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Section 1: 10-Q (10-Q)

blk-10q_20180930.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, 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, every Interactive Data File required to be submitted 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 such files).  

Yes

 

X

 

No

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

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, 2018, there were 157,712,287 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)

 

 

 

September 30,

 

 

December 31,

 

(in millions, except shares and per share data)

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,358

 

 

$

6,894

 

Accounts receivable

 

 

2,682

 

 

 

2,699

 

Investments

 

 

1,760

 

 

 

1,981

 

Assets of consolidated variable interest entities:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

222

 

 

 

144

 

Investments

 

 

2,217

 

 

 

1,493

 

Other assets

 

 

179

 

 

 

66

 

Separate account assets

 

 

107,982

 

 

 

149,937

 

Separate account collateral held under securities lending agreements

 

 

19,575

 

 

 

24,190

 

Property and equipment (net of accumulated depreciation of $765 and $658 at September 30,

   2018 and December 31, 2017, respectively)

 

 

588

 

 

 

592

 

Intangible assets (net of accumulated amortization of $229 and $219 at September 30, 2018

   and December 31, 2017, respectively)

 

 

17,854

 

 

 

17,389

 

Goodwill

 

 

13,526

 

 

 

13,220

 

Other assets

 

 

1,919

 

 

 

1,636

 

Total assets

 

$

174,862

 

 

$

220,241

 

Liabilities

 

 

 

 

 

 

 

 

Accrued compensation and benefits

 

$

1,611

 

 

$

2,153

 

Accounts payable and accrued liabilities

 

 

1,403

 

 

 

1,161

 

Liabilities of consolidated variable interest entities:

 

 

 

 

 

 

 

 

Borrowings

 

 

44

 

 

 

 

Other liabilities

 

 

514

 

 

 

369

 

Borrowings

 

 

4,991

 

 

 

5,014

 

Separate account liabilities

 

 

107,982

 

 

 

149,937

 

Separate account collateral liabilities under securities lending agreements

 

 

19,575

 

 

 

24,190

 

Deferred income tax liabilities

 

 

3,555

 

 

 

3,527

 

Other liabilities

 

 

2,114

 

 

 

1,626

 

Total liabilities

 

 

141,789

 

 

 

187,977

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Temporary equity

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

603

 

 

 

416

 

Permanent Equity

 

 

 

 

 

 

 

 

BlackRock, Inc. stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value;

 

 

2

 

 

 

2

 

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

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

Shares outstanding: 158,837,718 and 159,977,115 at September 30, 2018 and

December 31, 2017, respectively

 

 

 

 

 

 

 

 

Preferred stock (Note 17)

 

 

 

 

 

 

Additional paid-in capital

 

 

19,048

 

 

 

19,256

 

Retained earnings

 

 

18,852

 

 

 

16,939

 

Accumulated other comprehensive loss

 

 

(616

)

 

 

(432

)

Treasury stock, common, at cost (12,414,467 and 11,275,070 shares held at September 30, 2018 and

   December 31, 2017, respectively)

 

 

(4,871

)

 

 

(3,967

)

Total BlackRock, Inc. stockholders’ equity

 

 

32,415

 

 

 

31,798

 

Nonredeemable noncontrolling interests

 

 

55

 

 

 

50

 

Total permanent equity

 

 

32,470

 

 

 

31,848

 

Total liabilities, temporary equity and permanent equity

 

$

174,862

 

 

$

220,241

 

 

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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment advisory, administration fees and

  securities lending revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related parties

 

$

2,045

 

 

$

1,982

 

 

$

6,244

 

 

$

5,627

 

Other third parties

 

 

838

 

 

 

799

 

 

 

2,530

 

 

 

2,344

 

Total investment advisory, administration fees and

   securities lending revenue

 

 

2,883

 

 

 

2,781

 

 

 

8,774

 

 

 

7,971

 

Investment advisory performance fees

 

 

151

 

 

 

191

 

 

 

312

 

 

 

309

 

Technology services revenue

 

 

200

 

 

 

169

 

 

 

582

 

 

 

481

 

Distribution fees

 

 

279

 

 

 

298

 

 

 

884

 

 

 

877

 

Advisory and other revenue

 

 

63

 

 

 

69

 

 

 

212

 

 

 

198

 

Total revenue

 

 

3,576

 

 

 

3,508

 

 

 

10,764

 

 

 

9,836

 

Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

1,097

 

 

 

1,087

 

 

 

3,300

 

 

 

3,106

 

Distribution and servicing costs

 

 

408

 

 

 

419

 

 

 

1,255

 

 

 

1,230

 

Direct fund expense

 

 

249

 

 

 

231

 

 

 

774

 

 

 

658

 

General and administration

 

 

413

 

 

 

355

 

 

 

1,189

 

 

 

996

 

Amortization of intangible assets

 

 

13

 

 

 

27

 

 

 

35

 

 

 

77

 

Total expense

 

 

2,180

 

 

 

2,119

 

 

 

6,553

 

 

 

6,067

 

Operating income

 

 

1,396

 

 

 

1,389

 

 

 

4,211

 

 

 

3,769

 

Nonoperating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on investments

 

 

50

 

 

 

41

 

 

 

68

 

 

 

128

 

Interest and dividend income

 

 

29

 

 

 

15

 

 

 

63

 

 

 

35

 

Interest expense

 

 

(46

)

 

 

(46

)

 

 

(138

)

 

 

(159

)

Total nonoperating income (expense)

 

 

33

 

 

 

10

 

 

 

(7

)

 

 

4

 

Income before income taxes

 

 

1,429

 

 

 

1,399

 

 

 

4,204

 

 

 

3,773

 

Income tax expense

 

 

226

 

 

 

443

 

 

 

829

 

 

 

1,085

 

Net income

 

 

1,203

 

 

 

956

 

 

 

3,375

 

 

 

2,688

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to noncontrolling

   interests

 

 

(13

)

 

 

12

 

 

 

(3

)

 

 

31

 

Net income attributable to BlackRock, Inc.

 

$

1,216

 

 

$

944

 

 

$

3,378

 

 

$

2,657

 

Earnings per share attributable to BlackRock, Inc.

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

7.59

 

 

$

5.83

 

 

$

21.01

 

 

$

16.35

 

Diluted

 

$

7.54

 

 

$

5.76

 

 

$

20.83

 

 

$

16.17

 

Cash dividends declared and paid per share

 

$

3.13

 

 

$

2.50

 

 

$

8.89

 

 

$

7.50

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

160,141,506

 

 

 

161,872,716

 

 

 

160,786,768

 

 

 

162,459,737

 

Diluted

 

 

161,378,217

 

 

 

163,773,546

 

 

 

162,140,879

 

 

 

164,289,042

 

 

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,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Net income

 

$

1,203

 

 

$

956

 

 

$

3,375

 

 

$

2,688

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments(1)

 

 

(41

)

 

 

102

 

 

 

(176

)

 

 

244

 

 

Other

 

 

 

 

 

 

 

 

(2

)

 

 

(1

)

 

Other comprehensive income (loss)

 

 

(41

)

 

 

102

 

 

 

(178

)

 

 

243

 

 

Comprehensive income

 

 

1,162

 

 

 

1,058

 

 

 

3,197

 

 

 

2,931

 

 

Less: Comprehensive income (loss) attributable to

     noncontrolling interests

 

 

(13

)

 

 

12

 

 

 

(3

)

 

 

31

 

 

Comprehensive income attributable to BlackRock, Inc.

 

$

1,175

 

 

$

1,046

 

 

$

3,200

 

 

$

2,900

 

 

 

(1) 

Amounts for the three months ended September 30, 2018 and 2017 include a gain from a net investment hedge of $4 million (net of a tax expense of $1 million) and a loss of $18 million (net of a tax benefit of $11 million), respectively. Amounts for the nine months ended September 30, 2018 and 2017 include a gain from a net investment hedge of $22 million (net of a tax expense of $7 million) and a loss of $56 million (net of a tax benefit of $33 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

 

 

 

 

 

3,378

 

 

 

 

 

 

 

 

 

3,378

 

 

 

1

 

 

 

3,379

 

 

 

(4

)

Dividends paid

 

 

 

 

 

(1,471

)

 

 

 

 

 

 

 

 

(1,471

)

 

 

 

 

 

(1,471

)

 

 

 

Stock-based compensation

 

 

431

 

 

 

 

 

 

 

 

 

 

 

 

431

 

 

 

 

 

 

431

 

 

 

 

PNC preferred stock capital contribution

 

 

58

 

 

 

 

 

 

 

 

 

 

 

 

58

 

 

 

 

 

 

58

 

 

 

 

Retirement of preferred stock

 

 

(58

)

 

 

 

 

 

 

 

 

 

 

 

(58

)

 

 

 

 

 

(58

)

 

 

 

Issuance of common shares related to employee stock

   transactions

 

 

(639

)

 

 

 

 

 

 

 

 

651

 

 

 

12

 

 

 

 

 

 

12

 

 

 

 

Employee tax withholdings related to employee stock

   transactions

 

 

 

 

 

 

 

 

 

 

 

(420

)

 

 

(420

)

 

 

 

 

 

(420

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

(1,135

)

 

 

(1,135

)

 

 

 

 

 

(1,135

)

 

 

 

Subscriptions (redemptions/distributions) — noncontrolling

   interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

742

 

Net consolidations (deconsolidations) of sponsored

  investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(551

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

(178

)

 

 

 

 

 

(178

)

 

 

 

 

 

(178

)

 

 

 

Adoption of new accounting pronouncements

 

 

 

 

 

6

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

$

19,050

 

 

$

18,852

 

 

$

(616

)

 

$

(4,871

)

 

$

32,415

 

 

$

55

 

 

$

32,470

 

 

$

603

 

 

(1) 

Amounts include $2 million of common stock at both September 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

 

 

 

 

 

2,657

 

 

 

 

 

 

 

 

 

2,657

 

 

 

3

 

 

 

2,660

 

 

 

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

 

 

$

15,046

 

 

$

(473

)

 

$

(3,697

)

 

$

30,023

 

 

$

55

 

 

$

30,078

 

 

$

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.

 

 

 

5


BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Nine Months Ended

 

(in millions)

 

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

3,375

 

 

$

2,688

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

164

 

 

 

190

 

Stock-based compensation

 

 

431

 

 

 

417

 

Deferred income tax expense (benefit)

 

 

(187

)

 

 

170

 

Other gains

 

 

(50

)

 

 

 

Net (gains) losses within consolidated VIEs

 

 

21

 

 

 

(95

)

Net (purchases) proceeds within consolidated VIEs

 

 

(1,107

)

 

 

(148

)

(Earnings) losses from equity method investees

 

 

(92

)

 

 

(92

)

Distributions of earnings from equity method investees

 

 

23

 

 

 

24

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5

)

 

 

(361

)

Investments, trading

 

 

161

 

 

 

(145

)

Other assets

 

 

(191

)

 

 

(572

)

Accrued compensation and benefits

 

 

(594

)

 

 

(267

)

Accounts payable and accrued liabilities

 

 

164

 

 

 

217

 

Other liabilities

 

 

439

 

 

 

514

 

Cash flows from operating activities

 

 

2,552

 

 

 

2,540

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(259

)

 

 

(400

)

Proceeds from sales and maturities of investments

 

 

400

 

 

 

121

 

Distributions of capital from equity method investees

 

 

18

 

 

 

26

 

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

 

 

(52

)

 

 

(56

)

Acquisitions, net of cash acquired

 

 

(699

)

 

 

(102

)

Purchases of property and equipment

 

 

(108

)

 

 

(100

)

Cash flows from investing activities

 

 

(700

)

 

 

(511

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

 

 

 

697

 

Repayments of long-term borrowings

 

 

 

 

 

(700

)

Cash dividends paid

 

 

(1,471

)

 

 

(1,259

)

Repurchases of common stock

 

 

(1,555

)