the Property, building contractors and building materials suppliers. The plaintiffs allege, among other things, that the BlackRock Parties were negligent in their ownership, control and maintenance of the Property’s balcony, and seek monetary, including punitive, damages.  Additionally, on March 16, 2016, three former tenants of the Library Gardens apartment unit that

24


experienced the balcony collapse sued the BlackRock Parties.  The former tenants, who witnessed (but were not physically injured in) the accident make allegations virtually identical to those in the previously filed actions and claim that as a result of the collapse, they suffered unspecified emotional damage.  Several defendants have also filed cross-complaints alleging a variety of claims, including claims against the BlackRock Parties for contribution, negligence, and declaratory relief.  BlackRock believes the claims against it are without merit and intends to vigorously defend the actions.

Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability arising out of regulatory matters or lawsuits will have a material effect on BlackRock’s results of operations, financial position, or cash flows. However, there is no assurance as to whether any such pending or threatened matters will have a material effect on BlackRock’s results of operations, financial position or cash flows in any future reporting period. Due to uncertainties surrounding the outcome of these matters, management cannot reasonably estimate the possible loss or range of loss that may arise from these matters.  

Indemnifications.    In the ordinary course of business or in connection with certain acquisition agreements, BlackRock enters into contracts pursuant to which it may agree to indemnify third parties in certain circumstances. The terms of these indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined or the likelihood of any liability is considered remote. Consequently, no liability has been recorded on the condensed consolidated statements of financial condition.

In connection with securities lending transactions, BlackRock has issued certain indemnifications to certain securities lending clients against potential loss resulting from a borrower’s failure to fulfill its obligations under the securities lending agreement should the value of the collateral pledged by the borrower at the time of default be insufficient to cover the borrower’s obligation under the securities lending agreement. At March 31, 2016, the Company indemnified certain of its clients for their securities lending loan balances of approximately $174.8 billion. The Company held as agent, cash and securities totaling $183.9 billion as collateral for indemnified securities on loan at March 31, 2016. The fair value of these indemnifications was not material at March 31, 2016.

 

 

12.  Stock-Based Compensation

Restricted Stock and RSUs. Restricted stock and restricted stock units (“RSUs”) activity for the three months ended March 31, 2016 is summarized below:

 

Outstanding at

 

Restricted

Stock and

RSUs

 

 

Weighted-

Average

Grant Date

Fair Value

 

December 31, 2015

 

 

3,067,737

 

 

$

308.42

 

Granted

 

 

1,348,706

 

 

$

296.46

 

Converted

 

 

(1,351,464

)

 

$

281.15

 

Forfeited

 

 

(8,232

)

 

$

296.81

 

March 31, 2016(1)

 

 

3,056,747

 

 

$

315.23

 

 

(1) 

At March 31, 2016, approximately 2.8 million awards are expected to vest and 0.2 million awards have vested but have not been converted.

During the three months ended March 31, 2016, the Company granted 1,030,964 RSUs to employees as part of 2015 annual incentive compensation that vest ratably over three years from the date of grant and 303,587 RSUs to employees that cliff vest 100% on January 31, 2019.  The Company values RSUs at their grant-date fair value as measured by BlackRock’s common stock price.  The total fair value of RSUs granted to employees during the three months ended March 31, 2016 was $400 million at time of grant.  

At March 31, 2016, the intrinsic value of outstanding RSUs was $1.0 billion reflecting a closing stock price of $340.57.

At March 31, 2016, total unrecognized stock-based compensation expense related to unvested RSUs was $564 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.6 years.

25


Market Performance-based RSUs.        

Market Performance-based RSUs activity for the three months ended March 31, 2016 is summarized below:

Outstanding at

 

Market

Performance-

Based RSUs

 

 

Weighted-

Average

Grant Date

Fair Value

 

December 31, 2015

 

 

1,378,177

 

 

$

137.07

 

Converted

 

 

(548,227

)

 

$

115.03

 

March 31, 2016(1)

 

 

829,950

 

 

$

151.63

 

 

(1)   The market performance-based RSUs require that separate 15%, 25% and 35% share price appreciation targets be achieved during the six-year term of the awards. The awards are split into three tranches and each tranche may vest if the specified target increase in share price is met.  At March 31, 2016, approximately 0.8 million awards are expected to vest and an immaterial amount of awards have vested and have not been converted.  

At March 31, 2016, the intrinsic value of outstanding market performance-based RSUs was $283 million reflecting a closing stock price of $340.57.

See Note 14, Stock-Based Compensation, in the 2015 Form 10-K for more information on market performance-based RSUs.

At March 31, 2016, total unrecognized stock-based compensation expense related to unvested market performance-based awards was $37 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.2 years.

Performance-Based RSUs.  

Performance-based RSU activity for the three months ended March 31, 2016 is summarized below:

 

Outstanding at

 

Performance-

Based RSUs

 

 

Weighted-

Average

Grant Date

Fair Value

 

December 31, 2015

 

 

255,868

 

 

$

343.86

 

Granted

 

 

375,242

 

 

$

296.97

 

March 31, 2016

 

 

631,110

 

 

$

315.98

 

 

During the three months ended March 31, 2016, the Company granted 375,242 performance-based RSUs to certain employees that cliff vest 100% on January 31, 2019. These awards are amortized over a service period of three years. The number of shares distributed at vesting could be higher or lower than the original grant based on the level of attainment of predetermined Company performance measures.

At March 31, 2016, total unrecognized stock-based compensation expense related to unvested performance-based awards was $153 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 2.4 years.

The Company values performance-based RSUs at their grant-date fair value as measured by BlackRock’s common stock price. The total grant-date fair market value of performance-based RSUs expected to vest was $111 million.

At March 31, 2016, the intrinsic value of outstanding performance-based RSUs was $215 million reflecting a closing stock price of $340.57.

Long-Term Incentive Plans Funded by PNC.    Under a share surrender agreement, PNC committed to provide up to 4 million shares of BlackRock stock, held by PNC, to fund certain BlackRock long-term incentive plans (“LTIP”). The current share surrender agreement commits PNC to provide BlackRock series C nonvoting participating preferred stock to fund the remaining committed shares. As of March 31, 2016, 3.2 million shares had been surrendered by PNC.

26


At March 31, 2016, the remaining shares committed by PNC of 0.8 million were available to fund certain future long-term incentive awards.

Stock Options.    Stock option activity for the three months ended March 31, 2016 is summarized below:

 

Outstanding at

 

Shares

under

option

 

 

Weighted

average

exercise

price

 

December 31, 2015

 

 

154,094

 

 

$

167.76

 

Exercised

 

 

(4,000

)

 

$

167.76

 

March 31, 2016

 

 

150,094

 

 

$

167.76

 

 

The aggregate intrinsic value of options exercised during the three months ended March 31, 2016 was $0.6 million.  At March 31, 2016, all options were vested.

The remaining average life of stock options outstanding at March 31, 2016 is approximately one year.

 

13.  Net Capital Requirements

The Company is required to maintain net capital in certain regulated subsidiaries within a number of jurisdictions, which is partially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions. As a result, such subsidiaries of the Company may be restricted in their ability to transfer cash between different jurisdictions and to their parents. Additionally, transfers of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers.

Capital Requirements.    At March 31, 2016, the Company was required to maintain approximately $1.1 billion in net capital in certain regulated subsidiaries, including BlackRock Institutional Trust Company, N.A. (a wholly owned subsidiary of the Company that is chartered as a national bank whose powers are limited to trust activities and which is subject to regulatory capital requirements administered by the Office of the Comptroller of the Currency), entities regulated by the Financial Conduct Authority and Prudential Regulation Authority in the United Kingdom, and the Company’s broker-dealers. The Company was in compliance with all applicable regulatory net capital requirements.

 

 

27


14.  Accumulated Other Comprehensive Income (Loss)

The following tables present changes in AOCI by component for the three months ended March 31, 2016 and 2015:

 

(in millions)

 

Unrealized gains

(losses) on

available-for-sale

investments(1),(2)

 

 

Benefit plans

 

 

Foreign

currency

translation

adjustments(3)

 

 

Total

 

For the Three Months Ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

$

(1

)

 

$

5

 

 

$

(452

)

 

$

(448

)

Other comprehensive income (loss)

   before reclassifications

 

 

(2

)

 

 

1

 

 

 

(26

)

 

 

(27

)

Amount reclassified from AOCI(4)

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Net other comprehensive income (loss) for

   the three months ended March 31, 2016

 

 

(1

)

 

 

1

 

 

 

(26

)

 

 

(26

)

March 31, 2016

 

$

(2

)

 

$

6

 

 

$

(478

)

 

$

(474

)

 

(1) 

All amounts are net of tax.

(2) 

The tax benefit (expense) was not material for the three months ended March 31, 2016.

(3) 

Amount for the three months ended March 31, 2016 includes losses from a net investment hedge of $23 million, net of taxes of $14 million.        

(4) The pre-tax amount reclassified from AOCI was included in net gain (loss) on investments on the condensed consolidated statement of income.

 

(in millions)

 

Unrealized gains

(losses) on

available-for-sale

investments(1)

 

 

Benefit plans

 

 

Foreign

currency

translation

adjustments

 

 

Total

 

For the Three Months Ended March 31,

   2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

$

2

 

 

$

4

 

 

$

(279

)

 

$

(273

)

Other comprehensive income (loss)

   before reclassifications

 

 

 

 

 

(1

)

 

 

(165

)

 

 

(166

)

Amount reclassified from AOCI

 

 

 

 

 

 

 

 

 

 

 

 

Net other comprehensive income (loss) for

   the three months ended March 31, 2015

 

 

 

 

 

(1

)

 

 

(165

)

 

 

(166

)

March 31, 2015

 

$

2

 

 

$

3

 

 

$

(444

)

 

$

(439

)

 

 

(1) 

All amounts are net of tax.

 

 

 

28


15.  Capital Stock

Nonvoting Participating Preferred Stock.    The Company’s preferred shares authorized, issued and outstanding consisted of the following:

 

 

 

March 31,

2016

 

 

December 31,

2015

 

Series A

 

 

 

 

 

 

 

 

Shares authorized, $0.01 par value

 

 

20,000,000

 

 

 

20,000,000

 

Shares issued and outstanding

 

 

 

 

 

 

Series B

 

 

 

 

 

 

 

 

Shares authorized, $0.01 par value

 

 

150,000,000

 

 

 

150,000,000

 

Shares issued and outstanding(1)

 

 

823,188

 

 

 

823,188

 

Series C

 

 

 

 

 

 

 

 

Shares authorized, $0.01 par value

 

 

6,000,000

 

 

 

6,000,000

 

Shares issued and outstanding(1)

 

 

763,660

 

 

 

1,311,887

 

Series D

 

 

 

 

 

 

 

 

Shares authorized, $0.01 par value

 

 

20,000,000

 

 

 

20,000,000

 

Shares issued and outstanding

 

 

 

 

 

 

 

(1) 

Shares held by PNC.

Share Repurchases.    The Company repurchased 1.0 million common shares in open-market transactions under the share repurchase program for approximately $300 million during the three months ended March 31, 2016.  At March 31, 2016, there were 5.3 million shares still authorized to be repurchased.

PNC Capital Contribution.  During the three months ended March 31, 2016, PNC surrendered to BlackRock 548,227 shares of BlackRock Series C Preferred to fund certain LTIP awards.

 

16. Restructuring Charge

A restructuring charge of $76 million ($53 million after-tax), comprised of $44 million of severance and $32 million of expense related to the accelerated amortization of previously granted deferred compensation awards, was recorded in the three months ended March 31, 2016 in connection with a project to streamline and simplify the organization.      

 

The following table presents a rollforward of the Company’s restructuring liability, which is included within other liabilities on the Company’s condensed consolidated statements of financial condition:

 

 

(in millions)

 

Three Months Ended

March 31, 2016

 

Liability as of December 31, 2015

 

$

 

Additions(1)

 

 

76

 

Cash payments

 

 

(1

)

Accelerated amortization expense of equity-based awards

 

 

(28

)

Liability as of March 31, 2016

 

$

47

 

 

 

(1) Amount includes $44 million of severance and $32 million of accelerated amortization expense of previously granted deferred compensation awards.

 

 

17.  Income Taxes

The first quarter 2016 income tax expense included a $4 million net noncash benefit, primarily related to the revaluation of certain deferred income tax liabilities, including the effect of tax legislation enacted in Japan and domestic state and local tax changes.

29


The first quarter 2015 income tax expense benefited from $69 million of nonrecurring items, primarily due to the realization of losses from changes in the Company’s organizational tax structure and the resolution of certain outstanding tax matters.

 

 

 

18.  Earnings Per Share

Due to the similarities in terms between BlackRock nonvoting participating preferred stock and the Company’s common stock, the Company considers its participating preferred stock to be a common stock equivalent for purposes of earnings per share (“EPS”) calculations. As such, the Company has included the outstanding nonvoting participating preferred stock in the calculation of average basic and diluted shares outstanding.

The following table sets forth the computation of basic and diluted EPS for the three months ended March 31, 2016 and 2015 under the treasury stock method:

 

 

 

Three Months Ended

March 31,

 

(in millions, except shares and per share data)

 

2016

 

 

2015

 

Net income attributable to BlackRock

 

$

657

 

 

$

822

 

Basic weighted-average shares outstanding

 

 

165,388,130

 

 

 

167,089,037

 

Dilutive effect of nonparticipating RSUs and stock

   options

 

 

2,010,808

 

 

 

2,634,130

 

Total diluted weighted-average shares outstanding

 

 

167,398,938

 

 

 

169,723,167

 

Basic earnings per share

 

$

3.97

 

 

$

4.92

 

Diluted earnings per share

 

$

3.92

 

 

$

4.84

 

 

 

30


19.  Segment Information

The Company’s management directs BlackRock’s operations as one business, the asset management business. The Company utilizes a consolidated approach to assess performance and allocate resources. As such, the Company operates in one business segment.

The following table illustrates investment advisory, administration fees, securities lending revenue and performance fees by product type, BlackRock Solutions and advisory revenue, distribution fees and other revenue for the three months ended March 31, 2016 and 2015.

 

 

 

Three Months Ended

March 31,

 

(in millions)

 

2016

 

 

2015

 

Equity

 

$

1,184

 

 

$

1,306

 

Fixed income

 

 

623

 

 

 

575

 

Multi-asset

 

 

287

 

 

 

312

 

Alternatives

 

 

196

 

 

 

232

 

Cash management

 

 

103

 

 

 

73

 

Total investment advisory, administration fees,

   securities lending revenue and performance

   fees

 

 

2,393

 

 

 

2,498

 

BlackRock Solutions and advisory

 

 

171

 

 

 

147

 

Distribution fees

 

 

11

 

 

 

17

 

Other revenue

 

 

49

 

 

 

61

 

Total revenue

 

$

2,624

 

 

$

2,723

 

 

The following table illustrates total revenue for the three months ended March 31, 2016 and 2015 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the customer resides.

 

(in millions)

 

Three Months Ended

March 31,

 

Revenue

 

2016

 

 

2015

 

Americas

 

$

1,768

 

 

$

1,851

 

Europe

 

 

723

 

 

 

743

 

Asia-Pacific

 

 

133

 

 

 

129

 

Total revenue

 

$

2,624

 

 

$

2,723

 

 

The following table illustrates long-lived assets that consist of goodwill and property and equipment at March 31, 2016 and December 31, 2015 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located.

 

(in millions)

 

March 31,

 

 

December 31,

 

Long-lived Assets

 

2016

 

 

2015

 

Americas

 

$

13,425

 

 

$

13,422

 

Europe

 

 

182

 

 

 

186

 

Asia-Pacific

 

 

93

 

 

 

96

 

Total long-lived assets

 

$

13,700

 

 

$

13,704

 

 

Americas primarily is comprised of the United States and Canada, while Europe primarily is comprised of the United Kingdom and Luxembourg. Asia-Pacific primarily is comprised of Hong Kong, Australia, Japan and Singapore.

 


31


 

20.  Subsequent Events

In April 2016, the Company completed a transaction with BofA® Global Capital Management transferring investment management responsibilities of approximately $80 billion of cash assets under management to the Company. The combined platform will provide clients with broader access to high quality, global liquidity investment solutions.

On May 3, 2016, the Company announced that it had entered into an agreement to sell its UK Defined Contribution Administration and Platform business to Aegon N.V. (“Aegon”). The Company will retain its role as the primary investment manager for the clients who will transfer to Aegon in connection with the transaction. The transaction is subject to customary closing conditions and a Part VII transfer of the underlying assets and liabilities to Aegon subject to regulatory and court approval.

These transactions are not expected to be material to the Company’s condensed consolidated statements of financial condition or results of operations.

In addition to the subsequent events included in the notes to the condensed consolidated financial statements, the Company conducted a review for additional subsequent events and determined that no additional subsequent events had occurred that would require accrual or additional disclosures.

     

 

32


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

FORWARD-LOOKING STATEMENTS

This report, and other statements that BlackRock may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” and similar expressions.

BlackRock cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and BlackRock assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to risk factors previously disclosed in BlackRock’s Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this report, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the introduction, withdrawal, success and timing of business initiatives and strategies; (2) changes and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management (“AUM”); (3) the relative and absolute investment performance of BlackRock’s investment products; (4) the impact of increased competition; (5) the impact of future acquisitions or divestitures; (6) the unfavorable resolution of legal proceedings; (7) the extent and timing of any share repurchases; (8) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (9) the impact of legislative and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or The PNC Financial Services Group, Inc. (“PNC”); (10) terrorist activities, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (11) the ability to attract and retain highly talented professionals; (12) fluctuations in the carrying value of BlackRock’s economic investments; (13) the impact of changes to tax legislation, including income, payroll and transaction taxes, and taxation on products or transactions, which could affect the value proposition to clients and, generally, the tax position of the Company; (14) BlackRock’s success in maintaining the distribution of its products; (15) the impact of BlackRock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations; and (16) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.

33


OVERVIEW

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) is a leading publicly traded investment management firm with $4.737 trillion of AUM at March 31, 2016. With approximately 13,000 employees in more than 30 countries, BlackRock provides a broad range of investment and risk management services to institutional and retail clients worldwide.

BlackRock’s diverse platform of active (alpha) and index (beta) investment strategies across asset classes enables the Company to tailor investment outcomes and asset allocation solutions for clients. Product offerings include single- and multi-asset class portfolios investing in equities, fixed income, alternatives and money market instruments. Products are offered directly and through intermediaries in a variety of vehicles, including open-end and closed-end mutual funds, iShares® exchange-traded funds (“ETFs”), separate accounts, collective investment funds and other pooled investment vehicles. BlackRock also offers the BlackRock Solutions® investment and risk management technology platform, Aladdin®, risk analytics and advisory services and solutions to a broad base of institutional investors.

BlackRock serves a diverse mix of institutional and retail clients across the globe. Clients include tax-exempt institutions, such as defined benefit and defined contribution pension plans, charities, foundations and endowments; official institutions, such as central banks, sovereign wealth funds, supranationals and other government entities; taxable institutions, including insurance companies, financial institutions, corporations and third-party fund sponsors, and retail investors.

BlackRock maintains a significant global sales and marketing presence that is focused on establishing and maintaining retail and institutional investment management relationships by marketing its services to investors directly and through financial professionals and pension consultants, and establishing third-party distribution relationships.

At March 31, 2016, PNC held 21.1% of the Company’s voting common stock and 21.8% of the Company’s capital stock, which includes outstanding common and nonvoting preferred stock.

Certain items previously reported have been reclassified to conform to current year presentation.

34


EXECUTIVE SUMMARY

 

 

 

Three Months Ended

March 31,

 

(in millions, except shares and per share data)

 

2016

 

 

2015

 

GAAP basis:

 

 

 

 

 

 

 

 

Total revenue

 

$

2,624

 

 

$

2,723

 

Total expense

 

 

1,661

 

 

 

1,656

 

Operating income

 

$

963

 

 

$

1,067

 

Operating margin

 

 

36.7

%

 

 

39.2

%

Nonoperating income (expense), less net income (loss)

   attributable to noncontrolling interests(1)

 

 

(38

)

 

 

13

 

Income tax expense

 

 

(268

)

 

 

(258

)

Net income attributable to BlackRock

 

$

657

 

 

$

822

 

Diluted earnings per common share

 

$

3.92

 

 

$

4.84

 

Effective tax rate

 

 

29.0

%

 

 

23.9

%

As adjusted(2):

 

 

 

 

 

 

 

 

Total revenue

 

$

2,624

 

 

$

2,723

 

Total expense

 

 

1,577

 

 

 

1,646

 

Operating income

 

$

1,047

 

 

$

1,077

 

Operating margin

 

 

41.6

%

 

 

41.2

%

Nonoperating income (expense), less net income (loss)

   attributable to noncontrolling interests(1)

 

 

(38

)

 

 

11

 

Income tax expense

 

 

(298

)

 

 

(258

)

Net income attributable to BlackRock

 

$

711

 

 

$

830

 

Diluted earnings per common share

 

$

4.25

 

 

$

4.89

 

Effective tax rate

 

 

29.6

%

 

 

23.7

%

Other:

 

 

 

 

 

 

 

 

Assets under management (end of period)

 

$

4,737,165

 

 

$

4,774,192

 

Diluted weighted-average common shares outstanding(3)

 

 

167,398,938

 

 

 

169,723,167

 

Common and preferred shares outstanding (end of period)

 

 

165,174,069

 

 

 

167,084,582

 

Book value per share(4)

 

$

171.90

 

 

$

163.74

 

Cash dividends declared and paid per share

 

$

2.29

 

 

$

2.18

 

 

(1) 

Net of net income (loss) attributable to noncontrolling interests (“NCI”) (redeemable and nonredeemable).

(2) 

As adjusted items are described in more detail in Non-GAAP Financial Measures.

(3) 

Nonvoting participating preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations.

(4) 

Total BlackRock stockholders’ equity divided by total common and preferred shares outstanding at March 31 of the respective period-end.

35


THREE MONTHS ENDED MARCH 31, 2016 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2015

GAAP.    Operating income of $963 million decreased $104 million and operating margin of 36.7% decreased 250 bps from the first quarter of 2015. Operating income reflected the impact of negative markets on both base fees and performance fees, and a restructuring charge of $76 million in connection with a project to streamline and simplify the organization.  The decrease in operating income was partially offset by organic growth, expense discipline and higher BlackRock Solutions and advisory revenue. Nonoperating income (expense), less net income (loss) attributable to NCI, decreased $51 million due to lower net marks in the first quarter of 2016 and a $40 million noncash gain related to BlackRock Kelso Capital Advisors LLC (“BKCA”) recorded in the first quarter of 2015.

The first quarter 2016 income tax expense included a $4 million net noncash benefit, primarily related to the revaluation of certain deferred income tax liabilities.  The first quarter 2015 income tax expense benefited from $69 million of nonrecurring items. See Income Tax Expense within Discussion of Financial Results for more information.

Earnings per diluted common share decreased $0.92, or 19%, from the first quarter of 2015, reflecting the impact of a decline in average AUM, lower performance fees, and a restructuring charge in the current quarter, and a lower effective tax rate and the gain related to BKCA in the prior year quarter.  The decrease in earnings per diluted common share was partially offset by the benefit of share repurchases.

As Adjusted.    Operating income of $1,047 million decreased $30 million and operating margin of 41.6% increased 40 bps from the first quarter of 2015.  The pre-tax restructuring charge of $76 million described above was excluded from as adjusted results.  Income tax expense for the first quarter of 2016 excluded the $4 million net noncash benefit described above.  Income tax expense for the prior year’s first quarter included the $69 million net tax benefit described above.  Earnings per diluted common share decreased $0.64, or 13%, from the first quarter of 2015.  

See Non-GAAP Financial Measures for further information on as adjusted items.

For further discussion of BlackRock’s revenue, expense, nonoperating results and income tax expense, see Discussion of Financial Results herein.

 

 

36


NON-GAAP FINANCIAL MEASURES

BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. Management also uses non-GAAP financial measures as a benchmark to compare its performance with other companies and to enhance the comparability of this information for the reporting periods presented. Non-GAAP measures may pose limitations because they do not include all of BlackRock’s revenue and expense. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Management uses both GAAP and non-GAAP financial measures in evaluating BlackRock’s financial performance. Adjustments to GAAP financial measures (“non-GAAP adjustments”) include certain items management deems nonrecurring or occur infrequently, transactions that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.

Computations for all periods are derived from the condensed consolidated statements of income as follows:

(1) Operating income, as adjusted, and operating margin, as adjusted:

Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock’s financial performance over time and, therefore, provide useful disclosure to investors.

 

 

 

Three Months Ended

March 31,

 

(in millions)

 

2016

 

 

2015

 

Operating income, GAAP basis

 

$

963

 

 

$

1,067

 

Non-GAAP expense adjustments:

 

 

 

 

 

 

 

 

Restructuring charge

 

 

76

 

 

 

 

PNC LTIP funding obligation

 

 

8

 

 

 

8

 

Compensation expense related to appreciation

   (depreciation) on deferred compensation plans

 

 

 

 

 

2

 

Operating income, as adjusted

 

 

1,047

 

 

 

1,077

 

Product launch costs and commissions

 

 

 

 

 

 

Operating income used for operating margin measurement

 

$

1,047

 

 

$

1,077

 

Revenue, GAAP basis

 

$

2,624

 

 

$

2,723

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Distribution and servicing costs

 

 

(97

)

 

 

(99

)

Amortization of deferred sales commissions

 

 

(10

)

 

 

(13

)

Revenue used for operating margin measurement

 

$

2,517

 

 

$

2,611

 

Operating margin, GAAP basis

 

 

36.7

%

 

 

39.2

%

Operating margin, as adjusted

 

 

41.6

%

 

 

41.2

%

 

 

Operating income, as adjusted, includes non-GAAP expense adjustments. A restructuring charge recorded in the three months ended March 31, 2016 comprised of severance and accelerated amortization expense of previously granted deferred compensation awards has been excluded to provide more meaningful analysis of BlackRock’s ongoing operations and to ensure comparability among periods presented.  The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately does not impact BlackRock’s book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in nonoperating income (expense).

37


 

Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of product launch costs (e.g. closed-end fund launch costs) and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenue associated with the expenditure of these costs will not fully impact the Company’s results until future periods.

Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, substantially offset distribution fee revenue the Company earns. For each of these items, BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenue.

(2) Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted:

Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, equals nonoperating income (expense), GAAP basis, less net income (loss) attributable to NCI, adjusted for compensation expense associated with (appreciation) depreciation on investments related to certain BlackRock deferred compensation plans. The compensation expense offset is recorded in operating income. This compensation expense has been included in nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, to offset returns on investments set aside for these plans, which are reported in nonoperating income (expense), GAAP basis.

 

 

 

Three Months Ended

March 31,

 

(in millions)

 

2016

 

 

2015

 

Nonoperating income (expense), GAAP basis

 

$

(48

)

 

$

16

 

Less: Net income (loss) attributable to NCI

 

 

(10

)

 

 

3

 

Nonoperating income (expense), net of NCI

 

 

(38

)

 

 

13

 

Compensation expense related to (appreciation)

   depreciation on deferred compensation plans

 

 

 

 

 

(2

)

Nonoperating income (expense), less net income

   (loss) attributable to NCI, as adjusted

 

$

(38

)

 

$

11

 

 

(3) Net income attributable to BlackRock, as adjusted:

 

 

 

Three Months Ended

March 31,

 

(in millions, except per share data)

 

2016

 

 

2015

 

Net income attributable to BlackRock, GAAP basis

 

$

657

 

 

$

822

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Restructuring charge, net of tax

 

 

53

 

 

 

 

PNC LTIP funding obligation, net of tax

 

 

5

 

 

 

5

 

Income tax matters

 

 

(4

)

 

 

3

 

Net income attributable to BlackRock, as adjusted

 

$

711

 

 

$

830

 

Diluted weighted-average common shares

   outstanding(4)

 

167.4

 

 

169.7

 

Diluted earnings per common share, GAAP basis(4)

 

$

3.92

 

 

$

4.84

 

Diluted earnings per common share, as adjusted(4)

 

$

4.25

 

 

$

4.89

 

 

See the aforementioned discussion regarding operating income, as adjusted, and operating margin, as adjusted, for information on the PNC LTIP funding obligation and restructuring charge.

 

For each period presented, the non-GAAP adjustments related to the restructuring charge and the PNC LTIP funding obligation were tax effected at the respective blended rates applicable to the adjustments.

38


(4) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations.

 

 

39


Assets Under Management

AUM for reporting purposes generally is based upon how investment advisory and administration fees are calculated for each portfolio. Net asset values, total assets, committed assets or other measures may be used to determine portfolio AUM.

AUM and Net Inflows (Outflows) by Client Type

 

 

 

AUM

 

 

Net Inflows (Outflows)

 

(in millions)

 

March 31,

2016

 

 

December 31, 2015

 

 

March 31,

2015

 

 

Three

Months

Ended

March 31,

2016

 

 

Twelve

Months

Ended

March 31,

2016

 

Retail

 

$

542,666

 

 

$

541,125

 

 

$

550,980

 

 

$

(359

)

 

$

23,981

 

iShares

 

 

1,127,554

 

 

 

1,092,561

 

 

 

1,074,130

 

 

 

24,247

 

 

 

118,619

 

Institutional:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

1,000,191

 

 

 

962,852

 

 

 

984,282

 

 

 

10,798

 

 

 

19,560

 

Index

 

 

1,764,149

 

 

 

1,738,777

 

 

 

1,854,205

 

 

 

1,395

 

 

 

(44,508

)

Institutional subtotal

 

 

2,764,340

 

 

 

2,701,629

 

 

 

2,838,487

 

 

 

12,193

 

 

 

(24,948

)

Long-term

 

 

4,434,560

 

 

 

4,335,315

 

 

 

4,463,597

 

 

 

36,081

 

 

 

117,652

 

Cash management

 

 

291,986

 

 

 

299,884

 

 

 

292,495

 

 

 

(8,155

)

 

 

(1,207

)

Advisory(1)

 

 

10,619

 

 

 

10,213

 

 

 

18,100

 

 

 

(97

)

 

 

(7,429

)

Total

 

$

4,737,165

 

 

$

4,645,412

 

 

$

4,774,192

 

 

$

27,829

 

 

$

109,016

 

 

AUM and Net Inflows (Outflows) by Product Type

 

 

 

AUM

 

 

Net Inflows (Outflows)

 

(in millions)

 

March 31,

2016

 

 

December 31, 2015

 

 

March 31,

2015

 

 

Three

Months

Ended

March 31,

2016

 

 

Twelve

Months

Ended

March 31,

2016

 

Equity

 

$

2,408,175

 

 

$

2,423,772

 

 

$

2,527,130

 

 

$

(17,677

)

 

$

14,158

 

Fixed income

 

 

1,525,153

 

 

 

1,422,368

 

 

 

1,428,480

 

 

 

52,173

 

 

 

92,828

 

Multi-asset

 

 

385,243

 

 

 

376,336

 

 

 

395,312

 

 

 

(566

)

 

 

3,808

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core

 

 

91,639

 

 

 

92,085

 

 

 

89,086

 

 

 

180

 

 

 

4,461

 

Currency and

   commodities(2)

 

 

24,350

 

 

 

20,754

 

 

 

23,589

 

 

 

1,971

 

 

 

2,397

 

Subtotal

 

 

115,989

 

 

 

112,839

 

 

 

112,675

 

 

 

2,151

 

 

 

6,858

 

Long-term

 

 

4,434,560

 

 

 

4,335,315

 

 

 

4,463,597

 

 

 

36,081

 

 

 

117,652

 

Cash management

 

 

291,986

 

 

 

299,884

 

 

 

292,495

 

 

 

(8,155

)

 

 

(1,207

)

Advisory(1)

 

 

10,619

 

 

 

10,213

 

 

 

18,100

 

 

 

(97

)

 

 

(7,429

)

Total

 

$

4,737,165

 

 

$

4,645,412

 

 

$

4,774,192

 

 

$

27,829

 

 

$

109,016

 

 

AUM and Net Inflows (Outflows) by Investment Style

 

 

 

AUM

 

 

Net Inflows (Outflows)

 

(in millions)

 

March 31,

2016

 

 

December 31, 2015

 

 

March 31,

2015

 

 

Three

Months

Ended

March 31,

2016

 

 

Twelve

Months

Ended

March 31,

2016

 

Active

 

$

1,499,128

 

 

$

1,462,672

 

 

$

1,496,210

 

 

$

8,545

 

 

$

37,509

 

Index & iShares

 

 

2,935,432

 

 

 

2,872,643

 

 

 

2,967,387

 

 

 

27,536

 

 

 

80,143

 

Long-term

 

 

4,434,560

 

 

 

4,335,315

 

 

 

4,463,597

 

 

 

36,081

 

 

 

117,652

 

Cash management

 

 

291,986

 

 

 

299,884

 

 

 

292,495

 

 

 

(8,155

)

 

 

(1,207

)

Advisory(1)

 

 

10,619

 

 

 

10,213

 

 

 

18,100

 

 

 

(97

)

 

 

(7,429

)

Total

 

$

4,737,165

 

 

$

4,645,412

 

 

$

4,774,192

 

 

$

27,829

 

 

$

109,016

 

 

(1) 

Advisory AUM represents long-term portfolio liquidation assignments.

(2) 

Amounts include commodity iShares.

40


Component Changes in AUM for the Three Months Ended March 31, 2016

The following table presents the component changes in AUM by client type and product for the three months ended March 31, 2016.

 

(in millions)

 

December 31,

2015

 

 

Net

inflows

(outflows)

 

 

Market

change

 

 

FX

impact(1)

 

 

March 31,

2016

 

 

Average

AUM(2)

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

$

193,755

 

 

$

(395

)

 

$

(711

)

 

$

787

 

 

$

193,436

 

 

$

187,071

 

Fixed income

 

 

212,653

 

 

 

2,121

 

 

 

1,451

 

 

 

984

 

 

 

217,209

 

 

 

213,460

 

Multi-asset

 

 

115,307

 

 

 

(1,635

)

 

 

(490

)

 

 

109

 

 

 

113,291

 

 

 

112,182

 

Alternatives

 

 

19,410

 

 

 

(450

)

 

 

(451

)

 

 

221

 

 

 

18,730

 

 

 

19,038

 

Retail subtotal

 

 

541,125

 

 

 

(359

)

 

 

(201

)

 

 

2,101

 

 

 

542,666

 

 

 

531,751

 

iShares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

823,156

 

 

 

(4,686

)

 

 

(5,541

)

 

 

5,175

 

 

 

818,104

 

 

 

788,674

 

Fixed income

 

 

254,190

 

 

 

27,482

 

 

 

6,799

 

 

 

2,661

 

 

 

291,132

 

 

 

271,355

 

Multi-asset

 

 

2,730

 

 

 

(586

)

 

 

13

 

 

 

9

 

 

 

2,166

 

 

 

2,290

 

Alternatives

 

 

12,485

 

 

 

2,037

 

 

 

1,565

 

 

 

65

 

 

 

16,152

 

 

 

14,253

 

iShares subtotal

 

 

1,092,561

 

 

 

24,247

 

 

 

2,836

 

 

 

7,910

 

 

 

1,127,554

 

 

 

1,076,572

 

Institutional:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

121,442

 

 

 

(1,770

)

 

 

(1,524

)

 

 

685

 

 

 

118,833

 

 

 

115,703

 

Fixed income

 

 

514,428

 

 

 

10,883

 

 

 

15,177

 

 

 

3,756

 

 

 

544,244

 

 

 

526,554

 

Multi-asset

 

 

252,041

 

 

 

1,263

 

 

 

4,987

 

 

 

3,719

 

 

 

262,010

 

 

 

252,218

 

Alternatives

 

 

74,941

 

 

 

422

 

 

 

(543

)

 

 

284

 

 

 

75,104

 

 

 

74,462

 

Active subtotal

 

 

962,852

 

 

 

10,798

 

 

 

18,097

 

 

 

8,444

 

 

 

1,000,191

 

 

 

968,937

 

Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

1,285,419

 

 

 

(10,826

)

 

 

(5,383

)

 

 

8,592

 

 

 

1,277,802

 

 

 

1,243,866

 

Fixed income

 

 

441,097

 

 

 

11,687

 

 

 

19,802

 

 

 

(18

)

 

 

472,568

 

 

 

452,235

 

Multi-asset

 

 

6,258

 

 

 

392

 

 

 

916

 

 

 

210

 

 

 

7,776

 

 

 

6,949

 

Alternatives

 

 

6,003

 

 

 

142

 

 

 

(79

)

 

 

(63

)

 

 

6,003

 

 

 

6,009

 

Index subtotal

 

 

1,738,777

 

 

 

1,395

 

 

 

15,256

 

 

 

8,721

 

 

 

1,764,149

 

 

 

1,709,059

 

Institutional subtotal

 

 

2,701,629

 

 

 

12,193

 

 

 

33,353

 

 

 

17,165

 

 

 

2,764,340

 

 

 

2,677,996

 

Long-term

 

 

4,335,315

 

 

 

36,081

 

 

 

35,988

 

 

 

27,176

 

 

 

4,434,560

 

 

$

4,286,319

 

Cash management

 

 

299,884

 

 

 

(8,155

)

 

 

(21

)

 

 

278

 

 

 

291,986

 

 

 

 

 

Advisory(3)

 

 

10,213

 

 

 

(97

)

 

 

(122

)

 

 

625

 

 

 

10,619

 

 

 

 

 

Total

 

$

4,645,412

 

 

$

27,829

 

 

$

35,845

 

 

$

28,079

 

 

$

4,737,165

 

 

 

 

 

 

(1) 

Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(2) 

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months.

(3) 

Advisory AUM represents long-term portfolio liquidation assignments.

41


The following table presents component changes in AUM by product type for the three months ended March 31, 2016.

 

(in millions)

 

December 31,

2015

 

 

Net

inflows

(outflows)

 

 

Market

change

 

 

FX

impact(1)

 

 

March 31,

2016

 

 

Average

AUM(2)

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

$

281,319

 

 

$

(3,970

)

 

$

(2,836

)

 

$

1,768

 

 

$

276,281

 

 

$

269,706

 

iShares

 

 

823,156

 

 

 

(4,686

)

 

 

(5,541

)

 

 

5,175

 

 

 

818,104

 

 

 

788,674

 

Non-ETF index

 

 

1,319,297

 

 

 

(9,021

)

 

 

(4,782

)

 

 

8,296

 

 

 

1,313,790

 

 

 

1,276,934

 

Equity subtotal

 

 

2,423,772

 

 

 

(17,677

)

 

 

(13,159

)

 

 

15,239

 

 

 

2,408,175

 

 

 

2,335,314

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

719,653

 

 

 

12,915

 

 

 

16,310

 

 

 

4,833

 

 

 

753,711

 

 

 

732,595

 

iShares

 

 

254,190

 

 

 

27,482

 

 

 

6,799

 

 

 

2,661

 

 

 

291,132

 

 

 

271,355

 

Non-ETF index

 

 

448,525

 

 

 

11,776

 

 

 

20,120

 

 

 

(111

)

 

 

480,310

 

 

 

459,654

 

Fixed income subtotal

 

 

1,422,368

 

 

 

52,173

 

 

 

43,229

 

 

 

7,383

 

 

 

1,525,153

 

 

 

1,463,604

 

Multi-asset

 

 

376,336

 

 

 

(566

)

 

 

5,426

 

 

 

4,047

 

 

 

385,243

 

 

 

373,639

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core

 

 

92,085

 

 

 

180

 

 

 

(997

)

 

 

371

 

 

 

91,639

 

 

 

91,225

 

Currency and commodities(3)

 

 

20,754

 

 

 

1,971

 

 

 

1,489

 

 

 

136

 

 

 

24,350

 

 

 

22,537

 

Alternatives subtotal

 

 

112,839

 

 

 

2,151

 

 

 

492

 

 

 

507

 

 

 

115,989

 

 

 

113,762

 

Long-term

 

 

4,335,315

 

 

 

36,081

 

 

 

35,988

 

 

 

27,176

 

 

 

4,434,560

 

 

$

4,286,319

 

Cash management

 

 

299,884

 

 

 

(8,155

)

 

 

(21

)

 

 

278

 

 

 

291,986

 

 

 

 

 

Advisory(4)

 

 

10,213

 

 

 

(97

)

 

 

(122

)

 

 

625

 

 

 

10,619

 

 

 

 

 

Total

 

$

4,645,412

 

 

$

27,829

 

 

$

35,845

 

 

$

28,079

 

 

$

4,737,165

 

 

 

 

 

 

(1) 

Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(2) 

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months.

(3) 

Amounts include commodity iShares.

(4) 

Advisory AUM represents long-term portfolio liquidation assignments.

The following table presents component changes in AUM by investment style for the three months ended March 31, 2016.

(in millions)

 

December 31,

2015

 

 

Net

inflows

(outflows)

 

 

Market

change

 

 

FX

impact(1)

 

 

March 31,

2016

 

 

Average

AUM(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

$

1,462,672

 

 

$

8,545

 

 

$

16,976

 

 

$

10,935

 

 

$

1,499,128

 

 

$

1,460,200

 

Index & iShares

 

 

2,872,643

 

 

 

27,536

 

 

 

19,012

 

 

 

16,241

 

 

 

2,935,432

 

 

 

2,826,119

 

Long-term

 

 

4,335,315

 

 

 

36,081

 

 

 

35,988

 

 

 

27,176

 

 

 

4,434,560

 

 

$

4,286,319

 

Cash management

 

 

299,884

 

 

 

(8,155

)

 

 

(21

)

 

 

278

 

 

 

291,986

 

 

 

 

 

Advisory(3)

 

 

10,213

 

 

 

(97

)

 

 

(122

)

 

 

625

 

 

 

10,619

 

 

 

 

 

Total

 

$

4,645,412

 

 

$

27,829

 

 

$

35,845

 

 

$

28,079

 

 

$

4,737,165

 

 

 

 

 

 

(1) 

Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(2) 

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months.

(3) 

Advisory AUM represents long-term portfolio liquidation assignments.

AUM increased $91.8 billion, or 2%, to $4.737 trillion at March 31, 2016 from $4.645 trillion at December 31, 2015, driven by net market appreciation, positive net inflows and the positive impact of foreign exchange movements.

Net market appreciation of $35.8 billion was driven by $43.2 billion from fixed income products across the majority of strategies.

AUM increased $28.1 billion due to the impact of foreign exchange movements, primarily resulting from the weakening of the U.S. dollar, largely against the euro, Japanese yen, and Canadian dollar, partially offset by the strengthening of the U.S. dollar against the British pound.

42


Net Inflows (Outflows) Long-term net inflows of $36.1 billion included $24.2 billion, $12.2 billion and $(0.4) billion from iShares, institutional and retail clients, respectively, and were positive across all regions.  Net flows in long-term products are described below.

 

·

iShares net inflows of $24.2 billion were driven by fixed income net inflows of $27.5 billion, diversified across treasuries, corporate bond and high-yield funds.

 

·

Institutional active net inflows of $10.8 billion were led by fixed income net inflows of $10.9 billion, reflecting strong insurance wins in the current quarter.

 

·

Institutional index net inflows of $1.4 billion reflected fixed income net inflows of $11.7 billion, driven by strong demand for local currency and U.S. core strategies, partially offset by equity net outflows of $10.8 billion, primarily from U.S. equity strategies.

Cash management net outflows of $8.2 billion were primarily driven by net outflows from Americas clients in prime strategies, partially offset by net inflows from Americas clients in government strategies.

 

Component Changes in AUM for the Twelve Months Ended March 31, 2016

The following table presents the component changes in AUM by client type and product for the twelve months ended March 31, 2016.

 

(in millions)

 

March 31,

2015

 

 

Net

inflows

(outflows)

 

 

Acquisitions(1)

 

 

Market

change

 

 

FX

impact(2)

 

 

March 31,

2016

 

 

Average

AUM(3)

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

$

201,706

 

 

$

7,816

 

 

$

 

 

$

(15,854

)

 

$

(232

)

 

$

193,436

 

 

$

195,784

 

Fixed income

 

 

201,405

 

 

 

20,448

 

 

 

 

 

 

(5,202

)

 

 

558

 

 

 

217,209

 

 

 

210,481

 

Multi-asset

 

 

128,402

 

 

 

(4,344

)

 

 

366

 

 

 

(11,024

)

 

 

(109

)

 

 

113,291

 

 

 

121,519

 

Alternatives

 

 

19,467

 

 

 

61

 

 

 

 

 

 

(924

)

 

 

126

 

 

 

18,730

 

 

 

19,468

 

Retail subtotal

 

 

550,980

 

 

 

23,981

 

 

 

366

 

 

 

(33,004

)

 

 

343

 

 

 

542,666

 

 

 

547,252

 

iShares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

824,336

 

 

 

56,996

 

 

 

 

 

 

(66,090

)

 

 

2,862

 

 

 

818,104

 

 

 

806,121

 

Fixed income

 

 

233,183

 

 

 

59,195

 

 

 

 

 

 

(3,298

)

 

 

2,052

 

 

 

291,132

 

 

 

250,887

 

Multi-asset

 

 

1,772

 

 

 

506

 

 

 

 

 

 

(107

)

 

 

(5

)

 

 

2,166

 

 

 

1,992

 

Alternatives

 

 

14,839

 

 

 

1,922

 

 

 

 

 

 

(643

)

 

 

34

 

 

 

16,152

 

 

 

14,233

 

iShares subtotal

 

 

1,074,130

 

 

 

118,619

 

 

 

 

 

 

(70,138

)

 

 

4,943

 

 

 

1,127,554

 

 

 

1,073,233

 

Institutional:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

128,036

 

 

 

(2,401

)

 

 

 

 

 

(6,769

)

 

 

(33

)

 

 

118,833

 

 

 

122,545

 

Fixed income

 

 

526,117

 

 

 

10,851

 

 

 

 

 

 

4,410

 

 

 

2,866

 

 

 

544,244

 

 

 

524,694

 

Multi-asset

 

 

257,084

 

 

 

7,955

 

 

 

 

 

 

(6,488

)

 

 

3,459

 

 

 

262,010

 

 

 

255,729

 

Alternatives

 

 

73,045

 

 

 

3,155

 

 

 

560

 

 

 

(1,812

)

 

 

156

 

 

 

75,104

 

 

 

74,069

 

Active subtotal

 

 

984,282

 

 

 

19,560

 

 

 

560

 

 

 

(10,659

)

 

 

6,448

 

 

 

1,000,191

 

 

 

977,037

 

Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

1,373,052

 

 

 

(48,253

)

 

 

 

 

 

(52,586

)

 

 

5,589

 

 

 

1,277,802

 

 

 

1,305,734

 

Fixed income

 

 

467,775

 

 

 

2,334

 

 

 

 

 

 

5,935

 

 

 

(3,476

)

 

 

472,568

 

 

 

463,102

 

Multi-asset

 

 

8,054

 

 

 

(309

)

 

 

 

 

 

(191

)

 

 

222

 

 

 

7,776

 

 

 

7,142

 

Alternatives

 

 

5,324

 

 

 

1,720

 

 

 

 

 

 

(976

)

 

 

(65

)

 

 

6,003

 

 

 

6,055

 

Index subtotal

 

 

1,854,205

 

 

 

(44,508

)

 

 

 

 

 

(47,818

)

 

 

2,270

 

 

 

1,764,149

 

 

 

1,782,033

 

Institutional subtotal

 

 

2,838,487

 

 

 

(24,948

)

 

 

560

 

 

 

(58,477

)

 

 

8,718

 

 

 

2,764,340

 

 

 

2,759,070

 

Long-term

 

 

4,463,597

 

 

 

117,652

 

 

 

926

 

 

 

(161,619

)

 

 

14,004

 

 

 

4,434,560

 

 

$

4,379,555

 

Cash management

 

 

292,495

 

 

 

(1,207

)

 

 

 

 

 

289

 

 

 

409

 

 

 

291,986

 

 

 

 

 

Advisory(4)

 

 

18,100

 

 

 

(7,429

)

 

 

 

 

 

(187

)

 

 

135

 

 

 

10,619

 

 

 

 

 

Total

 

$

4,774,192

 

 

$

109,016

 

 

$

926

 

 

$

(161,517

)

 

$

14,548

 

 

$

4,737,165

 

 

 

 

 

 

(1)  Amounts represent $560 million of AUM acquired in the Infraestructura Institucional acquisition in October 2015 and $366 million of AUM acquired in the FutureAdvisor acquisition in October 2015. The FutureAdvisor acquisition amount does not include AUM that was held in iShares holdings.

(2) 

Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(3) 

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.

(4) 

Advisory AUM represents long-term portfolio liquidation assignments.

43


The following table presents component changes in AUM by product type for the twelve months ended March 31, 2016.

 

(in millions)

 

March 31,

2015

 

 

Net

inflows

(outflows)

 

 

Acquisitions(1)

 

 

Market

change

 

 

FX

impact(2)

 

 

March 31,

2016

 

 

Average

AUM(3)

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

$

298,118

 

 

$

(306

)

 

$

 

 

$

(22,020

)

 

$

489

 

 

$

276,281

 

 

$

285,623

 

iShares

 

 

824,336

 

 

 

56,996

 

 

 

 

 

 

(66,090

)

 

 

2,862

 

 

 

818,104

 

 

 

806,121

 

Non-ETF index

 

 

1,404,676

 

 

 

(42,532

)

 

 

 

 

 

(53,189

)

 

 

4,835

 

 

 

1,313,790

 

 

 

1,338,440

 

Equity subtotal

 

 

2,527,130

 

 

 

14,158

 

 

 

 

 

 

(141,299

)

 

 

8,186

 

 

 

2,408,175

 

 

 

2,430,184

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

720,094

 

 

 

30,988

 

 

 

 

 

 

(1,045

)

 

 

3,674

 

 

 

753,711

 

 

 

727,680

 

iShares

 

 

233,183

 

 

 

59,195

 

 

 

 

 

 

(3,298

)

 

 

2,052

 

 

 

291,132

 

 

 

250,887

 

Non-ETF index

 

 

475,203

 

 

 

2,645

 

 

 

 

 

 

6,188

 

 

 

(3,726

)

 

 

480,310

 

 

 

470,597

 

Fixed income subtotal

 

 

1,428,480

 

 

 

92,828

 

 

 

 

 

 

1,845

 

 

 

2,000

 

 

 

1,525,153

 

 

 

1,449,164

 

Multi-asset

 

 

395,312

 

 

 

3,808

 

 

 

366

 

 

 

(17,810

)

 

 

3,567

 

 

 

385,243

 

 

 

386,382

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core

 

 

89,086

 

 

 

4,461

 

 

 

560

 

 

 

(2,635

)

 

 

167

 

 

 

91,639

 

 

 

90,819

 

Currency and commodities(4)

 

 

23,589

 

 

 

2,397

 

 

 

 

 

 

(1,720

)

 

 

84

 

 

 

24,350

 

 

 

23,006

 

Alternatives subtotal

 

 

112,675

 

 

 

6,858

 

 

 

560

 

 

 

(4,355

)

 

 

251

 

 

 

115,989

 

 

 

113,825

 

Long-term

 

 

4,463,597

 

 

 

117,652

 

 

 

926

 

 

 

(161,619

)

 

 

14,004

 

 

 

4,434,560

 

 

$

4,379,555

 

Cash management

 

 

292,495

 

 

 

(1,207

)

 

 

 

 

 

289

 

 

 

409

 

 

 

291,986

 

 

 

 

 

Advisory(5)

 

 

18,100

 

 

 

(7,429

)

 

 

 

 

 

(187

)

 

 

135

 

 

 

10,619

 

 

 

 

 

Total

 

$

4,774,192

 

 

$

109,016

 

 

$

926

 

 

$

(161,517

)

 

$

14,548

 

 

$

4,737,165

 

 

 

 

 

 

(1) 

Amounts represent $560 million of AUM acquired in the Infraestructura Institucional acquisition in October 2015 and $366 million of AUM acquired in the FutureAdvisor acquisition in October 2015. The FutureAdvisor acquisition amount does not include AUM that was held in iShares holdings.

(2) 

Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(3) 

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.

(4) 

Amounts include commodity iShares.

(5) 

Advisory AUM represents long-term portfolio liquidation assignments.

The following table presents component changes in AUM by investment style for the twelve months ended March 31, 2016.

(in millions)

 

March 31,

2015

 

 

Net

inflows

(outflows)

 

 

Acquisitions(1)

 

 

Market

change

 

 

FX

impact(2)

 

 

March 31,

2016

 

 

Average

AUM(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

$

1,496,210

 

 

$

37,509

 

 

$

926

 

 

$

(43,312

)

 

$

7,795

 

 

$

1,499,128

 

 

$

1,484,089

 

Index & iShares

 

 

2,967,387

 

 

 

80,143

 

 

 

 

 

 

(118,307

)

 

 

6,209

 

 

 

2,935,432

 

 

 

2,895,466

 

Long-term

 

 

4,463,597

 

 

 

117,652

 

 

 

926

 

 

 

(161,619

)

 

 

14,004

 

 

 

4,434,560

 

 

$

4,379,555

 

Cash management

 

 

292,495

 

 

 

(1,207

)

 

 

 

 

 

289

 

 

 

409

 

 

 

291,986

 

 

 

 

 

Advisory(4)

 

 

18,100

 

 

 

(7,429

)

 

 

 

 

 

(187

)

 

 

135

 

 

 

10,619

 

 

 

 

 

Total

 

$

4,774,192

 

 

$

109,016

 

 

$

926

 

 

$

(161,517

)

 

$

14,548

 

 

$

4,737,165

 

 

 

 

 

 

(1) 

Amounts represent $560 million of AUM acquired in the Infraestructura Institucional acquisition in October 2015 and $366 million of AUM acquired in the FutureAdvisor acquisition in October 2015. The FutureAdvisor acquisition amount does not include AUM that was held in iShares holdings.

(2) 

Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(3) 

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.

(4) 

Advisory AUM represents long-term portfolio liquidation assignments.

AUM decreased $37.0 billion to $4.737 trillion at March 31, 2016 from $4.774 trillion at March 31, 2015, driven largely by net market depreciation that more than offset organic growth.

Net market depreciation of $161.5 billion was primarily driven by a $141.3 billion decline from equity products due to lower global equity markets.

AUM increased $14.5 billion due to the impact of foreign exchange movements primarily resulting from the weakening of the U.S. dollar, largely against the euro and Japanese yen, partially offset by the strengthening of the U.S. dollar against the British pound.

44


Net Inflows (Outflows).    Long-term net inflows of $117.7 billion were comprised of $118.6 billion and $24.0 billion from iShares and retail clients, respectively, partially offset by net outflows of $24.9 billion from institutional clients. Net flows in long-term products are described below.

 

·

iShares net inflows of $118.6 billion included fixed income iShares and equity iShares net inflows of $59.2 billion and $57.0 billion, respectively. Fixed income iShares net inflows were diversified across exposures, led by strong net inflows into U.S. sector specific, U.S. core, local currency and U.S. targeted duration strategies. Equity iShares net inflows were led by the Core Series and regional and country specific strategies.

 

·

Retail net inflows of $24.0 billion were led by fixed income net inflows of $20.4 billion, reflecting strong interest in unconstrained fixed income and local currency offerings.

 

·

Institutional active net inflows of $19.6 billion reflected active fixed income net inflows of $10.9 billion, multi-asset net inflows of $8.0 billion and alternatives net inflows of $3.2 billion, partially offset by equity net outflows of $2.4 billion. Alternatives flows were led by private equity solutions, alternative solutions and real assets, primarily related to infrastructure.

 

·

Institutional index net outflows of $44.5 billion were primarily due to equity net outflows of $48.3 billion, linked to asset allocation, re-balancing and cash needs.

Cash management net outflows of $1.2 billion were primarily comprised of net outflows from Americas retail clients in prime strategies and EMEA institutional clients in offshore funds, partially offset by net inflows from Americas institutional and retail clients in government strategies and Americas institutional clients in prime strategies.

Advisory net outflows of $7.4 billion were driven by portfolio liquidations.

 

 

45


DISCUSSION OF FINANCIAL RESULTS

The Company’s results of operations for the three months ended March 31, 2016 and 2015 are discussed below. For a further description of the Company’s revenue and expense, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”).

Revenue

 

 

Three Months Ended

March 31,

 

(in millions)

 

2016

 

 

2015

 

Investment advisory, administration fees and

   securities lending revenue:

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Active

 

$

386

 

 

$

422

 

iShares

 

 

623

 

 

 

684

 

Non-ETF index

 

 

164

 

 

 

163

 

Equity subtotal

 

 

1,173

 

 

 

1,269

 

Fixed income:

 

 

 

 

 

 

 

 

Active

 

 

396

 

 

 

373

 

iShares

 

 

152

 

 

 

130

 

Non-ETF index

 

 

70

 

 

 

68

 

Fixed income subtotal

 

 

618

 

 

 

571

 

Multi-asset

 

 

284

 

 

 

304

 

Alternatives:

 

 

 

 

 

 

 

 

Core

 

 

164

 

 

 

154

 

Currency and commodities

 

 

17

 

 

 

19

 

Alternatives subtotal

 

 

181

 

 

 

173

 

Long-term

 

 

2,256

 

 

 

2,317

 

Cash management

 

 

103

 

 

 

73

 

Total base fees

 

 

2,359

 

 

 

2,390

 

Investment advisory performance fees:

 

 

 

 

 

 

 

 

Equity

 

 

11

 

 

 

37

 

Fixed income

 

 

5

 

 

 

4

 

Multi-asset

 

 

3

 

 

 

8

 

Alternatives

 

 

15

 

 

 

59

 

Total performance fees

 

 

34

 

 

 

108

 

BlackRock Solutions and advisory

 

 

171

 

 

 

147

 

Distribution fees

 

 

11

 

 

 

17

 

Other revenue

 

 

49

 

 

 

61

 

Total revenue

 

$

2,624

 

 

$

2,723

 

 

46


The table below lists the asset type mix of investment advisory, administration fees and securities lending revenue (collectively “base fees”) and mix of average AUM by product type:

 

 

 

Three Months Ended March 31,

 

 

 

Mix of Base Fees

 

 

 

Mix of Average AUM

by Asset Class(1)

 

 

 

2016

 

 

2015

 

 

 

2016

 

 

2015

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

17

%

 

 

17

%

 

 

 

6

%

 

 

7

%

iShares

 

 

26

%

 

 

29

%

 

 

 

17

%

 

 

17

%

Non-ETF index

 

 

7

%

 

 

7

%

 

 

 

28

%

 

 

29

%

Equity subtotal

 

 

50

%

 

 

53

%

 

 

 

51

%

 

 

53

%

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

17

%

 

 

16

%

 

 

 

16

%

 

 

15

%

iShares

 

 

6

%

 

 

5

%

 

 

 

6

%

 

 

5

%

Non-ETF index

 

 

3

%

 

 

3

%

 

 

 

10

%

 

 

10

%

Fixed income subtotal

 

 

26

%

 

 

24

%

 

 

 

32

%

 

 

30

%

Multi-asset

 

 

12

%

 

 

13

%

 

 

 

8

%

 

 

8

%

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core

 

 

7

%

 

 

6

%

 

 

 

2

%

 

 

2

%

Currency and commodities

 

 

1

%

 

 

1

%

 

 

 

1

%

 

 

1

%

Alternatives subtotal

 

 

8

%

 

 

7

%

 

 

 

3

%

 

 

3

%

Long-term

 

 

96

%

 

 

97

%

 

 

 

94

%

 

 

94

%

Cash management

 

 

4

%

 

 

3

%

 

 

 

6

%

 

 

6

%

Total excluding Advisory AUM

 

 

100

%

 

 

100

%

 

 

 

100

%

 

 

100

%

 

(1) 

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months.

Three Months Ended March 31, 2016 Compared with Three Months Ended March 31, 2015

Revenue decreased $99 million, or 4%, from the first quarter of 2015, driven by a decline in base fees and performance fees, partially offset by higher BlackRock Solutions and advisory revenue.

 

Investment advisory, administration fees and securities lending revenue of $2,359 million decreased $31 million from $2,390 million in the first quarter of 2015 as the effect of lower markets on average equity AUM more than offset organic growth, the effect of one additional day in the current quarter and lower yield-related fee waivers on certain money market funds. Securities lending revenue of $148 million in the current quarter increased $34 million from the first quarter of 2015, primarily reflecting an increase in average balances of securities on loan and higher spreads.

 

Investment advisory performance fees of $34 million decreased $74 million from the first quarter of 2015, primarily reflecting lower fees from alternative and equity products.

BlackRock Solutions and advisory revenue of $171 million increased $24 million from $147 million in the first quarter of 2015. BlackRock Solutions and advisory revenue included $141 million in Aladdin revenue compared with $126 million in the first quarter of 2015.

47


Expense

 

 

 

Three Months Ended,

March 31,

 

(in millions)

 

2016

 

 

2015

 

Expense, GAAP:

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

$

947

 

 

$

981

 

Distribution and servicing costs

 

 

97

 

 

 

99

 

Amortization of deferred sales commissions

 

 

10

 

 

 

13

 

Direct fund expense

 

 

188

 

 

 

189

 

General and administration:

 

 

 

 

 

 

 

 

Marketing and promotional

 

 

86

 

 

 

95

 

Occupancy and office related

 

 

72

 

 

 

67

 

Portfolio services

 

 

54

 

 

 

54

 

Technology

 

 

46

 

 

 

41

 

Professional services

 

 

28

 

 

 

29

 

Communications

 

 

10

 

 

 

9

 

Other general and administration

 

 

22

 

 

 

44

 

Total general and administration expense

 

 

318

 

 

 

339

 

Restructuring charge

 

 

76

 

 

 

 

Amortization of intangible assets

 

 

25

 

 

 

35

 

Total expense, GAAP

 

$

1,661

 

 

$

1,656

 

Less non-GAAP expense adjustments:

 

 

 

 

 

 

 

 

Employee compensation and benefits:

 

 

 

 

 

 

 

 

Restructuring charge

 

 

76

 

 

 

 

PNC LTIP funding obligation

 

 

8

 

 

 

8

 

Compensation expense related to appreciation

   (depreciation) on deferred compensation

   plans

 

 

-

 

 

 

2

 

Total non-GAAP expense adjustments

 

 

84

 

 

 

10

 

Expense, as adjusted:

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

$

939

 

 

$

971

 

Distribution and servicing costs

 

 

97

 

 

 

99

 

Amortization of deferred sales commissions

 

 

10

 

 

 

13

 

Direct fund expense

 

 

188

 

 

 

189

 

General and administration

 

 

318

 

 

 

339

 

Amortization of intangible assets

 

 

25

 

 

 

35

 

Total expense, as adjusted

 

$

1,577

 

 

$

1,646

 

 

Three Months Ended March 31, 2016 Compared with Three Months Ended March 31, 2015

GAAP.    Expense increased $5 million from the first quarter of 2015, reflecting a restructuring charge recorded in the current quarter, partially offset by lower compensation, expense discipline and the increased benefit from the impact of foreign exchange remeasurement.

Employee compensation and benefits expense decreased $34 million from the first quarter of 2015, reflecting lower incentive compensation, driven primarily by lower performance fees, partially offset by higher headcount. Employees at March 31, 2016 totaled approximately 13,000 compared with approximately 12,300 at March 31, 2015.

Distribution and servicing costs totaled $97 million compared with $99 million in the first quarter of 2015. These costs included payments to Bank of America/Merrill Lynch under a global distribution agreement and payments to PNC, as well as other third parties, primarily associated with the distribution and servicing of client investments in certain BlackRock products. Distribution and servicing costs for the first quarter of 2016 and 2015 included $48 million and $47 million, respectively, attributable to Bank of America/Merrill Lynch.

48


General and administration expense decreased $21 million from the first quarter of 2015, primarily reflecting lower discretionary marketing and promotional spend and an increased benefit from the impact of foreign exchange remeasurement in the current quarter.

 

A restructuring charge of $76 million, primarily comprised of severance and accelerated amortization expense of previously granted deferred compensation awards, was recorded in the three months ended March 31, 2016 in connection with a project to streamline and simplify the organization.

As Adjusted.    Expense, as adjusted, decreased $69 million, or 4%, to $1,577 million from $1,646 million in the first quarter of 2015. The decrease in total expense, as adjusted, is primarily attributable to lower employee compensation and benefits expense and general and administration expense.  The restructuring charge has been excluded from the as adjusted results.

 

NONOPERATING RESULTS

Nonoperating income (expense), less net income (loss) attributable to NCI for the three months ended March 31, 2016 and 2015 was as follows:

 

 

 

Three Months Ended

March 31,

 

(in millions)

 

2016

 

 

2015

 

Nonoperating income (expense), GAAP basis(1)

 

$

(48

)

 

$

16

 

Less: Net income (loss) attributable to NCI

 

 

(10

)

 

 

3

 

Nonoperating income (expense), net of NCI

 

 

(38

)

 

 

13

 

Compensation expense related to (appreciation)

   depreciation on deferred compensation plans

 

 

 

 

 

(2

)

Nonoperating income (expense), as adjusted, net of NCI

 

$

(38

)

 

$

11

 

 

(1) 

Amounts included a gain of $2 million and $4 million for the three months ended March 31, 2016 and 2015, respectively, attributable to consolidated variable interest entities (“VIEs”).

The components of nonoperating income (expense), less net income (loss) attributable to NCI, for the three months ended March 31, 2016 and 2015 were as follows:

 

 

 

Three Months Ended

March 31,

 

(in millions)

 

2016

 

 

2015

 

Net gain (loss) on investments(1)

 

 

 

 

 

 

 

 

Private equity

 

$

2

 

 

$

1

 

Real assets

 

 

2

 

 

 

2

 

Other alternatives(2)

 

 

 

 

 

4

 

Other investments(3)

 

 

4

 

 

 

8

 

Subtotal

 

 

8

 

 

 

15

 

Other gains(4)

 

 

 

 

 

45

 

Total net gain (loss) on investments(1)

 

 

8

 

 

 

60

 

Interest and dividend income

 

 

5

 

 

 

4

 

Interest expense

 

 

(51

)

 

 

(51

)

Net interest expense

 

 

(46

)

 

 

(47

)

Total nonoperating income (expense)(1)

 

 

(38

)

 

 

13

 

Compensation expense related to (appreciation)

   depreciation on deferred compensation plans

 

 

 

 

 

(2

)

Nonoperating income (expense), as adjusted(1)

 

$

(38

)

 

$

11

 

 

(1) 

Net of net income (loss) attributable to NCI. Amounts also include net gain (loss) on consolidated VIEs.

(2) 

Amounts primarily include net gains (losses) related to direct hedge fund strategies and hedge fund solutions.

(3) 

Amounts include net gains (losses) related to equity and fixed income investments, and BlackRock’s seed capital hedging program.

(4) 

The amount for the three months ended March 31, 2015 primarily includes a gain related to the acquisition of certain assets of BKCA.

49


Three Months Ended March 31, 2016 Compared with Three Months Ended March 31, 2015

Net gain (loss) on investments of $8 million decreased $52 million from the first quarter of 2015 due to lower marks in the first quarter of 2016 and a $40 million noncash gain related to BKCA recorded in the first quarter of 2015.

Income Tax Expense

 

 

GAAP

 

 

As Adjusted

 

(in millions)

 

Three Months Ended

March 31,

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Income before income taxes(1)

 

$

925

 

 

$

1,080

 

 

$

1,009

 

 

$

1,088

 

Income tax expense

 

$

268

 

 

$

258

 

 

$

298

 

 

$

258

 

Effective tax rate

 

 

29.0

%

 

 

23.9

%

 

 

29.6

%

 

 

23.7

%

 

(1) 

Net of net income (loss) attributable to NCI.

Income tax expense in the first quarter of 2016 included a $4 million net noncash benefit, primarily related to the revaluation of certain deferred income tax liabilities, including the effect of tax legislation enacted in Japan and domestic state and local tax changes.

Income tax expense in the first quarter of 2015 benefited from $69 million of nonrecurring items, primarily due to the realization of losses from changes in the Company’s organizational tax structure and the resolution of certain outstanding tax matters.

 

 

50


BALANCE SHEET OVERVIEW

As Adjusted Balance Sheet

The following table presents a reconciliation of the condensed consolidated statement of financial condition presented on a GAAP basis to the condensed consolidated statement of financial condition, excluding the impact of separate account assets and separate account collateral held under securities lending agreements (directly related to lending separate account securities) and separate account liabilities and separate account collateral liabilities under securities lending agreements and consolidated sponsored investment funds, including consolidated VIEs.

The Company presents the as adjusted balance sheet as additional information to enable investors to exclude certain assets that have equal and offsetting liabilities or noncontrolling interests that ultimately do not have an impact on stockholders’ equity or cash flows. Management views the as adjusted balance sheet, a non-GAAP financial measure, as an economic presentation of the Company’s total assets and liabilities; however, it does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Separate Account Assets and Liabilities and Separate Account Collateral Held under Securities Lending Agreements

Separate account assets are maintained by BlackRock Life Limited, a wholly owned subsidiary of the Company, which is a registered life insurance company in the United Kingdom, and represent segregated assets held for purposes of funding individual and group pension contracts. The Company records equal and offsetting separate account liabilities. The separate account assets are not available to creditors of the Company and the holders of the pension contracts have no recourse to the Company’s assets. The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the Company’s condensed consolidated statements of income. While BlackRock has no economic interest in these assets or liabilities, BlackRock earns an investment advisory fee for the service of managing these assets on behalf of its clients.

In addition, the Company records on its condensed consolidated statements of financial condition the separate account collateral received under BlackRock Life Limited securities lending arrangements as its own asset in addition to an equal and offsetting separate account collateral liability for the obligation to return the collateral. The collateral is not available to creditors of the Company, and the borrowers under the securities lending arrangements have no recourse to the Company’s assets.

Consolidated Sponsored Investment Funds

The Company consolidates certain sponsored investment funds accounted for as voting rights entities (“VREs”) and VIEs, (collectively, “Consolidated Sponsored Investment Funds”). See Note 2, Significant Accounting Policies, in the notes to the consolidated financial statements contained in the 2015 Form 10-K for further information on the Company’s consolidation policy.

51


The Company cannot readily access cash and cash equivalents or other assets held by Consolidated Sponsored Investment Funds to use in its operating activities. In addition, the Company cannot readily sell investments held by Consolidated Sponsored Investment Funds in order to obtain cash for use in the Company’s operations.

 

 

March 31, 2016

 

(in millions)

 

GAAP

Basis

 

 

Separate

Account

Assets/

Collateral(1)

 

 

Consolidated Sponsored Investment Funds(2)

 

 

As

Adjusted

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,981

 

 

$

 

 

$

77

 

 

$

4,904

 

Accounts receivable

 

 

2,526

 

 

 

 

 

 

 

 

 

2,526

 

Investments

 

 

1,504

 

 

 

 

 

 

92

 

 

 

1,412

 

Assets of consolidated VIEs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

103

 

 

 

 

 

 

103

 

 

 

 

Investments

 

 

1,256

 

 

 

 

 

 

384

 

 

 

872

 

Other assets

 

 

85

 

 

 

 

 

 

85

 

 

 

 

Separate account assets and collateral held

   under securities lending agreements

 

 

180,554

 

 

 

180,554

 

 

 

 

 

 

 

Other assets(3)

 

 

1,483

 

 

 

 

 

 

(4

)

 

 

1,487

 

Subtotal

 

 

192,492

 

 

 

180,554

 

 

 

737

 

 

 

11,201

 

Goodwill and intangible assets, net

 

 

30,466

 

 

 

 

 

 

 

 

 

30,466

 

Total assets

 

$

222,958

 

 

$

180,554

 

 

$

737

 

 

$

41,667

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued compensation and benefits

 

$

672

 

 

$

 

 

$

 

 

$

672

 

Accounts payable and accrued liabilities

 

 

1,385

 

 

 

 

 

 

 

 

 

1,385

 

Liabilities of consolidated VIEs

 

 

187

 

 

 

 

 

 

187

 

 

 

 

Borrowings

 

 

4,968

 

 

 

 

 

 

 

 

 

4,968

 

Separate account liabilities and collateral

   liabilities under securities lending

   agreements

 

 

180,554

 

 

 

180,554

 

 

 

 

 

 

 

Deferred income tax liabilities(4)

 

 

4,937

 

 

 

 

 

 

 

 

 

4,937

 

Other liabilities

 

 

1,269

 

 

 

 

 

 

(42

)

 

 

1,311

 

Total liabilities

 

 

193,972

 

 

 

180,554

 

 

 

145

 

 

 

13,273

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

28,394

 

 

 

 

 

 

 

 

 

28,394

 

Noncontrolling interests

 

 

592

 

 

 

 

 

 

592

 

 

 

 

Total equity

 

 

28,986

 

 

 

 

 

 

592

 

 

 

28,394

 

Total liabilities and equity

 

$

222,958

 

 

$

180,554

 

 

$

737

 

 

$

41,667

 

 

(1) 

Amounts represent segregated client assets generating advisory fees in which BlackRock has no economic interest or liability.

(2) 

Amounts represent the portion of assets and liabilities of Consolidated Sponsored Investment Funds attributable to noncontrolling interests.

(3) 

Amounts include property and equipment and other assets.

(4)

Amount includes approximately $5.6 billion of deferred income tax liabilities related to goodwill and intangibles.  

The following discussion summarizes the significant changes in assets and liabilities on a GAAP basis. Please see the condensed consolidated statements of financial condition as of March 31, 2016 and December 31, 2015 contained in Part I, Item 1 of this filing. The discussion does not include changes related to assets and liabilities that are equal and offsetting and have no impact on BlackRock’s stockholders’ equity.

Assets.     Cash and cash equivalents at March 31, 2016 and December 31, 2015 included $84 million and $100 million, respectively, of cash held by consolidated sponsored investment funds (see Liquidity and Capital Resources for details on the change in cash and cash equivalents during the three months ended March 31, 2016).

52


Accounts receivable at March 31, 2016 increased $289 million from December 31, 2015 primarily due to an increase in unit trust receivables (substantially offset by an increase in unit trust payables recorded within accounts payable and accrued liabilities). Investments were $1,504 million at March 31, 2016 (for more information see Investments herein). Goodwill and intangible assets decreased $29 million from December 31, 2015, primarily due to $25 million of amortization of intangible assets. Other assets (including property and equipment) increased $47 million from December 31, 2015, primarily related to an increase in current taxes receivable and other assets.

Liabilities.    Accrued compensation and benefits at March 31, 2016 decreased $1,299 million from December 31, 2015, primarily due to 2015 incentive compensation cash payments in the first quarter of 2016. Accounts payable and accrued liabilities at March 31, 2016 increased $317 million from December 31, 2015 due to higher unit trust payables (substantially offset by an increase in unit trust receivables recorded within accounts receivable) and increased accruals, including direct fund expense.

Net deferred income tax liabilities at March 31, 2016 increased $86 million, primarily due to the effects of temporary differences associated with stock compensation. Other liabilities increased $236 million from December 31, 2015, primarily resulting from an increase in other operating liabilities.

Investments and Investments of Consolidated VIEs

The Company’s investments and investments of consolidated VIEs (collectively, “Total Investments”) were $1,504 million and $1,256 million, respectively, at March 31, 2016. Total Investments include consolidated investments held by sponsored investment funds accounted for as VREs and VIEs. Management reviews BlackRock’s Total Investments on an “economic” basis, which eliminates the portion of Total Investments that does not impact BlackRock’s book value or net income attributable to BlackRock. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

The Company presents Total Investments, as adjusted, to enable investors to understand the portion of Total Investments that is owned by the Company, net of NCI, as a gauge to measure the impact of changes in net nonoperating income (expense) on investments to net income (loss) attributable to BlackRock.

The Company further presents net “economic” investment exposure, net of deferred compensation investments and hedged investments, to reflect another gauge for investors.  The economic impact of Total Investments held pursuant to deferred compensation arrangements is offset by a change in compensation expense.  The impact of certain investments is substantially mitigated by swap hedges. Carried interest capital allocations are excluded as there is no impact to BlackRock’s stockholders’ equity until such amounts are realized as performance fees. Finally, the Company’s regulatory investment in Federal Reserve Bank stock, which is not subject to market or interest rate risk, is excluded from the Company’s net economic investment exposure.

 

(in millions)

 

March 31,

2016

 

 

December 31,

2015

 

Investments, GAAP

 

$

1,504

 

 

$

1,578

 

Investments held by consolidated VIEs, GAAP

 

 

1,256

 

 

 

1,030

 

Total Investments

 

 

2,760

 

 

 

2,608

 

Investments held by consolidated VREs

 

 

(636

)

 

 

(700

)

Investments held by consolidated VIEs

 

 

(1,256

)

 

 

(1,030

)

Net interest in consolidated VREs

 

 

544

 

 

 

616

 

Net interest in consolidated VIEs(1)

 

 

872

 

 

 

733

 

Total Investments, as adjusted

 

 

2,284

 

 

 

2,227

 

Federal Reserve Bank stock

 

 

(93

)

 

 

(93

)

Deferred compensation investments

 

 

(70

)

 

 

(79

)

Hedged investments

 

 

(465

)

 

 

(407

)

Carried interest (VIEs/VREs)

 

 

(94

)

 

 

(100

)

Total “economic” investment exposure

 

$

1,562

 

 

$

1,548

 

 

 

(1)

Amount includes $76 million and $81 million of carried interest (VIEs), as of March 31, 2016 and December 31, 2015, respectively, which has no impact on the Company’s “economic” investment exposure.

 

53


The following table represents the carrying value of the Company’s economic investment exposure, by asset type, at March 31, 2016 and December 31, 2015:

 

(in millions)

 

March 31,

2016

 

 

December 31,

2015

 

Private equity

 

$

360

 

 

$

375

 

Real assets

 

 

104

 

 

 

91

 

Other alternatives(1)

 

 

227

 

 

 

240

 

Other investments(2)

 

 

871

 

 

 

842

 

Total “economic” investment exposure

 

$

1,562

 

 

$

1,548

 

 

(1)

Other alternatives include distressed credit/mortgage funds/opportunistic funds and hedge funds/funds of hedge funds.

(2)

Other investments primarily include seed investments in fixed income, equity and multi-asset mutual funds/strategies as well as U.K. government securities, primarily held for regulatory purposes.

As adjusted investment activity for the three months ended March 31, 2016 was as follows:

 

(in millions)

 

 

 

 

Total Investments, as adjusted, December 31, 2015

 

$

2,227

 

Purchases/capital contributions

 

 

305

 

Sales/maturities

 

 

(234

)

Distributions(1)

 

 

(29

)

Market appreciation(depreciation)/earnings from equity method investments

 

 

21

 

Carried interest capital allocations/distributions received

 

 

(6

)

Total Investments, as adjusted, March 31, 2016

 

$

2,284

 

 

(1) 

Amount includes distributions representing return of capital and return on investments.

 

 

LIQUIDITY AND CAPITAL RESOURCES

BlackRock Cash Flows Excluding the Impact of Consolidated Sponsored Investment Funds

The condensed consolidated statements of cash flows include the cash flows of the Consolidated Sponsored Investment Funds. The Company uses an adjusted cash flow statement, which excludes the impact of Consolidated Sponsored Investment Funds, as a supplemental non-GAAP measure to assess liquidity and capital requirements. The Company believes that its cash flows, excluding the impact of the Consolidated Sponsored Investment Funds, provide investors with useful information on the cash flows of BlackRock relating to its ability to fund additional operating, investing and financing activities. BlackRock’s management does not advocate that investors consider such non-GAAP measures in isolation from, or as a substitute for, its cash flows presented in accordance with GAAP.

The following table presents a reconciliation of the condensed consolidated statements of cash flows presented on a GAAP basis to the condensed consolidated statements of cash flows, excluding the impact of the cash flows of Consolidated Sponsored Investment Funds:

 

(in millions)

 

GAAP

Basis

 

 

Impact on

Cash Flows

of Consolidated

Sponsored Investment Funds

 

 

Cash Flows

Excluding

Impact of

Consolidated

Sponsored Investment Funds

 

Cash and cash equivalents, December 31, 2015

 

$

6,083

 

 

$

100

 

 

$

5,983

 

Cash flows from operating activities

 

 

(565

)

 

 

(383

)

 

 

(182

)

Cash flows from investing activities

 

 

46

 

 

 

6

 

 

 

40

 

Cash flows from financing activities

 

 

(547

)

 

 

361

 

 

 

(908

)

Effect of exchange rate changes on cash and cash

   equivalents

 

 

(36

)

 

 

 

 

 

(36

)

Net change in cash and cash equivalents

 

 

(1,102

)

 

 

(16

)

 

 

(1,086

)

Cash and cash equivalents, March 31, 2016

 

$

4,981

 

 

$

84

 

 

$

4,897

 

54


 

Sources of BlackRock’s operating cash primarily include investment advisory, administration fees and securities lending revenue, performance fees, revenue from BlackRock Solutions and advisory products and services, other revenue and distribution fees. BlackRock uses its cash to pay all operating expense, interest and principal on borrowings, income taxes, dividends on BlackRock’s capital stock, repurchases of the Company’s stock, capital expenditures and purchases of co-investments and seed investments.

Cash flows from operating activities, excluding the impact of Consolidated Sponsored Investment Funds, primarily include the receipt of investment advisory and administration fees, securities lending revenue and other revenue offset by the payment of operating expenses incurred in the normal course of business, including year-end incentive compensation accrued for in the prior year.

Cash inflows from investing activities, excluding the impact of Consolidated Sponsored Investment Funds, for the three months ended March 31, 2016 were $40 million and primarily reflected $119 million of net proceeds from sales and maturities of certain investments, partially offset by $55 million of investment purchases and $30 million of purchases of property and equipment.

Cash outflows from financing activities, excluding the impact of Consolidated Sponsored Investment Funds, for the three months ended March 31, 2016 were $908 million, primarily resulting from $562 million of share repurchases, including $300 million in open market-transactions and $262 million of employee tax withholdings related to employee stock transactions and $419 million of cash dividend payments, partially offset by $70 million of excess tax benefits from vested stock-based compensation awards.

The Company manages its financial condition and funding to maintain appropriate liquidity for the business. Liquidity resources at March 31, 2016 and December 31, 2015 were as follows:

 

(in millions)

 

March 31,

2016

 

 

December 31,

2015

 

Cash and cash equivalents(1)

 

$

4,981

 

 

$

6,083

 

Cash and cash equivalents held by consolidated

   sponsored investment funds, excluding VIEs(2)

 

 

(84

)

 

 

(100

)

Subtotal

 

 

4,897

 

 

 

5,983

 

Credit facility – undrawn

 

 

4,000

 

 

 

4,000

 

Total liquidity resources(3)

 

$

8,897

 

 

$

9,983

 

 

(1)

The percentage of cash and cash equivalents held by the Company’s U.S. subsidiaries was approximately 55% and 50% at March 31, 2016 and December 31, 2015, respectively.  See Net Capital Requirements herein for more information on net capital requirements in certain regulated subsidiaries.

 

(2)

The Company cannot readily access such cash to use in its operating activities.

(3)

Amount at December 31, 2015 does not reflect year-end incentive compensation accruals of approximately $1.5 billion, which was paid in the first quarter of 2016.

Total liquidity resources decreased $1.1 billion during the three months ended March 31, 2016, primarily reflecting cash payments of 2015 year-end incentive awards, share repurchases of $562 million and cash dividend payments.

A significant portion of the Company’s $2,284 million of Total Investments, as adjusted, is illiquid in nature and, as such, cannot be readily convertible to cash.

Share Repurchases.    The Company repurchased 1.0 million common shares in open market-transactions under the share repurchase program for $300 million during the three months ended March 31, 2016.

At March 31, 2016 there were 5.3 million shares still authorized to be repurchased.

Net Capital Requirements.    The Company is required to maintain net capital in certain regulated subsidiaries within a number of jurisdictions, which is partially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions. As a result, such subsidiaries of the Company may be restricted in their ability to transfer cash between different jurisdictions and to their parents. Additionally, transfers of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers.

 

55


BlackRock Institutional Trust Company, N.A. (“BTC”) is chartered as a national bank that does not accept client deposits and whose powers are limited to trust activities. BTC provides investment management services, including investment advisory and securities lending agency services, to institutional investors and other clients. BTC is subject to regulatory capital and liquid asset requirements administered by the Office of the Comptroller of the Currency.

At both March 31, 2016 and December 31, 2015, the Company was required to maintain approximately $1.1 billion in net capital in certain regulated subsidiaries, including BTC, entities regulated by the Financial Conduct Authority and Prudential Regulation Authority in the United Kingdom, and the Company’s broker-dealers. The Company was in compliance with all applicable regulatory net capital requirements.

Short-Term Borrowings

2016 Revolving Credit Facility.    The Company’s credit facility has an aggregate commitment amount of $4.0 billion and was further amended in April 2016 to extend the maturity date to March 2021 (the “2016 credit facility”). The 2016 credit facility permits the Company to request up to an additional $1.0 billion of borrowing capacity, subject to lender credit approval, increasing the overall size of the 2016 credit facility to an aggregate principal amount not to exceed $5.0 billion. Interest on borrowings outstanding accrues at a rate based on the applicable London Interbank Offered Rate plus a spread. The 2016 credit facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to earnings before interest, taxes, depreciation and amortization, where net debt equals total debt less unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 1 to 1 at March 31, 2016. The 2016 credit facility provides back-up liquidity to fund ongoing working capital for general corporate purposes and various investment opportunities. At March 31, 2016, the Company had no amount outstanding under the 2016 credit facility.

Commercial Paper Program.    The Company can issue unsecured commercial paper notes (the “CP Notes”) on a private-placement basis up to a maximum aggregate amount outstanding at any time of $4.0 billion.  The commercial paper program is currently supported by the 2016 credit facility. At March 31, 2016 BlackRock had no CP Notes outstanding.

Long-Term Borrowings

At March 31, 2016, the principal amount of long-term borrowings outstanding was $4.998 billion. See Note 12, Borrowings, in the 2015 Form 10-K for more information on borrowings outstanding as of December 31, 2015.

During the three months ended March 31, 2016, the Company paid approximately $39 million of interest on long-term borrowings. Future principal repayments and interest requirements at March 31, 2016 were as follows:

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

Principal

 

 

Interest

 

 

Total

Payments

 

Remainder of 2016

 

$

 

 

$

156

 

 

$

156

 

2017

 

 

700

 

 

 

196

 

 

 

896

 

2018

 

 

 

 

 

152

 

 

 

152

 

2019

 

1,000

 

 

 

152

 

 

 

1,152

 

2020

 

 

 

 

 

102

 

 

 

102

 

2021

 

 

750

 

 

 

86

 

 

 

836

 

Thereafter(1)

 

 

2,548

 

 

 

138

 

 

 

2,686

 

Total

 

$

4,998

 

 

$

982

 

 

$

5,980

 

__________________________

(1)

The amount of principal and interest payments for the 2025 Notes represents the expected payment amounts using foreign exchange rates as of March 31, 2016.

56


Investment Commitments.    At March 31, 2016, the Company had $191 million of various capital commitments to fund sponsored investment funds, including consolidated VIEs. These funds include private equity funds, real assets funds and opportunistic funds. This amount excludes additional commitments made by consolidated funds of funds to underlying third-party funds as third-party noncontrolling interest holders have the legal obligation to fund the respective commitments of such funds of funds. In addition to the capital commitments of $191 million, the Company had approximately $27 million of contingent commitments for certain funds which have investment periods that have expired. Generally, the timing of the funding of these commitments is unknown and the commitments are callable on demand at any time prior to the expiration of the commitment. These unfunded commitments are not recorded on the condensed consolidated statements of financial condition. These commitments do not include potential future commitments approved by the Company that are not yet legally binding. The Company intends to make additional capital commitments from time to time to fund additional investment products for, and with, its clients.

Contingent Payments Related to Business Acquisitions.    In connection with certain acquisitions, BlackRock is required to make contingent payments, subject to the acquired businesses achieving specified performance targets over a certain period subsequent to the applicable acquisition date.  The fair value of the remaining aggregate contingent payments at March 31, 2016 is included in other liabilities and is not significant to the condensed consolidated statement of financial condition.

Carried Interest Clawback.    As a general partner in certain investment funds, including private equity partnerships and certain hedge funds, the Company may receive carried interest cash distributions from the partnerships in accordance with distribution provisions of the partnership agreements. The Company may, from time to time, be required to return all or a portion of such distributions to the limited partners in the event the limited partners do not achieve a return as specified in the various partnership agreements. Therefore, BlackRock records carried interest subject to such clawback provisions in Total Investments, or cash/cash of consolidated VIEs to the extent that it is distributed, and as a deferred carried interest liability/other liabilities of consolidated VIEs on its condensed consolidated statements of financial condition. Carried interest is recorded as performance fees on BlackRock’s condensed consolidated statements of income upon the earlier of the termination of the investment fund or when the likelihood of clawback is considered mathematically improbable.

Indemnifications.    On behalf of certain clients, the Company lends securities to highly rated banks and broker-dealers. In these securities lending transactions, the borrower is required to provide and maintain collateral at or above regulatory minimums. Securities on loan are marked to market daily to determine if the borrower is required to pledge additional collateral. BlackRock has issued certain indemnifications to certain securities lending clients against potential loss resulting from a borrower’s failure to fulfill its obligations under the securities lending agreement should the value of the collateral pledged by the borrower at the time of default be insufficient to cover the borrower’s obligation under the securities lending agreement. At March 31, 2016, the Company indemnified certain of its clients for their securities lending loan balances of approximately $174.8 billion. The Company held, as agent, cash and securities totaling $183.9 billion as collateral for indemnified securities on loan at March 31, 2016. The fair value of these indemnifications was not material at March 31, 2016.

While the collateral pledged by a borrower is intended to be sufficient to offset the borrower’s obligations to return securities borrowed and any other amounts owing to the lender under the relevant securities lending agreement, in the event of a borrower default, the Company can give no assurance that the collateral pledged by the borrower will be sufficient to fulfill such obligations. If the amount of such pledged collateral is not sufficient to fulfill such obligations to a client for whom the Company has provided indemnification, BlackRock would be responsible for the amount of the shortfall. These indemnifications cover only the collateral shortfall described above, and do not in any way guarantee, assume or otherwise insure the investment performance or return of any cash collateral vehicle into which securities lending cash collateral is invested.

 

 

57


Critical Accounting Policies

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ significantly from those estimates. Management considers the following critical accounting policies important to understanding the condensed consolidated financial statements. For a summary of these and additional accounting policies see Note 2, Significant Accounting Policies, in the condensed consolidated financial statements contained in Part I, Item 1 of this filing and Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2015 Form 10-K and Note 2, Significant Accounting Policies, in the 2015 Form 10-K for further information.

Consolidation.     In the normal course of business, the Company is the manager of various types of sponsored investment vehicles. The Company performs an analysis for investment products to determine if the product is a VIE or a VRE. Assessing whether an entity is a VIE or a VRE involves judgment and analysis. Factors considered in this assessment include the entity’s legal organization, the entity’s capital structure and equity ownership, and any related party or de facto agent implications of the Company’s involvement with the entity. Investments that are determined to be VREs are consolidated if the Company can exert control over the financial and operating policies of the investee, which generally exists if there is greater than 50% voting interest. See Note 4, Consolidated Voting Right Entities, in the notes to the condensed consolidated financial statements for more information. Investments that are determined to be VIEs are consolidated if the Company is the primary beneficiary (“PB”) of the entity.

At March 31, 2016, BlackRock was determined to be the PB for certain investment products that were determined to be VIEs, which required BlackRock to consolidate them. BlackRock was deemed to be the PB because it has the power to direct the activities that most significantly impact the entities’ economic performance and has the obligation to absorb losses or the right to receive benefits that potentially could be significant to the VIE. See Note 5, Variable Interest Entities, in the notes to the condensed consolidated financial statements contained in the Part 1, Item 1 of this filing for more information.

Fair Value Measurements.    The Company’s assessment of the significance of a particular input to the fair value measurement according to the fair value hierarchy (i.e., Level 1, 2 and 3 inputs, as defined) in its entirety requires judgment and considers factors specific to the financial instrument. See Note 2, Significant Accounting Policies, in the condensed consolidated financial statements contained in Part I, Item 1 of this filing for more information on fair value measurements.

 

Investment Advisory Performance Fees / Carried Interest.    The Company receives investment advisory performance fees or incentive allocations, from certain actively managed investment funds and certain separately managed accounts (“SMAs”). These performance fees are dependent upon exceeding specified relative or absolute investment return thresholds. Such fees are recorded upon completion of the measurement period, which varies by product or account, and could be monthly, quarterly, annually or longer.

 

In addition, the Company is allocated carried interest from certain alternative investment products upon exceeding performance thresholds. BlackRock may be required to reverse/return all, or part, of such carried interest allocations depending upon future performance of these funds. Therefore, BlackRock records carried interest subject to such clawback provisions in Total Investments, or cash/cash of consolidated VIEs to the extent that it is distributed, on its condensed consolidated statements of financial condition. Carried interest is recorded as performance fee revenue upon the earlier of the termination of the investment fund or when the likelihood of clawback is considered mathematically improbable.

The Company records a deferred carried interest liability to the extent it receives cash or capital allocations related to carried interest prior to meeting the revenue recognition criteria. At March 31, 2016 and December 31, 2015, the Company had $137 million and $143 million, respectively, of deferred carried interest recorded in other liabilities/other liabilities of consolidated VIEs on the condensed consolidated statements of financial condition. A portion of the deferred carried interest liability will be paid to certain employees. The ultimate timing of the recognition of performance fee revenue, if any, for these products is unknown.

58


The following table presents changes in the deferred carried interest liability (including the portion related to consolidated VIEs) for the three months ended March 31, 2016 and 2015:

 

 

 

Three Months Ended

March 31,

 

(in millions)

 

2016

 

 

2015

 

Beginning balance

 

$

143

 

 

$

105

 

Net increase (decrease)

 

 

(6

)

 

 

12

 

Performance fee revenue recognized

 

 

 

 

 

(2

)

Ending balance

 

$

137

 

 

$

115

 

 

Recent Developments

In April 2016, the Company completed a transaction with BofA® Global Capital Management transferring investment management responsibilities of approximately $80 billion of cash assets under management to the Company. The combined platform will provide clients with broader access to high quality, global liquidity investment solutions.

 

On May 3, 2016, the Company announced that it had entered into an agreement to sell its UK Defined Contribution Administration and Platform business to Aegon N.V. (“Aegon”). The Company will retain its role as the primary investment manager for the clients who will transfer to Aegon in connection with the transaction. The transaction is subject to customary closing conditions and a Part VII transfer of the underlying assets and liabilities to Aegon subject

to regulatory and court approval.

 

These transactions are not expected to be material to the Company’s condensed consolidated statements of financial condition or results of operations.

Accounting Developments

For accounting pronouncements that the Company adopted during the three months ended March 31, 2016 and for recent accounting pronouncements not yet adopted, see Note 2, Significant Accounting Policies, in the condensed consolidated financial statements contained in Part I, Item 1 of this filing.

 

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

AUM Market Price Risk.    BlackRock’s investment advisory and administration fees are primarily comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees expressed as a percentage of the returns realized on AUM. At March 31, 2016, the majority of the Company’s investment advisory and administration fees were based on average or period end AUM of the applicable investment funds or separate accounts. Movements in equity market prices, interest rates/credit spreads, foreign exchange rates or all three could cause the value of AUM to decline, which would result in lower investment advisory and administration fees.

Corporate Investments Portfolio Risks.    As a leading investment management firm, BlackRock devotes significant resources across all of its operations to identifying, measuring, monitoring, managing and analyzing market and operating risks, including the management and oversight of its own investment portfolio. The Board of Directors of the Company has adopted guidelines for the review of investments to be made by the Company, requiring, among other things, that investments be reviewed by certain senior officers of the Company, and that certain investments may be referred to the Audit Committee or the Board of Directors, depending on the circumstances, for approval.

In the normal course of its business, BlackRock is exposed to equity market price risk, interest rate/credit spread risk and foreign exchange rate risk associated with its corporate investments.

BlackRock has investments primarily in sponsored investment products that invest in a variety of asset classes, including real assets, private equity and hedge funds. Investments generally are made for co-investment purposes, to establish a performance track record, to hedge exposure to certain deferred compensation plans or for regulatory purposes. Currently, the Company has a seed capital hedging program in which it enters into swaps to hedge market and interest rate exposure to certain investments. At March 31, 2016, the Company had outstanding total return swaps and interest rate swaps with an aggregate notional value of approximately $419 million and $46 million, respectively.

59


At March 31, 2016, approximately $1.9 billion of BlackRock’s Total Investments were maintained in consolidated sponsored investment funds accounted for as VREs and VIEs. Excluding the impact of the Federal Reserve Bank stock, carried interest, investments made to hedge exposure to certain deferred compensation plans and certain investments that are hedged via the seed capital hedging program, the Company’s economic exposure to its investment portfolio is $1,562 million. See Balance Sheet Overview- Investments and Investments of Consolidated VIEs in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information on the Company’s Total Investments.

Equity Market Price Risk.    At March 31, 2016, the Company’s net exposure to equity market price risk in its investment portfolio was approximately $619 million of the Company’s total economic investment exposure. Investments subject to market price risk include private equity and real assets investments, hedge funds and funds of funds as well as mutual funds. The Company estimates that a hypothetical 10% adverse change in market prices would result in a decrease of approximately $61.9 million in the carrying value of such investments.

Interest Rate/Credit Spread Risk.    At March 31, 2016, the Company was exposed to interest-rate risk and credit spread risk as a result of approximately $943 million of Total Investments in debt securities and sponsored investment products that invest primarily in debt securities. Management considered a hypothetical 100 basis point fluctuation in interest rates or credit spreads and estimates that the impact of such a fluctuation on these investments, in the aggregate, would result in a decrease, or increase, of approximately $21.8 million in the carrying value of such investments.

Foreign Exchange Rate Risk.    As discussed above, the Company invests in sponsored investment products that invest in a variety of asset classes. The carrying value of the total economic investment exposure denominated in foreign currencies, primarily the pound sterling and euro, was $245 million at March 31, 2016. A 10% adverse change in the applicable foreign exchange rates would result in approximately a $24.5 million decline in the carrying value of such investments.

Other Market Risks.    The Company executes forward foreign currency exchange contracts to mitigate the risk of certain foreign exchange risk movements. At March 31, 2016, the Company had outstanding forward foreign currency exchange contracts with an aggregate notional value of approximately $111 million.

 

 

60


Item 4.    Controls and Procedures

Disclosure Controls and Procedures.    Under the direction of BlackRock’s Chief Executive Officer and Chief Financial Officer, BlackRock evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, BlackRock’s Chief Executive Officer and Chief Financial Officer have concluded that BlackRock’s disclosure controls and procedures were effective.

Internal Control over Financial Reporting.    There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2016 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

 

 

61


PART II – OTHER INFORMATION

Item 1.    Legal Proceedings

 

From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and domestic and international regulatory authorities in connection with certain industry-wide or other investigations or proceedings. It is BlackRock’s policy to cooperate fully with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations and other litigation arising in connection with BlackRock’s activities. Additionally, BlackRock advised investment portfolios may be subject to lawsuits, any of which potentially could harm the investment returns of the applicable portfolio or result in the Company being liable to the portfolios for any resulting damages.

 

On May 27, 2014, certain purported investors in the BlackRock Global Allocation Fund, Inc. and the BlackRock Equity Dividend Fund (collectively, the “Funds”) filed a consolidated complaint (the “Consolidated Complaint”) in the U.S. District Court for the District of New Jersey against BlackRock Advisors, LLC, BlackRock Investment Management, LLC and BlackRock International Limited (collectively, the “Defendants”) under the caption In re BlackRock Mutual Funds Advisory Fee Litigation. The Consolidated Complaint, which purports to be brought derivatively on behalf of the Funds, alleges that the Defendants violated Section 36(b) of the Investment Company Act by receiving allegedly excessive investment advisory fees from the Funds. On February 24, 2015, the same plaintiffs filed another complaint in the same court against BlackRock Investment Management, LLC and BlackRock Advisors, LLC. The allegations and legal claims in both complaints are substantially similar, with the new complaint purporting to challenge fees received by Defendants after the plaintiffs filed their prior complaint. Both complaints seek, among other things, to recover on behalf of the Funds all allegedly excessive advisory fees received by Defendants in the twelve month period preceding the start of each lawsuit, along with purported lost investment returns on those amounts, plus interest. On March 25, 2015, Defendants’ motion to dismiss the Consolidated Complaint was denied. The Defendants believe the claims in both lawsuits are without merit and intend to vigorously defend the actions.

 

Between November 12, 2015 and November 16, 2015, BlackRock, Inc., BlackRock Realty Advisors, Inc. (“BRA”) and the BlackRock Granite Property Fund, Inc. (“Granite Fund”), along with certain other Granite Fund-related entities (collectively, the “BlackRock Parties”) were named as defendants in thirteen separate lawsuits filed in the Superior Court of the State of California for the County of Alameda arising out of the June 16, 2015 collapse of a balcony at the Library Gardens apartment complex in Berkeley, California (the “Property”). The Property is indirectly owned by the Granite Fund, which is managed by BRA. The plaintiffs also named as defendants in the lawsuits Greystar, which is the property manager of the Property, and certain other entities, including the developer of the Property, building contractors and building materials suppliers. The plaintiffs allege, among other things, that the BlackRock Parties were negligent in their ownership, control and maintenance of the Property’s balcony, and seek monetary, including punitive, damages.  Additionally, on March 16, 2016, three former tenants of the Library Gardens apartment unit that experienced the balcony collapse sued the BlackRock Parties.  The former tenants, who witnessed (but were not physically injured in) the accident make allegations virtually identical to those in the previously filed actions and claim that as a result of the collapse, they suffered unspecified emotional damage.  Several defendants have also filed cross-complaints alleging a variety of claims, including claims against the BlackRock Parties for contribution, negligence, and declaratory relief.  BlackRock believes the claims against it are without merit and intends to vigorously defend the actions.

Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability arising out of regulatory matters or lawsuits will have a material effect on BlackRock’s results of operations, financial position, or cash flows. However, there is no assurance as to whether any such pending or threatened matters will have a material effect on BlackRock’s results of operations, financial position or cash flows in any future reporting period. Due to uncertainties surrounding the outcome of these matters, management cannot reasonably estimate the possible loss or range of loss that may arise from these matters.  

 

 


62


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

During the three months ended March 31, 2016, the Company made the following purchases of its common stock, which is registered pursuant to Section 12(b) of the Exchange Act.

 

 

 

Total Number

of Shares

Purchased

 

 

 

Average

Price Paid

per Share

 

 

Total Number of

Shares

Purchased as

Part of Publicly

Announced Plans

or Programs

 

 

Maximum

Number of

Shares that May

Yet Be

Purchased Under

the Plans or

Programs(1)

 

January 1, 2016 through January 31, 2016

 

 

840,706

 

(2)

 

$

309.13

 

 

 

281,007

 

 

 

5,998,771

 

February 1, 2016 through February 29, 2016

 

 

909,958

 

(2)

 

$

309.02

 

 

 

640,643

 

 

 

5,358,128

 

March 1, 2016 through March 31, 2016

 

 

66,135

 

(2)

 

$

322.46

 

 

 

61,237

 

 

 

5,296,891

 

Total

 

 

1,816,799

 

 

 

$

309.56

 

 

 

982,887

 

 

 

 

 

_______________________

(1) 

In January 2015, the Board of Directors approved an increase in the availability of shares that may be repurchased under the Company’s existing share repurchase program to allow for the repurchase of up to a total of 9.4 million additional shares of BlackRock common stock with no stated expiration date.

(2) 

Includes purchases made by the Company primarily to satisfy income tax withholding obligations of employees and members of the Company’s Board of Directors related to the vesting of certain restricted stock or restricted stock unit awards and purchases made by the Company as part of the publicly announced share repurchase program.

 

 

63


Item 6.    Exhibits

 

Exhibit No. 

 

Description

 

 

 

 12.1

 

Computation of Ratio of Earnings to Fixed Charges

 

 

 

 31.1

 

Section 302 Certification of Chief Executive Officer

 

 

 

 31.2

 

Section 302 Certification of Chief Financial Officer

 

 

 

 32.1

 

Section 906 Certification of Chief Executive Officer and Chief Financial Officer

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

64


SIGNATURES

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

 

 

 

BLACKROCK, INC.

 

 

(Registrant)

 

 

 

 

 

 

By:

   /s/ Gary Shedlin

Date: May 9, 2016

 

 

   Gary S. Shedlin

 

 

 

   Senior Managing Director &

   Chief Financial Officer

 

 

 

65


EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

 12.1

 

Computation of Ratio of Earnings to Fixed Charges

 

 

 

 31.1

 

Section 302 Certification of Chief Executive Officer

 

 

 

 31.2

 

Section 302 Certification of Chief Financial Officer

 

 

 

 32.1

 

Section 906 Certification of Chief Executive Officer and Chief Financial Officer

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

66