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Section 1: 10-Q (10-Q)

blk-10q_20180630.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 June 30, 2018

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 July 31, 2018, there were 159,583,889 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

42

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

74

 

 

 

Item 4.

Controls and Procedures

75

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

76

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

78

 

 

 

Item 6.

Exhibits

79

 

 

 

i


PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

(in millions, except shares and per share data)

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,599

 

 

$

6,894

 

Accounts receivable

 

 

2,567

 

 

 

2,699

 

Investments

 

 

1,813

 

 

 

1,981

 

Assets of consolidated variable interest entities:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

125

 

 

 

144

 

Investments

 

 

1,883

 

 

 

1,493

 

Other assets

 

 

105

 

 

 

66

 

Separate account assets

 

 

126,533

 

 

 

149,937

 

Separate account collateral held under securities lending agreements

 

 

22,960

 

 

 

24,190

 

Property and equipment (net of accumulated depreciation of $728 and $658 at June 30,

   2018 and December 31, 2017, respectively)

 

 

581

 

 

 

592

 

Intangible assets (net of accumulated amortization of $222 and $219 at June 30, 2018

   and December 31, 2017, respectively)

 

 

17,367

 

 

 

17,389

 

Goodwill

 

 

13,215

 

 

 

13,220

 

Other assets

 

 

1,801

 

 

 

1,636

 

Total assets

 

$

195,549

 

 

$

220,241

 

Liabilities

 

 

 

 

 

 

 

 

Accrued compensation and benefits

 

$

1,185

 

 

$

2,153

 

Accounts payable and accrued liabilities

 

 

1,216

 

 

 

1,161

 

Liabilities of consolidated variable interest entities

 

 

467

 

 

 

369

 

Borrowings

 

 

4,994

 

 

 

5,014

 

Separate account liabilities

 

 

126,533

 

 

 

149,937

 

Separate account collateral liabilities under securities lending agreements

 

 

22,960

 

 

 

24,190

 

Deferred income tax liabilities

 

 

3,511

 

 

 

3,527

 

Other liabilities

 

 

1,813

 

 

 

1,626

 

Total liabilities

 

 

162,679

 

 

 

187,977

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Temporary equity

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

686

 

 

 

416

 

Permanent Equity

 

 

 

 

 

 

 

 

BlackRock, Inc. stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value;

 

 

2

 

 

 

2

 

Shares authorized: 500,000,000 at June 30, 2018 and December 31, 2017;

Shares issued: 171,252,185 at June 30, 2018 and December 31, 2017;

Shares outstanding: 159,812,950 and 159,977,115 at June 30, 2018 and

December 31, 2017, respectively

 

 

 

 

 

 

 

 

Preferred stock (Note 17)

 

 

 

 

 

 

Additional paid-in capital

 

 

18,953

 

 

 

19,256

 

Retained earnings

 

 

18,138

 

 

 

16,939

 

Accumulated other comprehensive loss

 

 

(575

)

 

 

(432

)

Treasury stock, common, at cost (11,439,235 and 11,275,070 shares held at June 30, 2018 and

   December 31, 2017, respectively)

 

 

(4,388

)

 

 

(3,967

)

Total BlackRock, Inc. stockholders’ equity

 

 

32,130

 

 

 

31,798

 

Nonredeemable noncontrolling interests

 

 

54

 

 

 

50

 

Total permanent equity

 

 

32,184

 

 

 

31,848

 

Total liabilities, temporary equity and permanent equity

 

$

195,549

 

 

$

220,241

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

1


BlackRock, Inc.

Condensed Consolidated Statements of Income

(unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

(in millions, except shares and per share data)

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment advisory, administration fees and

  securities lending revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related parties

 

$

2,087

 

 

$

1,877

 

 

$

4,199

 

 

$

3,645

 

Other third parties

 

 

857

 

 

 

790

 

 

 

1,692

 

 

 

1,545

 

Total investment advisory, administration fees and

   securities lending revenue

 

 

2,944

 

 

 

2,667

 

 

 

5,891

 

 

 

5,190

 

Investment advisory performance fees

 

 

91

 

 

 

48

 

 

 

161

 

 

 

118

 

Technology services revenue

 

 

198

 

 

 

158

 

 

 

382

 

 

 

312

 

Distribution fees

 

 

294

 

 

 

292

 

 

 

605

 

 

 

579

 

Advisory and other revenue

 

 

78

 

 

 

71

 

 

 

149

 

 

 

129

 

Total revenue

 

 

3,605

 

 

 

3,236

 

 

 

7,188

 

 

 

6,328

 

Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

1,082

 

 

 

998

 

 

 

2,203

 

 

 

2,019

 

Distribution and servicing costs

 

 

415

 

 

 

410

 

 

 

847

 

 

 

811

 

Direct fund expense

 

 

264

 

 

 

221

 

 

 

525

 

 

 

427

 

General and administration

 

 

393

 

 

 

345

 

 

 

776

 

 

 

641

 

Amortization of intangible assets

 

 

11

 

 

 

25

 

 

 

22

 

 

 

50

 

Total expense

 

 

2,165

 

 

 

1,999

 

 

 

4,373

 

 

 

3,948

 

Operating income

 

 

1,440

 

 

 

1,237

 

 

 

2,815

 

 

 

2,380

 

Nonoperating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on investments

 

 

3

 

 

 

36

 

 

 

18

 

 

 

87

 

Interest and dividend income

 

 

19

 

 

 

13

 

 

 

34

 

 

 

20

 

Interest expense

 

 

(46

)

 

 

(48

)

 

 

(92

)

 

 

(113

)

Total nonoperating income (expense)

 

 

(24

)

 

 

1

 

 

 

(40

)

 

 

(6

)

Income before income taxes

 

 

1,416

 

 

 

1,238

 

 

 

2,775

 

 

 

2,374

 

Income tax expense

 

 

338

 

 

 

374

 

 

 

603

 

 

 

642

 

Net income

 

 

1,078

 

 

 

864

 

 

 

2,172

 

 

 

1,732

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to noncontrolling

   interests

 

 

5

 

 

 

10

 

 

 

10

 

 

 

19

 

Net income attributable to BlackRock, Inc.

 

$

1,073

 

 

$

854

 

 

$

2,162

 

 

$

1,713

 

Earnings per share attributable to BlackRock, Inc.

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

6.67

 

 

$

5.26

 

 

$

13.42

 

 

$

10.52

 

Diluted

 

$

6.62

 

 

$

5.20

 

 

$

13.30

 

 

$

10.41

 

Cash dividends declared and paid per share

 

$

2.88

 

 

$

2.50

 

 

$

5.76

 

 

$

5.00

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

160,980,960

 

 

 

162,502,465

 

 

 

161,114,746

 

 

 

162,758,112

 

Diluted

 

 

162,161,937

 

 

 

164,149,861

 

 

 

162,532,637

 

 

 

164,544,760

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

(in millions)

 

June 30,

 

 

June 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Net income

 

$

1,078

 

 

$

864

 

 

$

2,172

 

 

$

1,732

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments(1)

 

 

(272

)

 

 

102

 

 

 

(135

)

 

 

142

 

 

Other

 

 

(2

)

 

 

 

 

 

(2

)

 

 

(1

)

 

Other comprehensive income (loss)

 

 

(274

)

 

 

102

 

 

 

(137

)

 

 

141

 

 

Comprehensive income

 

 

804

 

 

 

966

 

 

 

2,035

 

 

 

1,873

 

 

Less: Comprehensive income (loss) attributable to

     noncontrolling interests

 

 

5

 

 

 

10

 

 

 

10

 

 

 

19

 

 

Comprehensive income attributable to BlackRock, Inc.

 

$

799

 

 

$

956

 

 

$

2,025

 

 

$

1,854

 

 

 

(1) 

Amounts for the three months ended June 30, 2018 and 2017 include a gain from a net investment hedge of $34 million (net of tax of $11 million) and a loss of $31 million (net of a tax benefit of $18 million), respectively. Amounts for the six months ended June 30, 2018 and 2017 include a gain from a net investment hedge of $18 million (net of tax of $6 million) and a loss of $38 million (net of tax benefit of $22 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, 2017

 

$

19,258

 

 

$

16,939

 

 

$

(432

)

 

$

(3,967

)

 

$

31,798

 

 

$

50

 

 

$

31,848

 

 

$

416

 

Net income

 

 

 

 

 

2,162

 

 

 

 

 

 

 

 

 

2,162

 

 

 

9

 

 

 

2,171

 

 

 

1

 

Dividends paid

 

 

 

 

 

(969

)

 

 

 

 

 

 

 

 

(969

)

 

 

 

 

 

(969

)

 

 

 

Stock-based compensation

 

 

310

 

 

 

 

 

 

 

 

 

 

 

 

310

 

 

 

 

 

 

310

 

 

 

 

PNC preferred stock capital contribution

 

 

58

 

 

 

 

 

 

 

 

 

 

 

 

58

 

 

 

 

 

 

58

 

 

 

 

Retirement of preferred stock

 

 

(58

)

 

 

 

 

 

 

 

 

 

 

 

(58

)

 

 

 

 

 

(58

)

 

 

 

Issuance of common shares related to employee stock

   transactions

 

 

(613

)

 

 

 

 

 

 

 

 

619

 

 

 

6

 

 

 

 

 

 

6

 

 

 

 

Employee tax withholdings related to employee stock

   transactions

 

 

 

 

 

 

 

 

 

 

 

(405

)

 

 

(405

)

 

 

 

 

 

(405

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

(635

)

 

 

(635

)

 

 

 

 

 

(635

)

 

 

 

Subscriptions (redemptions/distributions) — noncontrolling

   interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

 

 

535

 

Net consolidations (deconsolidations) of sponsored

  investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(266

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

(137

)

 

 

 

 

 

(137

)

 

 

 

 

 

(137

)

 

 

 

Adoption of new accounting pronouncements

 

 

 

 

 

6

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

$

18,955

 

 

$

18,138

 

 

$

(575

)

 

$

(4,388

)

 

$

32,130

 

 

$

54

 

 

$

32,184

 

 

$

686

 

 

(1) 

Amounts include $2 million of common stock at both June 30, 2018 and December 31, 2017.

 

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, 2016

 

$

19,339

 

 

$

13,650

 

 

$

(716

)

 

$

(3,185

)

 

$

29,088

 

 

$

52

 

 

$

29,140

 

 

$

194

 

Net income

 

 

 

 

 

1,713

 

 

 

 

 

 

 

 

 

1,713

 

 

 

2

 

 

 

1,715

 

 

 

17

 

Dividends paid

 

 

 

 

 

(854

)

 

 

 

 

 

 

 

 

(854

)

 

 

 

 

 

(854

)

 

 

 

Stock-based compensation

 

 

290

 

 

 

 

 

 

 

 

 

 

 

 

290

 

 

 

 

 

 

290

 

 

 

 

PNC preferred stock capital

    contribution

 

 

193

 

 

 

 

 

 

 

 

 

 

 

 

193

 

 

 

 

 

 

193

 

 

 

 

Retirement of preferred stock

 

 

(193

)

 

 

 

 

 

 

 

 

 

 

 

(193

)

 

 

 

 

 

(193

)

 

 

 

Issuance of common shares related to employee stock

   transactions

 

 

(592

)

 

 

 

 

 

 

 

 

598

 

 

 

6

 

 

 

 

 

 

6

 

 

 

 

Employee tax withholdings related to employee stock

   transactions

 

 

 

 

 

 

 

 

 

 

 

(296

)

 

 

(296

)

 

 

 

 

 

(296

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

(550

)

 

 

(550

)

 

 

 

 

 

(550

)

 

 

 

Subscriptions (redemptions/distributions) — noncontrolling

   interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

 

 

256

 

Net consolidations (deconsolidations) of sponsored

  investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

14

 

 

 

(196

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

141

 

 

 

 

 

 

141

 

 

 

 

 

 

141

 

 

 

 

Adoption of new accounting pronouncement

 

 

3

 

 

 

(2

)

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

June 30, 2017

 

$

19,040

 

 

$

14,507

 

 

$

(575

)

 

$

(3,433

)

 

$

29,539

 

 

$

61

 

 

$

29,600

 

 

$

271

 

 

(1) 

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

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended

 

(in millions)

 

June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

2,172

 

 

$

1,732

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

107

 

 

 

125

 

Stock-based compensation

 

 

310

 

 

 

290

 

Deferred income tax expense (benefit)

 

 

2

 

 

 

171

 

Net (gains) losses within consolidated VIEs

 

 

12

 

 

 

(66

)

Net (purchases) proceeds within consolidated VIEs

 

 

(531

)

 

 

(122

)

(Earnings) losses from equity method investees

 

 

(65

)

 

 

(60

)

Distributions of earnings from equity method investees

 

 

17

 

 

 

13

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

78

 

 

 

(156

)

Investments, trading

 

 

36

 

 

 

(128

)

Other assets

 

 

(178

)

 

 

(748

)

Accrued compensation and benefits

 

 

(992

)

 

 

(740

)

Accounts payable and accrued liabilities

 

 

27

 

 

 

84

 

Other liabilities

 

 

292

 

 

 

785

 

Cash flows from operating activities

 

 

1,287

 

 

 

1,180

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(200

)

 

 

(308

)

Proceeds from sales and maturities of investments

 

 

161

 

 

 

64

 

Distributions of capital from equity method investees

 

 

12

 

 

 

18

 

Net consolidations (deconsolidations) of sponsored investment funds (VIEs/VREs)

 

 

(52

)

 

 

(28

)

Acquisition

 

 

 

 

 

(73

)

Purchases of property and equipment

 

 

(63

)

 

 

(55

)

Cash flows from investing activities

 

 

(142

)

 

 

(382

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

 

 

 

697

 

Repayments of long-term borrowings

 

 

 

 

 

(700

)

Cash dividends paid

 

 

(969

)

 

 

(854

)

Repurchases of common stock

 

 

(1,040

)

 

 

(846

)

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

   interest holders

 

 

530

 

 

 

249

 

Other financing activities

 

 

6

 

 

 

(9

)

Cash flows from financing activities

 

 

(1,473

)

 

 

(1,463

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash