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 JuneSeptember 30, 2015
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
EXCHANGE ACT OF 1934.
For the transition period fromto.
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 JulyOctober 31, 2015, there were 163,636,449163,992,541 shares of the registrant’s common stock outstanding.
Index to Form 10-Q
PART I
FINANCIAL INFORMATION
Page | ||||||
Item 1. | ||||||
1 | ||||||
2 | ||||||
3 | ||||||
4 | ||||||
6 | ||||||
7 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37 | ||||
Item 3. | 66 | |||||
Item 4. | 68 | |||||
PART II
OTHER INFORMATION
Item 1. | 69 | |||||
Item 2. | 69 | |||||
Item 6. | 70 | |||||
i
PART I – FINANCIAL INFORMATION
Condensed Consolidated Statements of Financial Condition
(unaudited)
| (in millions, except shares and per share data) | June 30, 2015 | December 31, 2014 |
| September 30, 2015 |
|
| December 31, 2014 |
| ||||||||
Assets |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $ 4,907 | $ 5,723 |
| $ | 5,673 |
|
| $ | 5,723 |
| ||||||
Accounts receivable | 2,347 | 2,120 |
|
| 2,542 |
|
|
| 2,120 |
| ||||||
Investments | 1,436 | 1,921 |
|
| 1,372 |
|
|
| 1,921 |
| ||||||
Assets of consolidated variable interest entities: |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | 64 | 278 |
|
| 76 |
|
|
| 278 |
| ||||||
Investments | 901 | 3,320 |
|
| 916 |
|
|
| 3,320 |
| ||||||
Other assets | 40 | 32 |
|
| 63 |
|
|
| 32 |
| ||||||
Separate account assets | 162,911 | 161,287 |
|
| 148,969 |
|
|
| 161,287 |
| ||||||
Separate account collateral held under securities lending agreements | 32,437 | 33,654 |
|
| 30,784 |
|
|
| 33,654 |
| ||||||
Property and equipment (net of accumulated depreciation of $635 and $587 at June 30, 2015 and December 31, 2014, respectively) | 545 | 467 | ||||||||||||||
Intangible assets (net of accumulated amortization of $1,110 and $1,040 at June 30, 2015 and December 31, 2014, respectively) | 17,394 | 17,344 | ||||||||||||||
Property and equipment (net of accumulated depreciation of $624 and $587 at September 30, 2015 and December 31, 2014, respectively) |
|
| 543 |
|
|
| 467 |
| ||||||||
Intangible assets (net of accumulated amortization of $1,144 and $1,040 at September 30, 2015 and December 31, 2014, respectively) |
|
| 17,360 |
|
|
| 17,344 |
| ||||||||
Goodwill | 12,970 | 12,961 |
|
| 12,965 |
|
|
| 12,961 |
| ||||||
Other assets | 1,056 | 685 |
|
| 953 |
|
|
| 685 |
| ||||||
|
| |||||||||||||||
Total assets | $237,008 | $239,792 |
| $ | 222,216 |
|
| $ | 239,792 |
| ||||||
|
| |||||||||||||||
Liabilities |
|
|
|
|
|
|
|
| ||||||||
Accrued compensation and benefits | $ 1,137 | $ 1,865 |
| $ | 1,561 |
|
| $ | 1,865 |
| ||||||
Accounts payable and accrued liabilities | 1,284 | 1,035 |
|
| 1,343 |
|
|
| 1,035 |
| ||||||
Liabilities of consolidated variable interest entities: |
|
|
|
|
|
|
|
| ||||||||
Borrowings | - | 3,389 |
|
| - |
|
|
| 3,389 |
| ||||||
Other liabilities | 192 | 245 |
|
| 197 |
|
|
| 245 |
| ||||||
Borrowings | 4,947 | 4,922 |
|
| 4,950 |
|
|
| 4,922 |
| ||||||
Separate account liabilities | 162,911 | 161,287 |
|
| 148,969 |
|
|
| 161,287 |
| ||||||
Separate account collateral liabilities under securities lending agreements | 32,437 | 33,654 |
|
| 30,784 |
|
|
| 33,654 |
| ||||||
Deferred income tax liabilities | 4,999 | 4,989 |
|
| 4,921 |
|
|
| 4,989 |
| ||||||
Other liabilities | 971 | 886 |
|
| 1,010 |
|
|
| 886 |
| ||||||
|
| |||||||||||||||
Total liabilities | 208,878 | 212,272 |
|
| 193,735 |
|
|
| 212,272 |
| ||||||
|
| |||||||||||||||
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
| ||||||||
Temporary equity |
|
|
|
|
|
|
|
| ||||||||
Redeemable noncontrolling interests (includes $162 million of redeemable noncontrolling interests of consolidated variable interest entities at June 30, 2015) | 258 | 35 | ||||||||||||||
Redeemable noncontrolling interests (includes $159 million of redeemable noncontrolling interests of consolidated variable interest entities at September 30, 2015) |
|
| 258 |
|
|
| 35 |
| ||||||||
Permanent Equity |
|
|
|
|
|
|
|
| ||||||||
BlackRock, Inc. stockholders’ equity |
|
|
|
|
|
|
|
| ||||||||
Common stock, $0.01 par value; | 2 | 2 |
|
| 2 |
|
|
| 2 |
| ||||||
Shares authorized: 500,000,000 at June 30, 2015 and December 31, 2014; | ||||||||||||||||
Shares issued: 171,252,185 at June 30, 2015 and December 31, 2014; | ||||||||||||||||
Shares outstanding: 164,244,192 and 164,786,788 at June 30, 2015 and December 31, 2014, respectively | ||||||||||||||||
Shares authorized: 500,000,000 at September 30, 2015 and December 31, 2014; |
|
|
|
|
|
|
|
| ||||||||
Shares issued: 171,252,185 at September 30, 2015 and December 31, 2014; |
|
|
|
|
|
|
|
| ||||||||
Shares outstanding: 163,922,010 and 164,786,788 at September 30, 2015 and December 31, 2014, respectively |
|
|
|
|
|
|
|
| ||||||||
Preferred stock (Note 15) | - | - |
|
| - |
|
|
| - |
| ||||||
Additional paid-in capital | 19,252 | 19,386 |
|
| 19,327 |
|
|
| 19,386 |
| ||||||
Retained earnings | 11,052 | 10,164 |
|
| 11,533 |
|
|
| 10,164 |
| ||||||
Appropriated retained earnings | - | (19 | ) |
|
| - |
|
|
| (19 | ) | |||||
Accumulated other comprehensive loss | (339 | ) | (273 | ) |
|
| (408 | ) |
|
| (273 | ) | ||||
Treasury stock, common, at cost (7,007,993 and 6,465,397 shares held at June 30, 2015 and December 31, 2014, respectively) | (2,191 | ) | (1,894 | ) | ||||||||||||
|
| |||||||||||||||
Treasury stock, common, at cost (7,330,175 and 6,465,397 shares held at September 30, 2015 and December 31, 2014, respectively) |
|
| (2,318 | ) |
|
| (1,894 | ) | ||||||||
Total BlackRock, Inc. stockholders’ equity | 27,776 | 27,366 |
|
| 28,136 |
|
|
| 27,366 |
| ||||||
Nonredeemable noncontrolling interests (includes $95 million and $15 million of nonredeemable noncontrolling interests of consolidated variable interest entities at June 30, 2015 and December 31, 2014, respectively) | 96 | 119 | ||||||||||||||
|
| |||||||||||||||
Nonredeemable noncontrolling interests (includes $86 million and $15 million of nonredeemable noncontrolling interests of consolidated variable interest entities at September 30, 2015 and December 31, 2014, respectively) |
|
| 87 |
|
|
| 119 |
| ||||||||
Total permanent equity | 27,872 | 27,485 |
|
| 28,223 |
|
|
| 27,485 |
| ||||||
|
| |||||||||||||||
Total liabilities, temporary equity and permanent equity | $237,008 | $239,792 |
| $ | 222,216 |
|
| $ | 239,792 |
| ||||||
|
| |||||||||||||||
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 June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| |||||||||||||||||
Revenue |
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|
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|
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|
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| ||||||||||||||||
Investment advisory, administration fees and securities lending revenue |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Related parties | $1,766 | $1,689 | $3,447 | $3,300 |
| $ | 1,719 |
|
| $ | 1,744 |
|
| $ | 5,166 |
|
| $ | 5,044 |
| ||||||||||||
Other third parties | 768 | 745 | 1,477 | 1,425 |
|
| 737 |
|
|
| 724 |
|
|
| 2,214 |
|
|
| 2,149 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total investment advisory, administration fees and securities lending revenue | 2,534 | 2,434 | 4,924 | 4,725 |
|
| 2,456 |
|
|
| 2,468 |
|
|
| 7,380 |
|
|
| 7,193 |
| ||||||||||||
Investment advisory performance fees | 136 | 115 | 244 | 273 |
|
| 208 |
|
|
| 133 |
|
|
| 452 |
|
|
| 406 |
| ||||||||||||
BlackRock Solutions and advisory | 161 | 146 | 308 | 300 |
|
| 167 |
|
|
| 165 |
|
|
| 475 |
|
|
| 465 |
| ||||||||||||
Distribution fees | 13 | 18 | 30 | 37 |
|
| 14 |
|
|
| 17 |
|
|
| 44 |
|
|
| 54 |
| ||||||||||||
Other revenue | 61 | 65 | 122 | 113 |
|
| 65 |
|
|
| 66 |
|
|
| 187 |
|
|
| 179 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total revenue | 2,905 | 2,778 | 5,628 | 5,448 |
|
| 2,910 |
|
|
| 2,849 |
|
|
| 8,538 |
|
|
| 8,297 |
| ||||||||||||
Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Employee compensation and benefits | 1,012 | 948 | 1,993 | 1,930 |
|
| 1,023 |
|
|
| 973 |
|
|
| 3,016 |
|
|
| 2,903 |
| ||||||||||||
Distribution and servicing costs | 105 | 89 | 204 | 178 |
|
| 102 |
|
|
| 90 |
|
|
| 306 |
|
|
| 268 |
| ||||||||||||
Amortization of deferred sales commissions | 12 | 14 | 25 | 29 |
|
| 12 |
|
|
| 14 |
|
|
| 37 |
|
|
| 43 |
| ||||||||||||
Direct fund expense | 191 | 187 | 380 | 366 |
|
| 198 |
|
|
| 199 |
|
|
| 578 |
|
|
| 565 |
| ||||||||||||
General and administration | 312 | 377 | 651 | 690 |
|
| 319 |
|
|
| 376 |
|
|
| 970 |
|
|
| 1,066 |
| ||||||||||||
Amortization of intangible assets | 35 | 41 | 70 | 82 |
|
| 34 |
|
|
| 40 |
|
|
| 104 |
|
|
| 122 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total expense | 1,667 | 1,656 | 3,323 | 3,275 |
|
| 1,688 |
|
|
| 1,692 |
|
|
| 5,011 |
|
|
| 4,967 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating income | 1,238 | 1,122 | 2,305 | 2,173 |
|
| 1,222 |
|
|
| 1,157 |
|
|
| 3,527 |
|
|
| 3,330 |
| ||||||||||||
Nonoperating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net gain (loss) on investments | (6 | ) | 45 | 53 | 121 |
|
| 4 |
|
|
| 46 |
|
|
| 57 |
|
|
| 167 |
| |||||||||||
Net gain (loss) on consolidated variable interest entities | 12 | 28 | 16 | 12 |
|
| (14 | ) |
|
| (47 | ) |
|
| 2 |
|
|
| (35 | ) | ||||||||||||
Interest and dividend income | 5 | 3 | 9 | 13 |
|
| 12 |
|
|
| 10 |
|
|
| 21 |
|
|
| 23 |
| ||||||||||||
Interest expense | (52 | ) | (60 | ) | (103 | ) | (113 | ) |
|
| (50 | ) |
|
| (61 | ) |
|
| (153 | ) |
|
| (174 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total nonoperating income (expense) | (41 | ) | 16 | (25 | ) | 33 |
|
| (48 | ) |
|
| (52 | ) |
|
| (73 | ) |
|
| (19 | ) | ||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Income before income taxes | 1,197 | 1,138 | 2,280 | 2,206 |
|
| 1,174 |
|
|
| 1,105 |
|
|
| 3,454 |
|
|
| 3,311 |
| ||||||||||||
Income tax expense | 371 | 297 | 629 | 621 |
|
| 342 |
|
|
| 232 |
|
|
| 971 |
|
|
| 853 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income | 826 | 841 | 1,651 | 1,585 |
|
| 832 |
|
|
| 873 |
|
|
| 2,483 |
|
|
| 2,458 |
| ||||||||||||
Less: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income (loss) attributable to redeemable noncontrolling interests | 3 | 1 | 7 | 2 |
|
| (11 | ) |
|
| - |
|
|
| (4 | ) |
|
| 2 |
| ||||||||||||
Net income (loss) attributable to nonredeemable noncontrolling interests | 4 | 32 | 3 | 19 |
|
| - |
|
|
| (44 | ) |
|
| 3 |
|
|
| (25 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income attributable to BlackRock, Inc. | $819 | $808 | $1,641 | $1,564 |
| $ | 843 |
|
| $ | 917 |
|
| $ | 2,484 |
|
| $ | 2,481 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Earnings per share attributable to BlackRock, Inc. common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic | $4.92 | $4.79 | $9.84 | $9.26 |
| $ | 5.08 |
|
| $ | 5.46 |
|
| $ | 14.91 |
|
| $ | 14.72 |
| ||||||||||||
Diluted | $4.84 | $4.72 | $9.69 | $9.12 |
| $ | 5.00 |
|
| $ | 5.37 |
|
| $ | 14.68 |
|
| $ | 14.48 |
| ||||||||||||
Cash dividends declared and paid per share | $2.18 | $1.93 | $4.36 | $3.86 |
| $ | 2.18 |
|
| $ | 1.93 |
|
| $ | 6.54 |
|
| $ | 5.79 |
| ||||||||||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic | 166,616,558 | 168,712,221 | 166,851,492 | 168,895,801 |
|
| 166,045,291 |
|
|
| 167,933,040 |
|
|
| 166,579,805 |
|
|
| 168,571,354 |
| ||||||||||||
Diluted | 169,114,759 | 171,150,153 | 169,418,964 | 171,540,018 |
|
| 168,665,303 |
|
|
| 170,778,766 |
|
|
| 169,157,188 |
|
|
| 171,351,276 |
| ||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
| (in millions) | Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| |||||||||||||||||
Net income | $ | 826 | $ | 841 | $ | 1,651 | $ | 1,585 |
| $ | 832 |
|
| $ | 873 |
|
| $ | 2,483 |
|
| $ | 2,458 |
| ||||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Change in net unrealized gains (losses) from available-for-sale investments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Unrealized holding gains (losses), net of tax | (1 | ) | 4 | (1 | ) | 4 | ||||||||||||||||||||||||||
Unrealized holding gains (losses), net of tax(1) |
|
| (2 | ) |
|
| (1 | ) |
|
| (3 | ) |
|
| 3 |
| ||||||||||||||||
Less: reclassification adjustment included in net income(1) | - | (2 | ) | - | 6 |
|
| - |
|
| 2 |
|
|
| - |
|
|
| 8 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net change from available-for-sale investments, net of tax | (1 | ) | 6 | (1 | ) | (2 | ) |
|
| (2 | ) |
|
| (3 | ) |
|
| (3 | ) |
|
| (5 | ) | |||||||||
Benefit plans, net | - | - | (1 | ) | - |
|
| - |
|
|
| - |
|
|
| (1 | ) |
|
| - |
| |||||||||||
Foreign currency translation adjustments(2) | 101 | 30 | (64 | ) | 38 |
|
| (67 | ) |
|
| (167 | ) |
|
| (131 | ) |
|
| (129 | ) | |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Other comprehensive income (loss) | 100 | 36 | (66 | ) | 36 |
|
| (69 | ) |
|
| (170 | ) |
|
| (135 | ) |
|
| (134 | ) | |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Comprehensive income | 926 | 877 | 1,585 | 1,621 |
|
| 763 |
|
|
| 703 |
|
|
| 2,348 |
|
|
| 2,324 |
| ||||||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interests | 7 | 33 | 10 | 21 |
|
| (11 | ) |
|
| (44 | ) |
|
| (1 | ) |
|
| (23 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Comprehensive income attributable to BlackRock, Inc. | $ | 919 | $ | 844 | $ | 1,575 | $ | 1,600 |
| $ | 774 |
|
| $ | 747 |
|
| $ | 2,349 |
|
| $ | 2,347 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
(1) | The tax benefit (expense) was not material for the three and |
(2) |
|
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 | Appropriated Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock Common | Total BlackRock Stockholders’ Equity | Nonredeemable Noncontrolling Interests(2) | Total Permanent Equity | Redeemable Noncontrolling Interests / Temporary Equity(2) | |||||||||||||||||||||||||||
December 31, 2014 | $19,388 | $10,164 | ($19) | ($273) | ($1,894) | $27,366 | $119 | $27,485 | $35 | |||||||||||||||||||||||||||
Net income | - | 1,641 | - | - | - | 1,641 | 3 | 1,644 | 7 | |||||||||||||||||||||||||||
Net consolidation (deconsolidation) of VIEs due to adoption of new accounting pronouncement | - | - | 19 | - | - | 19 | (8) | 11 | 194 | |||||||||||||||||||||||||||
Dividends paid | - | (753) | - | - | - | (753) | - | (753) | - | |||||||||||||||||||||||||||
Stock-based compensation | 269 | - | - | - | - | 269 | - | 269 | - | |||||||||||||||||||||||||||
Issuance of common shares related to employee stock transactions | (470) | - | - | - | 480 | 10 | - | 10 | - | |||||||||||||||||||||||||||
Employee tax withholdings related to employee stock transactions | - | - | - | - | (227) | (227) | - | (227) | - | |||||||||||||||||||||||||||
Shares repurchased | - | - | - | - | (550) | (550) | - | (550) | - | |||||||||||||||||||||||||||
Net tax benefit (shortfall) from stock-based compensation | 67 | - | - | - | - | 67 | - | 67 | - | |||||||||||||||||||||||||||
Subscriptions (redemptions/ distributions) — noncontrolling interest holders | - | - | - | - | - | - | (12) | (12) | 241 | |||||||||||||||||||||||||||
Net consolidations (deconsolidations) of sponsored investment funds | - | - | - | - | - | - | (6) | (6) | (219) | |||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | (66) | - | (66) | - | (66) | - | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
June 30, 2015 | $19,254 | $11,052 | $- | ($339) | ($2,191) | $27,776 | $96 | $27,872 | $258 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(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(2) |
|
| Total Permanent Equity |
|
| Redeemable Noncontrolling Interests / Temporary Equity(2) |
| |||||||||
December 31, 2014 |
| $ | 19,388 |
|
| $ | 10,164 |
|
| $ | (19 | ) |
| $ | (273 | ) |
| $ | (1,894 | ) |
| $ | 27,366 |
|
| $ | 119 |
|
| $ | 27,485 |
|
| $ | 35 |
|
Net income |
|
| - |
|
|
| 2,484 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,484 |
|
|
| 3 |
|
|
| 2,487 |
|
|
| (4 | ) |
Net consolidation (deconsolidation) of VIEs due to adoption of new accounting pronouncement |
|
| - |
|
|
| - |
|
|
| 19 |
|
|
| - |
|
|
| - |
|
|
| 19 |
|
|
| (8 | ) |
|
| 11 |
|
| 194 |
| |
Dividends paid |
|
| - |
|
|
| (1,115 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,115 | ) |
|
| - |
|
|
| (1,115 | ) |
|
| - |
|
Stock-based compensation |
|
| 397 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 397 |
|
|
| - |
|
|
| 397 |
|
|
| - |
|
Issuance of common shares related to employee stock transactions |
|
| (542 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 629 |
|
|
| 87 |
|
|
| - |
|
|
| 87 |
|
|
| - |
|
Employee tax withholdings related to employee stock transactions |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (228 | ) |
|
| (228 | ) |
|
| - |
|
|
| (228 | ) |
|
| - |
|
Shares repurchased |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (825 | ) |
|
| (825 | ) |
|
| - |
|
|
| (825 | ) |
|
| - |
|
Net tax benefit (shortfall) from stock-based compensation |
|
| 86 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 86 |
|
|
| - |
|
|
| 86 |
|
|
| - |
|
Subscriptions (redemptions/ distributions) — noncontrolling interest holders |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (21 | ) |
|
| (21 | ) |
| 298 |
| |
Net consolidations (deconsolidations) of sponsored investment funds |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (6 | ) |
|
| (6 | ) |
|
| (265 | ) |
Other comprehensive income (loss) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (135 | ) |
|
| - |
|
|
| (135 | ) |
|
| - |
|
|
| (135 | ) |
|
| - |
|
September 30, 2015 |
| $ | 19,329 |
|
| $ | 11,533 |
|
| $ | - |
|
| $ | (408 | ) |
| $ | (2,318 | ) |
| $ | 28,136 |
|
| $ | 87 |
|
| $ | 28,223 |
|
| $ | 258 |
|
( | Amounts include $2 million of common stock at both |
(2) | Amounts include noncontrolling interests of consolidated variable interest entities (“VIEs”). |
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 | Nonredeemable Noncontrolling Interests of Consolidated VIEs | Total Permanent Equity | Redeemable Noncontrolling Interests / Temporary Equity |
| 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 |
|
| Nonredeemable Noncontrolling Interests of Consolidated VIEs |
|
| Total Permanent Equity |
|
| Redeemable Noncontrolling Interests / Temporary Equity |
| ||||||||||||||||||||||||||||||||||||||||
December 31, 2013 | $19,475 | $8,208 | $22 | ($35) | ($1,210) | $26,460 | $135 | $21 | $26,616 | $54 |
| $ | 19,475 |
|
| $ | 8,208 |
|
| $ | 22 |
|
| $ | (35 | ) |
| $ | (1,210 | ) |
| $ | 26,460 |
|
| $ | 135 |
|
| $ | 21 |
|
| $ | 26,616 |
|
| $ | 54 |
| ||||||||||||||||||||||||||||||
Net income | - | 1,564 | - | - | - | 1,564 | 7 | 12 | 1,583 | 2 |
| - |
|
| 2,481 |
|
| - |
|
| - |
|
| - |
|
| 2,481 |
|
|
| 10 |
|
|
| (35 | ) |
| 2,456 |
|
|
| 2 |
| |||||||||||||||||||||||||||||||||||||
Allocation of gains (losses) of consolidated collateralized loan obligations | - | - | 11 | - | - | 11 | - | (11 | ) | - | - |
| - |
|
| - |
|
|
| (35 | ) |
| - |
|
| - |
|
|
| (35 | ) |
| - |
|
|
| 35 |
|
| - |
|
| - |
| ||||||||||||||||||||||||||||||||||||
Dividends paid | - | (692) | - | - | - | (692) | - | - | (692) | - |
| - |
|
|
| (1,016 | ) |
| - |
|
| - |
|
| - |
|
|
| (1,016 | ) |
| - |
|
| - |
|
|
| (1,016 | ) |
| - |
| |||||||||||||||||||||||||||||||||||||
Stock-based compensation | 236 | - | - | - | - | 236 | - | - | 236 | - |
|
| 336 |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| 336 |
|
| - |
|
| - |
|
|
| 336 |
|
| - |
| |||||||||||||||||||||||||||||||||||||
Issuance of common shares related to employee stock transactions | (621) | - | - | - | 626 | 5 | - | - | 5 | - |
|
| (632 | ) |
| - |
|
| - |
|
| - |
|
|
| 641 |
|
|
| 9 |
|
| - |
|
| - |
|
|
| 9 |
|
| - |
| ||||||||||||||||||||||||||||||||||||
Employee tax withholdings related to employee stock transactions | - | - | - | - | (332) | (332) | - | - | (332) | - |
| - |
|
| - |
|
| - |
|
| - |
|
|
| (338 | ) |
|
| (338 | ) |
| - |
|
| - |
|
|
| (338 | ) |
| - |
| |||||||||||||||||||||||||||||||||||||
Shares repurchased | - | - | - | - | (500) | (500) | - | - | (500) | - |
| - |
|
| - |
|
| - |
|
| - |
|
|
| (750 | ) |
|
| (750 | ) |
| - |
|
| - |
|
|
| (750 | ) |
| - |
| |||||||||||||||||||||||||||||||||||||
Net tax benefit (shortfall) from stock-based compensation | 93 | - | - | - | - | 93 | - | - | 93 | - |
|
| 93 |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| 93 |
|
| - |
|
| - |
|
|
| 93 |
|
| - |
| |||||||||||||||||||||||||||||||||||||
Subscriptions (redemptions/distributions)-noncontrolling interest holders | - | - | - | - | - | - | (22) | (4) | (26) | 184 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subscriptions (redemptions/ distributions)- noncontrolling interest holders |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| (31 | ) |
|
| (6 | ) |
|
| (37 | ) |
|
| 247 |
| ||||||||||||||||||||||||||||||||||||||||||||||
Net consolidations (deconsolidations) of sponsored investment funds | - | - | - | - | - | - | - | - | - | (193) |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| (254 | ) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | 36 | - | 36 | - | - | 36 | - |
| - |
|
| - |
|
| - |
|
|
| (134 | ) |
| - |
|
|
| (134 | ) |
| - |
|
| - |
|
|
| (134 | ) |
| - |
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2014 | $19,183 | $9,080 | $33 | $1 | ($1,416) | $26,881 | $120 | $18 | $27,019 | $47 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2014 |
| $ | 19,272 |
|
| $ | 9,673 |
|
| $ | (13 | ) |
| $ | (169 | ) |
| $ | (1,657 | ) |
| $ | 27,106 |
|
| $ | 114 |
|
| $ | 15 |
|
| $ | 27,235 |
|
| $ | 49 |
| ||||||||||||||||||||||||||||||||||||||||
(1) | Amounts include $2 million of common stock at both |
See accompanying notes to condensed consolidated financial statements.
5
Condensed Consolidated Statements of Cash Flows
(unaudited)
| (in millions) | Six Months Ended June 30, |
| Nine Months Ended September 30, |
| ||||||||||||
| 2015 | 2014 |
| 2015 |
|
| 2014 |
| |||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
| ||||||||
Net income | $1,651 | $1,585 |
| $ | 2,483 |
|
| $ | 2,458 |
| ||||||
Adjustments to reconcile net income to cash flows from operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization | 128 | 145 |
|
| 196 |
|
|
| 215 |
| ||||||
Amortization of deferred sales commissions | 25 | 29 |
|
| 37 |
|
|
| 43 |
| ||||||
Stock-based compensation | 269 | 236 |
|
| 397 |
|
|
| 336 |
| ||||||
Deferred income tax expense (benefit) | - | 102 |
|
| (73 | ) |
|
| (31 | ) | ||||||
Other gains | (40 | ) | - |
|
| (40 | ) |
| - |
| ||||||
Net (gains) losses on nontrading investments | 6 | (54 | ) |
|
| 10 |
|
|
| (53 | ) | |||||
Purchases of investments within consolidated sponsored investment funds | (1 | ) | (139 | ) |
|
| (1 | ) |
|
| (151 | ) | ||||
Proceeds from sales and maturities of investments within consolidated sponsored investment funds | 1 | 84 |
|
| 1 |
|
|
| 113 |
| ||||||
Assets and liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
| ||||||||
Change in cash and cash equivalents | (14 | ) | (209 | ) |
|
| (26 | ) |
|
| 10 |
| ||||
Net (gains) losses within consolidated VIEs | (16 | ) | (12 | ) |
|
| (2 | ) |
|
| 35 |
| ||||
Net (purchases) proceeds within consolidated VIEs | (122 | ) | (131 | ) |
|
| (169 | ) |
|
| (540 | ) | ||||
(Earnings) losses from equity method investees | (51 | ) | (92 | ) |
|
| (59 | ) |
|
| (133 | ) | ||||
Distributions of earnings from equity method investees | 25 | 22 |
|
| 32 |
|
|
| 44 |
| ||||||
Other adjustments |
|
| (1 | ) |
|
| 7 |
| ||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
| ||||||||
Accounts receivable | (253 | ) | (1,964 | ) |
|
| (461 | ) |
|
| (426 | ) | ||||
Investments, trading | (425 | ) | (102 | ) |
|
| (402 | ) |
|
| (189 | ) | ||||
Other assets | (291 | ) | (234 | ) |
|
| (263 | ) |
|
| (133 | ) | ||||
Accrued compensation and benefits | (732 | ) | (668 | ) |
|
| (313 | ) |
|
| (272 | ) | ||||
Accounts payable and accrued liabilities | 233 | 2,011 |
|
| 287 |
|
|
| 473 |
| ||||||
Other liabilities | 103 | (77 | ) |
|
| 214 |
|
|
| 10 |
| |||||
|
| |||||||||||||||
Cash flows from operating activities | 496 | 532 |
|
| 1,847 |
|
| 1,816 |
| |||||||
|
| |||||||||||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
| ||||||||
Purchases of investments | (162 | ) | (239 | ) |
|
| (329 | ) |
|
| (304 | ) | ||||
Proceeds from sales and maturities of investments | 314 | 337 |
|
| 461 |
|
|
| 504 |
| ||||||
Distributions of capital from equity method investees | 46 | 33 |
|
| 56 |
|
|
| 130 |
| ||||||
Net consolidations (deconsolidations) of sponsored investment funds | (81 | ) | (3 | ) |
|
| (82 | ) |
|
| (33 | ) | ||||
Acquisition | (88 | ) | - |
|
| (88 | ) |
| - |
| ||||||
Purchases of property and equipment | (134 | ) | (34 | ) |
|
| (160 | ) |
|
| (40 | ) | ||||
|
| |||||||||||||||
Cash flows from investing activities | (105 | ) | 94 |
|
| (142 | ) |
|
| 257 |
| |||||
|
| |||||||||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
| ||||||||
Proceeds from long-term borrowings | 787 | 997 |
|
| 787 |
|
|
| 997 |
| ||||||
Repayments of long-term borrowings | (750 | ) | - |
|
| (750 | ) |
| - |
| ||||||
Cash dividends paid | (753 | ) | (692 | ) |
|
| (1,115 | ) |
|
| (1,016 | ) | ||||
Proceeds from stock options exercised |
|
| 79 |
|
|
| 3 |
| ||||||||
Repurchases of common stock | (777 | ) | (832 | ) |
|
| (1,053 | ) |
|
| (1,088 | ) | ||||
Net proceeds from (repayments of) borrowings by consolidated VIEs | - | 344 |
| - |
|
|
| 536 |
| |||||||
Net (redemptions/distributions paid) / subscriptions received from noncontrolling interests holders | 229 | 158 |
|
| 277 |
|
|
| 210 |
| ||||||
Excess tax benefit from stock-based compensation | 67 | 93 |
|
| 86 |
|
|
| 93 |
| ||||||
Other financing activities | 6 | (1 | ) |
|
| (11 | ) |
|
| (4 | ) | |||||
|
| |||||||||||||||
Cash flows from financing activities | (1,191 | ) | 67 |
|
| (1,700 | ) |
|
| (269 | ) | |||||
|
| |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (16 | ) | 44 |
|
| (55 | ) |
|
| (45 | ) | |||||
|
| |||||||||||||||
Net increase (decrease) in cash and cash equivalents | (816 | ) | 737 |
|
| (50 | ) |
|
| 1,759 |
| |||||
Cash and cash equivalents, beginning of period | 5,723 | 4,390 |
| 5,723 |
|
| 4,390 |
| ||||||||
|
| |||||||||||||||
Cash and cash equivalents, end of period | $4,907 | $5,127 |
| $ | 5,673 |
|
| $ | 6,149 |
| ||||||
|
| |||||||||||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
| ||||||||
Cash paid for: |
|
|
|
|
|
|
|
| ||||||||
Interest | $99 | $100 |
| $ | 139 |
|
| $ | 140 |
| ||||||
Interest on borrowings of consolidated VIEs | $- | $48 |
| $ | - |
|
| $ | 112 |
| ||||||
Income taxes (net of refunds) | $708 | $696 |
| $ | 1,013 |
|
| $ | 992 |
| ||||||
Supplemental schedule of noncash investing and financing transactions: |
|
|
|
|
|
|
|
| ||||||||
Issuance of common stock | $470 | $621 |
| $ | 542 |
|
| $ | 632 |
| ||||||
Increase (decrease) in noncontrolling interests due to net consolidation (deconsolidation) of sponsored investment funds | ($39 | ) | ($193 | ) |
| $ | (85 | ) |
| $ | (254 | ) | ||||
Increase (decrease) in borrowings due to deconsolidation of VIEs | ($3,389 | ) | $- |
| $ | (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 theBlackRock Solutions® investment and risk management technology platform,Aladdin®, risk analytics and advisory services and solutions to a broad base of institutional investors.
At JuneSeptember 30, 2015, The PNC Financial Services Group, Inc. (“PNC”) held 21.0%21.1% of the Company’s voting common stock and 22.0%22.1% 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, 2014, which was filed with the Securities and Exchange Commission (“SEC”) on February 27, 2015 (“2014 Form 10-K”).
The interim financial information at JuneSeptember 30, 2015 and for the three and sixnine months ended JuneSeptember 30, 2015 and 2014 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.
Accounting Pronouncements Adopted in the SixNine Months Ended JuneSeptember 30, 2015
Amendments to the Consolidation Analysis. In February 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-02,Consolidation: Amendments to the Consolidation Analysis, (“ASU 2015-02”) that requires companies to reevaluate all legal entities under new consolidation guidance. The revised consolidation rules provide new guidance for evaluating: i) limited partnerships and similar entities for consolidation ii) how
decision maker or service provider fees affect the consolidation analysis, iii) how interests held by related parties affect the consolidation analysis, and iv) the consolidation analysis required for certain investment funds. The new consolidation guidance also provides a scope exception for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.
7
The Company early adopted ASU 2015-02 using the modified retrospective method with an effective adoption date of January 1, 2015. The modified retrospective method did not require the restatement of prior year periods. In connection with the adoption of ASU 2015-02, the Company reevaluated all of its investment products for consolidation. As of January 1, 2015, the Company deconsolidated all of its previously consolidated CLOs as its fee arrangements were no longer deemed to be variable interests and it held no other interests in these entities.
The adoption of the ASU also resulted in the consolidation of certain investment products that were not previously consolidated. Upon adoption, these products became consolidated VIEs as the Company is considered the party with both (i) the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.
The impact to the Company’s condensed consolidated statement of financial condition upon adoption of ASU 2015-02 was primarily the deconsolidation of approximately $3.6 billion of assets and $3.6 billion of liabilities related to the Company’s CLOs with an adjustment to appropriated retained earnings/loss of $19 million. In addition, certain investment products previously accounted for as voting rights entities (“VREs”) became VIEs under the new accounting guidance.
Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03,Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The Company early adopted ASU 2015-03 during the quarter ended June 30, 2015 on a retrospective basis, which required the restatement of prior periods. The adoption of ASU 2015-03 was not material to the condensed consolidated financial statements.
Disclosures for Investments in Certain Entities that Calculate NAV Per Share. In May 2015, the FASB issued ASU 2015-07,Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAVnet asset value (“NAV”) per share practical expedient. The Company early adopted ASU 2015-07 during the quarter ended June 30, 2015 on a retrospective basis, which required the restatement of prior periods. As a result of the adoption of ASU 2015-07, $630$653 million and $692 million as of JuneSeptember 30, 2015 and December 31, 2014, respectively, of NAV investments wereare no longer included in Level 2 and 3 within the fair value hierarchy.
Fair Value Measurements.
Hierarchy of Fair Value Inputs. The Company uses a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 Inputs:
Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.
Level 1 assets may include listed mutual funds, ETFs, listed equities and certain exchange-traded derivatives.
Level 2 Inputs:
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies.
Level 2 assets may include debt securities, bank loans, short-term floating-rate notes, asset-backed securities, securities held within consolidated hedge funds, restricted public securities valued at a discount, as well as over-the-counter derivatives, including interest and inflation rate swaps and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.
8
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, bank loans and bonds.
Level 3 liabilities include contingent liabilities related to acquisitions valued based upon discounted cash flow analysis using unobservable market data. Level 3 liabilities at December 31, 2014 also included borrowings of consolidated collateralized loan obligations (“CLOs”) valued based upon nonbinding single-broker quotes.
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.
Investments Measured at Net Asset Values. As a practical expedient, the Company uses net asset value (“NAV”)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 estate 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-
partythird-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 may use 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 generally 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.
9
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.
Consolidation. The Company performs an analysis for investment products to determine if the product is a VIE or a VRE. Assessing whether an entity is a VIE or a VRE involves judgment and analysis. Factors considered in this assessment include the entity’s legal organization, the entity’s capital structure and equity ownership, and any related party or de facto agent implications of the Company’s involvement with the entity. Investments that are determined to be VIEs are consolidated if the Company is the primary beneficiary (“PB”) of the entity. VREs are typically consolidated if the Company holds the majority voting interest. Upon the occurrence of certain events (such as contributions and redemptions, either by the Company, or third parties, or amendments to the governing documents of the Company’s investment products), management reviews and reconsiders its previous conclusion regarding the status of an entity as a VIE or a VRE. Additionally, management continually reconsiders whether the Company is deemed to be a VIE’s PB that consolidates such entity.
Consolidation of Variable Interest Entities. Certain investment products for which a controlling financial interest is achieved through arrangements that do not involve or are not directly linked to voting interests are deemed VIEs. BlackRock reviews factors, including whether or not i) the entity has equity that is sufficient to permit the entity to finance its activities without additional subordinated support from other parties and ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns, and the right to direct the activities of the entity that most significantly impact the entity’s economic performance, to determine if the investment product is a VIE. BlackRock re-evaluates such factors as facts and circumstances change.
Prior to the adoption of ASU 2015-02, the Company used two methods for determining whether it was the PB of a VIE depending on the nature and characteristics of the entity. For CLOs, the Company was deemed to be the PB if it had the power to direct activities of the entity that most significantly impacted the entity’s economic performance and had the obligation to absorb losses or the right to receive benefits that potentially could be significant to the VIE. For certain sponsored investment funds, the Company was deemed to be the PB if it absorbed the majority of the entity’s expected losses, received a majority of the entity’s expected residual returns, or both.
Following the adoption of ASU 2015-02, all VIEs are evaluated for consolidation under a single method. The PB of a VIE is defined as the variable interest holder that has a controlling financial interest in the VIE. A controlling financial interest is defined as (i) the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that potentially could be significant to the VIE. The consolidation analysis can generally be performed qualitatively, however, if it is not readily apparent that the Company is not the PB, a quantitative analysis may also be performed.
Consolidation of Voting Rights Entities. BlackRock is required to consolidate an investee to the extent that BlackRock can exert control over the financial and operating policies of the investee, which generally exists if there is a greater than 50% voting equity interest.
Retention of Specialized Investment Company Accounting Principles. Upon consolidation of sponsored investment funds, the Company retains the specialized investment company accounting principles of the underlying funds. All of the underlying investments held by such consolidated sponsored investment funds are carried at fair value with corresponding changes in the investments’ fair values reflected in nonoperating income (expense) on the condensed consolidated statements of income. When the Company no longer controls these funds due to reduced ownership percentage or other reasons, the funds are deconsolidated and accounted for under another accounting method if the Company still maintains an investment.
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 and sixnine months ended JuneSeptember 30, 2015, these waivers resulted in a reduction of management fees of approximately $37$32 million and $80$112 million, respectively. Approximately 45% of year-to-date 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.
10
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.
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 JuneSeptember 30, 2015 and 2014, the Company had not resold or repledged any of the collateral received under these arrangements. At JuneSeptember 30, 2015 and December 31, 2014, the fair value of loaned securities held by separate accounts was approximately $29.6$28.3 billion and $30.6 billion, respectively, and the fair value of the collateral held under these securities lending agreements was approximately $32.4$30.8 billion and $33.7 billion, respectively.
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, 2017.2018.
Accounting for Measurement-Period Adjustments.In September 2015, the 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 revised. The Company is required to adopt the ASU prospectively on January 1, 2016. Upon adoption, the Company will apply the new ASU to any adjustments related to business acquisitions.
11
A summary of the carrying value of total investments is as follows:
| (in millions) | June 30, 2015 | December 31, 2014 |
| September 30, 2015 |
|
| December 31, 2014 |
| ||||||||||||
Available-for-sale investments | $35 | $201 |
| $ | 34 |
|
| $ | 201 |
| ||||||||||
Held-to-maturity investments | 100 | 79 |
|
| 111 |
|
|
| 79 |
| ||||||||||
Trading investments: |
|
|
|
|
|
|
|
| ||||||||||||
Consolidated sponsored investment funds | 576 | 443 |
|
| 548 |
|
|
| 443 |
| ||||||||||
Other equity and debt securities | 17 | 29 |
|
| 17 |
|
|
| 29 |
| ||||||||||
Deferred compensation plan mutual funds | 67 | 64 |
|
| 63 |
|
|
| 64 |
| ||||||||||
|
|
|
| |||||||||||||||||
Total trading investments | 660 | 536 |
|
| 628 |
|
|
| 536 |
| ||||||||||
Other investments: |
|
|
|
|
|
|
|
| ||||||||||||
Consolidated sponsored investment funds | - | 270 |
| - |
|
|
| 270 |
| |||||||||||
Equity method investments | 501 | 633 |
|
| 469 |
|
|
| 633 |
| ||||||||||
Deferred compensation plan equity method investments | 17 | 21 |
|
| 16 |
|
|
| 21 |
| ||||||||||
Cost method investments(1) | 96 | 96 |
|
| 95 |
|
|
| 96 |
| ||||||||||
Carried interest | 27 | 85 |
|
| 19 |
|
|
| 85 |
| ||||||||||
|
|
|
| |||||||||||||||||
Total other investments | 641 | 1,105 |
|
| 599 |
|
| 1,105 |
| |||||||||||
|
|
|
| |||||||||||||||||
Total investments | $1,436 | $1,921 |
| $ | 1,372 |
|
| $ | 1,921 |
| ||||||||||
|
|
|
| |||||||||||||||||
(1) | Amounts primarily include Federal Reserve Bank (“FRB”) Stock. |
At JuneSeptember 30, 2015, the Company consolidated $576$548 million of investments held by consolidated sponsored investment funds accounted for as VREs, which were classified as trading investments. At December 31, 2014, the Company consolidated $713 million of investments held by consolidated sponsored investment funds accounted for as VREs of which $443 million and $270 million were classified as trading investments and other investments, respectively.
Available-for-Sale Investments
A summary of the cost and carrying value of investments classified as available-for-sale investments is as follows:
| (in millions) |
|
|
| |||||||||||||||||||||||||||||||||||
| Gross Unrealized | Carrying Value |
|
|
|
|
| Gross Unrealized |
|
| Carrying |
| |||||||||||||||||||||||||||
| June 30, 2015 | Cost | Gains | Losses | |||||||||||||||||||||||||||||||||||
September 30, 2015 |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||||||||||||||||||||||||
Equity securities of sponsored investment funds | $35 | $2 | ($2) | $35 |
| $ | 35 |
|
| $ | 2 |
|
| $ | (3 | ) |
| $ | 34 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Equity securities of sponsored investment funds | $205 | $5 | ($9) | $201 |
| $ | 205 |
|
| $ | 5 |
|
| $ | (9 | ) |
| $ | 201 |
| ||||||||||||||||||
Available-for-sale investments primarily included seed investments in BlackRock sponsored mutual funds.
Held-to-Maturity Investments
The carrying value of held-to-maturity investments was $100$111 million and $79 million at JuneSeptember 30, 2015 and December 31, 2014, respectively. Held-to-maturity investments included foreign government debt held for regulatory purposes. The amortized cost (carrying value) of these investments approximated fair value. At JuneSeptember 30, 2015, $86$98 million of these investments mature within one year and $14$13 million mature after five years through ten years.
12
A summary of the cost and carrying value of trading investments is as follows:
| (in millions) | June 30, 2015 | December 31, 2014 |
| September 30, 2015 |
|
| December 31, 2014 |
| ||||||||||||||||||||||||
| Cost | Carrying Value | Cost | Carrying Value | |||||||||||||||||||||||||||||
|
|
|
|
| Cost |
|
| Carrying Value |
|
| Cost |
|
| Carrying Value |
| |||||||||||||||||
Trading investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Deferred compensation plan mutual funds | $48 | $67 | $48 | $64 |
| $ | 48 |
|
| $ | 63 |
|
| $ | 48 |
|
| $ | 64 |
| ||||||||||||
Equity securities/multi-asset mutual funds | 156 | 156 | 210 | 239 |
|
| 167 |
|
|
| 155 |
|
|
| 210 |
|
|
| 239 |
| ||||||||||||
Debt securities/fixed income mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Corporate debt | 227 | 226 | 109 | 110 |
|
| 197 |
|
|
| 194 |
|
|
| 109 |
|
|
| 110 |
| ||||||||||||
Government debt | 167 | 169 | 100 | 103 |
|
| 167 |
|
|
| 170 |
|
|
| 100 |
|
|
| 103 |
| ||||||||||||
Asset/mortgage backed debt | 42 | 42 | 20 | 20 |
|
| 46 |
|
|
| 46 |
|
|
| 20 |
|
|
| 20 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total trading investments | $640 | $660 | $487 | $536 |
| $ | 625 |
|
| $ | 628 |
|
| $ | 487 |
|
| $ | 536 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
At JuneSeptember 30, 2015, trading investments included $436$408 million of debt securities and $140 million of equity securities held by consolidated sponsored investment funds accounted for as VREs, $67$63 million of certain deferred compensation plan mutual fund investments and $17 million of other equity and debt securities.
At December 31, 2014, trading investments included $223 million of debt securities and $220 million of equity securities held by consolidated sponsored investment funds accounted for as VREs, $64 million of certain deferred compensation plan mutual fund investments and $29 million of other equity and debt securities.
Other Investments
A summary of the cost and carrying value of other investments is as follows:
| (in millions) | June 30, 2015 | December 31, 2014 |
| September 30, 2015 |
|
| December 31, 2014 |
| ||||||||||||||||||||||||
| Cost | Carrying Value | Cost | Carrying Value | |||||||||||||||||||||||||||||
|
|
|
|
| Cost |
|
| Carrying Value |
|
| Cost |
|
| Carrying Value |
| |||||||||||||||||
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Consolidated sponsored investment funds accounted for as VREs | $- | $- | $268 | $270 |
| $ | - |
|
| $ | - |
|
| $ | 268 |
|
| $ | 270 |
| ||||||||||||
Equity method investments | 399 | 501 | 518 | 633 |
|
| 387 |
|
|
| 469 |
|
|
| 518 |
|
|
| 633 |
| ||||||||||||
Deferred compensation plan equity method investments | 16 | 17 | 21 | 21 |
|
| 15 |
|
|
| 16 |
|
|
| 21 |
|
|
| 21 |
| ||||||||||||
Cost method investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Federal Reserve Bank stock | 93 | 93 | 92 | 92 |
|
| 93 |
|
|
| 93 |
|
|
| 92 |
|
|
| 92 |
| ||||||||||||
Other | 3 | 3 | 4 | 4 |
|
| 2 |
|
|
| 2 |
|
|
| 4 |
|
|
| 4 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total cost method investments | 96 | 96 | 96 | 96 |
|
| 95 |
|
|
| 95 |
|
|
| 96 |
|
|
| 96 |
| ||||||||||||
Carried interest(1) | - | 27 | - | 85 |
|
| - |
|
|
| 19 |
|
|
| - |
|
|
| 85 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total other investments | $511 | $641 | $903 | $1,105 |
| $ | 497 |
|
| $ | 599 |
|
| $ | 903 |
|
| $ | 1,105 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
(1) | Carried interest related to VREs. |
Consolidated sponsored investment funds accounted for as VREs 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 primarily include BlackRock’s direct investments in certain BlackRock sponsored investment funds.
In addition, the Company accounts for its interest in PennyMac Financial Services, Inc. (“PennyMac”) as an equity method investment. At JuneSeptember 30, 2015 and December 31, 2014 the Company’s investment in PennyMac was excluded from the balances in the table above and included in other assets on the condensed consolidated statements of financial condition. The carrying value and fair value of the Company’s interest (approximately 20% or 16 million shares and units) was approximately $191$207 million and $282$249 million, respectively, at JuneSeptember 30, 2015 and
13
approximately $167 million and $269 million, respectively, at December 31, 2014. The fair value of the Company’s interest reflected the PennyMac stock price at JuneSeptember 30, 2015 and December 31, 2014, respectively (a Level 1 input).
Cost method investments include nonmarketable securities, primarily including FRB stock, which is held for regulatory purposes and is restricted from sale. At JuneSeptember 30, 2015 and December 31, 2014, there were no indicators of impairment on these investments.
Carried interest represents allocations to BlackRock’s general partner capital accounts from certain funds. These balances are subject to change upon cash distributions, additional allocations or reallocations back to limited partners within the respective funds.
4. Consolidated Voting Rights Entities
The Company consolidates certain sponsored investment funds accounted for as VREs because it is deemed to control such funds. The investments owned by these consolidated VREs are classified as trading or other investments. The following table presents the balances related to these consolidated VREs that were recorded on the condensed consolidated statements of financial condition, including BlackRock’s net interest in these funds:
| (in millions) | June 30, 2015 | December 31, 2014 |
| September 30, 2015 |
|
| December 31, 2014 |
| ||||||||
Cash and cash equivalents | $120 | $120 |
| $ | 126 |
|
| $ | 120 |
| ||||||
Investments: |
|
|
|
|
|
|
|
| ||||||||
Trading investments | 576 | 443 |
|
| 548 |
|
|
| 443 |
| ||||||
Other investments | - | 270 |
| - |
|
|
| 270 |
| |||||||
Other assets | 35 | 20 |
|
| 21 |
|
|
| 20 |
| ||||||
Other liabilities | (79 | ) | (18 | ) |
|
| (75 | ) |
|
| (18 | ) | ||||
Noncontrolling interests | (97 | ) | (139 | ) |
|
| (100 | ) |
|
| (139 | ) | ||||
|
| |||||||||||||||
BlackRock’s net interests in consolidated VREs | $555 | $696 |
| $ | 520 |
|
| $ | 696 |
| ||||||
|
| |||||||||||||||
BlackRock’s total exposure to consolidated VREs represents the value of its economic ownership interest in these sponsored investment funds. Valuation changes associated with investments held at fair value by these consolidated VREs are reflected in nonoperating income (expense) and partially offset in net income (loss) attributable to noncontrolling interests for the portion not attributable to BlackRock.
In addition, at JuneSeptember 30, 2015 and December 31, 2014, certain consolidated sponsored investment funds, which were accounted for as 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 5,Variable Interest Entities, for further discussion on these consolidated investment products. See Note 2,Significant Accounting Policies, for the Company’s consolidation policy and for further information on the adoption of ASU 2015-02.
The Company cannot readily access cash and cash equivalents held by consolidated VREs to use in its operating activities. In addition, the Company cannot readily sell investments held by consolidated VREs to obtain cash for use in the Company’s operations.
5. Variable Interest Entities
In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, which may be considered VIEs. The Company may from time to time own equity or debt securities or enter into derivatives with the vehicles, each of which are considered variable interests. The Company’s involvement in financing the operations of the VIEs is generally limited to its investments in the entity. The Company consolidates entities when it is determined to be the PB under current VIE accounting guidance.PB. See Note 2,Significant Accounting Policies, for further information on the Company’s accounting policy on consolidation.
As a result of the adoption of ASU 2015-02, the Company deconsolidated all previously consolidated CLOs effective January 1, 2015 as its fees are no longer deemed variable interests. The Company also consolidated certain investment products that were not previously consolidated as a result of the adoption of ASU 2015-02. See Note 2,
14
Significant Accounting Policies – Accounting Pronouncements Adopted in the SixNine Months ended JuneSeptember 30, 2015, for further information on ASU2015-02.
Consolidated VIEs. The Company’s consolidated VIEs as of JuneSeptember 30, 2015 include certain sponsored investment funds in which BlackRock has an investment and as the investment manager, is deemed to have both the power to direct the most significant activities of the funds and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to these sponsored investment funds. The assets of these VIEs are not available to creditors of the Company. In addition, the investors in these VIEs have no recourse to the credit of the Company.
The Company’s consolidated VIEs under previous accounting guidance as of December 31, 2014 primarily included CLOs in which BlackRock did not have an investment; however, as the collateral manager, BlackRock was deemed to have both the power to direct the most significant activities of the CLOs and the right to receive benefits that could potentially be significant to the CLOs.
Consolidated VIE assets and liabilities are presented after intercompany eliminations at JuneSeptember 30, 2015 and December 31, 2014 in the following table:
| (in millions) | June 30, 2015 | December 31, 2014 |
| September 30, 2015 |
|
| December 31, 2014 |
| ||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $64 | $278 |
| $ | 76 |
|
| $ | 278 |
| ||||||
Investments | 901 | 3,320 |
|
| 916 |
|
|
| 3,320 |
| ||||||
Other assets | 40 | 32 |
|
| 63 |
|
|
| 32 |
| ||||||
|
| |||||||||||||||
Total investments and other assets | 941 | 3,352 |
|
| 979 |
|
|
| 3,352 |
| ||||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
| ||||||||
Borrowings | - | (3,389 | ) |
|
| - |
|
|
| (3,389 | ) | |||||
Other liabilities | (192 | ) | (245 | ) |
|
| (197 | ) |
|
| (245 | ) | ||||
Appropriated retained earnings | - | 19 |
|
| - |
|
|
| 19 |
| ||||||
Noncontrolling interests of consolidated VIEs | (257 | ) | (15 | ) |
|
| (245 | ) |
|
| (15 | ) | ||||
|
| |||||||||||||||
Total BlackRock net interests in consolidated VIEs | $556 | $- |
| $ | 613 |
|
| $ | - |
| ||||||
|
| |||||||||||||||
The Company recorded $12a $14 million nonoperating net loss and $16a $2 million of nonoperating income,net gain, respectively, during the three and sixnine months ended JuneSeptember 30, 2015 related to consolidated VIEs. Net incomeloss attributable to noncontrolling interests related to consolidated VIEs during both the three and sixnine months ended JuneSeptember 30, 2015 was $7 million.$9 million and $2 million, respectively.
The Company recorded $28$47 million and $12$35 million of nonoperating incomeloss and an equal and offsetting income/net loss attributable to nonredeemable noncontrolling interests related to consolidated VIEs during the three and sixnine months ended JuneSeptember 30, 2014, respectively.
15
Non-ConsolidatedNon-consolidated VIEs. At JuneSeptember 30, 2015 and December 31, 2014, the Company’s carrying value of assets and liabilities included on the condensed consolidated statement of financial condition pertaining to its variable interests innonconsolidated VIEs and its maximum risk of loss related to VIEs for which it held a variable interest, but for which it was not the PB, was as follows:
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| (in millions) | Variable Interests on the Condensed Consolidated Statement of Financial Condition | Maximum Risk of Loss(1) | ||||||||||||||||||||||||||||||
| At June 30, 2015 | Investments | Advisory Fee Receivables | Other Net Assets (Liabilities) | |||||||||||||||||||||||||||||
(in millions) At September 30, 2015 |
| Investments |
|
| Advisory Fee Receivables |
|
| Other Net Assets (Liabilities) |
|
| Maximum Risk of Loss(1) |
| ||||||||||||||||||||
Sponsored investment products | $51 | $5 | ($6) | $73 |
| $ | 36 |
|
| $ | 3 |
|
| $ | (6 | ) |
| $ | 56 |
| ||||||||||||
At December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CDOs/CLOs | $- | $2 | ($5) | $19 |
| $ | - |
|
| $ | 2 |
|
| $ | (5 | ) |
| $ | 19 |
| ||||||||||||
Other sponsored investment funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Collective trusts | - | 191 | - | 191 |
|
| - |
|
|
| 191 |
|
|
| - |
|
|
| 191 |
| ||||||||||||
Other | 57 | 177 | (3) | 234 |
|
| 57 |
|
|
| 177 |
|
|
| (3 | ) |
|
| 234 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $57 | $370 | ($8) | $444 |
| $ | 57 |
|
| $ | 370 |
|
| $ | (8 | ) |
| $ | 444 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
(1) | At both |
The net assets of sponsored investment products that are nonconsolidated VIEs approximated $3$2 billion at JuneSeptember 30, 2015. Net assets of other sponsored investment funds approximated $1.7 trillion to $1.8 trillion at
December 31, 2014 and included approximately $1.4 trillion of collective trusts at December 31, 2014. Upon the adoption of ASU 2015-02, BlackRock no longer has a variable interest in collective trusts as BlackRock does not have any economic interest and earns at-market fees from these products.
16
Fair Value Hierarchy
Assets and liabilities measured at fair value on a recurring basis investments measured at NAV and other assets not held at fair value
June 30, 2015 (in millions) | Quoted Active Markets for (Level 1) | Significant Other | Significant Unobservable Inputs (Level 3) | Investments Measured at NAV(1) | Other Assets Not Held at Fair Value(2) | June 30, 2015 | ||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2015 (in millions) |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Investments Measured at NAV(1) |
|
| Other Assets Not Held at Fair Value(2) |
|
| September 30, 2015 |
| ||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity securities of sponsored investment funds | $ | 33 | $ | 2 | $ | - | $ | - | $ | - | $ | 35 |
| $ | 32 |
|
| $ | 2 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 34 |
| ||||||||||||
Held-to-maturity debt securities | - | - | - | - | 100 | 100 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 111 |
|
|
| 111 |
| ||||||||||||||||||
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Deferred compensation plan mutual funds | 67 | - | - | - | - | 67 |
|
| 63 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| 63 |
| |||||||||||||||||||
Equity/Multi-asset mutual funds | 156 | - | - | - | - | 156 |
|
| 155 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| 155 |
| |||||||||||||||||||
Debt securities / fixed income mutual funds | 1 | 436 | - | - | - | 437 |
|
| 2 |
|
|
| 408 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| 410 |
| |||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total trading | 224 | 436 | - | - | - | 660 |
|
| 220 |
|
|
| 408 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 628 |
| ||||||||||||||||||
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity method: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity and fixed income mutual funds | 135 | - | - | - | - | 135 |
|
| 62 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 62 |
| ||||||||||||||||||
Other | - | - | - | 358 | 8 | 366 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 399 |
|
|
| 8 |
|
|
| 407 |
| ||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total equity method | 135 | - | - | 358 | 8 | 501 |
|
| 62 |
|
|
| - |
|
|
| - |
|
|
| 399 |
|
|
| 8 |
|
|
| 469 |
| ||||||||||||||||||
Deferred compensation plan equity method investments | - | - | - | 17 | - | 17 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 16 |
|
|
| - |
|
|
| 16 |
| ||||||||||||||||||
Cost method investments | - | - | - | - | 96 | 96 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 95 |
|
|
| 95 |
| ||||||||||||||||||
Carried interest | - | - | - | - | 27 | 27 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 19 |
|
|
| 19 |
| ||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total investments | 392 | 438 | - | 375 | 231 | 1,436 |
|
| 314 |
|
|
| 410 |
|
|
| - |
|
|
| 415 |
|
|
| 233 |
|
|
| 1,372 |
| ||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Separate account assets | 116,340 | 45,767 | - | - | 804 | 162,911 |
|
| 104,665 |
|
|
| 43,035 |
|
|
| - |
|
|
| - |
|
|
| 1,269 |
|
|
| 148,969 |
| ||||||||||||||||||
Separate account collateral held under securities lending agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity securities | 28,664 | - | - | - | - | 28,664 |
|
| 20,650 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 20,650 |
| ||||||||||||||||||
Debt securities | - | 3,773 | - | - | - | 3,773 |
|
| - |
|
|
| 10,134 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| 10,134 |
| |||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total separate account collateral held under securities lending agreements | 28,664 | 3,773 | - | - | - | 32,437 |
|
| 20,650 |
|
|
| 10,134 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,784 |
| ||||||||||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
| |||||||||||||||||||||||||
Private / public equity(3) | 10 | 7 | 166 | 164 | - | 347 |
|
| 10 |
|
|
| 9 |
|
|
| 172 |
|
|
| 159 |
|
| - |
|
|
| 350 |
| |||||||||||||||||||
Equity securities | 178 | - | - | - | - | 178 |
|
| 180 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| 180 |
| |||||||||||||||||||
Debt securities | - | 173 | - | - | - | 173 |
|
| - |
|
|
| 219 |
|
|
| - |
|
|
| - |
|
| - |
|
|
| 219 |
| |||||||||||||||||||
Other | - | - | - | 91 | - | 91 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 79 |
|
| - |
|
|
| 79 |
| |||||||||||||||||||
Carried interest | - | - | - | - | 112 | 112 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 88 |
|
|
| 88 |
| ||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total assets of consolidated VIEs | 188 | 180 | 166 | 255 | 112 | 901 |
|
| 190 |
|
|
| 228 |
|
|
| 172 |
|
|
| 238 |
|
|
| 88 |
|
|
| 916 |
| ||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 145,584 | $ | 50,158 | $ | 166 | $ | 630 | $ | 1,147 | $ | 197,685 |
| $ | 125,819 |
|
| $ | 53,807 |
|
| $ | 172 |
|
| $ | 653 |
|
| $ | 1,590 |
|
| $ | 182,041 |
| ||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Separate account collateral liabilities under securities lending agreements | $ | 28,664 | $ | 3,773 | $ | - | $ | - | $ | - | $ | 32,437 |
| $ | 20,650 |
|
| $ | 10,134 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 30,784 |
| ||||||||||||
Other liabilities(4) | - | 6 | 56 | - | - | 62 |
|
| - |
|
|
| 6 |
|
|
| 37 |
|
|
| - |
|
| - |
|
|
| 43 |
| |||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 28,664 | $ | 3,779 | $ | 56 | $ | - | $ | - | $ | 32,499 |
| $ | 20,650 |
|
| $ | 10,140 |
|
| $ | 37 |
|
| $ | - |
|
| $ | - |
|
| $ | 30,827 |
| ||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
(1) | Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments |
(2) | Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include sponsored investment funds and other assets, which are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value. |
(3) | Level 3 amounts include |
(4) | Amounts include a derivative (see Note 7,Derivatives and Hedging, for more information) and recorded contingent liabilities related to certain acquisitions (see Note 11,Commitments and Contingencies, for more information). |
17
Assets and liabilities measured at fair value on a recurring basis investments measured at NAV and other assets not held at fair value
December 31, 2014 (in millions) | Quoted Active Markets for (Level 1) | Significant Other | Significant Unobservable Inputs (Level 3) | Investments Measured at NAV(1) | Other Assets Not Held at Fair Value(2) | December 31, 2014 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Investments Measured at NAV(1) |
|
| Other Assets Not Held at Fair Value(2) |
|
| December 31, 2014 |
| ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity securities of sponsored investment funds | $ | 198 | $ | 3 | $ | - | $ | - | $ | - | $ | 201 |
| $ | 198 |
|
| $ | 3 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 201 |
| ||||||||||||
Held-to-maturity debt securities | - | - | - | - | 79 | 79 |
| - |
|
| - |
|
| - |
|
| - |
|
|
| 79 |
|
|
| 79 |
| ||||||||||||||||||||||
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Deferred compensation plan mutual funds | 64 | - | - | - | - | 64 |
|
| 64 |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| 64 |
| ||||||||||||||||||||||
Equity/Multi-asset mutual funds | 239 | - | - | - | - | 239 |
|
| 239 |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| 239 |
| ||||||||||||||||||||||
Debt securities / fixed income mutual funds | 11 | 222 | - | - | - | 233 |
|
| 11 |
|
|
| 222 |
|
| - |
|
| - |
|
| - |
|
|
| 233 |
| |||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total trading | 314 | 222 | - | - | - | 536 |
|
| 314 |
|
|
| 222 |
|
| - |
|
| - |
|
| - |
|
|
| 536 |
| |||||||||||||||||||||
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Consolidated sponsored investment funds private / public equity(3) | 11 | 11 | 80 | 168 | - | 270 |
|
| 11 |
|
|
| 11 |
|
|
| 80 |
|
|
| 168 |
|
| - |
|
|
| 270 |
| |||||||||||||||||||
Equity method: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Fixed income mutual funds | 29 | - | - | - | - | 29 |
|
| 29 |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| 29 |
| ||||||||||||||||||||||
Other | 98 | - | - | 493 | 13 | 604 |
|
| 98 |
|
| - |
|
| - |
|
|
| 493 |
|
|
| 13 |
|
|
| 604 |
| ||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total equity method | 127 | - | - | 493 | 13 | 633 |
|
| 127 |
|
| - |
|
| - |
|
|
| 493 |
|
|
| 13 |
|
|
| 633 |
| ||||||||||||||||||||
Deferred compensation plan equity method investments | - | - | - | 21 | - | 21 |
| - |
|
| - |
|
| - |
|
|
| 21 |
|
| - |
|
|
| 21 |
| ||||||||||||||||||||||
Cost method investments | - | - | - | - | 96 | 96 |
| - |
|
| - |
|
| - |
|
| - |
|
|
| 96 |
|
|
| 96 |
| ||||||||||||||||||||||
Carried interest | - | - | - | - | 85 | 85 |
| - |
|
| - |
|
| - |
|
| - |
|
|
| 85 |
|
|
| 85 |
| ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total investments | 650 | 236 | 80 | 682 | 273 | 1,921 |
|
| 650 |
|
|
| 236 |
|
|
| 80 |
|
|
| 682 |
|
|
| 273 |
|
| 1,921 |
| |||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Separate account assets | 113,566 | 46,866 | - | - | 855 | 161,287 |
| 113,566 |
|
| 46,866 |
|
| - |
|
| - |
|
|
| 855 |
|
| 161,287 |
| |||||||||||||||||||||||
Separate account collateral held under securities lending agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity securities | 30,387 | - | - | - | - | 30,387 |
| 30,387 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 30,387 |
| ||||||||||||||||||||||||
Debt securities | - | 3,267 | - | - | - | 3,267 |
| - |
|
| 3,267 |
|
| - |
|
| - |
|
| - |
|
| 3,267 |
| ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total separate account collateral held under securities lending agreements | 30,387 | 3,267 | - | - | - | 33,654 |
| 30,387 |
|
| 3,267 |
|
| - |
|
| - |
|
| - |
|
| 33,654 |
| ||||||||||||||||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Bank loans and other assets | - | 2,958 | 302 | - | 32 | 3,292 |
| - |
|
| 2,958 |
|
|
| 302 |
|
| - |
|
|
| 32 |
|
| 3,292 |
| ||||||||||||||||||||||
Bonds | - | 29 | 18 | - | - | 47 |
| - |
|
|
| 29 |
|
|
| 18 |
|
| - |
|
| - |
|
|
| 47 |
| |||||||||||||||||||||
Private / public equity | - | 3 | - | 10 | - | 13 |
| - |
|
|
| 3 |
|
| - |
|
|
| 10 |
|
| - |
|
|
| 13 |
| |||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total assets of consolidated VIEs | - | 2,990 | 320 | 10 | 32 | 3,352 |
| - |
|
| 2,990 |
|
|
| 320 |
|
|
| 10 |
|
|
| 32 |
|
| 3,352 |
| |||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 144,603 | $ | 53,359 | $ | 400 | $ | 692 | $ | 1,160 | $ | 200,214 |
| $ | 144,603 |
|
| $ | 53,359 |
|
| $ | 400 |
|
| $ | 692 |
|
| $ | 1,160 |
|
| $ | 200,214 |
| ||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Borrowings of consolidated VIEs | $ | - | $ | - | $ | 3,389 | $ | - | $ | - | $ | 3,389 |
| $ | - |
|
| $ | - |
|
| $ | 3,389 |
|
| $ | - |
|
| $ | - |
|
| $ | 3,389 |
| ||||||||||||
Separate account collateral liabilities under securities lending agreements | 30,387 | 3,267 | - | - | - | 33,654 |
| 30,387 |
|
| 3,267 |
|
| - |
|
| - |
|
| - |
|
| 33,654 |
| ||||||||||||||||||||||||
Other liabilities(4) | - | 5 | 39 | - | - | 44 |
| - |
|
|
| 5 |
|
|
| 39 |
|
| - |
|
| - |
|
|
| 44 |
| |||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 30,387 | $ | 3,272 | $ | 3,428 | $ | - | $ | - | $ | 37,087 |
| $ | 30,387 |
|
| 3,272 |
|
| $ | 3,428 |
|
| $ | - |
|
| $ | - |
|
| $ | 37,087 |
| |||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
(1) | Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments |
(2) | Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include sponsored investment funds and other assets, which are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value. |
(3) | Level 3 amounts include |
(4) | Amounts include a derivative (see Note 7,Derivatives and Hedging, for more information) and contingent liabilities related to certain acquisitions (see Note 11,Commitments and Contingencies, for more information). |
18
Level 3 Assets. Level 3 assets of consolidated VIEs of $166$172 million at JuneSeptember 30, 2015 related to direct investments in private equity companies held by private equity funds. Level 3 investments of $80 million at December 31, 2014, related to direct investments in private equity companies held by private equity funds. Direct investments in private equity companies may be valued using the market approach or the income approach, or a combination thereof, and were valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third-party financing, changes in valuations of comparable peer companies, the business environment of the companies, market indices, assumptions relating to appropriate risk adjustments for nonperformance and legal restrictions on disposition, among other factors. The fair value derived from the methods used is evaluated and weighted, as appropriate, considering the reasonableness of the range of values indicated. Under the market approach, fair value may be determined by reference to multiples of market-comparable companies or transactions, including earnings before interest, taxes, depreciation and
amortization (“EBITDA”) multiples. Under the income approach, fair value may be determined by discounting the expected cash flows to a single present value amount using current expectations about those future amounts. Unobservable inputs used in a discounted cash flow model may include projections of operating performance generally covering a five-year period and a terminal value of the private equity direct investment. For investments utilizing the discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, risk premium or discount for lack of marketability in isolation could result in a significantly lower (higher) fair value measurement. For investments utilizing the market comparable companies valuation technique, a significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.
Level 3 assets may include bank loans and bonds valued based on single-broker nonbinding quotes and direct private equity investments valued using the market approach or the income approach as described above.
Level 3 Liabilities. Level 3 borrowings of consolidated VIEs at December 31, 2014 include CLO borrowings valued based upon single-broker nonbinding quotes.
Level 3 other liabilities primarily include recorded contingent liabilities related to certain acquisitions, which were valued based upon discounted cash flow analyses using unobservable market data inputs.
19
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended JuneSeptember 30, 2015(1)
| (in millions) | March 31, 2015(2) | Realized and unrealized gains (losses) in earnings and OCI | Purchases | Sales and maturities | Issuances and other settlements | Transfers into Level 3 | Transfers out of Level 3 | June 30, 2015 | Total net unrealized gains (losses) included in earnings(3) |
| June 30, 2015 |
|
| Realized and unrealized gains (losses) in earnings and OCI |
|
| Purchases |
|
| Sales and maturities |
|
| Issuances and other settlements(2) |
|
| Transfers into Level 3 |
|
| Transfers out of Level 3 |
|
| September 30, 2015 |
|
| Total net unrealized gains (losses) included in earnings(3) |
| ||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Private equity | $149 | $8 | $9 | $- | $- | $- | $- | $166 | $8 |
| $ | 166 |
|
| $ | 6 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 172 |
|
| $ | 6 |
| |||||||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Other liabilities | $51 | ($5 | ) | $- | $- | $- | $- | $- | $56 | - |
| $ | 56 |
|
| $ | 4 |
|
| $ | - |
|
| $ | - |
|
| $ | (15 | ) |
| $ | - |
|
| $ | - |
|
| $ | 37 |
|
| - |
| |||||||||||||||||||||||||||
(1) | Upon adoption of ASU 2015-07, investments measured at NAV are no longer required to be categorized within the fair value hierarchy. See Note 2,Significant Accounting Policies, for further information. |
(2) |
|
(3) | Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date. |
20
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the SixNine Months Ended JuneSeptember 30, 2015(1)
| (in millions) | December 31, 2014 | Realized and unrealized gains (losses) in earnings and OCI | Purchases | Sales and maturities | Issuances and other settlements(2)(3) | Transfers into Level 3 | Transfers out of Level 3 | June 30, 2015 | Total net unrealized gains (losses) included in earnings(4) |
| December 31, 2014 |
|
| Realized and unrealized gains (losses) in earnings and OCI |
|
| Purchases |
|
| Sales and maturities |
|
| Issuances and other settlements(2)(3) |
|
| Transfers into Level 3 |
|
| Transfers out of Level 3 |
|
| September 30, 2015 |
|
| Total net unrealized gains (losses) included in earnings(4) |
| ||||||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Consolidated sponsored investment funds- Private equity | $80 | $- | $- | $- | ($80 | ) | $- | $- | $- | $ | - |
| $ | 80 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | (80 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| |||||||||||||||||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Private equity | - | 7 | 79 | - | 80 | - | - | 166 | 7 |
| - |
|
|
| 13 |
|
|
| 79 |
|
| - |
|
|
| 80 |
|
| - |
|
| - |
|
|
| 172 |
|
|
| 13 |
| |||||||||||||||||||||||||||||||
Bank loans | 302 | - | - | - | (302 | ) | - | - | - | - |
|
| 302 |
|
| - |
|
| - |
|
| - |
|
|
| (302 | ) |
| - |
|
| - |
|
| - |
|
| - |
| |||||||||||||||||||||||||||||||||
Bonds | 18 | - | - | - | (18 | ) | - | - | - | - |
|
| 18 |
|
| - |
|
| - |
|
| - |
|
|
| (18 | ) |
| - |
|
| - |
|
| - |
|
| - |
| |||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets of consolidated VIEs | 320 | 7 | 79 | - | (240 | ) | - | - | 166 | 7 |
|
| 320 |
|
|
| 13 |
|
|
| 79 |
|
| - |
|
|
| (240 | ) |
| - |
|
| - |
|
|
| 172 |
|
|
| 13 |
| |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets | $400 | $7 | $79 | $- | ($320 | ) | $- | $- | $166 | $ | 7 |
| $ | 400 |
|
| $ | 13 |
|
| $ | 79 |
|
| $ | - |
|
| $ | (320 | ) |
| $ | - |
|
| $ | - |
|
| $ | 172 |
|
| $ | 13 |
| |||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Borrowings of consolidated VIEs | $3,389 | $- | $- | $- | ($3,389 | ) | $- | $- | $- | - |
| $ | 3,389 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | (3,389 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| - |
| |||||||||||||||||||||||||||
Other liabilities | 39 | (3 | ) | - | - | 14 | - | - | 56 | - |
|
| 39 |
|
|
| 1 |
|
| - |
|
| - |
|
|
| (1 | ) |
| - |
|
| - |
|
|
| 37 |
|
| - |
| |||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities | $3,428 | ($3 | ) | $- | $- | ($3,375 | ) | $- | $- | $56 | - |
| $ | 3,428 |
|
| $ | 1 |
|
| $ | - |
|
| $ | - |
|
| $ | (3,390 | ) |
| $ | - |
|
| $ | - |
|
| $ | 37 |
|
| - |
| ||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) | Upon adoption of ASU 2015-07, investments measured at NAV are no longer required to be categorized within the fair value hierarchy. See Note 2,Significant Accounting Policies, for further information. |
(2) | Amounts include the consolidation (deconsolidation) of VIEs due to the adoption of ASU 2015-02 effective January 1, 2015. |
(3) | Amounts include a contingent liability and payments of contingent liabilities related to |
(4) | Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date. |
21
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended JuneSeptember 30, 2014(1)
| (in millions) | March 31, 2014 | Realized and unrealized gains (losses) in earnings and OCI | Purchases | Sales and maturities | Issuances and other settlements(2) | Transfers into Level 3 | Transfers out of Level 3 | June 30, 2014 | Total net unrealized gains (losses) included in earnings(3) |
| June 30, 2014 |
|
| Realized and unrealized gains (losses) in earnings and OCI |
|
| Purchases |
|
| Sales and maturities |
|
| Issuances and other settlements(2) |
|
| Transfers into Level 3 |
|
| Transfers out of Level 3 |
|
| September 30, 2014 |
|
| Total net unrealized gains (losses) included in earnings(3) |
| ||||||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Consolidated sponsored investment funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Hedge funds | $3 | ($2 | ) | $- | $- | $- | $- | $- | $1 | $- |
| $ | 1 |
|
| $ | 1 |
|
| $ | - |
|
| $ | - |
|
| $ | (1 | ) |
| $ | - |
|
| $ | - |
|
| $ | 1 |
|
| $ | 1 |
| ||||||||||||||||||||||||||
Private equity | 64 | 2 | 13 | - | - | - | - | 79 | - |
|
| 79 |
|
|
| (11 | ) |
|
| 9 |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| 77 |
|
|
| (11 | ) | |||||||||||||||||||||||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Bank loans | 147 | - | 76 | (30 | ) | - | 36 | (76 | ) | 153 |
|
| 153 |
|
|
| (3 | ) |
|
| 63 |
|
|
| (36 | ) |
| - |
|
|
| 87 |
|
|
| (60 | ) |
|
| 204 |
|
|
|
|
| |||||||||||||||||||||||||||
Bonds | 28 | - | - | (3 | ) | - | - | - | 25 |
|
| 25 |
|
| - |
|
| - |
|
|
| (8 | ) |
| - |
|
| - |
|
| - |
|
|
| 17 |
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets of consolidated VIEs | 175 | - | 76 | (33 | ) | - | 36 | (76 | ) | 178 | N/A | (4) |
|
| 178 |
|
|
| (3 | ) |
|
| 63 |
|
|
| (44 | ) |
| - |
|
|
| 87 |
|
|
| (60 | ) |
|
| 221 |
|
| N/A(4) |
| ||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets | $242 | $- | $ | 89 | ($ | 33 | ) | $- | $ | 36 | ($ | 76 | ) | $258 |
| $ | 258 |
|
| $ | (13 | ) |
| $ | 72 |
|
| $ | (44 | ) |
| $ | (1 | ) |
| $ | 87 |
|
| $ | (60 | ) |
| $ | 299 |
|
|
|
|
| ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
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Borrowings of consolidated VIEs | $2,244 | $9 | $- | $- | $464 | $- | $- | $2,699 | N/A | (4) |
| $ | 2,699 |
|
| $ | 26 |
|
| $ | - |
|
| $ | - |
|
| $ | 216 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,889 |
|
| N/A(4) |
| |||||||||||||||||||||||||||
Other liabilities | 42 | (1 | ) | - | - | - | - | - | 43 | - |
|
| 43 |
|
| - |
|
| - |
|
| - |
|
|
| (4 | ) |
| - |
|
| - |
|
|
| 39 |
|
| - |
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities | $2,286 | $8 | $- | $- | $464 | $- | $- | $2,742 |
| $ | 2,742 |
|
| $ | 26 |
|
| $ | - |
|
| $ | - |
|
| $ | 212 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,928 |
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| ||||||||||||||||||||||||||||
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N/A – not applicable
(1) | Upon adoption of ASU 2015-07, investments measured at NAV are no longer required to be categorized within the fair value hierarchy. See Note 2,Significant Accounting Policies, for further information. |
(2) | Amount includes net proceeds from borrowings of consolidated VIEs. |
(3) | Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date. |
(4) | The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income. |
22
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the SixNine Months Ended JuneSeptember 30, 2014(1)
| (in millions) | December 31, 2013 | Realized and unrealized gains (losses) in earnings and OCI | Purchases | Sales and maturities | Issuances and other settlements(2) | Transfers into Level 3(3) | Transfers out of Level 3 | June 30, 2014 | Total net unrealized gains (losses) included in earnings(4) |
| December 31, 2013 |
|
| Realized and unrealized gains (losses) in earnings and OCI |
|
| Purchases |
|
| Sales and maturities |
|
| Issuances and other settlements(2) |
|
| Transfers into Level 3(3) |
|
| Transfers out of Level 3 |
|
| September 30, 2014 |
|
| Total net unrealized gains (losses) included in earnings(4) |
| ||||||||||||||||||||||||||||||||||||
Assets: |
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Investments |
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Consolidated sponsored investment funds: |
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Hedge funds | $2 | ($1 | ) | $- | $- | $- | $- | $- | $1 | $- |
| $ | 2 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | (1 | ) |
| $ | - |
|
| $ | - |
|
| $ | 1 |
|
| $ | - |
| ||||||||||||||||||||||||||
Private equity | 28 | 1 | 13 | - | - | 37 | - | 79 | $- |
|
| 28 |
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| (10 | ) |
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| 22 |
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| - |
|
| - |
|
|
| 37 |
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| - |
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| 77 |
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| $ | (10 | ) | ||||||||||||||||||||||||||||||
Assets of consolidated VIEs: |
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| - |
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Bank loans | 129 | - | 92 | (43 | ) | - | 109 | (134 | ) | 153 |
|
| 129 |
|
|
| (3 | ) |
|
| 155 |
|
|
| (79 | ) |
| - |
|
|
| 196 |
|
|
| (194 | ) |
|
| 204 |
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Bonds | 35 | - | - | (10 | ) | - | - | - | 25 |
|
| 35 |
|
| - |
|
| - |
|
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| (18 | ) |
| - |
|
| - |
|
| - |
|
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| 17 |
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Total Level 3 assets of consolidated VIEs | 164 | - | 92 | (53 | ) | - | 109 | (134 | ) | 178 | N/A | (5) |
|
| 164 |
|
|
| (3 | ) |
|
| 155 |
|
|
| (97 | ) |
| - |
|
|
| 196 |
|
|
| (194 | ) |
|
| 221 |
|
| N/A(5) |
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Total Level 3 assets | $194 | $- | $105 | ($ 53 | ) | $- | $146 | ($134 | ) | $258 |
| $ | 194 |
|
| $ | (13 | ) |
| $ | 177 |
|
| $ | (97 | ) |
| $ | (1 | ) |
| $ | 233 |
|
| $ | (194 | ) |
| $ | 299 |
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Liabilities: |
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Borrowings of consolidated VIEs | $2,369 | $14 | $- | $- | $ 344 | $- | $- | $ 2,699 | N/A | (5) |
| $ | 2,369 |
|
| $ | 40 |
|
| $ | - |
|
| $ | - |
|
| $ | 560 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,889 |
|
| N/A(5) |
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Other liabilities | 42 | (1 | ) | - | - | - | - | - | 43 | - |
|
| 42 |
|
|
| (1 | ) |
| - |
|
| - |
|
|
| (4 | ) |
| - |
|
| - |
|
|
| 39 |
|
| - |
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Total Level 3 liabilities | $ 2,411 | $13 | $- | $- | $ 344 | $- | $- | $ 2,742 |
| $ | 2,411 |
|
| $ | 39 |
|
| $ | - |
|
| $ | - |
|
| $ | 556 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,928 |
|
|
|
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N/A – not applicable
(1) | Upon adoption of ASU 2015-07, investments measured at NAV are no longer required to be categorized within the fair value hierarchy. See Note 2,Significant Accounting Policies, for further information. |
(2) | Amount primarily includes net proceeds from borrowings of consolidated VIEs. |
(3) | Includes investments previously held at cost. |
(4) | Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date. |
(5 | The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income. |
23
Realized and Unrealized Gains (Losses) for Level 3 Assets and Liabilities. Realized and unrealized gains (losses) recorded for Level 3 assets and liabilities are reported in nonoperating income (expense) on the condensed consolidated statements of income. A portion of net income (loss) for consolidated sponsored investment funds are allocated to noncontrolling interests to reflect net income (loss) not attributable to the Company.
Transfers in and/or out of Levels. Transfers in and/or out of levels are reflected when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable/unobservable, or when the carrying value of certain equity method investments no longer represents fair value as determined under valuation methodologies.
Assets of Consolidated VIEs. During the three and sixnine months ended JuneSeptember 30, 2014, there were $76$60 million and $134$194 million, respectively, of transfers out of Level 3 to Level 2 related to bank loans. In addition, during the three and sixnine months ended JuneSeptember 30, 2014, there were $36$87 million and $109$196 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of levels were primarily due to availability/unavailability of observable market inputs, including inputs from pricing vendors and brokers.
Significant Issuances and Other Settlements. During the sixnine months ended JuneSeptember 30, 2015, other settlements primarily included the impact of deconsolidating previously consolidated CLOs effective January 1, 2015 as a result of adopting ASU 2015-02. See Note 2,Significant Accounting Policies, for further information on ASU 2015-02.
During the three and sixnine months ended JuneSeptember 30, 2014, other settlements included $612$409 million and $1,021 million, respectively, of proceeds fromborrowings due to the consolidation of CLOs. In addition, during the three and nine months ended September 30, 2014, other settlements included $193 million and $461 million, respectively, of repayments of borrowings of a consolidated CLO.CLOs.
Disclosures of Fair Value for Financial Instruments Not Held at Fair Value. At JuneSeptember 30, 2015 and December 31, 2014, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below:
| June 30, 2015 | December 31, 2014 |
| September 30, 2015 |
|
| December 31, 2014 |
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| (in millions) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | Fair Value Hierarchy |
| Carrying Amount |
|
| Estimated Fair Value |
|
| Carrying Amount |
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| Estimated Fair Value |
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| Fair Value Hierarchy |
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Financial Assets: |
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Cash and cash equivalents | $ | 4,907 | $ | 4,907 | $ | 5,723 | $ | 5,723 | Level 1 | (1)(2) |
| $ | 5,673 |
|
| $ | 5,673 |
|
| $ | 5,723 |
|
| $ | 5,723 |
|
| Level 1 | (1)(2) | ||||||||||
Accounts receivable | 2,347 | 2,347 | 2,120 | 2,120 | Level 1 | (3) |
|
| 2,542 |
|
|
| 2,542 |
|
| 2,120 |
|
| 2,120 |
|
| Level 1 | (3) | ||||||||||||||||
Cash and cash equivalents of consolidated VIEs | 64 | 64 | 278 | 278 | Level 1 | (1) |
|
| 76 |
|
|
| 76 |
|
|
| 278 |
|
|
| 278 |
|
| Level 1 | (1) | ||||||||||||||
Financial Liabilities: |
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Accounts payable and accrued liabilities | 1,284 | 1,284 | 1,035 | 1,035 | Level 1 | (3) |
|
| 1,343 |
|
|
| 1,343 |
|
| 1,035 |
|
| 1,035 |
|
| Level 1 | (3) | ||||||||||||||||
Long-term borrowings | 4,947 | 5,219 | 4,922 | 5,309 | Level 2 | (4) |
|
| 4,950 |
|
|
| 5,258 |
|
| 4,922 |
|
| 5,309 |
|
| Level 2 | (4) | ||||||||||||||||
(1) | Cash and cash equivalents are carried at either cost or amortized cost, which approximates fair value due to their short-term maturities. |
(2) | At |
(3) | The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short-term nature. |
(4) | Long-term borrowings are recorded at amortized cost net of debt issuance costs. The fair value of the long-term borrowings, including the current portion of long-term borrowings, is estimated using market prices at the end of |
24
Investments in Certain Entities that Calculate Net Asset Value Per Share.
As a practical expedient to value certain investments that do not have a readily determinable fair value and have attributes of an investment company, the Company uses NAV as the fair value. The following tables list information regarding all investments that use a fair value measurement to account for both their financial assets and financial liabilities in their calculation of a NAV per share (or equivalent).
JuneSeptember 30, 2015
| (in millions) | Ref | Fair Value | Total Unfunded Commitments | Redemption Frequency | Redemption Notice Period |
| Ref |
| Fair Value |
|
| Total Unfunded Commitments |
|
| Redemption Frequency |
| Redemption Notice Period | |||||||||||||
Equity method:(1) |
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Hedge funds/funds of hedge funds | (b | ) | $180 | $ | 93 | Daily/Monthly (28%)
Quarterly (36%)
N/R (36%) | 1 – 90 days |
| (b) |
| $ | 222 |
|
| $ | 37 |
|
| Daily/Monthly (21%) Quarterly (49%) N/R (30%) |
| 1 – 90 days | |||||||||
Private equity funds | (c | ) | 93 | 66 | N/R | N/R |
| (c) |
|
| 89 |
|
|
| 65 |
|
| N/R |
| N/R | ||||||||||
Real estate funds | (d | ) | 85 | 20 | Quarterly (26%)
N/R (74%) | 60 days |
| (d) |
|
| 88 |
|
|
| 20 |
|
| Quarterly (25%) N/R (75%) |
| 60 days | ||||||||||
Deferred compensation plan investments | (e | ) | 17 | 6 | N/R | N/R |
| (e) |
|
| 16 |
|
|
| 6 |
|
| N/R |
| N/R | ||||||||||
Consolidated VIEs: |
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Private equity funds of funds | (a | ) | 164 | 17 | N/R | N/R |
| (a) |
|
| 159 |
|
|
| 19 |
|
| N/R |
| N/R | ||||||||||
Hedge fund | (b | ) | 91 | - | Quarterly | 90 days |
| (b) |
|
| 79 |
|
| - |
|
| Quarterly |
| 90 days | |||||||||||
|
| |||||||||||||||||||||||||||||
Total | $630 | $ | 202 |
|
|
| $ | 653 |
|
| $ | 147 |
|
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|
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| |||||||||||||
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December 31, 2014 | ||||||||||||||||||||||||||||||
| (in millions) | Ref | Fair Value | Total Unfunded Commitments | Redemption Frequency | Redemption Notice Period | |||||||||||||||||||||||||
Consolidated VREs: | ||||||||||||||||||||||||||||||
Private equity funds of funds | (a | ) | $168 | $22 | N/R | N/R | ||||||||||||||||||||||||
Equity method:(1) | ||||||||||||||||||||||||||||||
Hedge funds/funds of hedge funds | (b | ) | 277 | 39 | Daily/Monthly (29%)
Quarterly (48%)
N/R (23%) | 1 – 90 days | ||||||||||||||||||||||||
Private equity funds | (c | ) | 107 | 61 | N/R | N/R | ||||||||||||||||||||||||
Real estate funds | (d | ) | 109 | 1 | Quarterly (19%)
N/R (81%) | 60 days | ||||||||||||||||||||||||
Deferred compensation plan investments | (e | ) | 21 | 5 | N/R | N/R | ||||||||||||||||||||||||
Consolidated VIEs: | ||||||||||||||||||||||||||||||
Private equity fund | (f | ) | 10 | 1 | N/R | N/R | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total | $692 | $ | 129 | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
December 31, 2014
(in millions) |
| Ref |
| Fair Value |
|
| Total Unfunded Commitments |
|
| Redemption Frequency |
| Redemption Notice Period | ||
Consolidated VREs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity funds of funds |
| (a) |
| $ | 168 |
|
| $ | 22 |
|
| N/R |
| N/R |
Equity method:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds/funds of hedge funds |
| (b) |
|
| 277 |
|
|
| 39 |
|
| Daily/Monthly (29%) Quarterly (48%) N/R (23%) |
| 1 – 90 days |
Private equity funds |
| (c) |
|
| 107 |
|
|
| 61 |
|
| N/R |
| N/R |
Real estate funds |
| (d) |
|
| 109 |
|
|
| 1 |
|
| Quarterly (19%) N/R (81%) |
| 60 days |
Deferred compensation plan investments |
| (e) |
|
| 21 |
|
|
| 5 |
|
| N/R |
| N/R |
Consolidated VIEs: |
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|
|
Private equity fund |
| (f) |
|
| 10 |
|
|
| 1 |
|
| N/R |
| N/R |
Total |
|
|
| $ | 692 |
|
| $ | 129 |
|
|
|
|
|
N/R – not redeemable
| (1) | Comprised of equity method investments, which include investment companies, which account for their financial assets and most financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value. |
(a) | This category includes the underlying third-party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds, the Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately six years and seven years at |
(b) | This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit, opportunistic and mortgage instruments and other third-party hedge funds. The fair values of the investments have been estimated using the NAV of the Company’s ownership interest in partners’ capital. It was estimated that the investments in the funds that are not subject to redemption will be liquidated over a weighted-average period of approximately two years at both |
25
(d) | This category includes several real estate funds that invest directly in real estate and real estate related assets. The fair values of the investments have been estimated using capital accounts representing the Company’s ownership interest in the funds. A majority of the Company’s investments are not subject to redemption or are not currently redeemable and are normally returned through distributions as a result of the liquidation of the underlying assets of the real estate funds. It is estimated that the investments in these funds not subject to redemptions will be liquidated over a weighted-average period of approximately five years and seven years at |
(e) | This category includes investments in several real estate funds. The fair values of the investments in this category have been estimated using capital accounts representing the Company’s ownership interest in partners’ capital as well as performance inputs. The investments are not subject to redemption; however, distributions as a result of the liquidation of the underlying assets will be used to settle certain deferred compensation liabilities over time. |
(f) | This category includes the underlying third-party private equity funds within one consolidated BlackRock sponsored private equity fund of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds the Company may sell or transfer its interest, which may need approval by the general partner of the underlying third-party funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately one year at December 31, 2014. Total remaining unfunded commitments to other third-party funds were not material at December 31, 2014, which commitments are required to be funded by capital contributions from noncontrolling interest holders. |
Fair Value Option.
The following table summarizes information at December 31, 2014 related to those assets and liabilities for which the fair value option was elected:
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At December 31, 2014, the principal amounts outstanding of the borrowings issued by the CLOs mature between 2016 and 2027.
During the three months ended JuneSeptember 30, 2014, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $52$6 million gain,loss, which was partially offset by a $13$23 million loss from the change in fair value of the CLO borrowings.
During the sixnine months ended JuneSeptember 30, 2014, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $79$73 million gain, which was partially offset by a $50$73 million loss from the change in fair value of the CLO borrowings.
The net gains (losses) were recorded in net gain (loss) on consolidated VIEs on the condensed consolidated statements of income for the three and sixnine months ended JuneSeptember 30, 2014. The change in fair value of the assets and liabilities included interest income and expense, respectively.
Effective January 1, 2015, the Company no longer consolidates these CLOs due to the adoption of ASU 2015-02. See Note 2,Significant Accounting Policies, for further information.
26
The Company maintains a program to enter into swaps to hedge against market price and interest rate exposures with respect to certain seed investments in sponsored investment products. At JuneSeptember 30, 2015, the Company had outstanding total return swaps and interest rate swaps with aggregate notional values of approximately $251$230 million and $86$57 million, respectively. At December 31, 2014, the Company had outstanding total return swaps and interest rate swaps with aggregate notional values of approximately $238 million and $84 million, respectively.
The Company has entered into a derivative providing credit protection to a counterparty of approximately $17 million, representing the Company’s maximum risk of loss with respect to the provision of credit protection. The Company carries the derivative at fair value based on the expected discounted future cash flows under the arrangement.
The Company executes forward foreign currency exchange contracts to mitigate the risk of certain foreign exchange movements. At JuneSeptember 30, 2015 and December 31, 2014, the Company had outstanding forward foreign currency exchange contracts with aggregate notional values of approximately $193$118 million and $201 million, respectively.
Gains (losses) on total return swaps are recorded in nonoperating income (expense) and were $35 million and $26 million for the three and nine months ended September 30, 2015, respectively. Gains (losses) on total return swaps were not material to the condensed consolidated statements of income for the three and nine months ended September 30, 2014.
Gains (losses) on interest rate swaps are recorded in nonoperating income (expense) and were not material to the condensed consolidated statements of income for the three and sixnine months ended JuneSeptember 30, 2015 and 2014.
Gains (losses) on forward foreign currency exchange contracts are recorded in other general and administration expense and were not material to the condensed consolidated statements of income for the three and sixnine months ended JuneSeptember 30, 2015 and 2014.
The Company consolidates certain sponsored investment funds, which may utilize derivative instruments as a part of the funds’ investment strategies. Gains (losses) on such derivatives are recorded in nonoperating income (expense) and were not material for the three and sixnine months ended JuneSeptember 30, 2015 and 2014.
The fair values of the outstanding derivatives at both September 30, 2015 and December 31, 2014 were not material to the condensed consolidated statements of financial condition at both June 30, 2015 and December 31, 2014.condition.
See Note 10,Borrowings, for information on the Company’s net investment hedge.
8. Goodwill
Goodwill activity during the sixnine months ended JuneSeptember 30, 2015 was as follows:
(in millions) |
|
|
|
|
December 31, 2014 |
| $ | 12,961 |
|
BKCA acquisition |
|
| 19 |
|
Goodwill adjustment related to Quellos(1) |
|
| (15 | ) |
September 30, 2015 |
| $ | 12,965 |
|
| ||||
| ||||
| ||||
| ||||
| ||||
The |
The $19 million increase represents goodwill from the Company’s acquisition in March 2015 of certain assets related to BlackRock Kelso Capital Advisors LLC (“BKCA”) that constituted a business under current accounting guidance for approximately $100 million, including contingent consideration.
27
The carrying amounts of identifiable intangible assets are summarized as follows:
| (in millions) | Indefinite-lived intangible assets | Finite-lived intangible assets | Total intangible assets |
| Indefinite-lived intangible assets |
|
| Finite-lived intangible assets |
|
| Total intangible assets |
| ||||||||||||
December 31, 2014 | $16,988 | $356 | $17,344 |
| $ | 16,988 |
|
| $ | 356 |
|
| $ | 17,344 |
| |||||||||
Amortization expense | - | (70 | ) | (70 | ) |
| - |
|
|
| (104 | ) |
|
| (104 | ) | ||||||||
BKCA acquisition | 120 | - | 120 |
|
| 120 |
|
| - |
|
|
| 120 |
| ||||||||||
|
|
| ||||||||||||||||||||||
June 30, 2015 | $17,108 | $286 | $17,394 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
September 30, 2015 |
| $ | 17,108 |
|
| $ | 252 |
|
| $ | 17,360 |
| ||||||||||||
Indefinite-lived Acquired Management Contracts
Indefinite-lived intangible assets increased by $120 million in the sixnine months ended JuneSeptember 30, 2015 as a result of the BKCA acquisition.
10. Borrowings
Short-Term Borrowings
2015 Revolving Credit Facility. In April 2015, the Company’s credit facility was amended to extend the maturity date to March 2020 and to increase the amount of the aggregate commitment to $4.0 billion (the “2015 credit facility”). The 2015 credit facility permits the Company to request up to an additional $1.0 billion of borrowing capacity, subject to lender credit approval, increasing the overall size of the 2015 credit facility to an aggregate principal amount not to exceed $5.0 billion. Interest on borrowings outstanding accrues at a rate based on the applicable London Interbank Offered Rate plus a spread. The 2015 credit facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to earnings before interest, taxes, depreciation and amortization, where net debt equals total debt less unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 1 to 1 at JuneSeptember 30, 2015. The 2015 credit facility provides back-up liquidity to fund ongoing working capital for general corporate purposes and various investment opportunities. At JuneSeptember 30, 2015, the Company had no amount outstanding under the 2015 credit facility.
Commercial Paper Program. The maximum aggregate amount for which the Company can issue unsecured commercial paper notes (the “CP Notes”) on a private-placement basis up to a maximum aggregate amount outstanding at any time is $4.0 billion. The commercial paper program is currently supported by the 2015 credit facility. At JuneSeptember 30, 2015, BlackRock had no CP Notes outstanding.
Long-Term Borrowings
The carrying value and fair value of long-term borrowings estimated using market prices at JuneSeptember 30, 2015 included the following:
| (in millions) | Maturity Amount | Unamortized and Debt | Carrying Value | Fair Value |
| Maturity Amount |
|
| Unamortized Discount and Debt Issuance Costs |
|
| Carrying Value |
|
| Fair Value |
| ||||||||||||||||
|
| |||||||||||||||||||||||||||||||
6.25% Notes due 2017 | $700 | ($2) | $698 | $775 |
| $ | 700 |
|
| $ | (1 | ) |
| $ | 699 |
|
| $ | 768 |
| ||||||||||||
5.00% Notes due 2019 | 1,000 | (4) | 996 | 1,118 |
|
| 1,000 |
|
|
| (3 | ) |
|
| 997 |
|
|
| 1,121 |
| ||||||||||||
4.25% Notes due 2021 | 750 | (5) | 745 | 821 |
|
| 750 |
|
|
| (5 | ) |
|
| 745 |
|
|
| 829 |
| ||||||||||||
3.375% Notes due 2022 | 750 | (6) | 744 | 773 |
|
| 750 |
|
|
| (6 | ) |
|
| 744 |
|
|
| 777 |
| ||||||||||||
3.50% Notes due 2024 | 1,000 | (8) | 992 | 1,007 |
|
| 1,000 |
|
|
| (8 | ) |
|
| 992 |
|
|
| 1,030 |
| ||||||||||||
1.25% Notes due 2025 | 780 | (8) | 772 | 725 |
|
| 781 |
|
|
| (8 | ) |
|
| 773 |
|
|
| 733 |
| ||||||||||||
|
| |||||||||||||||||||||||||||||||
Total Long-term Borrowings | $4,980 | ($33) | $4,947 | $5,219 |
| $ | 4,981 |
|
| $ | (31 | ) |
| $ | 4,950 |
|
| $ | 5,258 |
| ||||||||||||
|
| |||||||||||||||||||||||||||||||
Long-term borrowings at December 31, 2014 had a carrying value of $4.922 billion and a fair value of $5.309 billion determined using market prices at the end of December 2014.
In June 2015, the Company fully repaid $750 million of 1.375% notes at maturity.
2025 Notes. In May 2015, the Company issued€700 million (or approximately $780 million based on the exchange rate at June 30, 2015) of 1.25% senior unsecured notes maturing on May 6, 2025 (the “2025 Notes”). The notes are listed on the New York Stock Exchange. The net proceeds of the 2025 Notes
28
were used for general corporate purposes, including refinancing of outstanding indebtedness. Interest of approximately $10 million per year based on current exchange rates is payable annually on May 6 of each year. The 2025 Notes may be redeemed in whole or in part prior to maturity at any time at the option of the Company at a “make-whole” redemption price. The 2025 Notes were issued at a discount of approximately $3 million that will be amortized over the term of the 2025 Notes.
Upon conversion to U.S. dollars the Company designated the€700 million debt offering as a net investment hedge to offset its currency exposure relating to its net investment in certain euro functional currency operations. A loss of $2 million and a gain of $7$5 million, net of tax, waswere recognized in other comprehensive income for the three and sixnine months ended JuneSeptember 30, 2015.2015, respectively. No hedge ineffectiveness was recognized during the three and sixnine months ended JuneSeptember 30, 2015.
See Note 12,Borrowings, in the 2014 Form 10-K for more information regarding the Company’s borrowings.
11. Commitments and Contingencies
Investment Commitments. At JuneSeptember 30, 2015, the Company had $417$371 million of various capital commitments to fund sponsored investment funds, including consolidated VIEs. These funds include private equity funds, real estate funds, infrastructure funds, opportunistic funds and distressed credit funds. This amount excludes additional commitments made by consolidated funds of funds to underlying third-party funds as third-party noncontrolling interest holders have the legal obligation to fund the respective commitments of such funds of funds. In addition to the capital commitments of $417$371 million, the Company had approximately $32$29 million of contingent commitments for certain funds which have investment periods that have expired. Generally, the timing of the funding of these commitments is unknown and the commitments are callable on demand at any time prior to the expiration of the commitment. These unfunded commitments are not recorded on the condensed consolidated statements of financial condition. These commitments do not include potential future commitments approved by the Company that are not yet legally binding. The Company intends to make additional capital commitments from time to time to fund additional investment products for, and with, its clients.
Contingencies
Contingencies
Contingent Payments. The Company acts as the portfolio manager in a series of derivative transactions and has a maximum potential exposure of $17 million under a derivative between the Company and counterparty. See Note 7,Derivatives and Hedging, for further discussion.
Contingent Payments Related to Business Acquisitions. In connection with the acquisition of Credit Suisse’s ETF franchise,certain acquisitions, BlackRock is required to make contingent payments, annually to Credit Suisse, subject to the acquired businesses achieving specified thresholds duringperformance targets over a seven-yearcertain period subsequent to the 2013applicable acquisition date. BlackRock is required to make contingent payments related to the acquisition of MGPA during a five-year period, subject to achieving specified thresholds, subsequent to the 2013 acquisition date. In addition, BlackRock is required to make contingent payments in connection with the BKCA acquisition over a three-year period, subject to the acquired business achieving specified performance targets. The fair value of the remaining aggregate contingent payments at JuneSeptember 30, 2015 is not significant to the condensed consolidated statement of financial condition and is included in other liabilities.
Legal Proceedings. From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and domestic and international regulatory authorities in connection with certain industry-wide or other investigations or proceedings. It is BlackRock’s policy to cooperate fully with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations and other litigation arising in connection with BlackRock’s activities. Additionally, certain BlackRock-sponsoredBlackRock advised investment funds that the Company manages areportfolios may be subject to lawsuits, any of which potentially could harm the investment returns of the applicable fundportfolio or result in the Company being liable to the fundsportfolios for any resulting damages.
Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability arising out of regulatory matters or lawsuits will have a material effect on BlackRock’s results of operations, financial position, or cash flows. However, there is no assurance as to whether any such pending or threatened matters will have a material effect on BlackRock’s results of operations, financial position or cash flows in any future reporting period. Due to uncertainties surrounding the outcome of these matters, management cannot reasonably estimate the possible loss or range of loss that may arise from these matters.
29
Indemnifications. In the ordinary course of business or in connection with certain acquisition agreements, BlackRock enters into contracts pursuant to which it may agree to indemnify third parties in certain circumstances. The terms of these indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined or the likelihood of any liability is considered remote. Consequently, no liability has been recorded on the condensed consolidated statements of financial condition.
In connection with securities lending transactions, BlackRock has issued certain indemnifications to certain securities lending clients against potential loss resulting from a borrower’s failure to fulfill its obligations under the securities lending agreement should the value of the collateral pledged by the borrower at the time of default be insufficient to cover the borrower’s obligation under the securities lending agreement. At JuneSeptember 30, 2015, the Company indemnified certain of its clients for their securities lending loan balances of approximately $147.3$160.6 billion. The Company held as agent, cash and securities totaling $156.5$169.5 billion as collateral for indemnified securities on loan at JuneSeptember 30, 2015. The fair value of these indemnifications was not material at JuneSeptember 30, 2015.
12. Stock-Based Compensation
Restricted stock and restricted stock units (“RSUs”) activity for the sixnine months ended JuneSeptember 30, 2015 is summarized below:
Outstanding at | Restricted Stock and RSUs | Weighted- Average Grant Date Fair Value |
| Restricted Stock and RSUs |
|
| Weighted- Average Grant Date Fair Value |
| ||||||||
December 31, 2014 | 3,401,909 | $257.01 |
| 3,401,909 |
|
| $ | 257.01 |
| |||||||
Granted | 1,290,014 | $344.36 |
|
| 1,325,840 |
|
| $ | 344.20 |
| ||||||
Converted | (1,566,979 | ) | $228.78 |
|
| (1,588,125 | ) |
| $ | 229.23 |
| |||||
Forfeited | (26,091 | ) | $300.08 |
|
| (45,486 | ) |
| $ | 302.93 |
| |||||
| ||||||||||||||||
June 30, 2015(1) | 3,098,853 | $307.28 | ||||||||||||||
| ||||||||||||||||
September 30, 2015(1) |
|
| 3,094,138 |
|
| $ | 307.95 |
| ||||||||
(1) | At |
The Company values restricted stock and RSUs at their grant-date fair value as measured by BlackRock’s common stock price. In January 2015, the Company granted 952,329 RSUs to employees as part of annual incentive compensation that vest ratably over three years from the date of grant and 303,999 RSUs to employees that cliff vest 100% on January 31, 2018.
At JuneSeptember 30, 2015, the intrinsic value of outstanding RSUs was $1.1$0.9 billion reflecting a closing stock price of $345.98.$297.47.
At JuneSeptember 30, 2015, total unrecognized stock-based compensation expense related to unvested RSUs was $499$400 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.31.1 years.
Market Performance-based RSUs.
Market performance-based RSUs outstanding at both JuneSeptember 30, 2015 and December 31, 2014 were 1,425,319 with a weighted average exercise price of $137.31. At JuneSeptember 30, 2015, approximately 1.41.3 million awards are expected to vest and an immaterial amount of0.1 million awards have vested but have not been converted. No market performance based RSUs were granted during the sixnine months ended JuneSeptember 30, 2015.
At JuneSeptember 30, 2015, the intrinsic value of outstanding market performance-based RSUs was $493$424 million reflecting a closing stock price of $345.98.$297.47.
See Note 14,Stock-Based Compensation, in the 2014 Form 10-K for more information on market performance-based RSUs.
At JuneSeptember 30, 2015, total unrecognized stock-based compensation expense related to unvested market performance-based awards was $75$61 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.41.2 years.
30
Pursuant to the BlackRock, Inc. Amended and Restated 1999 Stock Award and Incentive Plan, performance-based RSUs may be granted to certain employees. Each performance-based award consists of a “base” number of RSUs granted to the employee. The number of shares that an employee ultimately receives at vesting will be equal to the base number of performance-based RSUs granted, multiplied by a predetermined percentage determined in accordance with the level of attainment of Company performance measures during the performance period and could be higher or lower than the original RSU grant. The awards are generally forfeited
if the employee leaves the Company before the vesting date. Performance-based RSUs are not considered participating securities as the dividend equivalents are subject to forfeiture prior to vesting of the award.
In January 2015, the Company granted 262,847 performance-based RSUs to certain employees that cliff vest 100% on January 31, 2018. These awards are amortized over a service period of three years.
Performance-based RSU activity for the sixnine months ended JuneSeptember 30, 2015 is summarized below:
Outstanding at | Performance- Based RSUs | Weighted- Average Grant Date Fair Value |
| Performance- Based RSUs |
|
| Weighted- Average Grant Date Fair Value |
| ||||||||
December 31, 2014 | - | $- |
|
| - |
|
| $ | - |
| ||||||
Granted | 262,847 | $343.86 |
|
| 262,847 |
|
| $ | 343.86 |
| ||||||
| ||||||||||||||||
June 30, 2015(1) | 262,847 | $ | 343.86 | |||||||||||||
| ||||||||||||||||
September 30, 2015 |
|
| 262,847 |
|
| $ | 343.86 |
| ||||||||
|
At JuneSeptember 30, 2015, total unrecognized stock-based compensation expense related to unvested performance-based awards was $77$69 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 2.62.3 years.
The Company values performance-based RSUs at their grant-date fair value as measured by BlackRock’s common stock price. The total grant-date fair market value of performance-based RSUs expected to vest was $90 million.
At JuneSeptember 30, 2015, the intrinsic value of outstanding performance-based RSUs was $90.9$78.2 million reflecting a closing stock price of $345.98.$297.47.
Long-Term Incentive Plans Funded by PNC. Under a share surrender agreement, PNC committed to provide up to 4 million shares of BlackRock stock, held by PNC, to fund certain BlackRock long-term incentive plans (“LTIP”). The current share surrender agreement commits PNC to provide BlackRock series C nonvoting participating preferred stock to fund the remaining committed shares. As of JuneSeptember 30, 2015, approximately 2.7 million shares had been surrendered by PNC.
At JuneSeptember 30, 2015, the remaining shares committed by PNC of approximately 1.3 million were available to fund certain future long-term incentive awards.
Stock Options. Stock option activity for the sixnine months ended JuneSeptember 30, 2015 is summarized below:
Outstanding at | Shares under option | Weighted average exercise price |
| Shares under option |
|
| Weighted average exercise price |
| ||||||||
December 31, 2014(1) | 906,719 | $ | 167.76 | |||||||||||||
December 31, 2014 |
|
| 906,719 |
|
| $ | 167.76 |
| ||||||||
Exercised(1) | (42,116 | ) | $ | 167.76 |
|
| (468,378 | ) |
| $ | 167.76 |
| ||||
| ||||||||||||||||
June 30, 2015(1) | 864,603 | $ | 167.76 | |||||||||||||
| ||||||||||||||||
September 30, 2015(1) |
|
| 438,341 |
|
| $ | 167.76 |
| ||||||||
(1) | The aggregate intrinsic value of options exercised during the |
The remaining average life of stock options outstanding at JuneSeptember 30, 2015 is approximately two years.
31
The Company is required to maintain net capital in certain regulated subsidiaries within a number of jurisdictions, which is partially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions. As a result, such subsidiaries of the Company may be restricted in their ability to transfer cash between different jurisdictions and to their parents. Additionally, transfers of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers.
Capital Requirements. At JuneSeptember 30, 2015, the Company was required to maintain approximately $1.1 billion in net capital in certain regulated subsidiaries, including BlackRock Institutional Trust Company, N.A. (a chartered national bank whose powers are limited to trust activities and which is subject to regulatory capital requirements administered by the Office of the Comptroller of the Currency), entities regulated by the Financial Conduct Authority and Prudential Regulation Authority in the United Kingdom, and the Company’s broker-dealers. The Company was in compliance with all applicable regulatory net capital requirements.
14. Accumulated Other Comprehensive Income (Loss)
The following table presentstables present changes in AOCI by component for the three and sixnine months ended JuneSeptember 30, 2015 and 2014:
| (in millions) | Unrealized gains (losses) on available-for-sale investments(1) | Benefit plans | Foreign currency translation adjustments(2) | Total | ||||||||||||||||||
For the Three Months Ended June 30, 2015 | ||||||||||||||||||||||
March 31, 2015 | $ | 2 | $ | 3 | ($ | 444 | ) | ($ | 439 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications | (1 | ) | - | 101 | 100 | |||||||||||||||||
Amount reclassified from AOCI | - | - | - | - | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Net other comprehensive income (loss) for the three months ended June 30, 2015 | (1 | ) | - | 101 | 100 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
June 30, 2015 | $ | 1 | $ | 3 | ($ | 343 | ) | ($ | 339 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
For the Six Months Ended June 30, 2015 | ||||||||||||||||||||||
December 31, 2014 | $ | 2 | $ | 4 | ($ | 279 | ) | ($ | 273 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications | (1 | ) | (1 | ) | (64 | ) | (66 | ) | ||||||||||||||
Amount reclassified from AOCI | - | - | - | - | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Net other comprehensive income (loss) for the six months ended June 30, 2015 | (1 | ) | (1 | ) | (64 | ) | (66 | ) | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
June 30, 2015 | $ | 1 | $ | 3 | ($ | 343 | ) | ($ | 339 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
(in millions) |
| Unrealized gains (losses) on available-for-sale investments(1),(2) |
|
| Benefit plans |
|
| Foreign currency translation adjustments(3) |
|
| Total |
| ||||
For the Three Months Ended September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
| $ | 1 |
|
| $ | 3 |
|
| $ | (343 | ) |
| $ | (339 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (2 | ) |
|
| - |
|
|
| (67 | ) |
|
| (69 | ) |
Amount reclassified from AOCI |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net other comprehensive income (loss) for the three months ended September 30, 2015 |
|
| (2 | ) |
|
| - |
|
|
| (67 | ) |
|
| (69 | ) |
September 30, 2015 |
| $ | (1 | ) |
| $ | 3 |
|
| $ | (410 | ) |
| $ | (408 | ) |
For the Nine Months Ended September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
| $ | 2 |
|
| $ | 4 |
|
| $ | (279 | ) |
| $ | (273 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (3 | ) |
|
| (1 | ) |
|
| (131 | ) |
|
| (135 | ) |
Amount reclassified from AOCI |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net other comprehensive income (loss) for the nine months ended September 30, 2015 |
|
| (3 | ) |
|
| (1 | ) |
|
| (131 | ) |
|
| (135 | ) |
September 30, 2015 |
| $ | (1 | ) |
| $ | 3 |
|
| $ | (410 | ) |
| $ | (408 | ) |
(1) | All amounts are net of tax. |
(2) |
|
For the Three Months Ended June 30, 2014 March 31, 2014 Other comprehensive income (loss) before reclassifications Amount reclassified from AOCI(2),(3) Net other comprehensive income (loss) for the three months ended June 30, 2014 June 30, 2014 For the Six Months Ended June 30, 2014 December 31, 2013 Other comprehensive income (loss) before reclassifications Amount reclassified from AOCI(2),(3) Net other comprehensive income (loss) for the six months ended June 30, 2014 June 30, 2014 (in millions) Unrealized gains
(losses) on
available-for-sale
investments(1) Benefit plans Foreign
currency
translation
adjustments Total ($ 1 ) $ 6 ($ 40 ) ($ 35 ) 4 - 30 34 2 - - 2 6 - 30 36 $ 5 $ 6 ($ 10 ) $ 1 $ 7 $ 6 ($ 48 ) ($ 35 ) 4 - 38 42 (6 ) - - (6 ) (2 ) - 38 36 $ 5 $ 6 ($ 10 ) $ 1
|
The tax benefit (expense) was not material for the three and |
(3) | Amount for the three months ended September 30, 2015 include losses from a net investment hedge of $2 million. Amount for the nine months ended September 30, 2015 include gains from a net investment hedge of $5 million, net of tax of $4 million. |
32
| Unrealized gains (losses) on available-for-sale investments(1) (2) |
|
| Benefit plans |
|
| Foreign currency translation adjustments |
|
| Total |
| |||||
For the Three Months Ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
| $ | 5 |
|
| $ | 6 |
|
| $ | (10 | ) |
| $ | 1 |
|
Other comprehensive income (loss) before reclassifications |
|
| (1 | ) |
| - |
|
|
| (167 | ) |
|
| (168 | ) | |
Amount reclassified from AOCI(3) |
|
| (2 | ) |
| - |
|
| - |
|
|
| (2 | ) | ||
Net other comprehensive income (loss) for the three months ended September 30, 2014 |
|
| (3 | ) |
| - |
|
|
| (167 | ) |
|
| (170 | ) | |
September 30, 2014 |
| $ | 2 |
|
| $ | 6 |
|
| $ | (177 | ) |
| $ | (169 | ) |
For the Nine Months Ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
| $ | 7 |
|
| $ | 6 |
|
| $ | (48 | ) |
| $ | (35 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 3 |
|
| - |
|
|
| (129 | ) |
|
| (126 | ) | |
Amount reclassified from AOCI(3) |
|
| (8 | ) |
| - |
|
| - |
|
|
| (8 | ) | ||
Net other comprehensive income (loss) for the nine months ended September 30, 2014 |
|
| (5 | ) |
| - |
|
|
| (129 | ) |
|
| (134 | ) | |
September 30, 2014 |
| $ | 2 |
|
| $ | 6 |
|
| $ | (177 | ) |
| $ | (169 | ) |
(1) | All amounts are net of tax. |
(2) | The tax benefit (expense) was not material for the three and nine months ended September 30, 2014. |
(3) | The pre-tax amount reclassified from AOCI was included in net gain (loss) on investments on the condensed consolidated statements of income. |
15. Capital Stock
Nonvoting Participating Preferred Stock. The Company’s preferred shares authorized, issued and outstanding consisted of the following:
| June 30, 2015 | December 31, 2014 |
| September 30, 2015 |
|
| December 31, 2014 |
| |||||||||
Series A |
|
|
|
|
|
|
|
| ||||||||
Shares authorized, $0.01 par value | 20,000,000 | 20,000,000 |
|
| 20,000,000 |
|
|
| 20,000,000 |
| ||||||
Shares issued and outstanding | - | - |
| - |
|
| - |
| ||||||||
Series B |
|
|
|
|
|
|
|
| ||||||||
Shares authorized, $0.01 par value | 150,000,000 | 150,000,000 |
|
| 150,000,000 |
|
|
| 150,000,000 |
| ||||||
Shares issued and outstanding(1) | 823,188 | 823,188 |
|
| 823,188 |
|
|
| 823,188 |
| ||||||
Series C |
|
|
|
|
|
|
|
| ||||||||
Shares authorized, $0.01 par value | 6,000,000 | 6,000,000 |
|
| 6,000,000 |
|
|
| 6,000,000 |
| ||||||
Shares issued and outstanding(1) | 1,311,887 | 1,311,887 |
|
| 1,311,887 |
|
|
| 1,311,887 |
| ||||||
Series D |
|
|
|
|
|
|
|
| ||||||||
Shares authorized, $0.01 par value | 20,000,000 | 20,000,000 |
|
| 20,000,000 |
|
|
| 20,000,000 |
| ||||||
Shares issued and outstanding | - | - |
| - |
|
| - |
| ||||||||
(1) | Shares held by PNC. |
Share Repurchases. The Company repurchased 1.52.3 million common shares in open market-transactionsopen-market transactions under the share repurchase program for approximately $550$825 million during the sixnine months ended JuneSeptember 30, 2015.
In January 2015, the Board of Directors approved an increase in the availability of shares that may be repurchased under the Company’s existing share repurchase program to allow for the repurchase of up to a total of 9.4 million additional shares of BlackRock common stock. At JuneSeptember 30, 2015, there were 7.97.1 million shares still authorized to be repurchased.
33
The three and sixnine months ended JuneSeptember 30, 2015 included a $13$6 million and $16 million, respectively, net noncash tax benefit and $10 million net noncash expense, respectively, primarily associated with the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes. The sixnine months ended JuneSeptember 30, 2015 also included nonrecurring tax benefits of $69$75 million, primarily due to the realization of losses from changes in the Company’s organizational tax structure and the resolution of certain outstanding tax matters.
The three and sixnine months ended JuneSeptember 30, 2014 included a $23$32 million and a $9 million net noncash expense,benefit, primarily associated with the revaluation of certain deferred income tax liabilities arising from theas a result of domestic state and local tax effect of changes in the Company’s organizational structure. In addition, the second quarter ofchanges. The nine months ended September 30, 2014 also benefited from an improvement in the geographic mix of earnings and included a $34 million net tax benefit related to several favorable nonrecurring items.items and improvement in the geographic mix of earnings.
In addition, the three and nine months ended September 30, 2014 included a $94 million tax benefit, primarily due to the resolution of certain outstanding tax matters related to the acquisition of Barclays Global Investors. In connection with the acquisition, BlackRock recorded a $50 million indemnification asset for unrecognized tax benefits. Due to the resolution of such tax matters in the third quarter of 2014, BlackRock recorded $50 million of general and administration expense to reflect the reduction of the indemnification asset and an offsetting $50 million tax benefit.
17. Earnings Per Share
Due to the similarities in terms between BlackRock nonvoting participating preferred stock and the Company’s common stock, the Company considers its participating preferred stock to be a common stock equivalent for purposes of earnings per share (“EPS”) calculations. As such, the Company has included the outstanding nonvoting participating preferred stock in the calculation of average basic and diluted shares outstanding.
The following table sets forth the computation of basic and diluted EPS for the three and sixnine months ended JuneSeptember 30, 2015 and 2014 under the treasury stock method:
| Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
| (in millions, except shares and per share data) | 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||||||||||||||
Net income attributable to BlackRock | $819 | $808 | $1,641 | $1,564 |
| $ | 843 |
|
| $ | 917 |
|
| $ | 2,484 |
|
| $ | 2,481 |
| ||||||||||||
Basic weighted-average shares outstanding | 166,616,558 | 168,712,221 | 166,851,492 | 168,895,801 |
|
| 166,045,291 |
|
| 167,933,040 |
| �� |
| 166,579,805 |
|
| 168,571,354 |
| ||||||||||||||
Dilutive effect of nonparticipating RSUs and stock options | 2,498,201 | 2,437,932 | 2,567,472 | 2,644,217 |
|
| 2,620,012 |
|
| 2,845,726 |
|
|
| 2,577,383 |
|
| 2,779,922 |
| ||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total diluted weighted-average shares outstanding | 169,114,759 | 171,150,153 | 169,418,964 | 171,540,018 |
|
| 168,665,303 |
|
| 170,778,766 |
|
|
| 169,157,188 |
|
| 171,351,276 |
| ||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Basic earnings per share | $4.92 | $4.79 | $9.84 | $9.26 |
| $ | 5.08 |
|
| $ | 5.46 |
|
| $ | 14.91 |
|
| $ | 14.72 |
| ||||||||||||
Diluted earnings per share | $4.84 | $4.72 | $9.69 | $9.12 |
| $ | 5.00 |
|
| $ | 5.37 |
|
| $ | 14.68 |
|
| $ | 14.48 |
| ||||||||||||
34
The Company’s management directs BlackRock’s operations as one business, the asset management business. As such, the Company operates in one business segment.
The following table illustrates investment advisory, administration fees, securities lending revenue and performance fees,BlackRock Solutions and advisory revenue, distribution fees and other revenue for the three and sixnine months ended JuneSeptember 30, 2015 and 2014.
| Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
| (in millions) | 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||||||||||||||
Equity | $ | 1,426 | $ | 1,369 | $ | 2,732 | $ | 2,646 |
| $ | 1,281 |
|
| $ | 1,359 |
|
| $ | 4,013 |
|
| $ | 4,005 |
| ||||||||
Fixed income | 600 | 544 | 1,175 | 1,047 |
|
| 614 |
|
|
| 554 |
|
|
| 1,789 |
|
| 1,601 |
| |||||||||||||
Multi-asset | 324 | 310 | 636 | 599 |
|
| 325 |
|
|
| 323 |
|
|
| 961 |
|
|
| 922 |
| ||||||||||||
Alternatives | 244 | 253 | 476 | 559 |
|
| 363 |
|
|
| 293 |
|
|
| 839 |
|
|
| 852 |
| ||||||||||||
Cash management | 76 | 73 | 149 | 147 |
|
| 81 |
|
|
| 72 |
|
|
| 230 |
|
|
| 219 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total investment advisory, administration fees, securities lending revenue and performance fees | 2,670 | 2,549 | 5,168 | 4,998 |
|
| 2,664 |
|
| 2,601 |
|
|
| 7,832 |
|
| 7,599 |
| ||||||||||||||
BlackRock Solutions and advisory | 161 | 146 | 308 | 300 |
|
| 167 |
|
|
| 165 |
|
|
| 475 |
|
|
| 465 |
| ||||||||||||
Distribution fees | 13 | 18 | 30 | 37 |
|
| 14 |
|
|
| 17 |
|
|
| 44 |
|
|
| 54 |
| ||||||||||||
Other revenue | 61 | 65 | 122 | 113 |
|
| 65 |
|
|
| 66 |
|
|
| 187 |
|
|
| 179 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total revenue | $ | 2,905 | $ | 2,778 | $ | 5,628 | $ | 5,448 |
| $ | 2,910 |
|
| $ | 2,849 |
|
| $ | 8,538 |
|
| $ | 8,297 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
The following table illustrates total revenue for the three and sixnine months ended JuneSeptember 30, 2015 and 2014 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the customer resides.
| (in millions) | Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||
Revenue | 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||||||||||||||
Americas | $ | 1,913 | $ | 1,764 | $ | 3,766 | $ | 3,546 |
| $ | 1,865 |
|
| $ | 1,877 |
|
| $ | 5,632 |
|
| $ | 5,425 |
| ||||||||
Europe | 847 | 882 | 1,588 | 1,639 |
|
| 906 |
|
|
| 832 |
|
|
| 2,494 |
|
|
| 2,470 |
| ||||||||||||
Asia-Pacific | 145 | 132 | 274 | 263 |
|
| 139 |
|
|
| 140 |
|
|
| 412 |
|
|
| 402 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total revenue | $ | 2,905 | $ | 2,778 | $ | 5,628 | $ | 5,448 |
| $ | 2,910 |
|
| $ | 2,849 |
|
| $ | 8,538 |
|
| $ | 8,297 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
The following table illustrates long-lived assets that consist of goodwill and property and equipment at JuneSeptember 30, 2015 and December 31, 2014 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located.
| (in millions) | June 30, 2015 | December 31, 2014 |
| September 30, |
|
| December 31, |
| ||||||||
Long-lived Assets |
| 2015 |
|
| 2014 |
| ||||||||||
Americas | $ | 13,232 | $ | 13,151 |
| $ | 13,231 |
|
| $ | 13,151 |
| ||||
Europe | 194 | 194 |
|
| 190 |
|
|
| 194 |
| ||||||
Asia-Pacific | 89 | 83 |
|
| 87 |
|
|
| 83 |
| ||||||
|
| |||||||||||||||
Total long-lived assets | $ | 13,515 | $ | 13,428 |
| $ | 13,508 |
|
| $ | 13,428 |
| ||||
|
| |||||||||||||||
Americas primarily is comprised of the United States, Canada, Brazil, Chile and Mexico, while Europe primarily is comprised of the United Kingdom. Asia-Pacific is comprised of Hong Kong, Australia, China, India, Japan, Korea, Malaysia, Singapore and Taiwan.
19. AcquisitionSubsequent Events
In October 2015, the Company completed the acquisition of Infraestructura Institucional.Institucional, one of Mexico’s leading independently managed infrastructure investment firms, expanding the Company’s infrastructure capabilities in Mexico. In JuneOctober 2015, the Company also completed the acquisition of FutureAdvisor, a leader in digital wealth management. In November 2015, the Company announced that it agreedhad entered an agreement to acquire Infraestructura Institucional, Mexico’s leading independently managed, infrastructureassume investment firm, expanding the Company’s infrastructure capabilities in Mexico.management responsibilities of approximately $87 billion of assets under management from BofA® Global Capital Management, Bank of America’s asset management business. The transaction is expected to close in the fourth quarterfirst half of 2015,2016, subject to customary regulatory approvals and closing conditions. The transaction is
These transactions are not expected to be material to the condensedCompany’s consolidated financial statements.
20. Subsequent Eventscondition or results of operations.
The Company conducted a review for other subsequent events and determined that no additional subsequent events had occurred that would require accrual or additional disclosure.
36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This report, and other statements that BlackRock may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” and similar expressions.
BlackRock cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and BlackRock assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
In addition to risk factors previously disclosed in BlackRock’s Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this report, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the introduction, withdrawal, success and timing of business initiatives and strategies; (2) changes and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management (“AUM”); (3) the relative and absolute investment performance of BlackRock’s investment products; (4) the impact of increased competition; (5) the impact of future acquisitions or divestitures; (6) the unfavorable resolution of legal proceedings; (7) the extent and timing of any share repurchases; (8) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (9) the impact of legislative and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or The PNC Financial Services Group, Inc. (“PNC”); (10) terrorist activities, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (11) the ability to attract and retain highly talented professionals; (12) fluctuations in the carrying value of BlackRock’s economic investments; (13) the impact of changes to tax legislation, including income, payroll and transaction taxes, and taxation on products or transactions, which could affect the value proposition to clients and, generally, the tax position of the Company; (14) BlackRock’s success in maintaining the distribution of its products; (15) the impact of BlackRock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations; and (16) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.
37
BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) is a leading publicly traded investment management firm with $4.721$4.506 trillion of AUM at JuneSeptember 30, 2015. With approximately 12,40012,900 employees in more than 30 countries, BlackRock provides a broad range of investment and risk management services to institutional and retail clients worldwide.
BlackRock’s diverse platform of active (alpha) and index (beta) investment strategies across asset classes enables the Company to tailor investment outcomes and asset allocation solutions for clients. Product offerings include single- and multi-asset class portfolios investing in equities, fixed income, alternatives and money market instruments. Products are offered directly and through intermediaries in a variety of vehicles, including open-end and closed-end mutual funds,iShares® exchange-traded funds (“ETFs”), separate accounts, collective investment funds and other pooled investment vehicles. BlackRock also offers theBlackRock Solutions® investment and risk management technology platform,Aladdin®, risk analytics and advisory services and solutions to a broad base of institutional investors.
BlackRock serves a diverse mix of institutional and retail clients across the globe. Clients include tax-exempt institutions, such as defined benefit and defined contribution pension plans, charities, foundations and endowments; official institutions, such as central banks, sovereign wealth funds, supranationals and other government entities; taxable institutions, including insurance companies, financial institutions, corporations and third-party fund sponsors, and retail investors.
BlackRock maintains a significant global sales and marketing presence that is focused on establishing and maintaining retail and institutional investment management relationships by marketing its services to investors directly and through financial professionals and pension consultants, and establishing third-party distribution relationships.
At JuneSeptember 30, 2015, PNC held 21.0%21.1% of the Company’s voting common stock and 22.0%22.1% of the Company’s capital stock, which includes outstanding common and nonvoting preferred stock.
Certain items previously reported have been reclassified to conform to current year presentation.
38
| Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
| (in millions, except shares and per share data) | 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||||||||||||||
GAAP basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total revenue | $ | 2,905 | $ | 2,778 | $ | 5,628 | $ | 5,448 |
| $ | 2,910 |
|
| $ | 2,849 |
|
| $ | 8,538 |
|
| $ | 8,297 |
| ||||||||
Total expense | 1,667 | 1,656 | 3,323 | 3,275 |
|
| 1,688 |
|
| 1,692 |
|
|
| 5,011 |
|
| 4,967 |
| ||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating income | $ | 1,238 | $ | 1,122 | $ | 2,305 | $ | 2,173 |
| $ | 1,222 |
|
| $ | 1,157 |
|
| $ | 3,527 |
|
| $ | 3,330 |
| ||||||||
Operating margin | 42.6% | 40.4% | 41.0% | 39.9% |
|
| 42.0 | % |
|
| 40.6 | % |
|
| 41.3 | % |
|
| 40.1 | % | ||||||||||||
Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests(1) | (48) | (17) | (35) | 12 |
|
| (37 | ) |
|
| (8 | ) |
|
| (72 | ) |
|
| 4 |
| ||||||||||||
Income tax expense | (371) | (297) | (629) | (621) |
|
| (342 | ) |
|
| (232 | ) |
|
| (971 | ) |
|
| (853 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income attributable to BlackRock | $ | 819 | $ | 808 | $ | 1,641 | $ | 1,564 |
| $ | 843 |
|
| $ | 917 |
|
| $ | 2,484 |
|
| $ | 2,481 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Diluted earnings per common share | $ | 4.84 | $ | 4.72 | $ | 9.69 | $ | 9.12 |
| $ | 5.00 |
|
| $ | 5.37 |
|
| 14.68 |
|
| $ | 14.48 |
| |||||||||
Effective tax rate | 31.2% | 26.8% | 27.7% | 28.4% |
|
| 28.8 | % |
|
| 20.2 | % |
|
| 28.1 | % |
|
| 25.6 | % | ||||||||||||
As adjusted(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total revenue | $ | 2,905 | $ | 2,778 | $ | 5,628 | $ | 5,448 |
| $ | 2,910 |
|
| $ | 2,849 |
|
| $ | 8,538 |
|
| $ | 8,297 |
| ||||||||
Total expense | 1,657 | 1,645 | 3,303 | 3,253 |
|
| 1,683 |
|
| 1,635 |
|
|
| 4,986 |
|
| 4,888 |
| ||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating income | $ | 1,248 | $ | 1,133 | $ | 2,325 | $ | 2,195 |
| $ | 1,227 |
|
| $ | 1,214 |
|
| $ | 3,552 |
|
| $ | 3,409 |
| ||||||||
Operating margin | 44.9% | 42.4% | 43.2% | 41.9% |
|
| 43.9 | % |
|
| 44.2 | % |
|
| 43.4 | % |
|
| 42.7 | % | ||||||||||||
Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests(1) | (50) | (20) | (39) | 6 |
|
| (32 | ) |
|
| (8 | ) |
|
| (71 | ) |
|
| (2 | ) | ||||||||||||
Income tax expense | (360) | (276) | (618) | (602) |
|
| (351 | ) |
|
| (316 | ) |
|
| (969 | ) |
|
| (918 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income attributable to BlackRock | $ | 838 | $ | 837 | $ | 1,668 | $ | 1,599 |
| $ | 844 |
|
| $ | 890 |
|
| $ | 2,512 |
|
| $ | 2,489 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Diluted earnings per common share | $ | 4.96 | $ | 4.89 | $ | 9.85 | $ | 9.32 |
| $ | 5.00 |
|
| $ | 5.21 |
|
| $ | 14.85 |
|
| $ | 14.53 |
| ||||||||
Effective tax rate | 30.1% | 24.8% | 27.0% | 27.4% |
|
| 29.3 | % |
|
| 26.2 | % |
|
| 27.8 | % |
|
| 26.9 | % | ||||||||||||
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Assets under management (end of period) | $ | 4,721,294 | $ | 4,593,612 | $ | 4,721,294 | $ | 4,593,612 |
| $ | 4,505,721 |
|
| $ | 4,524,575 |
|
| $ | 4,505,721 |
|
| $ | 4,524,575 |
| ||||||||
Diluted weighted-average common shares outstanding(3) | 169,114,759 | 171,150,153 | 169,418,964 | 171,540,018 |
|
| 168.7 |
|
|
| 170.8 |
|
|
| 169.2 |
|
|
| 171.4 |
| ||||||||||||
Common and preferred shares outstanding (end of period) | 166,379,267 | 168,363,315 | 166,379,267 | 168,363,315 |
|
| 166.1 |
|
|
| 167.6 |
|
|
| 166.1 |
|
|
| 167.6 |
| ||||||||||||
Book value per share(4) | $ | 166.94 | $ | 159.46 | $ | 166.94 | $ | 159.46 |
| $ | 169.44 |
|
| $ | 161.80 |
|
| $ | 169.44 |
|
| $ | 161.80 |
| ||||||||
Cash dividends declared and paid per share | $ | 2.18 | $ | 1.93 | $ | 4.36 | $ | 3.86 |
| $ | 2.18 |
|
| $ | 1.93 |
|
| $ | 6.54 |
|
| $ | 5.79 |
| ||||||||
(1) | Net of net income (loss) attributable to noncontrolling interests (“NCI”) (redeemable and nonredeemable). |
(2) | As adjusted items are described in more detail inNon-GAAP Financial Measures. |
(3) | Nonvoting participating preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations. |
(4) | Total BlackRock stockholders’ equity, excluding appropriated retained |
39
THREE MONTHS ENDED JUNESEPTEMBER 30, 2015 COMPARED WITH THREE MONTHS ENDED JUNESEPTEMBER 30, 2014
GAAP.GAAP. Operating income of $1,238$1,222 million increased $116$65 million and operating margin of 42.6%42.0% increased 220140 bps from the secondthird quarter of 2014. Operating income reflected the impact of organic growth and market appreciation, despite the impact of foreign exchange movements. Operating income also reflected strength inhigher performance fees and continued strongorganic growth, despite negative market performance and the effect of foreign exchange. Expense reflected higher compensation and benefits expense, primarily reflecting higher headcount and higher deferred compensation expense inAladdinfees. the three months ended September 30, 2015. Expense for the three months ended September 30, 2014 included a $50 million reduction of an indemnification asset recorded in general and administration expense (offset by a $50 million tax benefit—see Income Tax Expense within Discussion of Financial Results for more information). Nonoperating income (expense), less net income (loss) attributable to NCI, decreased $31$29 million due to lower marksnet gains on investments in the secondthird quarter of 2015.
Income tax expense increased $74$110 million from the secondthird quarter of 2014. The secondIncome tax expense for the third quarter of 2015 and the third quarter of 2014 included a $13$6 million and a $32 million net noncash expense,tax benefit, respectively, primarily associated with the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes. The second quarter ofIn addition, income tax expense for the three months ended September 30, 2014 included a $23$94 million net noncash expense,tax benefit, including the $50 million tax benefit mentioned above, primarily associated withdue to the revaluationresolution of certain deferredoutstanding tax liabilities, an improvement in the geographic mix of earnings and a $34 million net tax benefitmatters related to several favorable nonrecurring items.the acquisition of Barclays Global Investors (“BGI”). See Income Tax Expense within Discussion of Financial Results for more information.
Earnings per diluted common share rose $0.12,decreased $0.37, or 3%7%, from the secondthird quarter of 2014, reflecting a lower effective tax rate in last year’s third quarter, partially offset by the benefit of share repurchases and higher net income in the second quarter of 2015.repurchases.
As Adjusted. Operating income of $1,248$1,227 million and operating margin of 44.9% increased $115$13 million and 250 bps, respectively, from the secondthird quarter of 2014. Earnings per diluted common share rose $0.07,decreased $0.21, or 1%4%, from the secondthird quarter of 2014. General and administration expense for the three months ended September 30, 2014 excluded $50 million related to the reduction of an indemnification asset. Income tax expense on an as adjusted basis for the secondprior year quarter excluded a $50 million tax benefit associated with the reduction of 2015the same indemnification asset. In addition, the current quarter and 2014prior year’s third quarter excluded the net noncash expense of $13$6 million and $23$32 million respectively, described above.of noncash benefits, respectively.
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2015 COMPARED WITH SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2014
GAAP.GAAP. Operating income of $2,305$3,527 million increased $132$197 million and operating margin of 41.0%41.3% increased 110120 bps from the sixnine months ended JuneSeptember 30, 2014. Operating income reflected growth in base fees and performance fees, partially offset by lower performance fees and higher expense. Expense reflected higher revenue-related expense, including compensation and distribution and servicing costs, partially offset by lower general and administration expense and the impact of foreign exchange movements in the sixexpense. The nine months ended JuneSeptember 30, 2015.2014 also included the previously mentioned $50 million general and administration expense related to the reduction of an indemnification asset. Nonoperating income (expense), less net income (loss) attributable to NCI, decreased $47$76 million from the sixnine months ended JuneSeptember 30, 2014 due to lower net positive marksgains on investments during the sixnine months ended JuneSeptember 30, 2015.
Income tax expense for the sixnine months ended JuneSeptember 30, 2015 included a $16$10 million net noncash expense associated with the revaluation of certain deferred income tax liabilities described above and benefited from $69$75 million of nonrecurring items. Income tax expense for the sixnine months ended JuneSeptember 30, 2014 reflected the previously$94 million tax benefit, described $23above, a $9 million net noncash expense,benefit, primarily associated with the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes, a $34 million net tax benefit related to several favorable nonrecurring items and an improvement in the geographic mix of earnings and the $34 million net tax benefit described above.earnings.
Earnings per diluted common share rose $0.57,$0.20, or 6%1%, compared with the prior year period due to higher net income and the benefit of share repurchases.
As Adjusted. Operating income of $2,325$3,552 million and operating margin of 43.2%43.4% increased $130$143 million and 13070 bps, respectively, from the sixnine months ended JuneSeptember 30, 2014. Income tax expense on an as adjusted basis for the sixnine months ended JuneSeptember 30, 2015 and 2014 excluded the previously described net noncash expense of $16$10 million. General and administration expense for the nine months ended September 30, 2014 excluded $50 million related to the reduction of an indemnification asset. Income tax expense for the nine months ended September 30, 2014 excluded a $50 million tax benefit associated with the reduction of the same indemnification asset and $23$9 million respectively.of net noncash benefits. Earnings per diluted common share rose $0.53,$0.32, or 6%2%, from the sixnine months ended JuneSeptember 30, 2014.
See SeeNon-GAAP Financial Measures for further information on as adjusted items.
For further discussion of BlackRock’s revenue, expense, nonoperating results and income tax expense, seeDiscussion of Financial Results herein.
40
BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. Management also uses non-GAAP financial measures as a benchmark to compare its performance with other companies and to enhance the comparability of this information for the reporting periods presented. Non-GAAP measures may pose limitations because they do not include all of BlackRock’s revenue and expense. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
Management uses both GAAP and non-GAAP financial measures in evaluating BlackRock’s financial performance. Adjustments to GAAP financial measures (“non-GAAP adjustments”) include certain items management deems nonrecurring or occur infrequently, transactions that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.
Computations for all periods are derived from the condensed consolidated statements of income as follows:
(1) Operating income, as adjusted, and operating margin, as adjusted:
Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock’s financial performance over time and, therefore, provide useful disclosure to investors.
| Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
| (in millions) | 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||||||||||||||
Operating income, GAAP basis | $1,238 | $1,122 | $2,305 | $2,173 |
| $ | 1,222 |
|
| $ | 1,157 |
|
| $ | 3,527 |
|
| $ | 3,330 |
| ||||||||||||
Non-GAAP expense adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Reduction of indemnification asset |
|
| - |
|
|
| 50 |
|
|
| - |
|
|
| 50 |
| ||||||||||||||||
PNC LTIP funding obligation | 8 | 8 | 16 | 16 |
|
| 10 |
|
|
| 7 |
|
|
| 26 |
|
|
| 23 |
| ||||||||||||
Compensation expense related to appreciation (depreciation) on deferred compensation plans | 2 | 3 | 4 | 6 |
|
| (5 | ) |
|
| - |
|
|
| (1 | ) |
|
| 6 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating income, as adjusted | 1,248 | 1,133 | 2,325 | 2,195 |
|
| 1,227 |
|
| 1,214 |
|
|
| 3,552 |
|
| 3,409 |
| ||||||||||||||
Product placement costs and commissions | 5 | - | 5 | - |
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| - |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating income used for operating margin measurement | $1,253 | $1,133 | $2,330 | $2,195 |
| $ | 1,227 |
|
| $ | 1,214 |
|
| $ | 3,557 |
|
| $ | 3,409 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Revenue, GAAP basis | $2,905 | $2,778 | $5,628 | $5,448 |
| $ | 2,910 |
|
| $ | 2,849 |
|
| $ | 8,538 |
|
| $ | 8,297 |
| ||||||||||||
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Distribution and servicing costs | (105) | (89) | (204) | (178) |
|
| (102 | ) |
|
| (90 | ) |
|
| (306 | ) |
|
| (268 | ) | ||||||||||||
Amortization of deferred sales commissions | (12) | (14) | (25) | (29) |
|
| (12 | ) |
|
| (14 | ) |
|
| (37 | ) |
|
| (43 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Revenue used for operating margin measurement | $2,788 | $2,675 | $5,399 | $5,241 |
| $ | 2,796 |
|
| $ | 2,745 |
|
| $ | 8,195 |
|
| $ | 7,986 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating margin, GAAP basis | 42.6% | 40.4% | 41.0% | 39.9% |
|
| 42.0 | % |
|
| 40.6 | % |
|
| 41.3 | % |
|
| 40.1 | % | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating margin, as adjusted | 44.9% | 42.4% | 43.2% | 41.9% |
|
| 43.9 | % |
|
| 44.2 | % |
|
| 43.4 | % |
|
| 42.7 | % | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating income, as adjusted, includes non-GAAP expense adjustments. The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately does not impact BlackRock’s book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in nonoperating income (expense). General and administration expense relating to the reduction of an indemnification asset in the third quarter of 2014 has been excluded since it is directly offset by a tax benefit of the same amount and, consequently, does not impact BlackRock’s book value.
Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end fund launch costs and product placement costs, and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenue associated with the expenditure of these costs will not fully impact the Company’s results until future periods.
|
Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, substantially offset distribution fee revenue the Company earns. For each of these items, BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenue.
(2) Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted:
Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, equals nonoperating income (expense), GAAP basis, less net income (loss) attributable to NCI, adjusted for compensation expense associated with (appreciation) depreciation on investments related to certain BlackRock deferred compensation plans. The compensation expense offset is recorded in operating income. This compensation expense has been included in nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, to offset returns on investments set aside for these plans, which are reported in nonoperating income (expense), GAAP basis.
| Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
| (in millions) | 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||||||||||||||
Nonoperating income (expense), GAAP basis | ($ | 41 | ) | $ | 16 | ($ | 25 | ) | $ | 33 |
| $ | (48 | ) |
| $ | (52 | ) |
| $ | (73 | ) |
| $ | (19 | ) | ||||||
Less: Net income (loss) attributable to NCI | 7 | 33 | 10 | 21 |
|
| (11 | ) |
|
| (44 | ) |
|
| (1 | ) |
|
| (23 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Nonoperating income (expense), net of NCI | (48 | ) | (17 | ) | (35 | ) | 12 |
|
| (37 | ) |
|
| (8 | ) |
|
| (72 | ) |
|
| 4 |
| |||||||||
Compensation expense related to (appreciation) depreciation on deferred compensation plans | (2 | ) | (3 | ) | (4 | ) | (6 | ) |
|
| 5 |
|
|
| - |
|
|
| 1 |
|
|
| (6 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted | ($ | 50 | ) | ($ | 20 | ) | ($ | 39 | ) | $ | 6 |
| $ | (32 | ) |
| $ | (8 | ) |
| $ | (71 | ) |
| $ | (2 | ) | |||||
|
|
|
| |||||||||||||||||||||||||||||
(3) Net income attributable to BlackRock, as adjusted:
| Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
| (in millions, except per share data) | 2015 | 2014 | 2015 | 2014 |
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||||||||||||||
Net income attributable to BlackRock, GAAP basis | $ | 819 | $ | 808 | $ | 1,641 | $ | 1,564 |
| $ | 843 |
|
| $ | 917 |
|
| $ | 2,484 |
|
| $ | 2,481 |
| ||||||||
Non-GAAP adjustments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
PNC LTIP funding obligation | 6 | 6 | 11 | 12 |
|
| 7 |
|
|
| 5 |
|
|
| 18 |
|
|
| 17 |
| ||||||||||||
Income tax matters | 13 | 23 | 16 | 23 |
|
| (6 | ) |
|
| (32 | ) |
|
| 10 |
|
|
| (9 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income attributable to BlackRock, as adjusted | $ | 838 | $ | 837 | $ | 1,668 | $ | 1,599 |
| $ | 844 |
|
| $ | 890 |
|
| $ | 2,512 |
|
| $ | 2,489 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Diluted weighted-average common shares outstanding(4) | 169.1 | 171.2 | 169.4 | 171.5 |
| 168.7 |
|
|
| 170.8 |
|
| 169.2 |
|
|
| 171.4 |
| ||||||||||||||
Diluted earnings per common share, GAAP basis(4) | $ | 4.84 | $ | 4.72 | $ | 9.69 | $ | 9.12 |
| $ | 5.00 |
|
| $ | 5.37 |
|
| $ | 14.68 |
|
| $ | 14.48 |
| ||||||||
Diluted earnings per common share, as adjusted(4) | $ | 4.96 | $ | 4.89 | $ | 9.85 | $ | 9.32 |
| $ | 5.00 |
|
| $ | 5.21 |
|
| $ | 14.85 |
|
| $ | 14.53 |
| ||||||||
See aforementioned discussion regarding operating income, as adjusted, and operating margin, as adjusted, for information on the PNC LTIP funding obligation.
42
For each period presented, the non-GAAP adjustment related to the PNC LTIP funding obligation was tax effected at the respective blended rates applicable to the adjustments. The three and sixnine months ended JuneSeptember 30, 2015 included $13a $6 million net noncash tax benefit and $16$10 million respectively, of net noncash tax expense, respectively, primarily related to the revaluation of certain deferred tax liabilities. The three and six months ended June 30, 2014 both included a $23 million net noncash tax expense primarily related to the revaluationBoth of certain deferred tax liabilities. The resulting increase in income taxes hasthese items have been excluded from net income attributable to BlackRock, Inc., as adjusted results as these itemsthey will not have a cash flow impact and to ensure comparability among periods presented. The three and nine months ended September 30, 2014 included a $32 million and a $9 million noncash benefit, respectively, primarily associated with the revaluation of certain deferred income tax liabilities. Both of these items have been excluded from as adjusted results as they will not have a cash flow impact and to ensure comparability among periods presented.
(4) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations.
43
AUM for reporting purposes generally is based upon how investment advisory and administration fees are calculated for each portfolio. Net asset values, total assets, committed assets or other measures may be used to determine portfolio AUM.
AUM and Net Inflows (Outflows) by Client Type
| AUM | Net Inflows (Outflows) |
| AUM |
|
| Net Inflows (Outflows) |
| |||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | June 30, 2015 | March 31, 2015 | December 31, 2014 | June 30, 2014 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2015 | Twelve Months Ended June 30, 2015 |
| September 30, 2015 |
|
| June 30, 2015 |
|
| December 31, 2014 |
|
| September 30, 2014 |
|
| Three Months Ended September 30, 2015 |
|
| Nine Months Ended September 30, 2015 |
|
| Twelve Months Ended September 30, 2015 |
| ||||||||||||||||||||||||||||
Retail | $ | 561,062 | $ | 550,980 | $ | 534,329 | $ | 534,502 | $ | 10,765 | $ | 24,936 | $ | 52,750 |
| $ | 535,208 |
|
| $ | 561,062 |
|
| $ | 534,329 |
|
| $ | 525,479 |
|
| $ | 6,554 |
|
| $ | 31,491 |
|
| $ | 54,446 |
| ||||||||||||||
iShares | 1,075,589 | 1,074,130 | 1,024,228 | 993,832 | 10,850 | 46,327 | 108,726 |
|
| 1,010,493 |
|
| 1,075,589 |
|
| 1,024,228 |
|
| 974,170 |
|
|
| 23,301 |
|
|
| 69,628 |
|
|
| 113,818 |
| ||||||||||||||||||||||||
Institutional: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Active | 975,483 | 984,282 | 959,160 | 970,433 | 2,516 | 20,501 | 21,679 |
|
| 959,354 |
|
| 975,483 |
|
| 959,160 |
|
| 954,889 |
|
|
| 5,863 |
|
|
| 26,364 |
|
|
| 27,407 |
| ||||||||||||||||||||||||
Index | 1,824,755 | 1,854,205 | 1,816,124 | 1,795,938 | (31,434 | ) | (28,628 | ) | (3,514 | ) |
|
| 1,702,739 |
|
| 1,824,755 |
|
| 1,816,124 |
|
| 1,765,875 |
|
|
| (707 | ) |
|
| (29,335 | ) |
|
| (9,707 | ) | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Total institutional | 2,800,238 | 2,838,487 | 2,775,284 | 2,766,371 | (28,918 | ) | (8,127 | ) | 18,165 |
|
| 2,662,093 |
|
| 2,800,238 |
|
| 2,775,284 |
|
| 2,720,764 |
|
|
| 5,156 |
|
|
| (2,971 | ) |
|
| 17,700 |
| ||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Total long-term | 4,436,889 | 4,463,597 | 4,333,841 | 4,294,705 | (7,303 | ) | 63,136 | 179,641 |
|
| 4,207,794 |
|
| 4,436,889 |
|
| 4,333,841 |
|
| 4,220,413 |
|
|
| 35,011 |
|
|
| 98,148 |
|
|
| 185,964 |
| |||||||||||||||||||||||
Cash management | 271,506 | 292,495 | 296,353 | 268,388 | (23,890 | ) | (23,329 | ) | 11,288 |
|
| 285,692 |
|
| 271,506 |
|
| 296,353 |
|
| 280,980 |
|
|
| 15,071 |
|
|
| (8,257 | ) |
|
| 9,551 |
| ||||||||||||||||||||||
Advisory(1) | 12,899 | 18,100 | 21,701 | 30,519 | (5,452 | ) | (7,749 | ) | (15,131 | ) |
|
| 12,235 |
|
| 12,899 |
|
| 21,701 |
|
| 23,182 |
|
|
| (132 | ) |
|
| (7,882 | ) |
|
| (8,798 | ) | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 4,721,294 | $ | 4,774,192 | $ | 4,651,895 | $ | 4,593,612 | ($ | 36,645 | ) | $ | 32,058 | $ | 175,798 |
| $ | 4,505,721 |
|
| $ | 4,721,294 |
|
| $ | 4,651,895 |
|
| $ | 4,524,575 |
|
| $ | 49,950 |
|
| $ | 82,009 |
|
| $ | 186,717 |
| |||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
AUM and Net Inflows (Outflows) by Product Type
| AUM | Net Inflows (Outflows) |
| AUM |
|
| Net Inflows (Outflows) |
| |||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | June 30, 2015 | March 31, 2015 | December 31, 2014 | June 30, 2014 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2015 | Twelve Months Ended June 30, 2015 |
| September 30, 2015 |
|
| June 30, 2015 |
|
| December 31, 2014 |
|
| September 30, 2014 |
|
| Three Months Ended September 30, 2015 |
|
| Nine Months Ended September 30, 2015 |
|
| Twelve Months Ended September 30, 2015 |
| ||||||||||||||||||||||||||||
Equity | $ | 2,505,317 | $ | 2,527,130 | $ | 2,451,111 | $ | 2,462,585 | ($ | 27,261 | ) | ($ | 6,320 | ) | $ | 32,551 |
| $ | 2,273,237 |
|
| $ | 2,505,317 |
|
| $ | 2,451,111 |
|
| $ | 2,400,105 |
|
| $ | 5,631 |
|
| $ | (688 | ) |
| $ | 27,969 |
| ||||||||||||
Fixed income | 1,422,434 | 1,428,480 | 1,393,653 | 1,340,725 | 12,847 | 49,135 | 108,665 |
|
| 1,445,637 |
|
| 1,422,434 |
|
| 1,393,653 |
|
| 1,333,528 |
|
|
| 27,652 |
|
|
| 76,787 |
|
|
| 125,185 |
| ||||||||||||||||||||||||
Multi-asset | 395,009 | 395,312 | 377,837 | 374,473 | 5,049 | 17,841 | 34,959 |
|
| 375,001 |
|
| 395,009 |
|
| 377,837 |
|
| 373,054 |
|
|
| (452 | ) |
|
| 17,388 |
|
|
| 27,084 |
| ||||||||||||||||||||||||
Alternatives: |
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|
| ||||||||||||||||||||||||||||
Core | 89,954 | 89,086 | 88,006 | 88,758 | 1,229 | 1,028 | 1,882 |
|
| 91,358 |
|
| 89,954 |
|
| 88,006 |
|
| 88,280 |
|
|
| 2,094 |
|
|
| 3,123 |
|
|
| 4,304 |
| ||||||||||||||||||||||||
Currency and commodities(2) | 24,175 | 23,589 | 23,234 | 28,164 | 833 | 1,452 | 1,584 |
|
| 22,561 |
|
| 24,175 |
|
| 23,234 |
|
| 25,446 |
|
|
| 86 |
|
|
| 1,538 |
|
|
| 1,422 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 114,129 | 112,675 | 111,240 | 116,922 | 2,062 | 2,480 | 3,466 |
|
| 113,919 |
|
| 114,129 |
|
| 111,240 |
|
| 113,726 |
|
|
| 2,180 |
|
|
| 4,661 |
|
|
| 5,726 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term | 4,436,889 | 4,463,597 | 4,333,841 | 4,294,705 | (7,303 | ) | 63,136 | 179,641 |
|
| 4,207,794 |
|
| 4,436,889 |
|
| 4,333,841 |
|
| 4,220,413 |
|
|
| 35,011 |
|
|
| 98,148 |
|
|
| 185,964 |
| |||||||||||||||||||||||
Cash management | 271,506 | 292,495 | 296,353 | 268,388 | (23,890 | ) | (23,329 | ) | 11,288 |
|
| 285,692 |
|
| 271,506 |
|
| 296,353 |
|
| 280,980 |
|
|
| 15,071 |
|
|
| (8,257 | ) |
|
| 9,551 |
| ||||||||||||||||||||||
Advisory(1) | 12,899 | 18,100 | 21,701 | 30,519 | (5,452 | ) | (7,749 | ) | (15,131 | ) |
|
| 12,235 |
|
| 12,899 |
|
| 21,701 |
|
| 23,182 |
|
|
| (132 | ) |
|
| (7,882 | ) |
|
| (8,798 | ) | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 4,721,294 | $ | 4,774,192 | $ | 4,651,895 | $ | 4,593,612 | ($ | 36,645 | ) | $ | 32,058 | $ | 175,798 |
| $ | 4,505,721 |
|
| $ | 4,721,294 |
|
| $ | 4,651,895 |
|
| $ | 4,524,575 |
|
| $ | 49,950 |
|
| $ | 82,009 |
|
| $ | 186,717 |
| |||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
AUM and Net Inflows (Outflows) by Investment Style
| AUM | Net Inflows (Outflows) |
| AUM |
|
| Net Inflows (Outflows) |
| |||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | June 30, 2015 | March 31, 2015 | December 31, 2014 | June 30, 2014 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2015 | Twelve Months Ended June 30, 2015 |
| September 30, 2015 |
|
| June 30, 2015 |
|
| December 31, 2014 |
|
| September 30, 2014 |
|
| Three Months Ended September 30, 2015 |
|
| Nine Months Ended September 30, 2015 |
|
| Twelve Months Ended September 30, 2015 |
| ||||||||||||||||||||||||||||
Active | $ | 1,496,571 | $ | 1,496,210 | $ | 1,453,613 | $ | 1,468,823 | $ | 12,711 | $ | 44,256 | $ | 68,471 |
| $ | 1,456,692 |
|
| $ | 1,496,571 |
|
| $ | 1,453,613 |
|
| $ | 1,444,313 |
|
| $ | 11,255 |
|
| $ | 55,512 |
|
| $ | 76,104 |
| ||||||||||||||
Index andiShares | 2,940,318 | 2,967,387 | 2,880,228 | 2,825,882 | (20,014 | ) | 18,880 | 111,170 |
|
| 2,751,102 |
|
| 2,940,318 |
|
| 2,880,228 |
|
|
| 2,776,100 |
|
|
| 23,756 |
|
|
| 42,636 |
|
|
| 109,860 |
| ||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Total long-term | 4,436,889 | 4,463,597 | 4,333,841 | 4,294,705 | (7,303 | ) | 63,136 | 179,641 |
|
| 4,207,794 |
|
| 4,436,889 |
|
| 4,333,841 |
|
|
| 4,220,413 |
|
|
| 35,011 |
|
|
| 98,148 |
|
|
| 185,964 |
| ||||||||||||||||||||||
Cash management | 271,506 | 292,495 | 296,353 | 268,388 | (23,890 | ) | (23,329 | ) | 11,288 |
|
| 285,692 |
|
| 271,506 |
|
| 296,353 |
|
|
| 280,980 |
|
|
| 15,071 |
|
|
| (8,257 | ) |
|
| 9,551 |
| |||||||||||||||||||||
Advisory(1) | 12,899 | 18,100 | 21,701 | 30,519 | (5,452 | ) | (7,749 | ) | (15,131 | ) |
|
| 12,235 |
|
| 12,899 |
|
| 21,701 |
|
|
| 23,182 |
|
|
| (132 | ) |
|
| (7,882 | ) |
|
| (8,798 | ) | ||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 4,721,294 | $ | 4,774,192 | $ | 4,651,895 | $ | 4,593,612 | ($ | 36,645 | ) | $ | 32,058 | $ | 175,798 |
| $ | 4,505,721 |
|
| $ | 4,721,294 |
|
| $ | 4,651,895 |
|
| $ | 4,524,575 |
|
| $ | 49,950 |
|
| $ | 82,009 |
|
| $ | 186,717 |
| |||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
(1) | Advisory AUM represents long-term portfolio liquidation assignments. |
(2) | Amounts include commodityiShares. |
44
Component Changes in AUM for the Three Months Ended JuneSeptember 30, 2015
The following table presents the component changes in AUM by client type and product for the three months ended JuneSeptember 30, 2015.
| (in millions) | March 31, 2015 | Net inflows (outflows) | Market change | FX impact(1) | June 30, 2015 | Average AUM(2) |
| June 30, 2015 |
|
| Net inflows (outflows) |
|
| Market change |
|
| FX impact(1) |
|
| September 30, 2015 |
|
| Average AUM(2) |
| ||||||||||||||||||||||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity | $ | 201,706 | $ | 300 | ($ | 400 | ) | $ | 1,767 | $ | 203,373 | $ | 205,427 |
| $ | 203,373 |
|
| $ | 1,183 |
|
| $ | (19,015 | ) |
| $ | (1,276 | ) |
| $ | 184,265 |
|
| $ | 195,718 |
| |||||||||||
Fixed income | 201,405 | 9,802 | (2,688 | ) | 537 | 209,056 | 206,177 |
|
| 209,056 |
|
|
| 4,589 |
|
|
| (2,791 | ) |
|
| (249 | ) |
|
| 210,605 |
|
|
| 210,303 |
| |||||||||||||||||
Multi-asset | 128,402 | 714 | (312 | ) | 384 | 129,188 | 129,864 |
|
| 129,188 |
|
|
| 142 |
|
|
| (8,450 | ) |
|
| (394 | ) |
|
| 120,486 |
|
|
| 125,681 |
| |||||||||||||||||
Alternatives | 19,467 | (51 | ) | (47 | ) | 76 | 19,445 | 19,381 |
|
| 19,445 |
|
|
| 640 |
|
|
| (204 | ) |
|
| (29 | ) |
|
| 19,852 |
|
|
| 19,721 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Retail subtotal | 550,980 | 10,765 | (3,447 | ) | 2,764 | 561,062 | 560,849 |
|
| 561,062 |
|
|
| 6,554 |
|
|
| (30,460 | ) |
|
| (1,948 | ) |
|
| 535,208 |
|
|
| 551,423 |
| |||||||||||||||||
iShares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity | 824,336 | 8,808 | (8,833 | ) | 3,746 | 828,057 | 833,952 |
|
| 828,057 |
|
|
| 5,315 |
|
|
| (82,077 | ) |
|
| (2,837 | ) |
|
| 748,458 |
|
|
| 795,353 |
| |||||||||||||||||
Fixed income | 233,183 | 1,544 | (6,089 | ) | 2,097 | 230,735 | 234,884 |
|
| 230,735 |
|
|
| 18,232 |
|
|
| (1,225 | ) |
|
| (1,030 | ) |
|
| 246,712 |
|
|
| 239,127 |
| |||||||||||||||||
Multi-asset | 1,772 | 101 | (31 | ) | 2 | 1,844 | 1,833 |
|
| 1,844 |
|
|
| 74 |
|
|
| (100 | ) |
|
| (10 | ) |
|
| 1,808 |
|
|
| 1,819 |
| |||||||||||||||||
Alternatives | 14,839 | 397 | (329 | ) | 46 | 14,953 | 15,006 |
|
| 14,953 |
|
|
| (320 | ) |
|
| (1,082 | ) |
|
| (36 | ) |
|
| 13,515 |
|
|
| 13,978 |
| |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
iShares subtotal | 1,074,130 | 10,850 | (15,282 | ) | 5,891 | 1,075,589 | 1,085,675 |
|
| 1,075,589 |
|
|
| 23,301 |
|
|
| (84,484 | ) |
|
| (3,913 | ) |
|
| 1,010,493 |
|
|
| 1,050,277 |
| |||||||||||||||||
Institutional: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Active: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity | 128,036 | (1,761 | ) | (518 | ) | 2,275 | 128,032 | 129,512 |
|
| 128,032 |
|
|
| 906 |
|
|
| (10,493 | ) |
|
| (1,727 | ) |
|
| 116,718 |
|
|
| 123,096 |
| ||||||||||||||||
Fixed income | 526,117 | (760 | ) | (12,123 | ) | 4,017 | 517,251 | 524,246 |
|
| 517,251 |
|
|
| 4,113 |
|
|
| 3,465 |
|
|
| (2,320 | ) |
|
| 522,509 |
|
|
| 520,314 |
| ||||||||||||||||
Multi-asset | 257,084 | 4,418 | (9,150 | ) | 4,612 | 256,964 | 259,498 |
|
| 256,964 |
|
|
| (735 | ) |
|
| (8,650 | ) |
|
| (1,803 | ) |
|
| 245,776 |
|
|
| 254,274 |
| |||||||||||||||||
Alternatives | 73,045 | 619 | (953 | ) | 525 | 73,236 | 73,190 |
|
| 73,236 |
|
|
| 1,579 |
|
|
| (128 | ) |
|
| (336 | ) |
|
| 74,351 |
|
|
| 73,895 |
| |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Active subtotal | 984,282 | 2,516 | (22,744 | ) | 11,429 | 975,483 | 986,446 |
|
| 975,483 |
|
|
| 5,863 |
|
|
| (15,806 | ) |
|
| (6,186 | ) |
|
| 959,354 |
|
|
| 971,579 |
| |||||||||||||||||
Index: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Equity | 1,373,052 | (34,608 | ) | (3,072 | ) | 10,483 | 1,345,855 | 1,379,088 |
|
| 1,345,855 |
|
|
| (1,773 | ) |
|
| (113,587 | ) |
|
| (6,699 | ) |
|
| 1,223,796 |
|
|
| 1,301,851 |
| ||||||||||||||||
Fixed income | 467,775 | 2,261 | (18,642 | ) | 13,998 | 465,392 | 468,699 |
|
| 465,392 |
|
|
| 718 |
|
|
| 10,090 |
|
|
| (10,389 | ) |
|
| 465,811 |
|
|
| 467,034 |
| |||||||||||||||||
Multi-asset | 8,054 | (184 | ) | (926 | ) | 69 | 7,013 | 7,617 |
|
| 7,013 |
|
|
| 67 |
|
|
| (169 | ) |
|
| 20 |
|
|
| 6,931 |
|
|
| 7,071 |
| ||||||||||||||||
Alternatives | 5,324 | 1,097 | (106 | ) | 180 | 6,495 | 5,807 |
|
| 6,495 |
|
|
| 281 |
|
|
| (469 | ) |
|
| (106 | ) |
|
| 6,201 |
|
|
| 6,353 |
| |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Index subtotal | 1,854,205 | (31,434 | ) | (22,746 | ) | 24,730 | 1,824,755 | 1,861,211 |
|
| 1,824,755 |
|
|
| (707 | ) |
|
| (104,135 | ) |
|
| (17,174 | ) |
|
| 1,702,739 |
|
|
| 1,782,309 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Institutional subtotal | 2,838,487 | (28,918 | ) | (45,490 | ) | 36,159 | 2,800,238 | 2,847,657 |
|
| 2,800,238 |
|
|
| 5,156 |
|
|
| (119,941 | ) |
|
| (23,360 | ) |
|
| 2,662,093 |
|
|
| 2,753,888 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Long-term | 4,463,597 | (7,303 | ) | (64,219 | ) | 44,814 | 4,436,889 | $ | 4,494,181 |
|
| 4,436,889 |
|
|
| 35,011 |
|
|
| (234,885 | ) |
|
| (29,221 | ) |
|
| 4,207,794 |
|
| $ | 4,355,588 |
| |||||||||||||||
Cash management | 292,495 | (23,890 | ) | 26 | 2,875 | 271,506 |
|
| 271,506 |
|
|
| 15,071 |
|
|
| 461 |
|
|
| (1,346 | ) |
|
| 285,692 |
|
|
|
|
| ||||||||||||||||||
Advisory(3) | 18,100 | (5,452 | ) | (136 | ) | 387 | 12,899 |
|
| 12,899 |
|
|
| (132 | ) |
|
| 74 |
|
|
| (606 | ) |
|
| 12,235 |
|
|
|
|
| |||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 4,774,192 | ($ | 36,645 | ) | ($ | 64,329 | ) | $ | 48,076 | $ | 4,721,294 |
| $ | 4,721,294 |
|
| $ | 49,950 |
|
| $ | (234,350 | ) |
| $ | (31,173 | ) |
| $ | 4,505,721 |
|
|
|
|
| ||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
(1) | Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes. |
(2) | Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months. |
(3) | Advisory AUM represents long-term portfolio liquidation assignments. |
45
The following table presents component changes in AUM by product for the three months ended JuneSeptember 30, 2015.
| (in millions) | March 31, 2015 | Net inflows (outflows) | Market change | FX impact(1) | June 30, 2015 | Average AUM(2) |
| June 30, 2015 |
|
| Net inflows (outflows) |
|
| Market change |
|
| FX impact(1) |
|
| September 30, 2015 |
|
| Average AUM(2) |
| ||||||||||||||||||||||||
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Active | $ | 298,118 | ($ | 2,079 | ) | ($ | 450 | ) | $3,295 | $ | 298,884 | $ | 302,364 |
| $ | 298,884 |
|
| $ | 875 |
|
| $ | (27,064 | ) |
| $ | (2,272 | ) |
| $ | 270,423 |
|
| $ | 286,992 |
| |||||||||||
iShares | 824,336 | 8,808 | (8,833 | ) | 3,746 | 828,057 | 833,952 |
|
| 828,057 |
|
|
| 5,315 |
|
|
| (82,077 | ) |
|
| (2,837 | ) |
|
| 748,458 |
|
|
| 795,353 |
| |||||||||||||||||
Non-ETF index | 1,404,676 | (33,990 | ) | (3,540 | ) | 11,230 | 1,378,376 | 1,411,663 |
|
| 1,378,376 |
|
|
| (559 | ) |
|
| (116,031 | ) |
|
| (7,430 | ) |
|
| 1,254,356 |
|
|
| 1,333,673 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
| Equity subtotal | 2,527,130 | (27,261 | ) | (12,823 | ) | 18,271 | 2,505,317 | 2,547,979 |
|
| 2,505,317 |
|
|
| 5,631 |
|
|
| (225,172 | ) |
|
| (12,539 | ) |
|
| 2,273,237 |
|
|
| 2,416,018 |
| ||||||||||||||||
Fixed income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Active | 720,094 | 9,089 | (14,621 | ) | 4,291 | 718,853 | 722,831 |
|
| 718,853 |
|
|
| 8,752 |
|
|
| 525 |
|
|
| (2,328 | ) |
|
| 725,802 |
|
|
| 723,189 |
| |||||||||||||||||
iShares | 233,183 | 1,544 | (6,089 | ) | 2,097 | 230,735 | 234,884 |
|
| 230,735 |
|
|
| 18,232 |
|
|
| (1,225 | ) |
|
| (1,030 | ) |
|
| 246,712 |
|
|
| 239,127 |
| |||||||||||||||||
Non-ETF index | 475,203 | 2,214 | (18,832 | ) | 14,261 | 472,846 | 476,291 |
|
| 472,846 |
|
|
| 668 |
|
|
| 10,239 |
|
|
| (10,630 | ) |
|
| 473,123 |
|
|
| 474,462 |
| |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Fixed income subtotal | 1,428,480 | 12,847 | (39,542 | ) | 20,649 | 1,422,434 | 1,434,006 |
|
| 1,422,434 |
|
|
| 27,652 |
|
|
| 9,539 |
|
|
| (13,988 | ) |
|
| 1,445,637 |
|
|
| 1,436,778 |
| |||||||||||||||||
Multi-asset | 395,312 | 5,049 | (10,419 | ) | 5,067 | 395,009 | 398,812 |
|
| 395,009 |
|
|
| (452 | ) |
|
| (17,369 | ) |
|
| (2,187 | ) |
|
| 375,001 |
|
|
| 388,845 |
| |||||||||||||||||
Alternatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Core | 89,086 | 1,229 | (1,014 | ) | 653 | 89,954 | 89,582 |
|
| 89,954 |
|
|
| 2,094 |
|
|
| (267 | ) |
|
| (423 | ) |
|
| 91,358 |
|
|
| 90,773 |
| |||||||||||||||||
Currency and commodities(3) | 23,589 | 833 | (421 | ) | 174 | 24,175 | 23,802 |
|
| 24,175 |
|
|
| 86 |
|
|
| (1,616 | ) |
|
| (84 | ) |
|
| 22,561 |
|
|
| 23,174 |
| |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
| Alternatives subtotal | 112,675 | 2,062 | (1,435 | ) | 827 | 114,129 | 113,384 |
|
| 114,129 |
|
|
| 2,180 |
|
|
| (1,883 | ) |
|
| (507 | ) |
|
| 113,919 |
|
|
| 113,947 |
| |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Long-term | 4,463,597 | (7,303 | ) | (64,219 | ) | 44,814 | 4,436,889 | $ | 4,494,181 |
|
| 4,436,889 |
|
|
| 35,011 |
|
|
| (234,885 | ) |
|
| (29,221 | ) |
|
| 4,207,794 |
|
| $ | 4,355,588 |
| |||||||||||||||
Cash management | 292,495 | (23,890 | ) | 26 | 2,875 | 271,506 |
|
| 271,506 |
|
|
| 15,071 |
|
|
| 461 |
|
|
| (1,346 | ) |
|
| 285,692 |
|
|
|
|
| ||||||||||||||||||
Advisory(4) | 18,100 | (5,452 | ) | (136 | ) | 387 | 12,899 |
|
| 12,899 |
|
|
| (132 | ) |
|
| 74 |
|
|
| (606 | ) |
|
| 12,235 |
|
|
|
|
| |||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 4,774,192 | ($ | 36,645 | ) | ($ | 64,329 | ) | $48,076 | $ | 4,721,294 |
| $ | 4,721,294 |
|
| $ | 49,950 |
|
| $ | (234,350 | ) |
| $ | (31,173 | ) |
| $ | 4,505,721 |
|
|
|
|
| |||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
(1) | Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes. |
(2) | Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months. |
(3) | Amounts include commodityiShares. |
(4) | Advisory AUM represents long-term portfolio liquidation assignments. |
AUM decreased $52.9$215.6 billion, or 1%5%, to $4.506 trillion at September 30, 2015 from $4.721 trillion at June 30, 2015, from $4.774 trillion at March 31, 2015, driven largely by net market depreciation and net outflows, partially offset by the impact of foreign exchange movements.movements that more than offset organic growth.
Net market depreciation of $64.3$234.4 billion included $39.5 billion from fixed income products, $12.8was driven by $225.2 billion from equity products and $10.4 billion from multi-asset products across the majority of strategies, reflecting elevatednegative market volatility.performance.
AUM increased $48.1decreased $31.2 billion as a resultdue to the impact of foreign exchange movements, primarily resulting from the weakeningstrengthening of the U.S. dollar, largely against the pound sterling and the euro.Canadian dollar.
Net Inflows (Outflows). Long-term net outflowsinflows of $7.3$35.0 billion included $23.6were across all client types, including $23.3 billion, of net new business$6.6 billion and $5.1 billion from activeiShares, retail andiShares products that was more than offset by $30.9 billion of low-fee non-ETF index outflows. institutional clients, respectively. Net flows in long-term products are described below.