10-Q 1 d14172d10q.htm FORM 10-Q Form 10-Q
Table of Contents

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 June 30, 2015

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

 

 

LOGO

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 July 31, 2015, there were 163,636,449 shares of the registrant’s common stock outstanding.


Table of Contents

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      38   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      67   
Item 4.    Controls and Procedures      69   

PART II

OTHER INFORMATION

 

Item 1.    Legal Proceedings      70   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      71   
Item 6.    Exhibits      72   

 

i


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1.    Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(unaudited)

 

(in millions, except shares and per share data)    June 30,
2015
    December 31,
2014
 

Assets

    

Cash and cash equivalents

     $    4,907        $    5,723   

Accounts receivable

     2,347        2,120   

Investments

     1,436        1,921   

Assets of consolidated variable interest entities:

    

Cash and cash equivalents

     64        278   

Investments

     901        3,320   

Other assets

     40        32   

Separate account assets

     162,911        161,287   

Separate account collateral held under securities lending agreements

     32,437        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   

Goodwill

     12,970        12,961   

Other assets

     1,056        685   
  

 

 

   

 

 

 

Total assets

                     $237,008                        $239,792   
  

 

 

   

 

 

 

Liabilities

    

Accrued compensation and benefits

     $    1,137        $    1,865   

Accounts payable and accrued liabilities

     1,284        1,035   

Liabilities of consolidated variable interest entities:

    

Borrowings

     -        3,389   

Other liabilities

     192        245   

Borrowings

     4,947        4,922   

Separate account liabilities

     162,911        161,287   

Separate account collateral liabilities under securities lending agreements

     32,437        33,654   

Deferred income tax liabilities

     4,999        4,989   

Other liabilities

     971        886   
  

 

 

   

 

 

 

Total liabilities

     208,878        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   

Permanent Equity

    

BlackRock, Inc. stockholders’ equity

    

Common stock, $0.01 par value;

     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

    

Preferred stock (Note 15)

     -        -   

Additional paid-in capital

     19,252        19,386   

Retained earnings

     11,052        10,164   

Appropriated retained earnings

     -        (19

Accumulated other comprehensive loss

     (339     (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
  

 

 

   

 

 

 

Total BlackRock, Inc. stockholders’ equity

     27,776        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   
  

 

 

   

 

 

 

Total permanent equity

     27,872        27,485   
  

 

 

   

 

 

 

Total liabilities, temporary equity and permanent equity

     $237,008        $239,792   
  

 

 

   

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

BlackRock, Inc.

Condensed Consolidated Statements of Income

(unaudited)

 

(in millions, except shares and per share data)   Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2015     2014     2015     2014  

Revenue

       

Investment advisory, administration fees and securities lending revenue

       

Related parties

    $1,766        $1,689        $3,447        $3,300   

Other third parties

    768        745        1,477        1,425   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment advisory, administration fees and securities lending revenue

    2,534        2,434        4,924        4,725   

Investment advisory performance fees

    136        115        244        273   

BlackRock Solutions and advisory

    161        146        308        300   

Distribution fees

    13        18        30        37   

Other revenue

    61        65        122        113   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    2,905        2,778        5,628        5,448   

Expense

       

Employee compensation and benefits

    1,012        948        1,993        1,930   

Distribution and servicing costs

    105        89        204        178   

Amortization of deferred sales commissions

    12        14        25        29   

Direct fund expense

    191        187        380        366   

General and administration

    312        377        651        690   

Amortization of intangible assets

    35        41        70        82   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expense

    1,667        1,656        3,323        3,275   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    1,238        1,122        2,305        2,173   

Nonoperating income (expense)

       

Net gain (loss) on investments

    (6     45        53        121   

Net gain (loss) on consolidated variable interest entities

    12        28        16        12   

Interest and dividend income

    5        3        9        13   

Interest expense

    (52     (60     (103     (113
 

 

 

   

 

 

   

 

 

   

 

 

 

Total nonoperating income (expense)

    (41     16        (25     33   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    1,197        1,138        2,280        2,206   

Income tax expense

    371        297        629        621   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    826        841        1,651        1,585   

Less:

       

Net income (loss) attributable to redeemable noncontrolling interests

    3        1        7        2   

Net income (loss) attributable to nonredeemable noncontrolling interests

    4        32        3        19   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to BlackRock, Inc.

    $819        $808        $1,641        $1,564   
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to BlackRock, Inc. common stockholders:

       

Basic

    $4.92        $4.79        $9.84        $9.26   

Diluted

    $4.84        $4.72        $9.69        $9.12   

Cash dividends declared and paid per share

    $2.18        $1.93        $4.36        $3.86   

Weighted-average common shares outstanding:

       

Basic

    166,616,558        168,712,221        166,851,492        168,895,801   

Diluted

    169,114,759        171,150,153        169,418,964        171,540,018   

 

 

See accompanying notes to condensed consolidated financial statements.

 

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BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

 

(in millions)        Three Months Ended    
June 30,
        Six Months Ended    
June 30,
 
       2015          2014         2015         2014    

Net income

   $ 826      $ 841      $ 1,651      $ 1,585   

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   

Less: reclassification adjustment included in net income(1)

     -        (2     -        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change from available-for-sale investments, net of tax

     (1     6        (1     (2

Benefit plans, net

     -        -        (1     -   

Foreign currency translation adjustments(2)

     101        30        (64     38   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     100        36        (66     36   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     926        877        1,585        1,621   

Less: Comprehensive income (loss) attributable to noncontrolling interests

     7        33        10        21   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to BlackRock, Inc.

   $ 919      $ 844      $ 1,575      $ 1,600   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)

The tax benefit (expense) was not material for the three and six months ended June 30, 2015 and 2014.

(2) 

Amounts in the three and six months ended June 30, 2015 include gains from a net investment hedge of $7 million, net of tax of $4 million.

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

BlackRock, Inc.

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     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  

 

(1) 

Amounts include $2 million of common stock at both June 30, 2015 and December 31, 2014.

(2) 

Amounts include noncontrolling interests of consolidated variable interest entities (“VIEs”).

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

BlackRock, Inc.

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
 

December 31, 2013

    $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     

Allocation of gains (losses) of consolidated collateralized loan obligations

    -          -          11          -          -          11          -          (11 )     -          -     

Dividends paid

    -          (692)         -          -          -          (692)         -          -          (692)         -     

Stock-based compensation

    236          -          -          -          -          236          -          -          236          -     

Issuance of common shares related to employee stock transactions

    (621)         -          -          -          626          5          -          -          5          -     

Employee tax withholdings related to employee stock transactions

    -          -          -          -          (332)         (332)         -          -          (332)         -     

Shares repurchased

    -          -          -          -          (500)         (500)         -          -          (500)         -     

Net tax benefit (shortfall) from stock-based compensation

    93          -          -          -          -          93          -          -          93          -     

Subscriptions (redemptions/distributions)-noncontrolling interest holders

    -          -          -          -          -          -          (22)         (4)         (26)         184     

Net consolidations (deconsolidations) of sponsored investment funds

    -          -          -          -          -          -          -          -          -          (193)    

Other comprehensive income (loss)

    -          -          -          36          -          36          -          -          36          -     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2014

      $19,183            $9,080              $33              $1            ($1,416)            $26,881            $120              $18              $27,019              $47     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) 

Amounts include $2 million of common stock at both June 30, 2014 and December 31, 2013.

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

(in millions)        Six Months Ended    
June 30,
     2015   2014

Cash flows from operating activities

    

Net income

     $1,651          $1,585     

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

    

Depreciation and amortization

     128        145   

Amortization of deferred sales commissions

     25        29   

Stock-based compensation

     269        236   

Deferred income tax expense (benefit)

     -        102   

Other gains

     (40     -   

Net (gains) losses on nontrading investments

     6        (54

Purchases of investments within consolidated sponsored investment funds

     (1     (139

Proceeds from sales and maturities of investments within consolidated sponsored investment funds

     1        84   

Assets and liabilities of consolidated VIEs:

    

Change in cash and cash equivalents

     (14     (209

Net (gains) losses within consolidated VIEs

     (16     (12

Net (purchases) proceeds within consolidated VIEs

     (122     (131

(Earnings) losses from equity method investees

     (51     (92

Distributions of earnings from equity method investees

     25        22   

Changes in operating assets and liabilities:

    

Accounts receivable

     (253     (1,964

Investments, trading

     (425     (102

Other assets

     (291     (234

Accrued compensation and benefits

     (732     (668

Accounts payable and accrued liabilities

     233        2,011   

Other liabilities

     103        (77
  

 

 

 

 

 

 

 

Cash flows from operating activities

     496        532   
  

 

 

 

 

 

 

 

Cash flows from investing activities

    

Purchases of investments

     (162     (239

Proceeds from sales and maturities of investments

     314        337   

Distributions of capital from equity method investees

     46        33   

Net consolidations (deconsolidations) of sponsored investment funds

     (81     (3

Acquisition

     (88     -   

Purchases of property and equipment

     (134     (34
  

 

 

 

 

 

 

 

Cash flows from investing activities

     (105     94   
  

 

 

 

 

 

 

 

Cash flows from financing activities

    

Proceeds from long-term borrowings

     787        997   

Repayments of long-term borrowings

     (750     -   

Cash dividends paid

     (753     (692

Repurchases of common stock

     (777     (832

Net proceeds from (repayments of) borrowings by consolidated VIEs

     -        344   

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

     229        158   

Excess tax benefit from stock-based compensation

     67        93   

Other financing activities

     6        (1
  

 

 

 

 

 

 

 

Cash flows from financing activities

     (1,191     67   
  

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (16     44   
  

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

     (816     737   

Cash and cash equivalents, beginning of period

     5,723        4,390   
  

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

       $4,907          $5,127   
  

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for:

    

Interest

     $99        $100   

Interest on borrowings of consolidated VIEs

     $-        $48   

Income taxes (net of refunds)

     $708        $696   

Supplemental schedule of noncash investing and financing transactions:

    

Issuance of common stock

     $470        $621   

Increase (decrease) in noncontrolling interests due to net consolidation (deconsolidation) of sponsored investment funds

     ($39     ($193

Increase (decrease) in borrowings due to deconsolidation of VIEs

     ($3,389     $-   

 

 

See accompanying notes to condensed consolidated financial statements.

 

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BlackRock, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1.  Business Overview

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) is a leading publicly traded investment management firm providing a broad range of investment and risk management services to institutional and retail clients worldwide.

BlackRock’s diverse platform of active (alpha) and index (beta) investment strategies across asset classes enables the Company to tailor investment outcomes and asset allocation solutions for clients. Product offerings include single- and multi-asset class portfolios investing in equities, fixed income, alternatives and money market instruments. Products are offered directly and through intermediaries in a variety of vehicles, including open-end and closed-end mutual funds, iShares® exchange-traded funds (“ETFs”), separate accounts, collective investment funds and other pooled investment vehicles. BlackRock also offers the BlackRock Solutions® investment and risk management technology platform, Aladdin®, risk analytics and advisory services and solutions to a broad base of institutional investors.

At June 30, 2015, The PNC Financial Services Group, Inc. (“PNC”) held 21.0% of the Company’s voting common stock and 22.0% 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 June 30, 2015 and for the three and six months ended June 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 Six Months Ended June 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

 

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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.

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 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, $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 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 million and $692 million as of June 30, 2015 and December 31, 2014, respectively, of NAV investments were 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.

 

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Level 2 Inputs:

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies.

 

   

Level 2 assets may include debt securities, bank loans, short-term floating-rate notes, asset-backed securities, securities held within consolidated hedge funds, restricted public securities valued at a discount, as well as over-the-counter derivatives, including interest and inflation rate swaps and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.

Level 3 Inputs:

Unobservable inputs for the valuation of the asset or liability, which may include nonbinding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation.

 

   

Level 3 assets may include direct private equity investments held within consolidated funds, 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”) 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-

 

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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.

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.

 

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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 six months ended June 30, 2015, these waivers resulted in a reduction of management fees of approximately $37 million and $80 million, respectively. Approximately 45% of Yield Support waivers were offset by a reduction of BlackRock’s distribution and servicing costs paid to a financial intermediary. BlackRock has provided Yield Support waivers in prior periods and may increase or decrease the level of fee waivers in future periods.

Separate Account Assets and Liabilities.    Separate account assets are maintained by BlackRock Life Limited, a wholly owned subsidiary of the Company, which is a registered life insurance company in the United Kingdom, and represent segregated assets held for purposes of funding individual and group pension contracts. The life insurance company does not underwrite any insurance contracts that involve any insurance risk transfer from the insured to the life insurance company. The separate account assets primarily include equity securities, debt securities, money market funds and derivatives. The separate account assets are not subject to general claims of the creditors of BlackRock. These separate account assets and the related equal and offsetting liabilities are recorded as separate account assets and separate account liabilities on the condensed consolidated statements of financial condition.

The net investment income attributable to separate account assets supporting individual and group pension contracts accrues directly to the contract owner and is not reported on the condensed consolidated statements of income. While BlackRock has no economic interest in these separate account assets and liabilities, BlackRock earns policy administration and management fees associated with these products, which are included in investment advisory, administration fees and securities lending revenue on the condensed consolidated statements of income.

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.

 

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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 June 30, 2015 and 2014, the Company had not resold or repledged any of the collateral received under these arrangements. At June 30, 2015 and December 31, 2014, the fair value of loaned securities held by separate accounts was approximately $29.6 billion and $30.6 billion, respectively, and the fair value of the collateral held under these securities lending agreements was approximately $32.4 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.

3.  Investments

A summary of the carrying value of total investments is as follows:

 

(in millions)   June 30,
2015
   December 31,
2014

Available-for-sale investments

    $35           $201     

Held-to-maturity investments

    100           79     

Trading investments:

        

Consolidated sponsored investment funds

    576           443     

Other equity and debt securities

    17           29     

Deferred compensation plan mutual funds

    67           64     
 

 

 

  

 

 

Total trading investments

    660           536     

Other investments:

        

Consolidated sponsored investment funds

    -           270     

Equity method investments

    501           633     

Deferred compensation plan equity method investments

    17           21     

Cost method investments(1)

    96           96     

Carried interest

    27           85     
 

 

 

  

 

 

Total other investments

    641           1,105     
 

 

 

  

 

 

Total investments

                $1,436                       $1,921     
 

 

 

  

 

 

 

(1) 

Amounts primarily include Federal Reserve Bank (“FRB”) Stock.

At June 30, 2015, the Company consolidated $576 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.

 

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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
 
June 30, 2015   Cost   Gains   Losses  

Equity securities of sponsored investment funds

    $35          $2          ($2)          $35   
December 31, 2014                  

Equity securities of sponsored investment funds

            $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 million and $79 million at June 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 June 30, 2015, $86 million of these investments mature within one year and $14 million mature after five years through ten years.

Trading Investments

A summary of the cost and carrying value of trading investments is as follows:

 

(in millions)        June 30, 2015              December 31, 2014      
     Cost      Carrying
Value
     Cost      Carrying
Value
 
  

 

 

    

 

 

 

Trading investments:

     

Deferred compensation plan mutual funds

     $48         $67         $48         $64   

Equity securities/multi-asset mutual funds

     156         156         210         239   

Debt securities/fixed income mutual funds:

           

Corporate debt

     227         226         109         110   

Government debt

     167         169         100         103   

Asset/mortgage backed debt

     42         42         20         20   
  

 

 

    

 

 

 

Total trading investments

         $640                 $660             $487                 $536   
  

 

 

    

 

 

 

At June 30, 2015, trading investments included $436 million of debt securities and $140 million of equity securities held by consolidated sponsored investment funds accounted for as VREs, $67 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.

 

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Other Investments

A summary of the cost and carrying value of other investments is as follows:

 

(in millions)    June 30, 2015      December 31, 2014  
     Cost      Carrying
Value
     Cost      Carrying
Value
 
  

 

 

    

 

 

 

Other investments:

           

Consolidated sponsored investment funds accounted for as VREs

     $-         $-         $268         $270   

Equity method investments

     399         501         518         633   

Deferred compensation plan equity method investments

     16         17         21         21   

Cost method investments:

           

Federal Reserve Bank stock

     93         93         92         92   

Other

     3         3         4         4   
  

 

 

    

 

 

 

Total cost method investments

     96         96         96         96   

Carried interest(1)

     -         27         -         85   
  

 

 

    

 

 

 

Total other investments

             $511                 $641                 $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 June 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 million and $282 million, respectively, at June 30, 2015 and 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 June 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 June 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.

 

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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
 

Cash and cash equivalents

     $120        $120   

Investments:

    

Trading investments

     576        443   

Other investments

     -        270   

Other assets

     35        20   

Other liabilities

     (79     (18

Noncontrolling interests

     (97     (139
  

 

 

   

 

 

 

BlackRock’s net interests in consolidated VREs

                   $555                      $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 June 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. 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, Significant Accounting Policies – Accounting Pronouncements Adopted in the Six Months ended June 30, 2015, for further information on ASU 2015-02.

Consolidated VIEs.    The Company’s consolidated VIEs as of June 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.

 

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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 June 30, 2015 and December 31, 2014 in the following table:

 

(in millions)    June 30, 2015     December 31, 2014  

Assets of consolidated VIEs:

    

Cash and cash equivalents

     $64        $278   

Investments

     901        3,320   

Other assets

     40        32   
  

 

 

   

 

 

 

Total investments and other assets

     941        3,352   

Liabilities of consolidated VIEs:

    

Borrowings

     -        (3,389

Other liabilities

     (192     (245

Appropriated retained earnings

     -        19   

Noncontrolling interests of consolidated VIEs

     (257     (15
  

 

 

   

 

 

 

Total BlackRock net interests in consolidated VIEs

     $556        $-   
  

 

 

   

 

 

 

The Company recorded $12 million and $16 million of nonoperating income, respectively, during the three and six months ended June 30, 2015 related to consolidated VIEs. Net income attributable to noncontrolling interests related to consolidated VIEs during both the three and six months ended June 30, 2015 was $7 million.

The Company recorded $28 million and $12 million of nonoperating income and an equal and offsetting income/loss attributable to nonredeemable noncontrolling interests related to consolidated VIEs during the three and six months ended June 30, 2014, respectively.

Non-Consolidated VIEs.    At June 30, 2015 and December 31, 2014, the Company’s carrying value of assets and liabilities pertaining to its variable interests in 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)
    

Sponsored investment products

     $51         $5         ($6)         $73   

At December 31, 2014

  

CDOs/CLOs

     $-         $2         ($5)         $19   

Other sponsored investment funds:

           

Collective trusts

     -         191         -         191   

Other

     57         177         (3)         234   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $57         $370         ($8)         $444   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) At both June 30, 2015 and December 31, 2014, BlackRock’s maximum risk of loss associated with these VIEs primarily related to collecting  advisory fee receivables and BlackRock’s investments.

The net assets of sponsored investment products that are nonconsolidated VIEs approximated $3 billion at June 30, 2015. Net assets of other sponsored investment funds approximated $1.7 trillion to $1.8 trillion at

 

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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.

6.  Fair Value Disclosures

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
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)
   

June 30,

2015

 
 

 

 

 

Assets:

           

Investments

           

Available-for-sale:

           

Equity securities of sponsored investment funds

  $ 33      $ 2      $ -      $ -      $ -      $ 35       

Held-to-maturity debt securities

    -        -        -        -        100        100       

Trading:

           

Deferred compensation plan mutual funds

    67        -        -        -        -        67       

Equity/Multi-asset mutual funds

    156        -        -        -        -        156       

Debt securities / fixed income mutual funds

    1        436        -        -        -        437       
 

 

 

 

Total trading

    224        436        -        -        -        660       

Other investments:

           

Equity method:

           

Equity and fixed income mutual funds

    135        -        -        -        -        135       

Other

    -        -        -        358        8        366       
 

 

 

 

Total equity method

    135        -        -        358        8        501       

Deferred compensation plan equity method investments

    -        -        -        17        -        17       

Cost method investments

    -        -        -        -        96        96       

Carried interest

    -        -        -        -        27        27       
 

 

 

 

Total investments

    392        438        -        375        231        1,436       
 

 

 

 

Separate account assets

    116,340        45,767        -        -        804        162,911       

Separate account collateral held under securities lending agreements:

           

Equity securities

    28,664        -        -        -        -        28,664       

Debt securities

    -        3,773        -        -        -        3,773       
 

 

 

 

Total separate account collateral held under securities lending agreements

    28,664        3,773        -        -        -        32,437       

Assets of consolidated VIEs:

           

Private / public equity(3)

    10        7        166        164        -        347       

Equity securities

    178        -        -        -        -        178       

Debt securities

    -        173        -        -        -        173       

Other

    -        -        -        91        -        91       

Carried interest

    -        -        -        -        112        112       
 

 

 

 

Total assets of consolidated VIEs

    188        180        166        255        112        901       
 

 

 

 

Total

  $ 145,584      $ 50,158      $ 166      $ 630      $ 1,147      $ 197,685       
 

 

 

 

Liabilities:

           

Separate account collateral liabilities under securities lending agreements

  $ 28,664      $ 3,773      $ -      $ -      $ -      $ 32,437       

Other liabilities(4)

    -        6        56        -        -        62       
 

 

 

 

Total

  $ 28,664      $ 3,779      $ 56      $ -      $ -      $ 32,499       
 

 

 

 

 

  (1) 

Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments in accordance with current accounting guidance have not been classified in the fair value hierarchy (see Note 2, Significant Accounting Policies, for more information on the adoption of ASU 2015-07).

  (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 $166 million of direct investments in private equity companies held by private equity funds.

  (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).

 

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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
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   

Held-to-maturity debt securities

    -        -        -        -        79        79   

Trading:

           

Deferred compensation plan mutual funds

    64        -        -        -        -        64   

Equity/Multi-asset mutual funds

    239        -        -        -        -        239   

Debt securities / fixed income mutual funds

    11        222        -        -        -        233   
 

 

 

 

Total trading

    314        222        -        -        -        536   

Other investments:

           

Consolidated sponsored investment funds private / public equity(3)

    11        11        80        168        -        270   

Equity method:

           

Fixed income mutual funds

    29        -        -        -        -        29   

Other

    98        -        -        493        13        604   
 

 

 

 

Total equity method

    127        -        -        493        13        633   

Deferred compensation plan equity method investments

    -        -        -        21        -        21   

Cost method investments

    -        -        -        -        96        96   

Carried interest

    -        -        -        -        85        85   
 

 

 

 

Total investments

    650        236        80        682        273        1,921   
 

 

 

 

Separate account assets

    113,566        46,866        -        -        855        161,287   

Separate account collateral held under securities lending agreements:

           

Equity securities

    30,387        -        -        -        -        30,387   

Debt securities

    -        3,267        -        -        -        3,267   
 

 

 

 

Total separate account collateral held under securities lending agreements

    30,387        3,267        -        -        -        33,654   

Assets of consolidated VIEs:

           

Bank loans and other assets

    -        2,958        302        -        32        3,292   

Bonds

    -        29        18        -        -        47   

Private / public equity

    -        3        -        10        -        13   
 

 

 

 

Total assets of consolidated VIEs

    -        2,990        320        10        32        3,352   
 

 

 

 

Total

  $ 144,603      $ 53,359      $ 400      $ 692      $ 1,160      $ 200,214   
 

 

 

 

Liabilities:

           

Borrowings of consolidated VIEs

  $ -      $ -      $ 3,389      $ -      $ -      $ 3,389   

Separate account collateral liabilities under securities lending agreements

    30,387        3,267        -        -        -        33,654   

Other liabilities(4)

    -        5        39        -        -        44   
 

 

 

 

Total

  $ 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 in accordance with current accounting guidance have not been classified in the fair value hierarchy (see Note 2, Significant Accounting Policies, for more information on the adoption of ASU 2015-07).

  (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 $80 million of direct investments in private equity companies held by private equity funds.

  (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).

Level 3 Assets.    Level 3 assets of consolidated VIEs of $166 million at June 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

 

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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 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 contingent liabilities related to certain acquisitions, which were valued based upon discounted cash flow analyses using unobservable market data inputs.

 

 

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Table of Contents

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 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)
 
 

 

 

 

Assets:

                 

Assets of consolidated VIEs:

                 

Private equity

    $149        $8        $9        $-        $-        $-        $-        $166        $8   

Liabilities:

                 

Other liabilities

    $51        ($5     $-        $-        $-        $-        $-        $56        -   

 

  (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 reflect the adoption of ASU 2015-02. See Note 2, Significant Accounting Policies, for further information.

  (3) 

Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

 

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Table of Contents

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 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)
 

Assets:

                 

Investments:

                 

Consolidated sponsored investment funds- Private equity

    $80        $-        $-        $-        ($80     $-        $-        $-      $ -   

Assets of consolidated VIEs:

                 

Private equity

    -        7        79        -        80        -        -        166        7   

Bank loans

    302        -        -        -        (302     -        -        -        -   

Bonds

    18        -        -        -        (18     -        -        -        -   
 

 

 

 

Total Level 3 assets of consolidated VIEs

    320        7        79        -        (240     -        -        166        7   
 

 

 

 

Total Level 3 assets

    $400        $7        $79        $-        ($320     $-        $-        $166      $ 7   
 

 

 

 

Liabilities:

                 

Borrowings of consolidated VIEs

            $3,389        $-        $-        $-        ($3,389     $-        $-        $-        -   

Other liabilities

    39        (3     -        -        14        -        -        56        -   
 

 

 

   

Total Level 3 liabilities

    $3,428        ($3     $-        $-        ($3,375     $-        $-        $56        -   
 

 

 

   

 

  (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 related to an acquisition.

  (4) 

Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

 

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Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 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)
 

Assets:

                       

Investments

                       

Consolidated sponsored investment funds:

                       

Hedge funds

     $3         ($2     $-         $-        $-         $-         $-        $1         $-   

Private equity

     64         2        13         -        -         -         -        79         -   

Assets of consolidated VIEs:

                       

Bank loans

     147         -        76         (30     -         36         (76     153      

Bonds

     28         -        -         (3     -         -         -        25      
  

 

 

    

Total Level 3 assets of consolidated VIEs

     175         -        76         (33     -         36         (76     178         N/A (4) 
  

 

 

    

Total Level 3 assets

             $242         $-      $ 89       ($ 33     $-       $ 36       ($ 76     $258      
  

 

 

    

Liabilities:

                       

Borrowings of consolidated VIEs

     $2,244         $9        $-         $-        $464         $-         $-        $2,699         N/A (4) 

Other liabilities

     42         (1     -         -        -         -         -        43         -   
  

 

 

    

Total Level 3 liabilities

     $2,286         $8        $-         $-        $464         $-         $-        $2,742      
  

 

 

    

 

  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.

 

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Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 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)
 

Assets:

                      

Investments

                      

Consolidated sponsored investment funds:

                      

Hedge funds

    $2         ($1     $-         $-        $-         $-         $-        $1         $-   

Private equity

    28         1        13         -        -         37         -        79         $-   

Assets of consolidated VIEs:

                      

Bank loans

    129         -        92         (43     -         109         (134     153      

Bonds

    35         -        -         (10     -         -         -        25      
 

 

 

    

Total Level 3 assets of consolidated VIEs

    164         -        92         (53     -         109         (134     178         N/A (5) 
 

 

 

    

Total Level 3 assets

            $194         $-        $105         ($ 53     $-         $146         ($134     $258      
 

 

 

    

Liabilities:

                      

Borrowings of consolidated VIEs

    $2,369         $14        $-         $-        $ 344         $-         $-        $ 2,699         N/A (5) 

Other liabilities

    42         (1     -         -        -         -         -        43         -   
 

 

 

    

Total Level 3 liabilities

    $ 2,411         $13        $-         $-        $ 344         $-         $-        $ 2,742      
 

 

 

    

 

  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.

 

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Table of Contents

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 six months ended June 30, 2014, there were $76 million and $134 million, respectively, of transfers out of Level 3 to Level 2 related to bank loans. In addition, during the three and six months ended June 30, 2014, there were $36 million and $109 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 six months ended June 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 six months ended June 30, 2014, other settlements included $612 million of proceeds from borrowings of a consolidated CLO.

Disclosures of Fair Value for Financial Instruments Not Held at Fair Value.    At June 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         
(in millions)    Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
     Fair Value
Hierarchy
 

Financial Assets:

              

Cash and cash equivalents

   $ 4,907       $ 4,907       $ 5,723       $ 5,723         Level 1 (1)(2) 

Accounts receivable

     2,347         2,347         2,120         2,120         Level 1 (3) 

Cash and cash equivalents of consolidated VIEs

     64         64         278         278         Level 1 (1) 

Financial Liabilities:

              

Accounts payable and accrued liabilities

     1,284         1,284         1,035         1,035         Level 1 (3) 

Long-term borrowings

     4,947         5,219         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 June 30, 2015 and December 31, 2014, approximately $129 million and $100 million, respectively, of money market funds were recorded within cash and cash equivalents on the condensed consolidated statements of financial condition. Money market funds are valued based on quoted market prices, or $1.00 per share, which generally is the NAV of the fund.

 

  (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 June 2015 and December 2014, respectively. See Note 10, Borrowings, for the fair value of each of the Company’s long-term borrowings.

 

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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).

June 30, 2015

 

(in millions)   Ref     Fair Value     Total
Unfunded
Commitments
   

Redemption

Frequency

  Redemption
Notice Period

Equity method:(1)

         

Hedge funds/funds of hedge funds

    (b     $180      $ 93     

Daily/Monthly (28%)

 

Quarterly (36%)

 

N/R (36%)

  1 – 90 days

Private equity funds

    (c     93        66      N/R   N/R

Real estate funds

    (d     85        20     

Quarterly (26%)

 

N/R (74%)

  60 days

Deferred compensation plan investments

    (e     17        6      N/R   N/R

Consolidated VIEs:

         

Private equity funds of funds

    (a     164        17      N/R   N/R

Hedge fund

    (b     91        -      Quarterly   90 days
   

 

 

   

 

 

     

Total

      $630      $ 202       
   

 

 

   

 

 

     

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       
   

 

 

   

 

 

     

 

  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.

 

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  (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 June 30, 2015 and December 31, 2014. The total remaining unfunded commitments to other third-party funds were $18 million at June 30, 2015 and $22 million at December 31, 2014. The Company had contractual obligations to the consolidated funds of $31 million at both June 30, 2015 and December 31, 2014.

  (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 June 30, 2015 and December 31, 2014.

  (c) 

This category includes several private equity funds that initially invest in nonmarketable securities of private companies, which ultimately may become public in the future. The fair values of these investments have been estimated using capital accounts representing the Company’s ownership interest in the funds as well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying assets of the private equity funds. It was estimated that the investments in these funds will be liquidated over a weighted-average period of approximately four years at both June 30, 2015 and December 31, 2014.

  (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 June 30, 2015 and December 31, 2014, respectively.

  (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:

 

(in millions)        December 31,    
2014
 

CLO Bank Loans:

  

Aggregate principal amounts outstanding

     $3,338   

Fair value

     3,260   
  

 

 

 

Aggregate unpaid principal balance in excess of (less than) fair value

     $78   

Unpaid principal balance of loans more than 90 days past due

     $6   

Aggregate fair value of loans more than 90 days past due

     2   
  

 

 

 

Aggregate unpaid principal balance in excess of fair value for loans more than 90 days past due

     $4   
  

 

 

 

CLO Borrowings:

  

Aggregate principal amounts outstanding

     $3,508   

Fair value

     $3,389   

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 June 30, 2014, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $52 million gain, which was partially offset by a $13 million loss from the change in fair value of the CLO borrowings.

 

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During the six months ended June 30, 2014, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $79 million gain, which was partially offset by a $50 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 six months ended June 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.

7.  Derivatives and Hedging

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 June 30, 2015, the Company had outstanding total return swaps and interest rate swaps with aggregate notional values of approximately $251 million and $86 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 June 30, 2015 and December 31, 2014, the Company had outstanding forward foreign currency exchange contracts with aggregate notional values of approximately $193 million and $201 million, respectively.

Gains (losses) on total return swaps and interest rate swaps are recorded in nonoperating income (expense) and were not material to the condensed consolidated statements of income for the three and six months ended June 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 six months ended June 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 six months ended June 30, 2015 and 2014.

The fair values of the outstanding derivatives were not material to the condensed consolidated statements of financial condition at both June 30, 2015 and December 31, 2014.

See Note 10, Borrowings, for information on the Company’s net investment hedge.

 

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8.  Goodwill

Goodwill activity during the six months ended June 30, 2015 was as follows:

 

(in millions)       

December 31, 2014

                 $12,961   

BKCA acquisition

     19   

Goodwill adjustment related to Quellos(1)

     (10
  

 

 

 

June 30, 2015

     $12,970   
  

 

 

 

 

(1) 

The $10 million decrease in goodwill during the six months ended June 30, 2015 resulted from tax benefits realized from tax-deductible goodwill in excess of book goodwill from the acquisition of the fund-of-funds business of Quellos Group, LLC in October 2007 (the “Quellos Transaction”). Goodwill related to the Quellos Transaction will continue to be reduced in future periods by the amount of tax benefits realized from tax-deductible goodwill in excess of book goodwill from the Quellos Transaction. The balance of the Quellos tax-deductible goodwill in excess of book goodwill was approximately $247 million and $263 million at June 30, 2015 and December 31, 2014, respectively.

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.

9.  Intangible Assets

The carrying amounts of identifiable intangible assets are summarized as follows:

 

(in millions)    Indefinite-lived
 intangible assets 
     Finite-lived
 intangible assets 
     Total
 intangible assets 
 

December 31, 2014

                 $16,988                     $356                     $17,344   

Amortization expense

     -         (70      (70

BKCA acquisition

     120         -         120   
  

 

 

    

 

 

    

 

 

 

June 30, 2015

     $17,108         $286         $17,394   
  

 

 

    

 

 

    

 

 

 

Indefinite-lived Acquired Management Contracts

Indefinite-lived intangible assets increased by $120 million in the six months ended June 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 June 30, 2015. The 2015 credit facility provides back-up liquidity to fund ongoing working capital for general corporate purposes and various investment opportunities. At June 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 June 30, 2015, BlackRock had no CP Notes outstanding.

 

 

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Long-Term Borrowings

The carrying value and fair value of long-term borrowings estimated using market prices at June 30, 2015 included the following:

 

(in millions)     Maturity Amount      

 Unamortized 
  Discount  

and Debt
  Issuance Costs  

      Carrying Value         Fair Value    
 

 

 

 

6.25% Notes due 2017

    $700        ($2)        $698        $775   

5.00% Notes due 2019

    1,000        (4)        996        1,118   

4.25% Notes due 2021

    750        (5)        745        821   

3.375% Notes due 2022

    750        (6)        744        773   

3.50% Notes due 2024

    1,000        (8)        992        1,007   

1.25% Notes due 2025

    780        (8)        772        725   
 

 

 

 

Total Long-term Borrowings

    $4,980        ($33)        $4,947        $5,219   
 

 

 

 

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 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 euro functional currency operations. A gain of $7 million, net of tax, was recognized in other comprehensive income for the three and six months ended June 30, 2015. No hedge ineffectiveness was recognized during the three and six months ended June 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 June 30, 2015, the Company had $417 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 million, the Company had approximately $32 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.

 

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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, BlackRock is required to make contingent payments annually to Credit Suisse, subject to achieving specified thresholds during a seven-year period, subsequent to the 2013 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 June 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-sponsored investment funds that the Company manages are subject to lawsuits, any of which potentially could harm the investment returns of the applicable fund or result in the Company being liable to the funds 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.

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 June 30, 2015, the Company indemnified certain of its clients for their securities lending loan balances of approximately $147.3 billion. The Company held as agent, cash and securities totaling $156.5 billion as collateral for indemnified securities on loan at June 30, 2015. The fair value of these indemnifications was not material at June 30, 2015.

 

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12.  Stock-Based Compensation

Restricted stock and restricted stock units (“RSUs”) activity for the six months ended June 30, 2015 is summarized below:

 

Outstanding at        

   Restricted
Stock and
RSUs
    Weighted-
Average
Grant Date
Fair Value
 

December 31, 2014

                     3,401,909                $257.01   

Granted    

     1,290,014        $344.36   

Converted

     (1,566,979     $228.78   

Forfeited  

     (26,091     $300.08   
  

 

 

   

June 30, 2015(1)

     3,098,853        $307.28   
  

 

 

   

 

(1) 

At June 30, 2015, approximately 2.9 million awards are expected to vest and 0.2 million awards have vested but have not been converted.

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 June 30, 2015, the intrinsic value of outstanding RSUs was $1.1 billion reflecting a closing stock price of $345.98.

At June 30, 2015, total unrecognized stock-based compensation expense related to unvested RSUs was $499 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.3 years.

Market Performance-based RSUs.

Market performance-based RSUs outstanding at both June 30, 2015 and December 31, 2014 were 1,425,319 with a weighted average exercise price of $137.31. At June 30, 2015, approximately 1.4 million awards are expected to vest and an immaterial amount of awards have vested but have not been converted. No market performance based RSUs were granted during the six months ended June 30, 2015.

At June 30, 2015, the intrinsic value of outstanding market performance-based RSUs was $493 million reflecting a closing stock price of $345.98.

See Note 14, Stock-Based Compensation, in the 2014 Form 10-K for more information on market performance-based RSUs.

At June 30, 2015, total unrecognized stock-based compensation expense related to unvested market performance-based awards was $75 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.4 years.

Performance-Based RSUs.

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

 

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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 six months ended June 30, 2015 is summarized below:

 

Outstanding at

   Performance-
Based RSUs
     Weighted-
Average
Grant Date
Fair Value
 

December 31, 2014

     -         $-   

Granted

                 262,847         $343.86   
  

 

 

    

June 30, 2015(1)

     262,847       $ 343.86   
  

 

 

    

 

(1) 

At June 30, 2015, approximately 0.3 million awards are expected to vest and an immaterial amount of awards have vested but have not been converted.

At June 30, 2015, total unrecognized stock-based compensation expense related to unvested performance-based awards was $77 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 2.6 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 June 30, 2015, the intrinsic value of outstanding performance-based RSUs was $90.9 million reflecting a closing stock price of $345.98.

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 June 30, 2015, 2.7 million shares had been surrendered by PNC.

At June 30, 2015, the remaining shares committed by PNC of 1.3 million were available to fund certain future long-term incentive awards.

Stock Options.    Stock option activity for the six months ended June 30, 2015 is summarized below:

 

Outstanding at

   Shares
under
option
     Weighted
average
exercise
price
 

December 31, 2014(1)

     906,719       $ 167.76   

Exercised(1)

     (42,116    $ 167.76   
  

 

 

    

June 30, 2015(1)

     864,603       $ 167.76   
  

 

 

    

 

(1) 

The aggregate intrinsic value of options exercised during the six months ended June 30, 2015 was $8.2 million. At June 30, 2015, all options  were vested.

The remaining average life of stock options outstanding at June 30, 2015 is approximately two years.

 

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13.  Net Capital Requirements

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 June 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 presents changes in AOCI by component for the three and six months ended June 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
 

 

 

     

 

 

     

 

 

     

 

 

 

 

(1) 

All amounts are net of tax.

(2) 

Amounts in the three and six months ended June 30, 2015 include a gain from the Company’s net investment hedge of $7 million, net of tax of $4 million.

 

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(in millions)   Unrealized gains
(losses) on
available-for-sale
investments(1)
        Benefit plans         Foreign
currency
translation
adjustments
        Total  

For the Three Months Ended June 30, 2014

             

March 31, 2014

  ($ 1     $ 6        ($ 40     ($ 35

Other comprehensive income (loss) before reclassifications

    4          -          30          34   

Amount reclassified from AOCI(2),(3)

    2          -          -          2   
 

 

 

     

 

 

     

 

 

     

 

 

 

Net other comprehensive income (loss) for the three months ended June 30, 2014

    6          -          30          36   
 

 

 

     

 

 

     

 

 

     

 

 

 

June 30, 2014

  $ 5        $ 6        ($ 10     $ 1   
 

 

 

     

 

 

     

 

 

     

 

 

 

For the Six Months Ended June 30, 2014

             

December 31, 2013

  $ 7        $ 6        ($ 48     ($ 35

Other comprehensive income (loss) before reclassifications

    4          -          38          42   

Amount reclassified from AOCI(2),(3)

    (6       -          -          (6
 

 

 

     

 

 

     

 

 

     

 

 

 

Net other comprehensive income (loss) for the six months ended June 30, 2014

    (2       -          38          36   
 

 

 

     

 

 

     

 

 

     

 

 

 

June 30, 2014

  $ 5        $ 6        ($ 10     $ 1   
 

 

 

     

 

 

     

 

 

     

 

 

 

 

(1) 

All amounts are net of tax.

(2) 

The tax benefit (expense) was not material for the three and six months ended June 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
 

Series A

     

Shares authorized, $0.01 par value

     20,000,000         20,000,000   

Shares issued and outstanding

     -         -   

Series B

     

Shares authorized, $0.01 par value

     150,000,000         150,000,000   

Shares issued and outstanding(1)

     823,188         823,188   

Series C

     

Shares authorized, $0.01 par value

     6,000,000         6,000,000   

Shares issued and outstanding(1)

     1,311,887         1,311,887   

Series D

     

Shares authorized, $0.01 par value

     20,000,000         20,000,000   

Shares issued and outstanding

     -         -   

 

(1) 

Shares held by PNC.

Share Repurchases.    The Company repurchased 1.5 million common shares in open market-transactions under the share repurchase program for approximately $550 million during the six months ended June 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 June 30, 2015, there were 7.9 million shares still authorized to be repurchased.

 

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16.  Income Taxes

The three and six months ended June 30, 2015 included a $13 million and $16 million, respectively, net noncash expense, primarily associated with the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes. The six months ended June 30, 2015 also included nonrecurring tax benefits of $69 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 six months ended June 30, 2014 included a $23 million net noncash expense, primarily associated with the revaluation of certain deferred tax liabilities arising from the state and local tax effect of changes in the Company’s organizational structure. In addition, the second quarter of 2014 benefited from an improvement in the geographic mix of earnings and included a $34 million net tax benefit related to several favorable nonrecurring items.

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 six months ended June 30, 2015 and 2014 under the treasury stock method:

 

     Three Months Ended
June  30,
     Six Months Ended
June  30,
 
(in millions, except shares and per share
data)
   2015      2014      2015      2014  

Net income attributable to BlackRock

     $819         $808         $1,641         $1,564   

Basic weighted-average shares outstanding

     166,616,558         168,712,221         166,851,492         168,895,801   

Dilutive effect of nonparticipating RSUs and stock options

     2,498,201         2,437,932         2,567,472         2,644,217   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total diluted weighted-average shares outstanding

     169,114,759         171,150,153         169,418,964         171,540,018   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

     $4.92         $4.79         $9.84         $9.26   

Diluted earnings per share

     $4.84         $4.72         $9.69         $9.12   

 

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18.  Segment Information

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 six months ended June 30, 2015 and 2014.

 

     Three Months Ended
June 30,
       Six Months Ended
June 30,
 
(in millions)    2015        2014        2015        2014  

Equity

   $ 1,426         $ 1,369         $ 2,732         $ 2,646   

Fixed income

     600           544           1,175           1,047   

Multi-asset

     324           310           636           599   

Alternatives

     244           253           476           559   

Cash management

     76           73           149           147   
  

 

 

      

 

 

      

 

 

      

 

 

 

Total investment advisory, administration fees, securities lending revenue and performance fees

     2,670           2,549           5,168           4,998   

BlackRock Solutions and advisory

     161           146           308           300   

Distribution fees

     13           18           30           37   

Other revenue

     61           65           122           113   
  

 

 

      

 

 

      

 

 

      

 

 

 

Total revenue

       $ 2,905             $ 2,778             $ 5,628             $ 5,448   
  

 

 

      

 

 

      

 

 

      

 

 

 

The following table illustrates total revenue for the three and six months ended June 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,
 

Revenue

     2015             2014            2015            2014    

Americas

   $ 1,913         $ 1,764         $ 3,766         $ 3,546   

Europe

             847                   882                   1,588                   1,639   

Asia-Pacific

     145           132           274           263   
  

 

 

      

 

 

      

 

 

      

 

 

 

Total revenue

   $ 2,905         $ 2,778         $ 5,628         $ 5,448   
  

 

 

      

 

 

      

 

 

      

 

 

 

The following table illustrates long-lived assets that consist of goodwill and property and equipment at June 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
 

Long-lived Assets

     

Americas

   $ 13,232       $ 13,151   

Europe

     194         194   

Asia-Pacific

     89         83   
  

 

 

    

 

 

 

Total long-lived assets

   $ 13,515       $ 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.

 

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19.  Acquisition

Infraestructura Institucional. In June 2015, the Company announced that it agreed to acquire Infraestructura Institucional, Mexico’s leading independently managed, infrastructure investment firm, expanding the Company’s infrastructure capabilities in Mexico. The transaction is expected to close in the fourth quarter of 2015, subject to customary regulatory approvals and closing conditions. The transaction is not expected to be material to the condensed consolidated financial statements.

20.  Subsequent Events

The Company conducted a review for subsequent events and determined that no additional subsequent events had occurred that would require accrual or additional disclosure.

 

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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.

 

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OVERVIEW

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 trillion of AUM at June 30, 2015. With approximately 12,400 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 the BlackRock 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 June 30, 2015, PNC held 21.0% of the Company’s voting common stock and 22.0% 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.

 

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EXECUTIVE SUMMARY

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
(in millions, except shares and per share data)    2015      2014      2015      2014  

GAAP basis:

           

Total revenue

   $ 2,905          $ 2,778          $ 5,628          $ 5,448      

Total expense

     1,667            1,656            3,323            3,275      
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

   $ 1,238          $ 1,122          $ 2,305          $ 2,173      

Operating margin

     42.6%         40.4%