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Section 1: 10-Q (10-Q)

blk-10q_20170930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2017

OR

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

EXCHANGE ACT OF 1934.

For the transition period from                                 to                                 .

Commission file number 001-33099

 

BlackRock, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

32-0174431

(State or Other Jurisdiction of

Incorporation or Organization)

 

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

55 East 52nd Street, New York, NY 10055

(Address of Principal Executive Offices)

(Zip Code)

(212) 810-5300

(Registrant’s Telephone Number, Including Area Code)

 

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

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

Yes

 

X

 

No

 

 

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

Yes

 

X

 

No

 

 

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

 

Large accelerated filer                Accelerated filer

       Non-accelerated filer (Do not check if a smaller reporting company)

            Smaller reporting company

            Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

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 October 31, 2017, there were 160,332,161 shares of the registrant’s common stock outstanding.

 

 

 


BlackRock, Inc.

Index to Form 10-Q

PART I

FINANCIAL INFORMATION

 

 

 

Page

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Financial Condition

1

 

 

 

 

Condensed Consolidated Statements of Income

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income

3

 

 

 

 

Condensed Consolidated Statements of Changes in Equity

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

34

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

65

 

 

 

Item 4.

Controls and Procedures

66

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

67

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

 

 

 

Item 6.

Exhibits

70

 

 

 

i


PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(unaudited)

 

 

 

September 30,

 

 

December 31,

 

(in millions, except shares and per share data)

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,165

 

 

$

6,091

 

Accounts receivable

 

 

3,183

 

 

 

2,350

 

Investments

 

 

1,928

 

 

 

1,595

 

Assets of consolidated variable interest entities:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

82

 

 

 

84

 

Investments

 

 

1,286

 

 

 

1,008

 

Other assets

 

 

46

 

 

 

63

 

Separate account assets

 

 

147,938

 

 

 

149,089

 

Separate account collateral held under securities lending agreements

 

 

27,431

 

 

 

27,792

 

Property and equipment (net of accumulated depreciation of $708 and $601 at September 30,

   2017 and December 31, 2016, respectively)

 

 

571

 

 

 

559

 

Intangible assets (net of accumulated amortization of $909 and $832 at September 30, 2017

   and December 31, 2016, respectively)

 

 

17,400

 

 

 

17,363

 

Goodwill

 

 

13,226

 

 

 

13,118

 

Other assets

 

 

1,311

 

 

 

1,065

 

Total assets

 

$

220,567

 

 

$

220,177

 

Liabilities

 

 

 

 

 

 

 

 

Accrued compensation and benefits

 

$

1,614

 

 

$

1,880

 

Accounts payable and accrued liabilities

 

 

1,652

 

 

 

1,094

 

Liabilities of consolidated variable interest entities

 

 

319

 

 

 

216

 

Borrowings

 

 

5,000

 

 

 

4,915

 

Separate account liabilities

 

 

147,938

 

 

 

149,089

 

Separate account collateral liabilities under securities lending agreements

 

 

27,431

 

 

 

27,792

 

Deferred income tax liabilities

 

 

4,966

 

 

 

4,840

 

Other liabilities

 

 

1,230

 

 

 

1,007

 

Total liabilities

 

 

190,150

 

 

 

190,833

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Temporary equity

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

320

 

 

 

194

 

Permanent Equity

 

 

 

 

 

 

 

 

BlackRock, Inc. stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value;

 

 

2

 

 

 

2

 

Shares authorized: 500,000,000 at September 30, 2017 and December 31, 2016;

Shares issued: 171,252,185 at September 30, 2017 and December 31, 2016;

Shares outstanding: 160,528,060 and 161,534,443 at September 30, 2017 and

December 31, 2016, respectively

 

 

 

 

 

 

 

 

Preferred stock (Note 15)

 

 

 

 

 

 

Additional paid-in capital

 

 

19,145

 

 

 

19,337

 

Retained earnings

 

 

15,065

 

 

 

13,660

 

Accumulated other comprehensive loss

 

 

(473

)

 

 

(716

)

Treasury stock, common, at cost (10,724,125 and 9,717,742 shares held at September 30, 2017 and

   December 31, 2016, respectively)

 

 

(3,697

)

 

 

(3,185

)

Total BlackRock, Inc. stockholders’ equity

 

 

30,042

 

 

 

29,098

 

Nonredeemable noncontrolling interests

 

 

55

 

 

 

52

 

Total permanent equity

 

 

30,097

 

 

 

29,150

 

Total liabilities, temporary equity and permanent equity

 

$

220,567

 

 

$

220,177

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

1


BlackRock, Inc.

Condensed Consolidated Statements of Income

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in millions, except shares and per share data)

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment advisory, administration fees and

  securities lending revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related parties

 

$

1,995

 

 

$

1,768

 

 

$

5,662

 

 

$

5,098

 

Other third parties

 

 

797

 

 

 

778

 

 

 

2,335

 

 

 

2,296

 

Total investment advisory, administration fees and

   securities lending revenue

 

 

2,792

 

 

 

2,546

 

 

 

7,997

 

 

 

7,394

 

Investment advisory performance fees

 

 

191

 

 

 

58

 

 

 

309

 

 

 

166

 

Technology and risk management revenue

 

 

175

 

 

 

152

 

 

 

497

 

 

 

439

 

Distribution fees

 

 

5

 

 

 

10

 

 

 

17

 

 

 

32

 

Advisory and other revenue

 

 

70

 

 

 

71

 

 

 

202

 

 

 

234

 

Total revenue

 

 

3,233

 

 

 

2,837

 

 

 

9,022

 

 

 

8,265

 

Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

1,088

 

 

 

969

 

 

 

3,108

 

 

 

2,893

 

Distribution and servicing costs

 

 

123

 

 

 

114

 

 

 

361

 

 

 

320

 

Amortization of deferred sales commissions

 

 

4

 

 

 

8

 

 

 

13

 

 

 

27

 

Direct fund expense

 

 

234

 

 

 

200

 

 

 

666

 

 

 

583

 

General and administration

 

 

363

 

 

 

312

 

 

 

1,014

 

 

 

946

 

Restructuring charge

 

 

 

 

 

 

 

 

 

 

 

76

 

Amortization of intangible assets

 

 

27

 

 

 

25

 

 

 

77

 

 

 

75

 

Total expense

 

 

1,839

 

 

 

1,628

 

 

 

5,239

 

 

 

4,920

 

Operating income

 

 

1,394

 

 

 

1,209

 

 

 

3,783

 

 

 

3,345

 

Nonoperating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on investments

 

 

41

 

 

 

31

 

 

 

128

 

 

 

49

 

Interest and dividend income

 

 

15

 

 

 

22

 

 

 

35

 

 

 

33

 

Interest expense

 

 

(46

)

 

 

(52

)

 

 

(159

)

 

 

(154

)

Total nonoperating income (expense)

 

 

10

 

 

 

1

 

 

 

4

 

 

 

(72

)

Income before income taxes

 

 

1,404

 

 

 

1,210

 

 

 

3,787

 

 

 

3,273

 

Income tax expense

 

 

445

 

 

 

333

 

 

 

1,090

 

 

 

954

 

Net income

 

 

959

 

 

 

877

 

 

 

2,697

 

 

 

2,319

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to noncontrolling

   interests

 

 

12

 

 

 

2

 

 

 

31

 

 

 

(2

)

Net income attributable to BlackRock, Inc.

 

$

947

 

 

$

875

 

 

$

2,666

 

 

$

2,321

 

Earnings per share attributable to BlackRock, Inc.

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

5.85

 

 

$

5.33

 

 

$

16.41

 

 

$

14.09

 

Diluted

 

$

5.78

 

 

$

5.26

 

 

$

16.23

 

 

$

13.92

 

Cash dividends declared and paid per share

 

$

2.50

 

 

$

2.29

 

 

$

7.50

 

 

$

6.87

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

161,872,716

 

 

 

164,129,214

 

 

 

162,459,737

 

 

 

164,756,355

 

Diluted

 

 

163,773,546

 

 

 

166,256,598

 

 

 

164,289,042

 

 

 

166,760,912

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in millions)

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

959

 

 

$

877

 

 

$

2,697

 

 

$

2,319

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments(1)

 

 

102

 

 

 

(38

)

 

 

244

 

 

 

(151

)

Other

 

 

 

 

 

 

 

 

(1

)

 

 

1

 

Other comprehensive income (loss)

 

 

102

 

 

 

(38

)

 

 

243

 

 

 

(150

)

Comprehensive income

 

 

1,061

 

 

 

839

 

 

 

2,940

 

 

 

2,169

 

Less: Comprehensive income (loss) attributable to

     noncontrolling interests

 

 

12

 

 

 

2

 

 

 

31

 

 

 

(2

)

Comprehensive income attributable to BlackRock, Inc.

 

$

1,049

 

 

$

837

 

 

$

2,909

 

 

$

2,171

 

 

 

(1) 

Amounts for the three months ended September 30, 2017 and 2016 include a loss from a net investment hedge of $18 million (net of a tax benefit of $11 million) and $5 million (net of a tax benefit of $4 million), respectively.  Amounts for the nine months ended September 30, 2017 and 2016 include a loss from a net investment hedge of $56 million (net of a tax benefit of $33 million) and $16 million (net of a tax benefit of $10 million), respectively.  

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(unaudited)

 

(in millions)

 

Additional

Paid-in

Capital(1)

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

Common

 

 

Total

BlackRock

Stockholders’

Equity

 

 

Nonredeemable

Noncontrolling

Interests

 

 

Total

Permanent

Equity

 

 

Redeemable

Noncontrolling

Interests /

Temporary

Equity

 

December 31, 2016

 

$

19,339

 

 

$

13,660

 

 

$

(716

)

 

$

(3,185

)

 

$

29,098

 

 

$

52

 

 

$

29,150

 

 

$

194

 

Net income

 

 

 

 

 

2,666

 

 

 

 

 

 

 

 

 

2,666

 

 

 

3

 

 

 

2,669

 

 

 

28

 

Dividends paid

 

 

 

 

 

(1,259

)

 

 

 

 

 

 

 

 

(1,259

)

 

 

 

 

 

(1,259

)

 

 

 

Stock-based compensation

 

 

417

 

 

 

 

 

 

 

 

 

 

 

 

417

 

 

 

 

 

 

417

 

 

 

 

PNC preferred stock capital

    contribution

 

 

193

 

 

 

 

 

 

 

 

 

 

 

 

193

 

 

 

 

 

 

193

 

 

 

 

Retirement of preferred stock

 

 

(193

)

 

 

 

 

 

 

 

 

 

 

 

(193

)

 

 

 

 

 

(193

)

 

 

 

Issuance of common shares

   related to employee stock

   transactions

 

 

(612

)

 

 

 

 

 

 

 

 

621

 

 

 

9

 

 

 

 

 

 

9

 

 

 

 

Employee tax withholdings

   related to employee stock

   transactions

 

 

 

 

 

 

 

 

 

 

 

(308

)

 

 

(308

)

 

 

 

 

 

(308

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

(825

)

 

 

(825

)

 

 

 

 

 

(825

)

 

 

 

Subscriptions (redemptions/

   distributions) —

   noncontrolling interest

   holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(14

)

 

 

338

 

Net consolidations

  (deconsolidations) of

   sponsored

   investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

14

 

 

 

(240

)

Other comprehensive

   income (loss)

 

 

 

 

 

 

 

 

243

 

 

 

 

 

 

243

 

 

 

 

 

 

243

 

 

 

 

Adoption of new accounting

   pronouncement

 

 

3

 

 

 

(2

)

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

September 30, 2017

 

$

19,147

 

 

$

15,065

 

 

$

(473

)

 

$

(3,697

)

 

$

30,042

 

 

$

55

 

 

$

30,097

 

 

$

320

 

 

(1) 

Amounts include $2 million of common stock at both September 30, 2017 and December 31, 2016.

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(unaudited)

 

(in millions)

 

Additional

Paid-in

Capital(1)

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

Common

 

 

Total

BlackRock

Stockholders’

Equity

 

 

Nonredeemable

Noncontrolling

Interests

 

 

Total

Permanent

Equity

 

 

Redeemable

Noncontrolling

Interests /

Temporary

Equity

 

December 31, 2015

 

$

19,407

 

 

$

12,033

 

 

$

(448

)

 

$

(2,489

)

 

$

28,503

 

 

$

77

 

 

$

28,580

 

 

$

464

 

Net income

 

 

 

 

 

2,321

 

 

 

 

 

 

 

 

 

2,321

 

 

 

(2

)

 

 

2,319

 

 

 

 

Dividends paid

 

 

 

 

 

(1,171

)

 

 

 

 

 

 

 

 

(1,171

)

 

 

 

 

 

(1,171

)

 

 

 

Stock-based compensation

 

 

408

 

 

 

 

 

 

 

 

 

 

 

 

408

 

 

 

 

 

 

408

 

 

 

 

PNC preferred stock capital

    contribution

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

172

 

 

 

 

 

 

172

 

 

 

 

Retirement of preferred stock

 

 

(172

)

 

 

 

 

 

 

 

 

 

 

 

(172

)

 

 

 

 

 

(172

)

 

 

 

Issuance of common shares

    related to employee stock

    transactions

 

 

(654

)

 

 

 

 

 

 

 

 

688

 

 

 

34

 

 

 

 

 

 

34

 

 

 

 

Employee tax withholdings

    related to employee stock

    transactions

 

 

 

 

 

 

 

 

 

 

 

(268

)

 

 

(268

)

 

 

 

 

 

(268

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

(850

)

 

 

(850

)

 

 

 

 

 

(850

)

 

 

 

Net tax benefit (shortfall) from

   stock-based compensation

 

 

77

 

 

 

 

 

 

 

 

 

 

 

 

77

 

 

 

 

 

 

77

 

 

 

 

Subscriptions (redemptions/

    distributions) —

    noncontrolling interest

    holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

(18

)

 

 

1,017

 

Net consolidations

    (deconsolidations) of

     sponsored

     investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(881

)

Other comprehensive

    income (loss)

 

 

 

 

 

 

 

 

(150

)

 

 

 

 

 

(150

)

 

 

 

 

 

(150

)

 

 

 

September 30, 2016

 

$

19,238

 

 

$

13,183

 

 

$

(598

)

 

$

(2,919

)

 

$

28,904

 

 

$

57

 

 

$

28,961

 

 

$

600

 

 

(1) 

Amounts include $2 million of common stock at both September 30, 2016 and December 31, 2015.

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Nine Months Ended

 

(in millions)

 

September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

2,697

 

 

$

2,319

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

190

 

 

 

198

 

Stock-based compensation

 

 

417

 

 

 

408

 

Deferred income tax expense (benefit)

 

 

175

 

 

 

(6

)

Assets and liabilities of consolidated VIEs:

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

(19

)

 

 

(127

)

Net (gains) losses within consolidated VIEs

 

 

(95

)

 

 

(34

)

Net (purchases) proceeds within consolidated VIEs

 

 

(148

)

 

 

(855

)

(Earnings) losses from equity method investees

 

 

(92

)

 

 

(71

)

Distributions of earnings from equity method investees

 

 

24

 

 

 

16

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(776

)

 

 

(336

)

Investments, trading

 

 

(145

)

 

 

(278

)

Other assets

 

 

(190

)

 

 

(114

)

Accrued compensation and benefits

 

 

(267

)

 

 

(484

)

Accounts payable and accrued liabilities

 

 

595

 

 

 

309

 

Other liabilities

 

 

120

 

 

 

17

 

Cash flows from operating activities

 

 

2,486

 

 

 

962

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(400

)

 

 

(292

)

Proceeds from sales and maturities of investments

 

 

121

 

 

 

215

 

Distributions of capital from equity method investees

 

 

26

 

 

 

26

 

Net consolidations (deconsolidations) of sponsored investment funds

 

 

(35

)

 

 

(74

)

Acquisitions

 

 

(102

)

 

 

(30

)

Purchases of property and equipment

 

 

(100

)

 

 

(88

)

Cash flows from investing activities

 

 

(490

)

 

 

(243

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

697

 

 

 

 

Repayments of long-term borrowings

 

 

(700

)