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.
Index to Form 10-Q
PART I
FINANCIAL INFORMATION
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Page |
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Item 1. |
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1 |
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2 |
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3 |
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4 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 |
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Item 3. |
59 |
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Item 4. |
61 |
PART II
OTHER INFORMATION
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Item 1. |
62 |
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Item 2. |
63 |
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Item 6. |
64 |
i
PART I – FINANCIAL INFORMATION
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; |
|
|
|
|
|
|
|
|
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Shares issued: 171,252,185 at March 31, 2016 and December 31, 2015; |
|
|
|
|
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Shares outstanding: 163,587,221 and 163,461,064 at March 31, 2016 and December 31, 2015, respectively |
|
|
|
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|
|
|
|
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
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 |
|
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General and administration |
|
|
318 |
|
|
|
339 |
|
|
Restructuring charge |
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|
76 |
|
|
|
— |
|
|
Amortization of intangible assets |
|
|
25 |
|
|
|
35 |
|
|
Total expense |
|
|
1,661 |
|
|
|
1,656 |
|
|
Operating income |
|
|
963 |
|
|
|
1,067 |
|
|
Nonoperating income (expense) |
|
|
|
|
|
|
|
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|
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
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
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
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
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
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
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 |
|
|
|
||