Edgar Filing: BlackRock Inc.

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Form 10-Q

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 June 30, 2012

¨	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

LOGO

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):

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 July 31, 2012, there were 167,174,553 shares of the registrant’s common stock outstanding.

BlackRock, Inc.

Index to Form 10-Q


		Page

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Financial Condition		1

	Condensed Consolidated Statements of Income		3

	Condensed Consolidated Statements of Comprehensive Income		4

	Condensed Consolidated Statements of Changes in Equity		5

	Condensed Consolidated Statements of Cash Flows		7

	Notes to Condensed Consolidated Financial Statements		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		45

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		88

Item 4.	Controls and Procedures		90

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings		91

Item 1A.	Risk Factors		91

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		93

Item 5.	Other Information		93

Item 6.	Exhibits		94

- ii -

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(Dollar amounts in millions, except share data)

(unaudited)


	June 30, 2012		December 31, 2011
Assets
Cash and cash equivalents	$	3,595	$	3,506
Accounts receivable		2,084		1,960
Due from related parties		71		142
Investments		1,879		1,631
Assets of consolidated variable interest entities:
Cash and cash equivalents		44		54
Bank loans and other investments		1,508		1,639
Separate account assets		119,542		118,871
Collateral held under securities lending agreements		22,145		20,918
Deferred sales commissions, net		31		38
Property and equipment (net of accumulated depreciation of $544 and $483 at June 30, 2012 and December 31, 2011, respectively)		571		537
Intangible assets (net of accumulated amortization of $829 and $751 at June 30, 2012 and December 31, 2011, respectively)		17,441		17,356
Goodwill		12,888		12,792
Other assets		681		452

Total assets	$	182,480	$	179,896


Liabilities
Accrued compensation and benefits	$	848	$	1,383
Accounts payable and accrued liabilities		1,029		923
Due to related parties		13		22
Short-term borrowings		100		100
Liabilities of consolidated variable interest entities:
Borrowings		1,439		1,574
Other liabilities		9		9
Long-term borrowings		6,185		4,690
Separate account liabilities		119,542		118,871
Collateral liabilities under securities lending agreements		22,145		20,918
Deferred income tax liabilities		5,385		5,323
Other liabilities		863		721

Total liabilities		157,558		154,534


Commitments and contingencies (Note 11)
Temporary equity
Redeemable non-controlling interests		38		92

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition (continued)

(Dollar amounts in millions, except share data)

(unaudited)


	June 30, 2012			December 31, 2011
Permanent Equity
BlackRock, Inc. stockholders’ equity
Common stock, $0.01 par value;		2			1
Shares authorized: 500,000,000 at June 30, 2012 and December 31, 2011;
Shares issued: 168,067,932 and 139,880,380 at June 30, 2012 and December 31, 2011, respectively;
Shares outstanding: 167,372,756 and 138,463,135 at June 30, 2012 and December 31, 2011, respectively
Preferred stock (Note 15)		—			—
Additional paid-in capital		19,224			20,275
Retained earnings		5,627			5,046
Appropriated retained earnings		70			72
Accumulated other comprehensive loss		(126	)		(127	)
Escrow shares, common, at cost (3,603 shares held at June 30, 2012 and December 31, 2011)		(1	)		(1	)
Treasury stock, common, at cost (691,573 and 1,413,642 shares held at June 30, 2012 and December 31, 2011, respectively)		(124	)		(218	)

Total BlackRock, Inc. stockholders’ equity		24,672			25,048
Nonredeemable non-controlling interests		178			184
Nonredeemable non-controlling interests of consolidated variable interest entities		34			38

Total permanent equity		24,884			25,270

Total liabilities, temporary equity and permanent equity	$	182,480		$	179,896

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Income

(Dollar amounts in millions, except per share data)

(unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Revenue
Investment advisory, administration fees and securities lending revenue
Related parties	$	1,272		$	1,408		$	2,586		$	2,756
Other third parties		718			692			1,381			1,328

Investment advisory, administration fees and securities lending revenue		1,990			2,100			3,967			4,084
Investment advisory performance fees		41			50			121			133
BlackRock Solutions and advisory		131			116			254			244
Distribution fees		20			27			39			55
Other revenue		47			54			97			113


Total revenue		2,229			2,347			4,478			4,629

Expenses
Employee compensation and benefits		786			824			1,611			1,654
Distribution and servicing costs		93			100			188			209
Amortization of deferred sales commissions		14			21			30			43
Direct fund expenses		144			153			296			296
General and administration		324			345			631			685
Amortization of intangible assets		39			38			78			78

Total expenses		1,400			1,481			2,834			2,965


Operating income		829			866			1,644			1,664

Non-operating income (expense)
Net gain (loss) on investments		(7	)		18			68			77
Net gain (loss) on consolidated variable interest entities		11			(5	)		(1	)		(20	)
Interest and dividend income		8			4			17			13
Interest expense		(52	)		(41	)		(101	)		(79	)

Total non-operating income (expense)		(40	)		(24	)		(17	)		(9	)


Income before income taxes		789			842			1,627			1,655
Income tax expense		229			220			492			469

Net income		560			622			1,135			1,186
Less:
Net income (loss) attributable to redeemable non-controlling interests		3			—			4			—
Net income (loss) attributable to nonredeemable non-controlling interests		3			3			5			(1	)


Net income attributable to BlackRock, Inc.	$	554		$	619		$	1,126		$	1,187


Earnings per share attributable to BlackRock, Inc. common stockholders:
Basic	$	3.13		$	3.26		$	6.32		$	6.18
Diluted	$	3.08		$	3.21		$	6.22		$	6.10
Cash dividends declared and paid per share	$	1.50		$	1.375		$	3.00		$	2.75

Weighted-average common shares outstanding:
Basic		177,010,239			187,870,001			178,016,539			189,822,833
Diluted		179,590,702			190,579,963			180,753,515			192,429,367

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Dollar amounts in millions)

(unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011

Net income	$	560		$	622		$	1,135		$	1,186
Other comprehensive income:
Change in net unrealized gains (losses) from available-for-sale investments, net of tax:
Unrealized holding gains (losses), net of tax		(4	)		(2	)		2			(1	)
Less: reclassification adjustment included in net income		(2	)		1			(1	)		2

Net change in unrealized gains (losses) from available-for-sale investments, net of tax⁽¹⁾		(2	)		(3	)		3			(3	)
Minimum pension liability adjustment		—			—			(1	)		—
Foreign currency translation adjustments		(34	)		15			(1	)		59

Other comprehensive income (loss)		(36	)		12			1			56

Comprehensive income		524			634			1,136			1,242
Less: Comprehensive income (loss) attributable to non-controlling interests		6			3			9			(1	)

Comprehensive income attributable to BlackRock, Inc.	$	518		$	631		$	1,127		$	1,243

See accompanying notes to condensed consolidated financial statements.

⁽¹⁾	The tax benefit (expense) on unrealized holding gains (losses) was $2 million and $1 million during the three months ended June 30, 2012 and 2011, respectively, and ($1) million and $1 million during the six months ended June 30, 2012 and 2011, respectively.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(Dollar amounts in millions)

(unaudited)


	Additional Paid-in Capital ⁽¹⁾			Retained Earnings			Appropriated Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Common Shares Held in Escrow			Treasury Stock Common			Total Stockholders’ Equity			Nonredeemable Non-controlling Interests			Nonredeemable Non-controlling Interests of Consolidated VIEs			Total Permanent Equity			Redeemable Non- controlling Interests / Temporary Equity

December 31, 2011	$	20,276		$	5,046		$	72		($	127	)	($	1	)	($	218	)	$	25,048		$	184		$	38		$	25,270		$	92
Net income		—			1,126			—			—			—			—			1,126			6			(1	)		1,131			4
Allocation of losses of consolidated collateralized loan obligations		—			—			(2	)		—			—			—			(2	)		—			2			—			—
Dividends paid		—			(545	)		—			—			—			—			(545	)		—			—			(545	)		—
Stock-based compensation		235			—			—			—			—			—			235			—			—			235			—
Merrill Lynch cash capital contribution		7			—			—			—			—			—			7			—			—			7			—
Issuance of common shares related to employee stock transactions		(351	)		—			—			—			—			400			49			—			—			49			—
Employee tax benefit withholdings related to employee stock transactions		—			—			—			—			—			(139	)		(139	)		—			—			(139	)		—
Shares repurchased		(1,000	)		—			—			—			—			(167	)		(1,167	)		—			—			(1,167	)		—
Net tax benefit (shortfall) from stock-based compensation		59			—			—			—			—			—			59			—			—			59			—
Subscriptions (redemptions/distributions) - non-controlling interest holders		—			—			—			—			—			—			—			(12	)		(5	)		(17	)		188
Net consolidations (deconsolidations) of sponsored investment funds		—			—			—			—			—			—			—			—			—			—			(246	)
Other comprehensive income (loss)		—			—			—			1			—			—			1			—			—			1			—


June 30, 2012	$	19,226		$	5,627		$	70		($	126	)	($	1	)	($	124	)	$	24,672		$	178		$	34		$	24,884		$	38

⁽¹⁾	Amount includes $2 million and $1 million of common stock at June 30, 2012 and December 31, 2011, respectively.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(Dollar amounts in millions)

(unaudited)


	Additional Paid-in Capital ⁽¹⁾			Retained Earnings			Appropriated Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Common Shares Held in Escrow			Treasury Stock Common			Total Stockholders’ Equity			Nonredeemable Non-controlling Interests			Nonredeemable Non-controlling Interests of Consolidated VIEs			Total Permanent Equity			Redeemable Non- controlling Interests / Temporary Equity

December 31, 2010	$	22,504		$	3,723		$	75		($	96	)	($	1	)	($	111	)	$	26,094		$	189		$	45		$	26,328		$	6
Net income		—			1,187			—			—			—			—			1,187			19			(20	)		1,186			—
Allocation of losses of consolidated collateralized loan obligations		—			—			(24	)		—			—			—			(24	)		—			24			—			—
Dividends paid, net of dividend expense for unvested RSUs		—			(520	)		—			—			—			—			(520	)		—			—			(520	)		—
Stock-based compensation		240			—			—			—			—			2			242			—			—			242			—
Merrill Lynch cash capital contribution		8			—			—			—			—			—			8			—			—			8			—
Issuance of common shares related to employee stock transactions		(202	)		—			—			—			—			216			14			—			—			14			—
Employee tax benefit withholdings related to employee stock transactions		—			—			—			—			—			(108	)		(108	)		—			—			(108	)		—
Shares repurchased		(2,545	)		—			—			—			—			—			(2,545	)		—			—			(2,545	)		—
Convertible debt conversions		4			—			—			—			—			1			5			—			—			5
Net tax benefit (shortfall) from stock-based compensation		15			—			—			—			—			—			15			—			—			15			—
Subscriptions (redemptions/distributions) - non-controlling interest holders		—			—			—			—			—			—			—			(12	)		(3	)		(15	)		—
Net consolidations (deconsolidations) of sponsored investment funds		—			—			—			—			—			—			—			—			—			—			(2	)
Other comprehensive income (loss)		—			—			—			56									56			—			—			56			—


June 30, 2011	$	20,024		$	4,390		$	51		($	40	)	($	1	)	$	—		$	24,424		$	196		$	46		$	24,666		$	4

⁽¹⁾	Includes $1 million of common stock at both June 30, 2011 and December 31, 2010 and $1 million of preferred stock at December 31, 2010.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollar amounts in millions)

(unaudited)


	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities
Net income	$	1,135		$	1,186
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		145			146
Amortization of deferred sales commissions		30			43
Stock-based compensation		235			242
Deferred income tax expense (benefit)		33			(38	)
Net (gains) losses on non-trading investments		(18	)		(41	)
Purchases of investments within consolidated funds		(70	)		(9	)
Proceeds from sales and maturities of investments within consolidated funds		41			31
Assets and liabilities of consolidated VIEs:
Change in cash and cash equivalents		10			28
Net (gains) losses within consolidated VIEs		1			20
Net (purchases) proceeds within consolidated VIEs		169			(11	)
(Earnings) losses from equity method investees		(59	)		(41	)
Distributions of earnings from equity method investees		18			21
Changes in operating assets and liabilities:
Accounts receivable		(122	)		14
Due from related parties		71			(15	)
Deferred sales commissions		(23	)		(31	)
Investments, trading		(188	)		(29	)
Other assets		(207	)		(196	)
Accrued compensation and benefits		(557	)		(644	)
Accounts payable and accrued liabilities		90			63
Due to related parties		(9	)		(34	)
Other liabilities		140			12

Cash flows from operating activities		865			717


Cash flows from investing activities
Purchases of investments		(274	)		(91	)
Proceeds from sales and maturities of investments		209			116
Distributions of capital from equity method investees		32			30
Net consolidations (deconsolidations) of sponsored investment funds		(204	)		—
Acquisitions, net of cash acquired		(212	)		—
Purchases of property and equipment		(98	)		(159	)

Cash flows from investing activities		(547	)		(104	)

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(Dollar amounts in millions)

(unaudited)


	Six Months Ended June 30,
	2012			2011
Cash flows from financing activities
Repayments of short-term borrowings		—			(100	)
Proceeds from short-term borrowings		—			600
Repayments of convertible debt		—			(67	)
Proceeds from long-term borrowings		1,495			1,496
Cash dividends paid		(545	)		(520	)
Proceeds from stock options exercised		44			13
Proceeds from issuance of common stock		4			2
Repurchases of common stock		(1,305	)		(2,654	)
Merrill Lynch cash capital contribution		7			8
Repayments of borrowings by consolidated VIEs		(174	)		(14	)
Net (redemptions/distributions paid) subscriptions received from non-controlling interests holders		171			(15	)
Excess tax benefit from stock-based compensation		68			15

Cash flows from financing activities		(235	)		(1,236	)

Effect of exchange rate changes on cash and cash equivalents		6			52

Net increase (decrease) in cash and cash equivalents		89			(571	)
Cash and cash equivalents, beginning of period		3,506			3,367

Cash and cash equivalents, end of period	$	3,595		$	2,796


Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	92		$	74
Interest on borrowings of consolidated VIEs	$	35		$	30
Income taxes	$	556		$	649

Supplemental schedule of non-cash investing and financing transactions:
Issuance of common stock	$	352		$	207
Increase (decrease) in non-controlling interests due to net consolidation (deconsolidation) of sponsored investment funds	($	246	)	($	2	)

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.	Business Overview

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) provides diversified investment management services to institutional clients, intermediary and individual investors through various investment vehicles. Investment management services primarily consist of the management of equity, fixed income, multi-asset class, alternative investment and cash management products. BlackRock offers its investment products in a variety of vehicles, including open-end and closed-end mutual funds, iShares^® exchange-traded funds (“ETFs”), collective investment trusts and separate accounts. In addition, BlackRock provides market risk management, financial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.

During the three months ended June 30, 2012, BlackRock completed a secondary offering of 26,211,335 shares of common stock held by Barclays Bank PLC (“Barclays”) at a price of $160.00 per share, which included 23,211,335 shares of common stock issued upon the conversion of Series B Convertible Participating Preferred Stock by a subsidiary of Barclays. Upon completion of this offering, BlackRock repurchased 6,377,552 shares directly from Barclays at a price of $156.80 per share (consisting of 6,346,036 of Series B Convertible Preferred Stock and 31,516 shares of common stock). The total transactions, including the full exercise of the underwriters’ option to purchase 2,621,134 additional shares in the secondary offering, amounted to 35,210,021 shares, resulting in Barclays exiting its entire ownership position in BlackRock.

On June 30, 2012, The PNC Financial Services Group, Inc. (“PNC”) held 21.0% of the Company’s voting common stock and 21.7% of the Company’s capital stock, which includes outstanding common and non-voting 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. Non-controlling interests on the condensed consolidated statements of financial condition include the portion of consolidated sponsored investment funds in which the Company does not have direct equity ownership. Significant 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 expenses 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 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, 2011, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2012 (“2011 Form 10-K”).

The interim financial information at June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 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.

2.	Significant Accounting Policies (continued)

Fair Value Measurements.

Hierarchy of Fair Value Inputs. The provisions of Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) establish a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and require companies to disclose the fair value of their financial instruments according to the fair value hierarchy (i.e., Level 1, 2 and 3 inputs, as defined). 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 (including those accounted for under the equity method of accounting as these mutual funds are investment companies that have publicly available net asset values (“NAVs”) which, in accordance with GAAP, are calculated under fair value measures and the changes are equal to the earnings of such funds), ETFs, 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 were observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies. As a practical expedient, the Company relies on the NAV (or its equivalent) of certain investments as their fair value.

•

Level 2 assets may include debt securities, bank loans, short-term floating rate notes and asset-backed securities, securities held within consolidated hedge funds and certain equity method limited partnership interests in hedge funds valued based on NAV where the Company has the ability to redeem at the measurement date or within the near term without redemption restrictions, 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 non-binding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation. Certain investments that are valued using a NAV and are subject to current redemption restrictions that will not be lifted in the near term are included in Level 3.

•

Level 3 assets may include general and limited partnership interests in private equity funds, funds of private equity funds, real estate funds, hedge funds and funds of hedge funds, direct private equity investments held within consolidated funds, bank loans and bonds.

Level 3 inputs may include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices.

•

Level 3 liabilities include borrowings of consolidated collateralized loan obligations (“CLOs”) valued based upon non-binding single broker quotes.

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.

2.	Significant Accounting Policies (continued)

Fair Value Measurements (continued)

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

As a practical expedient, the Company relies on 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, real estate and private equity funds, which may be adjusted by using the returns of certain market indices. The various partnerships 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 funds to utilize pricing/valuation information, including independent appraisals, from third-party sources. 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.

A significant amount of inputs used to value equity, debt securities and bank loans are sourced from well-recognized 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 methodology, including the general assumptions and methods used to value various asset classes, and operational process with these vendors. In addition, on a quarterly basis, meetings are held with the vendors to identify any significant changes to the vendors’ processes.

In addition, quotes obtained from brokers generally are non-binding 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.

Fair Value Option. ASC 825-10, Financial Instruments (“ASC 825-10”), provides a fair value option election that allows companies an irrevocable election to use fair value as the initial and subsequent accounting measurement attribute for certain financial assets and liabilities. ASC 825-10 permits entities to elect to measure eligible financial assets and liabilities at fair value on an ongoing basis. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis, must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to ASC 825-10 are required to be reported separately from those instruments measured using another accounting method.

Derivative Instruments and Hedging Activities. ASC 815-10, Derivatives and Hedging (“ASC 815-10”), establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. ASC 815-10 generally requires an entity to recognize all derivatives as either assets or liabilities on the condensed consolidated statements of financial condition and to measure those investments at fair value.

The Company does not use derivative financial instruments for trading or speculative purposes. The Company uses derivative financial instruments primarily for purposes of hedging: (i) exposures to fluctuations in foreign currency exchange rates of certain assets and liabilities, (ii) market exposures for certain seed investments and (iii) future cash flows on floating-rate notes. The Company may also use derivatives within its separate account assets, which are segregated funds held for purposes of funding individual and group pension contracts, or in connection with capital support agreements with affiliated investment companies. 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 generally 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.

2.	Significant Accounting Policies (continued)

Collateral Assets Held and Liabilities Under Securities Lending Agreements. The Company facilitates securities lending arrangements whereby securities held by separate account assets maintained by BlackRock’s registered life insurance company are lent to third parties. In exchange, the Company receives collateral, principally cash and securities, with minimum value generally ranging from approximately 102% to 112% of the value of the securities lent in order to reduce counterparty risk. Under the Company’s securities lending arrangements, the Company can re-sell or re-pledge the collateral and the borrower can re-sell or re-pledge the loaned securities. 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 under ASC 860, Transfers and Servicing.

As a result of the Company’s ability to re-sell or re-pledge the collateral combined with the fact the activity is in a registered life insurance company, the Company records on its condensed consolidated statements of financial condition the collateral received under these arrangements as its own asset in addition to an equal and offsetting collateral liability for the obligation to return the collateral. At June 30, 2012 and December 31, 2011, the fair value of loaned securities held by separate account assets was approximately $20.2 billion and $19.5 billion, respectively, and the value of collateral held under these securities lending agreements was approximately $22.1 billion and $20.9 billion, respectively. During the six months ended June 30, 2012 and 2011, the Company had not sold or re-pledged any of the collateral received under these arrangements.

Appropriated Retained Earnings. Upon adoption of Accounting Standards Update (“ASU”) 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”), on January 1, 2010, BlackRock consolidated three CLOs and recorded a cumulative effect adjustment to appropriated retained earnings on the condensed consolidated statement of financial condition equal to the difference between the fair value of the CLOs’ assets and the fair value of their liabilities. Such amounts are recorded as appropriated retained earnings as the CLO noteholders, not BlackRock, ultimately will receive the benefits or absorb the losses associated with the CLOs’ assets and liabilities. Subsequent to the adoption of ASU 2009-17, the net change in the fair value of the CLOs’ assets and liabilities has been recorded as net income (loss) attributable to nonredeemable non-controlling interests and as an adjustment to appropriated retained earnings. In addition, on September 30, 2011, BlackRock consolidated one additional CLO, resulting in $19 million of additional appropriated retained earnings upon the initial consolidation.

Amendments to Fair Value Measurements and Disclosures. On January 1, 2012, the Company adopted the applicable provisions of ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 clarified existing fair value measurement guidance and changed certain principles or requirements for measuring fair value or disclosing information about fair value measurements. The adoption of ASU 2011-04 did not materially impact BlackRock’s condensed consolidated financial statements.

Amendments on Testing Indefinite-lived Intangible Assets for Impairment. On July 27, 2012, the Financial Accounting Standards Board (“FASB”) issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”), which amends the guidance in ASC 350-30 on testing indefinite-lived intangible assets, other than goodwill, for impairment. Under ASU 2012-02, an entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment before calculating the fair value of the asset. If the entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than not (i.e., a likelihood of more than 50 percent) impaired, the entity would not need to calculate the fair value of the asset.

The amendments of ASU 2012-02 are effective for the Company for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The provisions of ASU 2012-02 are not expected to materially impact BlackRock’s condensed consolidated financial statements.

3.	Investments

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


(Dollar amounts in millions)	June 30, 2012		December 31, 2011
Available-for-sale investments	$	190	$	52
Held-to-maturity investments		95		105
Trading investments:
Consolidated sponsored investment funds		117		214
Other equity securities and debt securities		3		7
Deferred compensation plan mutual funds		49		46

Total trading investments		169		267
Other investments:
Consolidated sponsored investment funds		416		373
Equity method investments		589		457
Deferred compensation plan hedge fund equity method investments		10		19
Cost method investments⁽¹⁾		339		337
Carried interest		71		21

Total other investments		1,425		1,207


Total investments	$	1,879	$	1,631

⁽¹⁾	Amounts primarily include Federal Reserve Bank Stock

At June 30, 2012, the Company consolidated $533 million of investments held by consolidated sponsored investment funds (non-variable interest entities (“VIEs”)) of which $117 million and $416 million were classified as trading investments and other investments, respectively. At December 31, 2011, the Company consolidated $587 million of investments held by consolidated sponsored investment funds (non-VIEs) of which $214 million and $373 million were classified as trading investments and other investments, respectively.

3.	Investments (continued)

Available-for-Sale Investments

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


(Dollar amounts in millions)			Gross Unrealized					Carrying
June 30, 2012	Cost		Gains		Losses			Value

Equity securities:
Sponsored investment funds	$	186	$	4	($	3	)	$	187
Collateralized debt obligations (“CDOs”)		1		—		—			1
Debt securities:
Asset-backed debt		1		1		—			2


Total available-for-sale investments	$	188	$	5	($	3	)	$	190


			Gross Unrealized					Carrying
December 31, 2011	Cost		Gains		Losses			Value

Equity securities:
Sponsored investment funds	$	52	$	—	($	2	)	$	50
CDOs		1		—		—			1
Debt securities:
Asset-backed debt		1		—		—			1


Total available-for-sale investments	$	54	$	—	($	2	)	$	52

Available-for-sale investments included seed investments in BlackRock sponsored investment mutual funds.

Held-to-Maturity Investments

The carrying value of held-to-maturity investments was $95 million and $105 million at June 30, 2012 and December 31, 2011, respectively. Held-to-maturity investments included foreign government debt held for regulatory purposes and the amortized cost (carrying value) of these investments approximated fair value. The amortized cost of debt securities classified as held-to-maturity at June 30, 2012 by maturity date was as follows:


(Dollar amounts in millions)	1 Year or less		After 1 Year through 5 Years		After 5 Years through 10 Years		After 10 Years		Total
Foreign government debt	$	86	$	—	$	—	$	9	$	95

3.	Investments (continued)

Trading Investments

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


	June 30, 2012				December 31, 2011
(Dollar amounts in millions)	Cost		Carrying Value		Cost		Carrying Value
Trading investments:
Deferred compensation plan mutual funds	$	46	$	49	$	45	$	46
Equity/Multi-asset class mutual funds		112		112		174		169
Debt securities:
Foreign debt		—		—		12		12
Corporate debt		8		8		39		40

Total trading investments	$	166	$	169	$	270	$	267

At June 30, 2012, trading investments included $109 million of equity securities and $8 million of debt securities held by consolidated sponsored investment funds, $49 million of certain deferred compensation plan mutual fund investments and $3 million of equity and debt securities held in separate investment accounts for the purpose of establishing an investment history in various investment strategies before being marketed to investors.

Other Investments

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


	June 30, 2012				December 31, 2011
(Dollar amounts in millions)	Cost		Carrying Value		Cost		Carrying Value
Other investments:
Consolidated sponsored investment funds	$	380	$	416	$	345	$	373
Equity method		574		589		487		457
Deferred compensation plan hedge fund equity method investments		15		10		17		19
Cost method investments:
Federal Reserve Bank stock		329		329		328		328
Other		10		10		9		9

Total cost method investments		339		339		337		337
Carried interest		—		71		—		21

Total other investments	$	1,308	$	1,425	$	1,186	$	1,207

Consolidated sponsored investment funds include third-party private equity funds, direct investments in private companies and third-party hedge funds held by BlackRock sponsored investment funds.

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

Cost method investments include non-marketable securities, including Federal Reserve Bank stock, which is held for regulatory purposes and is restricted from sale. As of June 30, 2012, there were no indicators of impairments on these investments.

Carried interest represents allocations to BlackRock 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 Sponsored Investment Funds

The Company consolidates certain sponsored investment funds primarily because it is deemed to control such funds in accordance with GAAP. The investments owned by these consolidated sponsored investment funds are classified as trading or other investments. The following table presents the balances related to these consolidated funds that were included on the condensed consolidated statements of financial condition as well as BlackRock’s net interest in these funds:


(Dollar amounts in millions)	June 30,			December 31,
	2012			2011
Cash and cash equivalents	$	60		$	196
Investments:
Trading investments		117			214
Other investments		416			373
Other assets		10			5
Other liabilities		(34	)		(37	)
Non-controlling interests		(216	)		(276	)

BlackRock’s net interests in consolidated sponsored investment funds	$	353		$	475

BlackRock’s total exposure to consolidated sponsored investment funds of $353 million and $475 million at June 30, 2012 and December 31, 2011, respectively, represents the value of the Company’s economic ownership interest in these sponsored investment funds. Valuation changes associated with these consolidated investment funds are reflected in non-operating income (expense) and partially offset in net income (loss) attributable to non-controlling interests for the portion not attributable to BlackRock.

In addition, at both June 30, 2012 and December 31, 2011, four consolidated CLOs and one other consolidated sponsored investment fund, which were deemed to be VIEs, were excluded from the balances in the table above as the balances for these investment products are reported separately on the condensed consolidated statements of financial condition. See Note 6, Variable Interest Entities, for further discussion on these consolidated funds.

The Company may not be readily able to access cash and cash equivalents held by consolidated sponsored investment funds to use in its operating activities. In addition, the Company may not be readily able to sell investments held by consolidated sponsored investment funds in order to obtain cash for use in the Company’s operations.

5.	Fair Value Disclosures

Fair Value Hierarchy

Total assets measured at fair value on a recurring basis of $143.7 billion at June 30, 2012 were as follows:


	Assets measured at fair value
(Dollar amounts in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held at Fair Value⁽¹⁾		June 30, 2012
Assets:

Investments
Available-for-sale:
Equity securities (funds and CDOs)	$	187	$	—	$	1	$	—	$	188
Debt securities		—		2		—		—		2

Total available-for-sale		187		2		1		—		190
Held-to-maturity:
Debt securities		—		—		—		95		95
Trading:
Deferred compensation plan mutual funds		49		—		—		—		49
Equity/Multi-asset class mutual funds		109		3		—		—		112
Debt securities		—		8		—		—		8

Total trading		158		11		—		—		169
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		5		47		46		—		98
Private / public equity⁽²⁾		14		6		298		—		318

Total consolidated sponsored investment funds		19		53		344		—		416
Equity method:
Hedge funds / Funds of hedge funds		—		65		187		18		270
Private equity investments		—		—		88		22		110
Real estate funds		—		—		101		16		117
Fixed income mutual funds		27		—		—		—		27
Equity/Multi-asset class, alternative mutual funds		65		—		—		—		65

Total equity method		92		65		376		56		589

Deferred compensation plan hedge fund equity method investments		—		10		—		—		10
Cost method investments		—		—		—		339		339
Carried interest		—		—		—		71		71

Total investments		456		141		721		561		1,879

Separate account assets:
Equity securities		82,607		—		7		—		82,614
Debt securities		—		32,531		—		—		32,531
Derivatives		19		126		—		—		145
Money market funds		2,297		—		—		—		2,297
Other		—		1,119		—		836		1,955

Total separate account assets		84,923		33,776		7		836		119,542
Collateral held under securities lending agreements:
Equity securities		16,420		—		—		—		16,420
Debt securities		—		5,725		—		—		5,725

Total collateral held under securities lending agreements		16,420		5,725		—		—		22,145
Other assets⁽³⁾		—		11		—		—		11
Assets of consolidated VIEs:
Bank loans		—		1,263		85		—		1,348
Bonds		—		83		44		—		127
Private / public equity⁽⁴⁾		2		6		25		—		33

Total assets of consolidated VIE		2		1,352		154		—		1,508

Total	$	101,801	$	41,005	$	882	$	1,397	$	145,085

⁽¹⁾

Amounts comprised of investments held at cost, amortized cost, carried interest and equity method investments, which include investment companies and other assets, which in accordance with GAAP 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.

⁽²⁾	Amount within Level 3 included $240 million and $58 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.

⁽³⁾	Amount included company-owned and split-dollar life insurance policies.

⁽⁴⁾	Amount within Level 3 included $23 million and $2 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity fund, respectively.

5.	Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Liabilities measured at fair value on a recurring basis at June 30, 2012 were as follows:


(Dollar amounts in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		June 30, 2012
Liabilities:

Borrowings of consolidated VIEs	$	—	$	—	$	1,439	$	1,439
Collateral liabilities under securities lending agreements		16,420		5,725		—		22,145
Other liabilities⁽¹⁾		15		4		—		19


Total liabilities measured at fair value	$	16,435	$	5,729	$	1,439	$	23,603

⁽¹⁾	Amounts included credit default swap (Pillars) (see Note 7, Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored investment funds recorded within other liabilities on the condensed consolidated statement of financial condition.

5.	Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Total assets measured at fair value on a recurring basis of $141.6 billion at December 31, 2011 were as follows:


	Assets measured at fair value
(Dollar amounts in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held at Fair Value ⁽¹⁾		December 31, 2011
Assets:

Investments
Available-for-sale:
Equity securities (funds and CDOs)	$	50	$	—	$	1	$	—	$	51
Debt securities		—		1		—		—		1

Total available-for-sale		50		1		1		—		52
Held-to-maturity:
Debt securities		—		—		—		105		105
Trading:
Deferred compensation plan mutual funds		46		—		—		—		46
Equity securities		163		6		—		—		169
Debt securities		—		52		—		—		52

Total trading		209		58		—		—		267
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		—		20		22		—		42
Private / public equity		18		—		313		—		331

Total consolidated sponsored investment funds		18		20		335		—		373
Equity method:
Hedge funds / Funds of hedge funds		—		33		193		14		240
Private equity investments		—		—		85		21		106
Real estate funds		—		—		88		20		108
Equity mutual funds		3		—		—		—		3

Total equity method		3		33		366		55		457
Deferred compensation plan hedge fund equity method investments		—		19		—		—		19
Cost method investments		—		—		—		337		337
Carried interest		—		—		—		21		21

Total investments		280		131		702		518		1,631
Separate account assets:
Equity securities		74,088		—		3		—		74,091
Debt securities		—		38,596		7		—		38,603
Derivatives		8		1,487		—		—		1,495
Money market funds		2,845		—		—		—		2,845
Other		—		920		—		917		1,837

Total separate account assets		76,941		41,003		10		917		118,871
Collateral held under securities lending agreements:
Equity securities		14,092		—		—		—		14,092
Debt securities		—		6,826		—		—		6,826

Total collateral held under securities lending agreements		14,092		6,826		—		—		20,918
Other assets⁽²⁾		—		11		—		—		11
Assets of consolidated VIEs:
Bank loans		—		1,376		83		—		1,459
Bonds		—		105		40		—		145
Private / public equity		4		4		27		—		35

Total assets of consolidated VIEs		4		1,485		150		—		1,639

Total	$	91,317	$	49,456	$	862	$	1,435	$	143,070

⁽¹⁾

⁽²⁾

Amount includes company-owned and split-dollar life insurance policies.

5.	Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Liabilities measured at fair value on a recurring basis at December 31, 2011 were as follows:


(Dollar amounts in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		December 31, 2011
Liabilities:

Borrowings of consolidated VIEs	$	—	$	—	$	1,574	$	1,574
Collateral liabilities under securities lending agreements		14,092		6,826		—		20,918
Other liabilities⁽¹⁾		15		11		—		26

Total liabilities measured at fair value	$	14,107	$	6,837	$	1,574	$	22,518

⁽¹⁾	Amounts included credit default swap (Pillars) (see Note 7, Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored investment funds recorded within other liabilities on the condensed consolidated statement of financial condition.

Separate Account Assets. The separate account assets are maintained by 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. In accordance with GAAP, 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 the clients.

Level 3 Assets. Level 3 assets recorded within investments of $721 million at June 30, 2012, primarily related to equity method investments and consolidated sponsored investment funds. Level 3 assets within investments, except for direct investments in private equity companies held by private equity funds described below, were primarily valued based upon NAVs received from internal as well as third-party fund managers.

Direct investments in private equity companies held by private equity funds totaled $60 million at June 30, 2012. 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 are 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 cash flows to a single present amount using current market 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 securities 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 securities utilizing the market comparable companies valuation technique, a significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.

5.	Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Level 3 assets recorded within separate account assets include single-broker non-binding quotes for fixed income securities and equity securities that have unobservable inputs due to certain corporate actions.

Level 3 assets of consolidated VIEs include bank loans and bonds valued based on single-broker non-binding quotes and direct private equity investments and private equity funds valued based upon valuations received from internal as well as third-party fund managers, which may be adjusted by using the returns of certain market indices.

Level 3 Liabilities. Level 3 liabilities recorded as borrowings of consolidated VIEs include CLO borrowings valued based upon single-broker non-binding quotes.

5.	Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2012


(Dollar amounts in millions)	March 31, 2012		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			June 30, 2012		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)	$	1	$	—		$	—	$	—		$	—		$	—	$	—		$	1	$	—
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		53		(5	)		—		—			(2	)		—		—			46		(5	)
Private equity		329		(8	)		4		(21	)		—			—		(6	)		298		(9	)
Equity method:
Hedge funds / Funds of hedge funds		197		3			—		—			(13	)		—		—			187		3
Private equity investments		89		2			1		—			(4	)		—		—			88		2
Real estate funds		95		2			6		—			(2	)		—		—			101		2

Total Level 3 investments		764		(6	)		11		(21	)		(21	)		—		(6	)		721		(7	)
Separate account assets:
Equity securities		13		(2	)		3		(2	)		—			3		(8	)		7		n/a	⁽³⁾

Assets of consolidated VIEs:
Bank loans		47		1			10		(1	)		—			47		(19	)		85
Bonds		44		—			—		—			—			—		—			44
Private equity		28		(1	)		—		(2	)		—			—		—			25

Total Level 3 assets of consolidated VIEs		119		—			10		(3	)		—			47		(19	)		154		n/a	⁽⁴⁾


Total Level 3 assets	$	896	($	8	)	$	24	($	26	)	($	21	)	$	50	($	33	)	$	882

Liabilities:
Borrowings of consolidated VIEs	$	1,547	$	10		$	—	$	—		($	98	)	$	—	$	—		$	1,439		n/a	⁽⁴⁾

n/a – not applicable

⁽¹⁾	Amount includes distributions from equity method investees and repayments of borrowings of consolidated VIEs.

⁽²⁾	Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾	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.

⁽⁴⁾	The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s condensed consolidated statements of income.

5.	Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2012


(Dollar amounts in millions)	December 31, 2011		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			June 30, 2012		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)	$	1	$	—		$	—	$	—		$	—		$	—	$	—		$	1	$	—
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		22		(4	)		27		—			(2	)		3		—			46		(4	)
Private equity		313		21			9		(39	)		—			—		(6	)		298		18
Equity method:
Hedge funds / Funds of hedge funds		193		19			—		—			(25	)		—		—			187		19
Private equity investments		85		6			3		—			(6	)		—		—			88		6
Real estate funds		88		2			13		—			(2	)		—		—			101		2

Total Level 3 investments		702		44			52		(39	)		(35	)		3		(6	)		721		41
Separate account assets:
Equity securities		3		(1	)		4		(5	)		—			14		(8	)		7
Debt securities		7		—			—		(6	)		—			—		(1	)		—

Total Level 3 separate account assets		10		(1	)		4		(11	)		—			14		(9	)		7		n/a	⁽³⁾

Assets of consolidated VIEs:
Bank loans		83		1			17		(7	)		—			52		(61	)		85
Bonds		40		2			2		—			—			—		—			44
Private equity		27		2			—		(4	)		—			—		—			25

Total Level 3 assets of consolidated VIEs		150		5			19		(11	)		—			52		(61	)		154		n/a	⁽⁴⁾

Total Level 3 assets	$	862	$	48		$	75	($	61	)	($	35	)	$	69	($	76	)	$	882

Liabilities:
Borrowings of consolidated VIEs	$	1,574	($	39	)	$	—	$	—		($	174	)	$	—	$	—		$	1,439		n/a	⁽⁴⁾

n/a – not applicable

⁽¹⁾	Amount includes distributions from equity method investees and repayments of borrowings of consolidated VIEs.

⁽²⁾	Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾	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.

⁽⁴⁾	The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s condensed consolidated statements of income.

5.	Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2011


(Dollar amounts in millions)	March 31, 2011		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			June 30, 2011		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments:
Available-for-sale:
Equity securities (funds and CDOs)	$	2	$	1		$	—	$	—		($	1	)	$	—	$	—		$	2	$	1
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		20		(2	)		—		(1	)		—			—		—			17		(2	)
Private equity		305		18			7		(21	)		1			2		—			312		18
Equity method:
Hedge funds / Funds of hedge funds		227		(3	)		3		—			(16	)		—		—			211		(3	)
Private equity investments		70		7			2		—			(2	)		—		—			77		7
Real estate funds		41		1			8		—			(2	)		—		—			48		1

Total Level 3 investments		665		22			20		(22	)		(20	)		2		—			667		22
Separate account assets:
Equity securities		41		3			4		(35	)		—			—		(9	)		4
Debt securities		108		(1	)		—		(97	)		—			—		—			10

Total Level 3 separate account assets		149		2			4		(132	)		—			—		(9	)		14		n/a	⁽³⁾

Assets of consolidated VIEs:
Bank loans		38		—			15		(13	)		—			9		(8	)		41
Private equity		32		1			—		(4	)		—			—		—			29


Total Level 3 assets of consolidated VIEs		70		1			15		(17	)		—			9		(8	)		70		n/a	⁽⁴⁾

Total Level 3 assets	$	884	$	25		$	39	($	171	)	($	20	)	$	11	($	17	)	$	751

Liabilities:
Borrowings of consolidated VIEs	$	1,297	($	9	)	$	—	$	—		($	14	)	$	—	$	—		$	1,292		n/a	⁽⁴⁾

n/a – not applicable

⁽¹⁾	Amount includes distributions from equity method investees and repayments of borrowings of consolidated VIEs.

⁽²⁾	Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾	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.

⁽⁴⁾	The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s condensed consolidated statements of income.

5.	Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2011


(Dollar amounts in millions)	December 31, 2010		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			June 30, 2011		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments:
Available-for-sale:
Equity securities (funds and CDOs)	$	2	$	1		$	—	$	—		($	1	)	$	—	$	—		$	2	$	1
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		19		1			—		(2	)		—			—		(1	)		17		1
Private equity		299		30			8		(28	)		1			2		—			312		30
Equity method:
Hedge funds / Funds of hedge funds		226		13			5		(1	)		(32	)		—		—			211		13
Private equity investments		68		8			3		—			(2	)		—		—			77		8
Real estate funds		36		2			12		—			(2	)		—		—			48		2

Total Level 3 investments		650		55			28		(31	)		(36	)		2		(1	)		667		55
Separate account assets:
Equity securities		4		2			7		(38	)		—			38		(9	)		4
Debt securities		170		(2	)		96		(167	)		—			—		(87	)		10

Total Level 3 separate account assets		174		—			103		(205	)		—			38		(96	)		14		n/a	⁽³⁾

Assets of consolidated VIEs:
Bank loans		32		(2	)		20		(16	)		—			23		(16	)		41
Private equity		30		3			—		(4	)		—			—		—			29


Total Level 3 assets of consolidated VIEs		62		1			20		(20	)		—			23		(16	)		70		n/a	⁽⁴⁾

Total Level 3 assets	$	886	$	56		$	151	($	256	)	($	36	)	$	63	($	113	)	$	751

Liabilities:
Borrowings of consolidated VIEs	$	1,278	($	28	)	$	—	$	—		($	14	)	$	—	$	—		$	1,292		n/a	⁽⁴⁾

n/a – not applicable

⁽¹⁾	Amount includes distributions from equity method investees and repayments of borrowings of consolidated VIEs.

⁽²⁾	Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾	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.

⁽⁴⁾	The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s condensed consolidated statements of income.

5.	Fair Value Disclosures (continued)

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 non-operating income (expense) on the Company’s condensed consolidated stat

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