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BLK Blackrock

Filed: 9 Aug 20, 8:00pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2020

OR

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

EXCHANGE ACT OF 1934.

For the transition period from                                 to                                 .

Commission file number 001-33099

 

BlackRock

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)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $.01 par value

 

BLK

 

New York Stock Exchange

1.250% Notes due 2025

 

BLK25

 

New York Stock Exchange

 

 

 

 

 

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

Yes

 

X

 

No

 

 

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

Yes

 

X

 

No

 

 

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

 

 

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

Emerging growth company

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

 

 

 

No

 

X

As of July 31, 2020, there were 152,483,559 shares of the registrant’s common stock outstanding.

 

 


 

BlackRock, Inc.

Index to Form 10-Q

PART I

FINANCIAL INFORMATION

 

 

PART II

OTHER INFORMATION

 

 

 

 

i


 

PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

(in millions, except shares and per share data)

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents(1)

 

$

5,466

 

 

$

4,829

 

Accounts receivable

 

 

2,990

 

 

 

3,179

 

Investments(1)

 

 

5,171

 

 

 

5,489

 

Separate account assets

 

 

91,930

 

 

 

102,844

 

Separate account collateral held under securities lending agreements

 

 

14,367

 

 

 

15,466

 

Property and equipment (net of accumulated depreciation of $979 and $880 at

   June 30, 2020 and December 31, 2019, respectively)

 

 

697

 

 

 

715

 

Intangible assets (net of accumulated amortization of $237 and $185 at

   June 30, 2020 and December 31, 2019, respectively)

 

 

18,317

 

 

 

18,369

 

Goodwill

 

 

14,556

 

 

 

14,562

 

Other assets(1)

 

 

3,848

 

 

 

3,169

 

Total assets

 

$

157,342

 

 

$

168,622

 

Liabilities

 

 

 

 

 

 

 

 

Accrued compensation and benefits

 

$

1,189

 

 

$

2,057

 

Accounts payable and accrued liabilities

 

 

914

 

 

 

1,167

 

Borrowings

 

 

7,190

 

 

 

4,955

 

Separate account liabilities

 

 

91,930

 

 

 

102,844

 

Separate account collateral liabilities under securities lending agreements

 

 

14,367

 

 

 

15,466

 

Deferred income tax liabilities

 

 

3,664

 

 

 

3,734

 

Other liabilities(1)

 

 

4,054

 

 

 

3,470

 

Total liabilities

 

 

123,308

 

 

 

133,693

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Temporary equity

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

1,248

 

 

 

1,316

 

Permanent Equity

 

 

 

 

 

 

 

 

BlackRock, Inc. stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value;

 

 

2

 

 

 

2

 

Shares authorized: 500,000,000 at June 30, 2020 and December 31, 2019;

   Shares issued: 172,075,373  and 171,252,185 at June 30, 2020 and

   December 31, 2019, respectively;

   Shares outstanding: 152,460,239 and 154,375,780 at June 30, 2020 and

   December 31, 2019, respectively

 

 

 

 

 

 

 

 

Preferred stock (Note 20)

 

 

 

 

 

 

Additional paid-in capital

 

 

19,007

 

 

 

19,186

 

Retained earnings

 

 

22,532

 

 

 

21,662

 

Accumulated other comprehensive loss

 

 

(781

)

 

 

(571

)

Treasury stock, common, at cost (19,615,134 and 16,876,405 shares held at June 30, 2020

   and December 31, 2019, respectively)

 

 

(8,030

)

 

 

(6,732

)

Total BlackRock, Inc. stockholders’ equity

 

 

32,730

 

 

 

33,547

 

Nonredeemable noncontrolling interests

 

 

56

 

 

 

66

 

Total permanent equity

 

 

32,786

 

 

 

33,613

 

Total liabilities, temporary equity and permanent equity

 

$

157,342

 

 

$

168,622

 

 

 

(1)

At June 30, 2020, cash and cash equivalents, investments, other assets and other liabilities include $228 million, $2,936 million, $100 million, and $803 million, respectively, related to consolidated variable interest entities (“VIEs”). At December 31, 2019, cash and cash equivalents, investments, other assets and other liabilities include $131 million, $3,301 million, $68 million, and $820 million, respectively, related to consolidated VIEs.  

 

See accompanying notes to condensed consolidated financial statements.

 

 

1


 

BlackRock, Inc.

Condensed Consolidated Statements of Income

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(in millions, except shares and per share data)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment advisory, administration fees and

  securities lending revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related parties

 

$

2,052

 

 

$

2,061

 

 

$

4,227

 

 

$

4,050

 

Other third parties

 

 

914

 

 

 

842

 

 

 

1,794

 

 

 

1,658

 

Total investment advisory, administration fees and

   securities lending revenue

 

 

2,966

 

 

 

2,903

 

 

 

6,021

 

 

 

5,708

 

Investment advisory performance fees

 

 

112

 

 

 

64

 

 

 

153

 

 

 

90

 

Technology services revenue

 

 

278

 

 

 

237

 

 

 

552

 

 

 

441

 

Distribution fees

 

 

253

 

 

 

267

 

 

 

529

 

 

 

529

 

Advisory and other revenue

 

 

39

 

 

 

53

 

 

 

103

 

 

 

102

 

Total revenue

 

 

3,648

 

 

 

3,524

 

 

 

7,358

 

 

 

6,870

 

Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

1,152

 

 

 

1,083

 

 

 

2,289

 

 

 

2,147

 

Distribution and servicing costs

 

 

429

 

 

 

416

 

 

 

874

 

 

 

820

 

Direct fund expense

 

 

246

 

 

 

252

 

 

 

523

 

 

 

494

 

General and administration

 

 

388

 

 

 

470

 

 

 

1,530

 

 

 

858

 

Amortization of intangible assets

 

 

27

 

 

 

25

 

 

 

52

 

 

 

40

 

Total expense

 

 

2,242

 

 

 

2,246

 

 

 

5,268

 

 

 

4,359

 

Operating income

 

 

1,406

 

 

 

1,278

 

 

 

2,090

 

 

 

2,511

 

Nonoperating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on investments

 

 

398

 

 

 

89

 

 

 

358

 

 

 

231

 

Interest and dividend income

 

 

10

 

 

 

20

 

 

 

25

 

 

 

49

 

Interest expense

 

 

(51

)

 

 

(52

)

 

 

(97

)

 

 

(98

)

Total nonoperating income (expense)

 

 

357

 

 

 

57

 

 

 

286

 

 

 

182

 

Income before income taxes

 

 

1,763

 

 

 

1,335

 

 

 

2,376

 

 

 

2,693

 

Income tax expense (benefit)

 

 

361

 

 

 

322

 

 

 

347

 

 

 

620

 

Net income

 

 

1,402

 

 

 

1,013

 

 

 

2,029

 

 

 

2,073

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to noncontrolling

   interests

 

 

188

 

 

 

10

 

 

 

9

 

 

 

17

 

Net income attributable to BlackRock, Inc.

 

$

1,214

 

 

$

1,003

 

 

$

2,020

 

 

$

2,056

 

Earnings per share attributable to BlackRock, Inc.

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

7.90

 

 

$

6.46

 

 

$

13.08

 

 

$

13.11

 

Diluted

 

$

7.85

 

 

$

6.41

 

 

$

12.99

 

 

$

13.02

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

153,732,878

 

 

 

155,354,552

 

 

 

154,488,079

 

 

 

156,803,244

 

Diluted

 

 

154,712,032

 

 

 

156,360,741

 

 

 

155,556,187

 

 

 

157,853,711

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


 

BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(in millions)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

1,402

 

 

$

1,013

 

 

$

2,029

 

 

$

2,073

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments(1)

 

 

29

 

 

 

(41

)

 

 

(210

)

 

 

27

 

Comprehensive income (loss)

 

 

1,431

 

 

 

972

 

 

 

1,819

 

 

 

2,100

 

Less: Comprehensive income (loss) attributable to

     noncontrolling interests

 

 

188

 

 

 

10

 

 

 

9

 

 

 

17

 

Comprehensive income attributable to BlackRock, Inc.

 

$

1,243

 

 

$

962

 

 

$

1,810

 

 

$

2,083

 

 

(1)

Amounts for the three months ended June 30, 2020 and 2019 include a loss from a net investment hedge of $14 million (net of tax benefit of $4 million) and $8 million (net of tax benefit of $2 million), respectively. Gain (loss) from a net investment hedge was immaterial for the six months ended June 30, 2020 and 2019.

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


 

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(unaudited)

 

For the Six Months Ended June 30, 2020

(in millions)

Additional

Paid-in

Capital(1)

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

Common

 

 

Total

BlackRock

Stockholders’

Equity

 

 

Nonredeemable

Noncontrolling

Interests

 

 

Total

Permanent

Equity

 

 

Redeemable

Noncontrolling

Interests /

Temporary

Equity

 

December 31, 2019

$

19,188

 

 

$

21,662

 

 

$

(571

)

 

$

(6,732

)

 

$

33,547

 

 

$

66

 

 

$

33,613

 

 

$

1,316

 

Net income

 

 

 

 

2,020

 

 

 

 

 

 

 

 

 

2,020

 

 

 

 

 

 

2,020

 

 

 

9

 

Dividends declared ($7.26 per share)

 

 

 

 

(1,150

)

 

 

 

 

 

 

 

 

(1,150

)

 

 

 

 

 

(1,150

)

 

 

 

Stock-based compensation

 

298

 

 

 

 

 

 

 

 

 

 

 

 

298

 

 

 

 

 

 

298

 

 

 

 

Issuance of common shares related to

   employee stock transactions

 

(477

)

 

 

 

 

 

 

 

 

484

 

 

 

7

 

 

 

 

 

 

7

 

 

 

 

Employee tax withholdings related to

   employee stock transactions

 

 

 

 

 

 

 

 

 

 

(270

)

 

 

(270

)

 

 

 

 

 

(270

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

(1,512

)

 

 

(1,512

)

 

 

 

 

 

(1,512

)

 

 

 

Subscriptions (redemptions/distributions)

    — noncontrolling interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

(10

)

 

 

815

 

Net consolidations (deconsolidations) of

  sponsored investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(892

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

(210

)

 

 

 

 

 

(210

)

 

 

 

 

 

(210

)

 

 

 

June 30, 2020

$

19,009

 

 

$

22,532

 

 

$

(781

)

 

$

(8,030

)

 

$

32,730

 

 

$

56

 

 

$

32,786

 

 

$

1,248

 

 

(1)

Amounts include $2 million of common stock at both June 30, 2020 and December 31, 2019.

 

 

For the Three Months Ended June 30, 2020

(in millions)

Additional

Paid-in

Capital(1)

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

Common

 

 

Total

BlackRock

Stockholders’

Equity

 

 

Nonredeemable

Noncontrolling

Interests

 

 

Total

Permanent

Equity

 

 

Redeemable

Noncontrolling

Interests /

Temporary

Equity

 

March 31, 2020

$

18,887

 

 

$

21,872

 

 

$

(810

)

 

$

(6,936

)

 

$

33,013

 

 

$

57

 

 

$

33,070

 

 

$

1,440

 

Net income

 

 

 

 

1,214

 

 

 

 

 

 

 

 

 

1,214

 

 

 

 

 

 

1,214

 

 

 

188

 

Dividends declared ($3.63 per share)

 

 

 

 

(554

)

 

 

 

 

 

 

 

 

(554

)

 

 

 

 

 

(554

)

 

 

 

Stock-based compensation

 

149

 

 

 

 

 

 

 

 

 

 

 

 

149

 

 

 

 

 

 

149

 

 

 

 

Issuance of common shares related to

   employee stock transactions

 

(27

)

 

 

 

 

 

 

 

 

31

 

 

 

4

 

 

 

 

 

 

4

 

 

 

 

Employee tax withholdings related to

   employee stock transactions

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

(13

)

 

 

 

 

 

(13

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

(1,112

)

 

 

(1,112

)

 

 

 

 

 

(1,112

)

 

 

 

Subscriptions (redemptions/distributions)

   — noncontrolling interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

(56

)

Net consolidations (deconsolidations) of

  sponsored investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(324

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

29

 

 

 

 

 

 

29

 

 

 

 

 

 

29

 

 

 

 

June 30, 2020

$

19,009

 

 

$

22,532

 

 

$

(781

)

 

$

(8,030

)

 

$

32,730

 

 

$

56

 

 

$

32,786

 

 

$

1,248

 

 

(1)

Amounts include $2 million of common stock at both June 30, 2020 and March 31, 2020.

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

4


 

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(unaudited)

 

For the Six Months Ended June 30, 2019

(in millions)

Additional

Paid-in

Capital(1)

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

Common

 

 

Total

BlackRock

Stockholders’

Equity

 

 

Nonredeemable

Noncontrolling

Interests

 

 

Total

Permanent

Equity

 

 

Redeemable

Noncontrolling

Interests /

Temporary

Equity

 

December 31, 2018

$

19,170

 

 

$

19,282

 

 

$

(691

)

 

$

(5,387

)

 

$

32,374

 

 

$

59

 

 

$

32,433

 

 

$

1,107

 

Net income

 

 

 

 

2,056

 

 

 

 

 

 

 

 

 

2,056

 

 

 

 

 

 

2,056

 

 

 

17

 

Dividends declared ($6.60 per share)

 

 

 

 

(1,071

)

 

 

 

 

 

 

 

 

(1,071

)

 

 

 

 

 

(1,071

)

 

 

 

Stock-based compensation

 

294

 

 

 

 

 

 

 

 

 

 

 

 

294

 

 

 

 

 

 

294

 

 

 

 

PNC preferred stock capital contribution

 

60

 

 

 

 

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

60

 

 

 

 

Retirement of preferred stock

 

(60

)

 

 

 

 

 

 

 

 

 

 

 

(60

)

 

 

 

 

 

(60

)

 

 

 

Issuance of common shares related to

   employee stock transactions

 

(515

)

 

 

 

 

 

 

 

 

523

 

 

 

8

 

 

 

 

 

 

8

 

 

 

 

Employee tax withholdings related to

   employee stock transactions

 

 

 

 

 

 

 

 

 

 

(229

)

 

 

(229

)

 

 

 

 

 

(229

)

 

 

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

(1,566

)

 

 

(1,566

)

 

 

 

 

 

(1,566

)

 

 

 

Subscriptions (redemptions/distributions)

   — noncontrolling interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

443

 

Net consolidations (deconsolidations) of

  sponsored investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

 

 

(857

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

 

 

 

June 30, 2019

$

18,949

 

 

$

20,267

 

 

$

(664

)

 

$

(6,659

)

 

$

31,893

 

 

$

57

 

 

$

31,950

 

 

$

710

 

 

(1)

Amounts include $2 million of common stock at both June 30, 2019 and December 31, 2018.

 

 

For the Three Months Ended June 30, 2019

(in millions)

Additional

Paid-in

Capital(1)

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

Common

 

 

Total

BlackRock

Stockholders’

Equity

 

 

Nonredeemable

Noncontrolling

Interests

 

 

Total

Permanent

Equity

 

 

Redeemable

Noncontrolling

Interests /

Temporary

Equity

 

March 31, 2019

$

18,829

 

 

$

19,779

 

 

$

(623

)

 

$

(6,676

)

 

$

31,309

 

 

$

53

 

 

$

31,362

 

 

$

1,009

 

Net income

 

 

 

 

1,003

 

 

 

 

 

 

 

 

 

1,003

 

 

 

 

 

 

1,003

 

 

 

10

 

Dividends declared ($3.30 per share)

 

 

 

 

(515

)

 

 

 

 

 

 

 

 

(515

)

 

 

 

 

 

(515

)

 

 

 

Stock-based compensation

 

140

 

 

 

 

 

 

 

 

 

 

 

 

140

 

 

 

 

 

 

140

 

 

 

 

Issuance of common shares related to

   employee stock transactions

 

(20

)

 

 

 

 

 

 

 

 

24

 

 

 

4

 

 

 

 

 

 

4

 

 

 

 

Employee tax withholdings related to

   employee stock transactions

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

 

 

 

 

 

(7

)

 

 

 

Subscriptions (redemptions/distributions)

   — noncontrolling interest holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

 

 

243

 

Net consolidations (deconsolidations) of

  sponsored investment funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

 

 

(552

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

(41

)

 

 

 

 

 

(41

)

 

 

 

 

 

(41

)

 

 

 

June 30, 2019

$

18,949

 

 

$

20,267

 

 

$

(664

)

 

$

(6,659

)

 

$

31,893

 

 

$

57

 

 

$

31,950

 

 

$

710

 

 

(1)

Amounts include $2 million of common stock at both June 30, 2019 and March 31, 2019.

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


 

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended

 

(in millions)

 

June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

2,029

 

 

$

2,073

 

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

225

 

 

 

189

 

Stock-based compensation

 

 

298

 

 

 

294

 

Deferred income tax expense (benefit)

 

 

(67

)

 

 

60

 

Charitable Contribution

 

 

589

 

 

 

 

Gain related to the Charitable Contribution

 

 

(122

)

 

 

 

Gain related to iCapital recapitalization

 

 

(244

)

 

 

 

Other gains

 

 

 

 

 

(26

)

Net (gains) losses within consolidated sponsored investment products

 

 

69

 

 

 

(166

)

Net (purchases) proceeds within consolidated sponsored investment products

 

 

(828

)

 

 

(563

)

(Earnings) losses from equity method investees

 

 

(24

)

 

 

(56

)

Distributions of earnings from equity method investees

 

 

23

 

 

 

21

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

120

 

 

 

(131

)

Investments, trading

 

 

114

 

 

 

(14

)

Other assets

 

 

(817

)

 

 

(208

)

Accrued compensation and benefits

 

 

(885

)

 

 

(930

)

Accounts payable and accrued liabilities

 

 

(273

)

 

 

(16

)

Other liabilities

 

 

562

 

 

 

170

 

Net cash provided by/(used in) operating activities

 

 

769

 

 

 

697

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(180

)

 

 

(73

)

Proceeds from sales and maturities of investments

 

 

69

 

 

 

71

 

Distributions of capital from equity method investees

 

 

93

 

 

 

47

 

Net consolidations (deconsolidations) of sponsored investment funds

 

 

(40

)

 

 

(97

)

Acquisitions, net of cash acquired

 

 

 

 

 

(1,506

)

Purchases of property and equipment

 

 

(100

)

 

 

(105

)

Net cash provided by/(used in) investing activities

 

 

(158

)

 

 

(1,663

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

2,245

 

 

 

992

 

Cash dividends paid

 

 

(1,150

)

 

 

(1,071

)

Repurchases of common stock

 

 

(1,782

)

 

 

(1,795

)

Net proceeds from (repayments of) borrowings by consolidated sponsored investment products

 

 

30

 

 

 

58

 

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

   interest holders

 

 

805

 

 

 

444

 

Other financing activities

 

 

(42

)

 

 

(136

)

Net cash provided by/(used in) financing activities

 

 

106

 

 

 

(1,508

)

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

 

 

(80

)

 

 

9

 

Net increase/(decrease) in cash, cash equivalents and restricted cash

 

 

637

 

 

 

(2,465

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

4,846

 

 

 

6,505

 

Cash, cash equivalents and restricted cash, end of period

 

$

5,483

 

 

$

4,040

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

90

 

 

$

93

 

Income taxes (net of refunds)

 

$

583

 

 

$

604

 

Supplemental schedule of noncash investing and financing transactions:

 

 

 

 

 

 

 

 

Issuance of common stock

 

$

477

 

 

$

515

 

PNC preferred stock capital contribution

 

$

 

 

$

60

 

Charitable Contribution of an investment

 

$

(589

)

 

$

 

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

   sponsored investment funds

 

$

(892

)

 

$

(860

)

 

See accompanying notes to condensed consolidated financial statements.

 

6


 

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 management and technology services to institutional and retail clients worldwide.

BlackRock’s diverse platform of alpha-seeking active, index and cash management 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 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 trust funds (“CTFs”) and other pooled investment vehicles. BlackRock also offers technology services, including the investment and risk management technology platform, Aladdin®, Aladdin Wealth, eFront, Cachematrix and FutureAdvisor, as well as advisory services and solutions to a broad base of institutional and wealth management clients.

 

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 (“NCI”) 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, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2020 (“2019 Form 10-K”).

The interim financial information at June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 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.

Certain prior period presentations and disclosures, while not required to be recast, were reclassified to ensure comparability with current period classifications.

7


 

Accounting Pronouncements Adopted in the Six Months Ended June 30, 2020

Measurement of Credit Losses. In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which significantly changes the accounting and disclosures for credit losses for most financial assets. The new guidance requires an estimate of expected lifetime credit losses and eliminates the existing recognition thresholds under current models. The adoption of ASU 2016-13, which was effective for the Company on January 1, 2020, did not have a material impact on its condensed consolidated financial statements.

Fair Value Measurements

Hierarchy of Fair Value Inputs.   The Company uses a fair value hierarchy that prioritizes inputs to valuation approaches used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 Inputs:

Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

 

Level 1 assets may include listed mutual funds, ETFs, listed equities and certain exchange-traded derivatives.

Level 2 Inputs:

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

 

Level 2 assets may include debt securities, investments in collateralized loan obligations (“CLOs”), 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, investments in CLOs and bank loans of consolidated CLOs.

 

Level 3 liabilities include contingent liabilities related to acquisitions valued based upon discounted cash flow analyses using unobservable market data and borrowings of consolidated CLOs.

 

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 Approaches.   The fair values of certain Level 3 assets and liabilities were determined using various valuation approaches as appropriate, including third-party pricing vendors, broker quotes and market and income approaches.

A significant number of inputs used to value equity, debt securities, investments in CLOs 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.

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.

8


 

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 the Company’s capital accounts for its partnership interests in various alternative investments, including hedge funds, real assets 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-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 could be used as an input to value these investments.

Fair Value Assets and Liabilities of Consolidated CLO.  The Company applies the fair value option provisions for eligible assets, including bank loans, held by a consolidated CLO. As the fair value of the financial assets of the consolidated CLO is more observable than the fair value of the borrowings of the consolidated CLO, the Company measures the fair value of the borrowings of the consolidated CLO as the fair value of the assets of the consolidated CLO less the fair value of the Company’s economic interest in the CLO.

Derivatives and Hedging Activities.  The Company does not use derivative financial instruments for trading or speculative purposes. The Company uses 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. However, certain consolidated sponsored investment funds may also utilize derivatives as a part of their investment strategy.

The Company records all derivative financial instruments as either assets or liabilities at fair value on a gross basis in the condensed consolidated statements of financial condition. Changes in the fair value of the Company’s derivative financial instruments are 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 not US dollars. 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 (loss) on the condensed consolidated statements of financial condition. Amounts excluded from the effectiveness assessment are reported in the condensed consolidated statements of income using a systematic and rational method. The Company reassesses the effectiveness of its net investment hedge at least quarterly.

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.

9


 

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

Separate Account Collateral Assets Held and Liabilities Under Securities Lending Agreements.  The Company facilitates securities lending arrangements whereby securities held by separate accounts maintained by BlackRock Life Limited are lent to third parties under global master securities lending agreements. In exchange, the Company receives legal title to the collateral with minimum values generally ranging from approximately 102% to 112% of the value of the securities lent in order to reduce counterparty risk. The required collateral value is calculated on a daily basis. The global master securities lending agreements provide the Company the right to request additional collateral or, in the event of borrower default, the right to liquidate collateral. The securities lending transactions entered into by the Company are accompanied by an agreement that entitles the Company to request the borrower to return the securities at any time; therefore, these transactions are not reported as sales.

The Company records on the condensed consolidated statements of financial condition the cash and noncash collateral received under these BlackRock Life Limited securities lending arrangements as its own asset in addition to an equal and offsetting collateral liability for the obligation to return the collateral. The securities lending revenue earned from lending securities held by the separate accounts is included in investment advisory, administration fees and securities lending revenue on the condensed consolidated statements of income. During the six months ended June 30, 2020 and 2019, the Company had not resold or repledged any of the collateral received under these arrangements. At June 30, 2020 and December 31, 2019, the fair value of loaned securities held by separate accounts was approximately $13.1 billion and $14.4 billion, respectively, and the fair value of the collateral held under these securities lending agreements was approximately $14.4 billion and $15.5 billion, respectively.

 

3. Acquisition

On May 10, 2019, the Company acquired 100% of the equity interests of eFront Holding SAS (“eFront Transaction” or “eFront”), a leading alternative investment management software and solutions provider for approximately $1.3 billion, excluding the settlement of eFront’s outstanding debt. The acquisition of eFront expanded Aladdin’s illiquid alternative capabilities and enables BlackRock to provide individual alternative or whole-portfolio technology solutions to clients.

The purchase price was funded through a combination of existing cash and issuance of commercial paper (subsequently repaid with existing cash) and long-term notes in April 2019. A summary of the fair values of the assets acquired and liabilities assumed in this acquisition is as follows:

 

 

 

 

 

 

 

 

 

 

(in millions)

 

Fair Value

 

Accounts receivable

 

$

61

 

Finite-lived intangible assets:

 

 

 

 

Customer relationships

 

 

400

 

Technology-related

 

 

203

 

Trade name

 

 

14

 

Goodwill

 

 

1,044

 

Other assets

 

 

49

 

Deferred income tax liabilities

 

 

(146

)

Other liabilities assumed

 

 

(125

)

Total consideration, net of cash acquired

 

$

1,500

 

 

 

 

 

 

Summary of consideration, net of cash acquired:

 

 

 

 

Cash paid including settlement of outstanding debt of approximately $0.2 billion

 

$

1,555

 

Cash acquired

 

 

(55

)

Total consideration, net of cash acquired

 

$

1,500

 

 

 

 

 

 

   

 

 

10


 

4. Cash, Cash Equivalents and Restricted Cash

 

The following table provides a reconciliation of cash and cash equivalents reported within the condensed consolidated statements of financial condition to the cash, cash equivalents, and restricted cash reported within the condensed consolidated statements of cash flows.

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

(in millions)

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,466

 

 

$

4,829

 

Restricted cash included in other assets

 

 

17

 

 

 

17

 

Total cash, cash equivalents and restricted cash

 

$

5,483

 

 

$

4,846

 

 

5. Investments

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

 

 

June 30,

 

 

December 31,

 

(in millions)

2020

 

 

2019

 

Debt securities:

 

 

 

 

 

 

 

Held-to-maturity investments

$

259

 

 

$

249

 

Trading securities

 

1,444

 

 

 

1,249

 

Total debt securities

 

1,703

 

 

 

1,498

 

Equity securities at FVTNI(1)

 

1,393

 

 

 

1,926

 

Equity method investments(2)

 

1,018

 

 

 

943

 

Bank loans

 

232

 

 

 

204

 

Federal Reserve Bank stock(3)

 

94

 

 

 

93

 

Carried interest(4)

 

458

 

 

 

528

 

Other investments(5)

 

273

 

 

 

297

 

Total investments

$

5,171

 

 

$

5,489

 

 

 

(1)

Fair value recorded through net income (“FVTNI”).

(2)

Equity method investments primarily include BlackRock’s direct investments in certain BlackRock sponsored investment funds.

(3)

At both June 30, 2020 and December 31, 2019, there were no indicators of impairment of Federal Reserve Bank stock, which is held for regulatory purposes and is restricted from sale.

(4)

Carried interest represents allocations to BlackRock’s general partner capital accounts from certain sponsored investment funds. These balances are subject to change upon cash distributions, additional allocations or reallocations back to limited partners within the respective funds.

(5)

Other investments include BlackRock’s investments in nonmarketable equity securities, which are measured at cost, adjusted for observable price changes and private equity and real asset investments of consolidated sponsored investment products measured at fair value.

 

Held-to-Maturity Investments

The carrying value of held-to-maturity investments was $259 million and $249 million at June 30, 2020 and December 31, 2019, respectively. Held-to-maturity investments included certain investments in CLOs and foreign government debt held primarily for regulatory purposes. The amortized cost (carrying value) of these investments approximated fair value (primarily a Level 2 input). At June 30, 2020, $14 million mature between one to five years, $117 million of these investments mature between five to ten years and $128 million mature after ten years.

11


 

Trading Debt Securities and Equity Securities at FVTNI

A summary of the cost and carrying value of trading debt securities and equity securities at FVTNI is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

(in millions)

Cost

 

 

Carrying

Value

 

 

Cost

 

 

Carrying

Value

 

Trading debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt

$

1,132

 

 

$

1,135

 

 

$

822

 

 

$

844

 

Government debt

 

228

 

 

 

228

 

 

 

268

 

 

 

269

 

Asset/mortgage-backed debt

 

98

 

 

 

81

 

 

 

141

 

 

 

136

 

Total trading debt securities

$

1,458

 

 

$

1,444

 

 

$

1,231

 

 

$

1,249

 

Equity securities at FVTNI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities/multi-asset mutual funds

$

1,302

 

 

$

1,393

 

 

$

1,769

 

 

$

1,926

 

Total equity securities at FVTNI

$

1,302

 

 

$

1,393

 

 

$

1,769

 

 

$

1,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6. Consolidated Sponsored Investment Products

The Company consolidates certain sponsored investment funds accounted for as voting rights entities (“VREs”) because it is deemed to control such funds.

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’s consolidated VIEs include certain sponsored investment products 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 products and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to these sponsored investment products. The assets of these VIEs are not available to creditors of the Company. In addition, the investors in these VIEs have no recourse to the credit of the Company.

The following table presents the balances related to these consolidated sponsored investment products accounted for as VIEs and VREs that were recorded on the consolidated statements of financial condition, including BlackRock’s net interest in these products:

 

 

June 30, 2020

 

 

December 31, 2019

 

(in millions)

 

VIEs

 

 

VREs

 

 

Total

 

 

VIEs

 

 

VREs

 

 

Total

 

Cash and cash equivalents

 

$

228

 

 

$

47

 

 

$

275

 

 

$

131

 

 

$

10

 

 

$

141

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading debt securities

 

 

1,260

 

 

 

155

 

 

 

1,415

 

 

 

1,059

 

 

 

151

 

 

 

1,210

 

Equity securities at FVTNI

 

 

840

 

 

 

302

 

 

 

1,142

 

 

 

1,330

 

 

 

332

 

 

 

1,662

 

Bank loans

 

 

232

 

 

 

 

 

 

232

 

 

 

204

 

 

 

 

 

 

204

 

Other investments

 

 

164

 

 

 

 

 

 

164

 

 

 

194

 

 

 

 

 

 

194

 

Carried interest

 

 

440

 

 

 

 

 

 

440

 

 

 

514

 

 

 

 

 

 

514

 

Total investments

 

 

2,936

 

 

 

457

 

 

 

3,393

 

 

 

3,301

 

 

 

483

 

 

 

3,784

 

Other assets

 

 

100

 

 

 

23

 

 

 

123

 

 

 

68

 

 

 

5

 

 

 

73

 

Other liabilities(1)

 

 

(803

)

 

 

(48

)

 

 

(851

)

 

 

(820

)

 

 

(20

)

 

 

(840

)

Noncontrolling interest

 

 

(1,240

)

 

 

(64

)

 

 

(1,304

)

 

 

(1,348

)

 

 

(34

)

 

 

(1,382

)

BlackRock's net interests in

   consolidated investment products

 

$

1,221

 

 

$

415

 

 

$

1,636

 

 

$

1,332

 

 

$

444

 

 

$

1,776

 

 

(1)

At June 30, 2020 and December 31, 2019, other liabilities of VIEs include $225 million and $195 million, respectively, related to borrowings of a consolidated CLO.

12


 

BlackRock’s total exposure to consolidated sponsored investment products represents the value of its economic ownership interest in these sponsored investment products. Valuation changes associated with investments held at fair value by these consolidated sponsored investment products are reflected in nonoperating income (expense) and partially offset in net income (loss) attributable to noncontrolling interests for the portion not attributable to BlackRock.

The Company cannot readily access cash and cash equivalents held by consolidated sponsored investment products to use in its operating activities.

Net gain (loss) related to consolidated VIEs is presented in the following table:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(in millions)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating net gain (loss) on consolidated VIEs

 

$

282

 

 

$

39

 

 

$

(27

)

 

$

133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to NCI on consolidated VIEs

 

$

178

 

 

$

12

 

 

$

20

 

 

$

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7. Variable Interest Entities

 

Nonconsolidated VIEs.    At June 30, 2020 and December 31, 2019, the Company’s carrying value of assets and liabilities included on the condensed consolidated statements of financial condition pertaining to nonconsolidated VIEs and its maximum risk of loss related to VIEs for which it held a variable interest, but for which it was not the primary beneficiary, was as follows:

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2020

 

Investments

 

 

Advisory Fee Receivables

 

 

Other Net Assets (Liabilities)

 

 

Maximum Risk of Loss(1)

 

Sponsored investment products

 

$

557

 

 

$

47

 

 

$

(12

)

 

$

621

 

At December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sponsored investment products

 

$

539

 

 

$

71

 

 

$

(10

)

 

$

627

 

 

 

(1)

At both June 30, 2020 and December 31, 2019, BlackRock’s maximum risk of loss associated with these VIEs primarily related to BlackRock’s investments and the collection of advisory fee receivables.

The net assets of sponsored investment products that are nonconsolidated VIEs approximated $12 billion at both June 30, 2020 and December 31, 2019.

 

13


 

8. Fair Value Disclosures

Fair Value Hierarchy

Assets and liabilities measured at fair value on a recurring basis

 

June 30, 2020

(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(2)

 

 

June 30,

2020

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity investments

$

 

 

$

 

 

$

 

 

$

 

 

$

259

 

 

$

259

 

Trading securities

 

 

 

 

1,434

 

 

 

10

 

 

 

 

 

 

 

 

 

1,444

 

Total debt securities

 

 

 

 

1,434

 

 

 

10

 

 

 

 

 

 

259

 

 

 

1,703

 

Equity securities at FVTNI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities/Multi-asset mutual funds

 

1,393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,393

 

Equity method:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity and fixed income mutual funds

 

208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

208

 

Hedge funds/funds of hedge funds

 

 

 

 

 

 

 

 

 

 

245

 

 

 

 

 

 

245

 

Private equity funds

 

 

 

 

 

 

 

 

 

 

310

 

 

 

 

 

 

310

 

Real assets funds

 

 

 

 

 

 

 

 

 

 

251

 

 

 

 

 

 

251

 

Other

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Total equity method

 

208

 

 

 

 

 

 

 

 

 

810

 

 

 

 

 

 

1,018

 

Bank loans

 

 

 

 

3

 

 

 

229

 

 

 

 

 

 

 

 

 

232

 

Federal Reserve Bank Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

94

 

Carried interest

 

 

 

 

 

 

 

 

 

 

 

 

 

458

 

 

 

458

 

Other investments(3)

 

 

 

 

3

 

 

 

16

 

 

 

83

 

 

 

171

 

 

 

273

 

Total investments

 

1,601

 

 

 

1,440

 

 

 

255

 

 

 

893

 

 

 

982

 

 

 

5,171

 

Other assets(4)

 

184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

184

 

Separate account assets

 

61,946

 

 

 

29,124

 

 

 

 

 

 

 

 

 

860

 

 

 

91,930

 

Separate account collateral held under securities

   lending agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

11,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,305

 

Debt securities

 

 

 

 

3,062

 

 

 

 

 

 

 

 

 

 

 

 

3,062

 

Total separate account collateral held under

   securities lending agreements

 

11,305

 

 

 

3,062

 

 

 

 

 

 

 

 

 

 

 

 

14,367

 

Total

$

75,036

 

 

$

33,626

 

 

$

255

 

 

$

893

 

 

$

1,842

 

 

$

111,652

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Separate account collateral liabilities under

   securities lending agreements

$

11,305

 

 

$

3,062

 

 

$

 

 

$

 

 

$

 

 

$

14,367

 

Other liabilities(5)

 

 

 

 

90

 

 

 

262

 

 

 

 

 

 

 

 

 

352

 

Total

$

11,305

 

 

$

3,152

 

 

$

262

 

 

$

 

 

$

 

 

$

14,719

 

 

(1)

Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent), as a practical expedient.

(2)

Amounts are comprised of investments held at amortized cost and cost, adjusted for observable price changes, 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 amount primarily includes direct investments in private equity companies held by private equity funds.

(4)

Amount includes a minority investment in a publicly traded company.

(5)

Level 2 amount primarily includes fair value of derivatives (See Note 9, Derivatives and Hedging, for more information). Level 3 amounts primarily include contingent liabilities related to certain acquisitions (see Note 15, Commitments and Contingencies, for more information) and other liabilities of a consolidated CLO classified based on the significance of unobservable inputs used for calculating the fair value of consolidated CLO assets.

 

 

14


 

Assets and liabilities measured at fair value on a recurring basis

 

December 31, 2019

(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(2)

 

 

December 31,

2019

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity investments

$

 

 

$

 

 

$

 

 

$

 

 

$

249

 

 

$

249

 

Trading securities

 

 

 

 

1,241

 

 

 

8

 

 

 

 

 

 

 

 

 

1,249

 

Total debt securities

 

 

 

 

1,241

 

 

 

8

 

 

 

 

 

 

249

 

 

 

1,498

 

Equity securities at FVTNI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities/Multi-asset mutual funds

 

1,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,926

 

Equity method:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity and fixed income mutual funds

 

157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

157

 

Hedge funds/funds of hedge funds

 

 

 

 

 

 

 

 

 

 

220

 

 

 

 

 

 

220

 

Private equity funds

 

 

 

 

 

 

 

 

 

 

248

 

 

 

 

 

 

248

 

Real assets funds

 

 

 

 

 

 

 

 

 

 

296

 

 

 

 

 

 

296

 

Other

 

12

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

22

 

Total equity method

 

169

 

 

 

 

 

 

 

 

 

774

 

 

 

 

 

 

943

 

Bank loans

 

 

 

 

27

 

 

 

177

 

 

 

 

 

 

 

 

 

204

 

Federal Reserve Bank Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

93

 

 

 

93

 

Carried interest

 

 

 

 

 

 

 

 

 

 

 

 

 

528

 

 

 

528

 

Other investments(3)

 

 

 

 

 

 

 

9

 

 

 

98

 

 

 

190

 

 

 

297

 

Total investments

 

2,095

 

 

 

1,268

 

 

 

194

 

 

 

872

 

 

 

1,060

 

 

 

5,489

 

Other assets(4)

 

173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

173

 

Separate account assets

 

72,515

 

 

 

29,582

 

 

 

 

 

 

 

 

 

747

 

 

 

102,844

 

Separate account collateral held under

   securities lending agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

10,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,209

 

Debt securities

 

 

 

 

5,257

 

 

 

 

 

 

 

 

 

 

 

 

5,257

 

Total separate account collateral held under

   securities lending agreements

 

10,209

 

 

 

5,257

 

 

 

 

 

 

 

 

 

 

 

 

15,466

 

Total

$

84,992

 

 

$

36,107

 

 

$

194

 

 

$

872

 

 

$

1,807

 

 

$

123,972

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Separate account collateral liabilities

   under securities lending agreements

$

10,209

 

 

$

5,257

 

 

$

 

 

$

 

 

$

 

 

$

15,466

 

Other liabilities(5)

 

 

 

 

10

 

 

 

388

 

 

 

 

 

 

 

 

 

398

 

Total

$

10,209

 

 

$

5,267

 

 

$

388

 

 

$

 

 

$

 

 

$

15,864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient.

(2)

Amounts are comprised of investments held at amortized cost and cost, adjusted for observable price changes, 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 amount primarily includes direct investments in private equity companies held by private equity funds.

(4)

Amount includes a minority investment in a publicly traded company.

(5)

Level 3 amount primarily includes contingent liabilities related to certain acquisitions (see Note 15, Commitments and Contingencies, for more information) and other liabilities of a consolidated CLO classified based on the significance of unobservable inputs used for calculating the fair value of consolidated CLO assets.

 

 

15


 

Level 3 Assets.    Level 3 assets may include investments in CLOs and bank loans of consolidated CLOs, which were valued based on single-broker nonbinding quotes and direct private equity investments, which were valued using the market or income approach.

 

Level 3 investments of $255 million and $194 million at June 30, 2020 and December 31, 2019, respectively, primarily included bank loans of a consolidated CLO and investments in CLOs.

Level 3 Liabilities. Level 3 liabilities primarily include contingent liabilities related to certain acquisitions, which were valued based upon discounted cash flow analyses using unobservable market data inputs and borrowings of a consolidated CLO, which were valued based on the fair value of the assets of the consolidated CLO less the fair value of the Company’s economic interest in the CLO.  

 


 

16


 

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2020

 

(in millions)

 

March 31,

2020

 

 

Realized

and

Unrealized

Gains

(Losses)

 

 

Purchases

 

 

Sales and

Maturities

 

 

Issuances and

other

Settlements(1)

 

 

Transfers

into

Level 3

 

 

Transfers

out of

Level 3

 

 

June 30,

2020

 

 

Total Net

Unrealized

Gains (Losses)

Included in

Earnings(2)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading

 

$

9

 

 

$

 

 

$

1

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

10

 

 

$

 

Total debt securities

 

 

9

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

Private equity

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

 

Bank loans

 

 

181

 

 

 

14

 

 

 

18

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

229

 

 

 

14

 

Total investments

 

$

206

 

 

$

14

 

 

$

19

 

 

$

 

 

$

 

 

$

16

 

 

$

 

 

$

255

 

 

$

14

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities(3)

 

$

421

 

 

$

(12

)

 

$

 

 

$

 

 

$

(171

)

 

$

 

 

$

 

 

$

262

 

 

$

(19

)

Total Level 3 liabilities

 

$

421

 

 

$

(12

)

 

$

 

 

$

 

 

$

(171

)

 

$

 

 

$

 

 

$

262

 

 

$

(19

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Amounts include proceeds from borrowings of a consolidated CLO and contingent liability payments, related to certain acquisitions.

(2)

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

(3)

Amounts include contingent liabilities in connection with certain acquisitions and borrowings related to a consolidated CLO.

17


 

 

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2020

 

(in millions)

 

December 31,

2019

 

 

Realized

and

Unrealized

Gains

(Losses)

 

 

Purchases

 

 

Sales and

Maturities

 

 

Issuances and

other

Settlements(1)

 

 

Transfers

into

Level 3

 

 

Transfers

out of

Level 3

 

 

June 30,

2020

 

 

Total Net

Unrealized

Gains (Losses)

Included in

Earnings(2)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading

 

$

8

 

 

$

 

 

$

2

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

10

 

 

$

 

Total debt securities

 

 

8

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

Private equity

 

 

9

 

 

 

 

 

 

8

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

 

Bank loans

 

 

177

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

229

 

 

 

 

Total investments

 

$

194

 

 

$

 

 

$

46

 

 

$

(1

)

 

$

 

 

$

16

 

 

$

 

 

$

255

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities(3)

 

$

388

 

 

$

(23

)

 

$

 

 

$

 

 

$

(149

)

 

$

 

 

$

 

 

$

262

 

 

$

(30

)

Total Level 3 liabilities

 

$

388

 

 

$

(23

)

 

$

 

 

$

 

 

$

(149

)

 

$

 

 

$

 

 

$

262

 

 

$

(30

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Amounts include proceeds from borrowings of a consolidated CLO and contingent liability payments, related to certain acquisitions.

(2)

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

(3)

Amounts include contingent liabilities in connection with certain acquisitions and borrowings related to a consolidated CLO.

 

18


 

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2019

 

(in millions)

 

March 31,

2019

 

 

Realized

and

Unrealized

Gains

(Losses)

 

 

Purchases

 

 

Sales and

Maturities

 

 

Issuances

and

other

Settlements(1)

 

 

Transfers

into

Level 3

 

 

Transfers

out of

Level 3

 

 

June 30,

2019

 

 

Total Net

Unrealized

Gains (Losses)

Included in

Earnings(2)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading

 

$

 

 

$

 

 

$

2

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

2

 

 

$

 

Total debt securities

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

Private equity

 

 

10

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

(1

)

Bank loans

 

 

123

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

125

 

 

 

 

Total investments

 

 

133

 

 

 

(1

)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

136

 

 

 

(1

)

Total Level 3 assets

 

$

133

 

 

$

(1

)

 

$

4

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

136

 

 

$

(1

)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities(3)

 

$

409

 

 

$

(13

)

 

$

 

 

$

 

 

$

(112

)

 

$

 

 

$

 

 

$

310

 

 

$

(13

)

Total Level 3 liabilities

 

$

409

 

 

$

(13

)

 

$

 

 

$

 

 

$

(112

)

 

$

 

 

$

 

 

$

310

 

 

$

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Amounts include proceeds from borrowings of a consolidated CLO and contingent liability payments, related to certain acquisitions.

(2)

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

(3)

Amounts include contingent liabilities in connection with certain acquisitions and borrowings related to a consolidated CLO.

 

19


 

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2019

(in millions)

 

December 31,

2018

 

 

Realized

and

Unrealized

Gains

(Losses)

 

 

Purchases

 

 

Sales and

Maturities

 

 

Issuances

and

other

Settlements(1)

 

 

Transfers

into

Level 3

 

 

Transfers

out of

Level 3(2)

 

 

June 30,

2019

 

 

Total Net

Unrealized

Gains (Losses)

Included in

Earnings(3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading

 

$

4

 

 

$

 

 

$

2

 

 

$

 

 

$

 

 

$

 

 

$

(4

)

 

$

2

 

 

$

 

Total debt securities

 

 

4

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

2

 

 

 

 

Private equity

 

 

82

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72

)

 

 

9

 

 

 

(1

)

Bank loans

 

 

70

 

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

125

 

 

 

 

Total investments

 

 

156

 

 

 

(1

)

 

 

57

 

 

 

 

 

 

 

 

 

 

 

 

(76

)

 

 

136

 

 

 

(1

)

Total Level 3 assets

 

$

156

 

 

$

(1

)

 

$

57

 

 

$

 

 

$

 

 

$

 

 

$

(76

)

 

$

136

 

 

$

(1

)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities(4)

 

$

371

 

 

$

(19

)

 

$

 

 

$

 

 

$

(80

)

 

$

 

 

$

 

 

$

310

 

 

$

(19

)

Total Level 3 liabilities

 

$

371

 

 

$

(19

)

 

$

 

 

$

 

 

$

(80

)

 

$

 

 

$

 

 

$

310

 

 

$

(19

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Amounts include proceeds from borrowings of a consolidated CLO and contingent liability payments, related to certain acquisitions.

(2)

Amounts include an investment in a consolidated entity that no longer qualifies as an investment company and is no longer accounted for under a fair value measure.

(3)

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

(4)

Amounts include contingent liabilities in connection with certain acquisitions and borrowings related to a consolidated CLO.

 

 

20


 

 

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 is 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.

Disclosures of Fair Value for Financial Instruments Not Held at Fair Value. At June 30, 2020 and December 31, 2019, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below:

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

 

(in millions)

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Fair Value

Hierarchy

 

Financial Assets(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

5,466

 

 

$

5,466

 

 

$

4,829

 

 

$

4,829

 

 

Level 1

(2) (3)

Other assets

$

94

 

 

$

94

 

 

$

68

 

 

$

68

 

 

Level 1

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term borrowings

$

7,190

 

 

$

7,787

 

 

$

4,955

 

 

$

5,254

 

 

Level 2

(5)

 

(1)

See Note 5, Investments, for further information on investments not held at fair value.

(2)

Cash and cash equivalents are carried at either cost or amortized cost, which approximates fair value due to their short-term maturities.

(3)

At June 30, 2020 and December 31, 2019, approximately $565 million and $674 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.

(4)

Other assets include restricted cash and cash collateral deposited with certain derivative counterparties. The carrying values of these assets approximate fair value due to their short-term maturities.

(5)

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 determined using market prices at the end of June 2020 and December 2019, respectively. See Note 14, Borrowings, for the fair value of each of the Company’s long-term borrowings.

 

21


 

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 in entities 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, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

Ref

 

Fair Value

 

 

Total

Unfunded

Commitments

 

 

Redemption

Frequency

 

Redemption

Notice Period

Equity method:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge funds/funds of hedge funds

 

(a)

 

$

245

 

 

$

109

 

 

Daily/Monthly (28%)

Quarterly (15%)

N/R (57%)

 

1 – 90 days

Private equity funds

 

(b)

 

 

310

 

 

 

255

 

 

N/R

 

N/R

Real assets funds

 

(c)

 

 

251

 

 

 

173

 

 

Quarterly (47%)

N/R (53%)

 

60 days

Other

 

 

 

 

4

 

 

 

6

 

 

N/R

 

N/R

Consolidated sponsored investment

   products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private equity funds of funds

 

(d)

 

 

9

 

 

 

7

 

 

N/R

 

N/R

Hedge fund

 

(a)

 

 

3

 

 

 

 

 

Quarterly

 

90 days

Real assets funds

 

(c)

 

 

71

 

 

 

103

 

 

N/R

 

N/R

Total

 

 

 

$

893

 

 

$

653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

Ref

 

Fair Value

 

 

Total

Unfunded

Commitments

 

 

Redemption

Frequency

 

Redemption

Notice Period

Equity method:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge funds/funds of hedge funds

 

(a)

 

$

220

 

 

$

120

 

 

Daily/Monthly (27%)

Quarterly (15%)

N/R (58%)

 

1 – 90 days

Private equity funds

 

(b)

 

 

248

 

 

 

212

 

 

N/R

 

N/R

Real assets funds

 

(c)

 

 

296

 

 

 

120

 

 

Quarterly (57%)

N/R (43%)

 

60 days

Other

 

 

 

 

10

 

 

 

9

 

 

N/R

 

N/R

Consolidated sponsored investment

   products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private equity funds of funds

 

(d)

 

 

23

 

 

 

9

 

 

N/R

 

N/R

Hedge fund

 

(a)

 

 

3

 

 

 

 

 

Quarterly

 

90 days

Real assets funds

 

(c)

 

 

72

 

 

 

83

 

 

N/R

 

N/R

Total

 

 

 

$

872

 

 

$

553

 

 

 

 

 

 

N/R – not redeemable

 

(1)

Comprised of equity method investments, which include investment companies, which account for their financial assets and most financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.

(a)

This category includes 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. The liquidation period for the investments in the funds that are not subject to redemption is unknown at both June 30, 2020 and December 31, 2019.

(b)

This category includes 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. The liquidation period for the investments in these funds is unknown at both June 30, 2020 and December 31, 2019.

22


 

(c)

This category includes several real assets funds that invest directly and indirectly in real estate or infrastructure. The fair values of the investments have been estimated using capital accounts representing the Company’s ownership interest in the funds. The Company’s investments that are not subject to redemption or are not currently redeemable are normally returned through distributions and realizations of the underlying assets of the funds. The liquidation period for the investments in the funds that are not subject to redemptions is unknown at both June 30, 2020 and December 31, 2019. The total remaining unfunded commitments to real assets funds were $276 million and $203 million at June 30, 2020 and December 31, 2019, respectively. The Company’s portion of the total remaining unfunded commitments was $240 million and $172 million at June 30, 2020 and December 31, 2019, respectively.

(d)

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 or are not currently redeemable; 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. The liquidation period for the underlying assets of these funds is unknown at both June 30, 2020 and December 31, 2019. The total remaining unfunded commitments to other third-party funds were $7 million and $9 million at June 30, 2020 and December 31, 2019, respectively. The Company had contractual obligations to the consolidated funds of $17 million and $22 million at June 30, 2020 and December 31, 2019, respectively. 

 

Fair Value Option.

 

At June 30, 2020 and December 31, 2019, the Company elected the fair value option for certain investments in CLOs of approximately $29 million and $37 million, respectively, reported within investments.

 

In addition, the Company elected the fair value option for bank loans and borrowings of a consolidated CLO, recorded within investments and other liabilities, respectively. The following table summarizes the information related to these bank loans and borrowings at June 30, 2020 and December 31, 2019:

 

 

June 30,

 

 

December 31,

 

(in millions)

 

2020

 

 

2019

 

CLO Bank loans:

 

 

 

 

 

 

 

 

Aggregate principal amounts outstanding

 

$

244

 

 

$

204

 

Fair value

 

 

232

 

 

 

204

 

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

 

$

12

 

 

$

 

 

 

 

 

 

 

 

 

 

CLO Borrowings:

 

 

 

 

 

 

 

 

Aggregate principal amounts outstanding

 

$

249

 

 

$

195

 

Fair value

 

$

225

 

 

$

195

 

 

At June 30, 2020, the principal amounts outstanding of the borrowings issued by the CLOs mature in 2030.

During the three and six months ended June 30, 2020 and 2019, the net gains (losses) from the change in fair value of the bank loans and borrowings held by the consolidated CLO were not material and were recorded in net gain (loss) on the condensed consolidated statements of income. The change in fair value of the assets and liabilities included interest income and expense, respectively.

 

9. 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, 2020 and December 31, 2019, the Company had outstanding total return swaps with aggregate notional values of approximately $667 million and $644 million, respectively.

The Company executes forward foreign currency exchange contracts to mitigate the risk of certain foreign exchange movements. At June 30, 2020 and December 31, 2019, the Company had outstanding forward foreign currency exchange contracts with aggregate notional values of approximately $2.6 billion and $3.4 billion, respectively.

At both June 30, 2020 and December 31, 2019, the Company had a derivative providing credit protection with a notional amount of approximately $17 million to a counterparty, representing the Company’s maximum risk of loss with respect to the derivative. The Company carries the derivative at fair value based on the expected discounted future cash outflows under the arrangement.

23


 

The following table presents the fair values of derivative instruments recognized in the condensed consolidated statements of financial condition at June 30, 2020:

 

 

June 30, 2020

 

(in millions)

Assets

 

 

 

Liabilities

 

Derivative instruments

Statement of

Financial Condition

Classification

 

Fair Value

 

 

 

Statement of

Financial Condition

Classification

 

Fair Value

 

Total return swaps

Other assets

 

$

1

 

 

 

Other liabilities

 

$

49

 

Forward foreign currency exchange

   contracts

Other assets

 

 

7

 

 

 

Other liabilities

 

 

30

 

Total

 

 

$

8

 

 

 

 

 

$

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair values of the outstanding total return swaps and forward foreign currency exchange contracts were not material to the condensed consolidated statement of financial condition at December 31, 2019.

 

The following table presents realized and unrealized gains (losses) recognized in the condensed consolidated statements of income on derivative instruments:

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

 

June 30,

 

(in millions)

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Derivative Instruments

 

Statement of Income Classification

 

Gains (Losses)

 

 

Gains (Losses)

 

Total return swaps

 

Nonoperating income (expense)

 

$

(91

)

 

$

(14

)

 

$

51

 

 

$

(64

)

Forward foreign currency

   exchange contracts

 

General and administration expense

 

 

(10

)

 

 

(49

)

 

 

(98

)

 

 

(13

)

Total gain (loss) from derivative instruments

 

$

(101

)

 

$

(63

)

 

$

(47

)

 

$

(77

)

The Company consolidates certain sponsored investment funds, which may utilize derivative instruments as a part of the funds’ investment strategies. The changes in fair value of such derivatives, which are recorded in nonoperating income (expense), were not material for the three and six months ended June 30, 2020 and 2019.

See Note 15, Borrowings, in the 2019 Form 10-K for more information on the Company’s net investment hedge.

 

 

10. Goodwill

Goodwill activity during the six months ended June 30, 2020 was as follows:

 

(in millions)

 

 

 

December 31, 2019

$

14,562

 

Goodwill adjustments related to Quellos(1)

 

(6

)

June 30, 2020

$

14,556

 

 

(1)

Amount primarily resulted from a decline related to 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 $90 million and $106 million at June 30, 2020 and December 31, 2019, respectively.

 

 

24


 

11. Intangible Assets

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

 

(in millions)

Indefinite-lived

 

 

Finite-lived

 

 

Total

 

December 31, 2019

$

17,578

 

 

$

791

 

 

$

18,369

 

Amortization expense

 

 

 

 

(52

)

 

 

(52

)

June 30, 2020

$

17,578

 

 

$

739

 

 

$

18,317

 

 

 

12. Leases

 

The following table presents components of lease cost included in general and administration expense on the condensed consolidated statement of income:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

Lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost(1)

$

36

 

 

$

34

 

 

$

73

 

 

$

68

 

Variable lease cost(2)

 

10

 

 

 

10

 

 

 

19

 

 

 

18

 

Total lease cost

$

46

 

 

$

44

 

 

$

92

 

 

$

86

 

 

(1)

Amounts include short-term leases, which are immaterial for the three and six months ended June 30, 2020 and 2019.

(2)

Amounts include operating lease payments, which may be adjusted based on usage, changes in an index or market rate.

 

The following table presents operating leases included on the condensed consolidated statement of financial condition:

 

Statement of

 

 

 

 

 

 

 

 

 

Financial Condition

 

June 30,

 

 

December 31,

 

(in millions)

Classification

 

2020

 

 

2019

 

Statement of Financial Condition information:

 

 

 

 

 

 

 

 

 

Operating lease right-of-use ("ROU") assets

Other assets

 

$

663

 

 

$

669

 

Operating lease liabilities

Other liabilities

 

$

774

 

 

$

776

 

 

Supplemental information related to operating leases is summarized below:

 

 

 

Six Months Ended

 

 

 

June 30,

 

(in millions)

 

2020

 

 

2019

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

76

 

 

$

70

 

 

 

 

 

 

 

 

 

 

Supplemental noncash information:

 

 

 

 

 

 

 

 

ROU assets in exchange for operating lease liabilities in connection with the

   adoption of ASU 2016-02, “Leases

 

$

 

 

$

661

 

ROU assets in exchange for operating lease liabilities

 

$

77

 

 

$

44

 

 

 

 

June 30,

 

December 31,

 

2020

 

2019

Lease term and discount rate:

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term

 

8

 

years

 

 

9

 

years

Weighted-average discount rate

 

3

 

%

 

 

3

 

%

 

 

25


 

13. Other Assets

PennyMac

At December 31, 2019, the Company accounted for its interest in PennyMac Financial Services, Inc. (“PennyMac”) as an equity method investment, which was included in other assets on the condensed consolidated statements of financial condition. The carrying value and market value of the Company’s interest (approximately 20% or 16 million shares) were approximately $451 million and $530 million, respectively, at December 31, 2019. The market value of the Company’s interest reflected the PennyMac stock price at December 31, 2019 (a Level 1 input).

On February 13, 2020, BlackRock established The BlackRock Foundation (the “Foundation”) and contributed its remaining 20% stake in PennyMac to the Foundation and the BlackRock Charitable Fund, which BlackRock established in 2013 (together, the “Charitable Contribution”). The Charitable Contribution resulted in an operating expense of $589 million, which was offset by a $122 million noncash, nonoperating pre-tax gain on the contributed shares and a tax benefit of $241 million in the condensed consolidated statement of income for the six months ended June 30, 2020.

 

iCapital

 

On March 10, 2020, in connection with a recapitalization of iCapital Network, Inc. (“iCapital”), BlackRock received additional stock in exchange for certain securities it held, which resulted in a nonoperating pre-tax gain of approximately $240 million in the condensed consolidated statement of income for the six months ended June 30, 2020. Following this transaction, the Company accounts for its interest in iCapital as an equity method investment, which is included in other assets on the condensed consolidated statements of financial condition. At June 30, 2020, the carrying value of the Company’s interest in iCapital was approximately $300 million.

 

14. Borrowings

 

Short-Term Borrowings

 

2020 Revolving Credit Facility.  The Company’s credit facility has an aggregate commitment amount of $4.0 billion and was amended in March 2020 to extend the maturity date to March 2025 (the “2020 credit facility”). The 2020 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 2020 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 2020 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, 2020. The 2020 credit facility provides back-up liquidity to fund ongoing working capital for general corporate purposes and various investment opportunities. At June 30, 2020, the Company had 0 amount outstanding under the credit facility.

Commercial Paper Program.  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 of $4.0 billion. The commercial paper program is currently supported by the 2020 credit facility. At June 30, 2020, BlackRock had 0 CP Notes outstanding.

 

26


 

Long-Term Borrowings

The carrying value and fair value of long-term borrowings determined using market prices and EUR/USD foreign exchange rate at June 30, 2020 included the following:

 

(in millions)

Maturity Amount

 

 

Unamortized

Discount

and Debt

Issuance Costs

 

 

Carrying Value

 

 

Fair Value

 

4.25% Notes due 2021

$

750

 

 

$

 

 

$

750

 

 

$

776

 

3.375% Notes due 2022

 

750

 

 

 

(2

)

 

 

748

 

 

 

792

 

3.50% Notes due 2024

 

1,000

 

 

 

(3

)

 

 

997

 

 

 

1,101

 

1.25% Notes due 2025

 

786

 

 

 

(4

)

 

 

782

 

 

 

828

 

3.20% Notes due 2027

 

700

 

 

 

(5

)

 

 

695

 

 

 

791

 

3.25% Notes due 2029

 

1,000

 

 

 

(13

)

 

 

987

 

 

 

1,147

 

2.40% Notes due 2030

 

1,000

 

 

 

(7

)

 

 

993

 

 

 

1,077

 

1.90% Notes due 2031

 

1,250

 

 

 

(12

)

 

 

1,238

 

 

 

1,275

 

Total Long-term Borrowings

$

7,236

 

 

$

(46

)

 

$

7,190

 

 

$

7,787

 

 

2030 Notes. In January 2020, the Company issued $1 billion in aggregate principal amount of 2.40% senior unsecured and unsubordinated notes maturing on April 30, 2030 (the “2030 Notes”). The net proceeds of the 2030 Notes were used for general corporate purposes. Interest of approximately $24 million per year is payable semi-annually on April 30 and October 30 of each year, which commenced on April 30, 2020. The 2030 Notes may be redeemed prior to January 30, 2030 in whole or in part at any time, at the option of the Company, at a “make-whole” redemption price or at 100% of the principal amount of the 2030 Notes thereafter. The unamortized discount and debt issuance costs are being amortized over the remaining term of the 2030 Notes.

2031 Notes. In April 2020, the Company issued $1.25 billion in aggregate principal amount of 1.90% senior unsecured and unsubordinated notes maturing on January 28, 2031 (the “2031 Notes”). The net proceeds of the 2031 Notes are being used for general corporate purposes, which may include the future repayment of all or a portion of the $750 million 4.25% Notes due May 2021. Interest of approximately $24 million per year is payable semi-annually on January 28 and July 28 of each year, commencing on July 28, 2020. The 2031 Notes may be redeemed prior to October 28, 2030 in whole or in part at any time, at the option of the Company, at a “make-whole” redemption price or at 100% of the principal amount of the 2031 Notes thereafter. The unamortized discount and debt issuance costs are being amortized over the remaining term of the 2031 Notes.

See Note 15, Borrowings, in the 2019 Form 10-K for more information regarding the Company’s borrowings.

 

15. Commitments and Contingencies

Investment Commitments.   At June 30, 2020, the Company had $656 million of various capital commitments to fund sponsored investment products, including consolidated sponsored investment products. These products include private equity funds, real assets funds and opportunistic 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. 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.

27


 

Contingencies

Contingent Payments Related to Business Acquisitions.  In connection with certain acquisitions, BlackRock is required to make contingent payments, subject to achieving specified performance targets, which may include revenue related to acquired contracts or new capital commitments for certain products. The fair value of the remaining aggregate contingent payments at June 30, 2020 totaled $37 million and is included in other liabilities on the condensed consolidated statements of financial condition.

Other Contingent Payments.  The Company acts as the portfolio manager in a series of derivative transactions and has a maximum potential exposure of $17 million between the Company and counterparty. See Note 9, Derivatives and Hedging, for further discussion.

Legal Proceedings. From time to time, BlackRock receives subpoenas or other requests for information from various US federal and state governmental and regulatory authorities and international governmental and regulatory authorities in connection with industry-wide or other investigations or proceedings. It is BlackRock’s policy to cooperate fully with such matters. The Company, certain of its subsidiaries and employees have been named as defendants in various legal actions, including arbitrations and other litigation arising in connection with BlackRock’s activities. Additionally, BlackRock-advised investment portfolios may be subject to lawsuits, any of which potentially could harm the investment returns of the applicable portfolio or result in the Company being liable to the portfolios for any resulting damages.

On May 27, 2014, certain investors in the BlackRock Global Allocation Fund, Inc. and the BlackRock Equity Dividend Fund (collectively, the “Funds”) filed a consolidated complaint (the “Consolidated Complaint”) in the US District Court for the District of New Jersey against BlackRock Advisors, LLC, BlackRock Investment Management, LLC and BlackRock International Limited under the caption In re BlackRock Mutual Funds Advisory Fee Litigation. In the lawsuit, which purports to be brought derivatively on behalf of the Funds, the plaintiffs allege that the defendants violated Section 36(b) of the Investment Company Act by receiving allegedly excessive investment advisory fees from the Funds. On June 13, 2018, the court granted in part and denied in part the defendants’ motion for summary judgment. On July 25, 2018, the plaintiffs served a pleading that supplemented the time period of their alleged damages to run through the date of trial. The lawsuit seeks, among other things, to recover on behalf of the Funds all allegedly excessive advisory fees received by the defendants beginning twelve months preceding the start of the lawsuit with respect to each Fund and ending on the date of judgment, along with purported lost investment returns on those amounts, plus interest. The trial on the remaining issues was completed on August 29, 2018. On February 8, 2019, the court issued an order dismissing the claims in their entirety. On May 28, 2020, the Third Circuit Court of Appeals affirmed the trial court’s summary judgment and trial rulings. On June 26, 2020, Plaintiffs petitioned the appeals court for a rehearing, which was denied July 9, 2020. The defendants continue to believe the claims in this lawsuit are without merit.

On June 16, 2016, iShares Trust, BlackRock, Inc. and certain of its advisory subsidiaries, and the directors and certain officers of the iShares ETFs were named as defendants in a purported class action lawsuit filed in California state court. The lawsuit was filed by investors in certain iShares ETFs (the "ETFs"), and alleges the defendants violated the federal securities laws by failing to adequately disclose in prospectuses issued by the ETFs the risks to the ETFs’ shareholders in the event of a "flash crash." The plaintiffs seek unspecified monetary and rescission damages. The plaintiffs’ complaint was dismissed in December 2016 and on January 6, 2017, the plaintiffs filed an amended complaint. On April 27, 2017, the court partially granted the defendants’ motion for judgment on the pleadings, dismissing certain of the plaintiffs’ claims. On September 18, 2017, the court issued a decision dismissing the remainder of the lawsuit after a one-day bench trial. On December 1, 2017, the plaintiffs appealed the dismissal of their lawsuit and, on January 23, 2020, the California Court of Appeal affirmed the trial court’s dismissal. On May 27, 2020, the California Supreme Court denied plaintiffs’ petition for further review of the appeal. The defendants continue to believe the claims in this lawsuit are without merit.

On April 5, 2017, BlackRock, Inc., BlackRock Institutional Trust Company, N.A. (“BTC”), the BlackRock, Inc. Retirement Committee and various sub-committees, and a BlackRock employee were named as defendants in a purported class action lawsuit brought in the US District Court for the Northern District of California by a former employee on behalf of all participants and beneficiaries in the BlackRock employee 401(k) Plan (the “Plan”) from April 5, 2011 to the present. The lawsuit generally alleges that the defendants breached their duties towards Plan participants in violation of the Employee Retirement Income Security Act of 1974 by, among other things, offering investment options that were overly expensive, underperformed unaffiliated peer funds, focused disproportionately on active versus passive strategies, and were unduly concentrated in investment options managed by BlackRock. On

28


 

October 18, 2017, the plaintiffs filed an Amended Complaint, which, among other things, added as defendants certain current and former members of the BlackRock Retirement and Investment Committees. The Amended Complaint also included a new purported class claim on behalf of investors in certain CTFs managed by BTC. Specifically, the plaintiffs allege that BTC, as fiduciary to the CTFs, engaged in self-dealing by, most significantly, selecting itself as the securities lending agent on terms that the plaintiffs claim were excessive. The Amended Complaint also alleged that BlackRock took undue risks in its management of securities lending cash reinvestment vehicles during the financial crisis. On August 23, 2018, the court granted permission to the plaintiffs to file a Second Amended Complaint (“SAC”) which added as defendants the BlackRock, Inc. Management Development and Compensation Committee, the Plan’s independent investment consultant and the Plan’s Administrative Committee and its members. On October 22, 2018, BlackRock filed a motion to dismiss the SAC, and on June 3, 2019, the plaintiffs filed a motion seeking to certify both the Plan and the CTF classes. On September 3, 2019, the court granted BlackRock’s motion to dismiss part of the plaintiffs’ claim seeking to recover alleged losses in the securities lending vehicles but denied the motion to dismiss in all other respects. On February 11, 2020, the court denied the plaintiffs’ motion to certify the CTF class and granted their motion to certify the Plan class. On April 27, 2020, the Ninth Circuit denied plaintiffs’ request to immediately appeal the class certification ruling. The defendants believe the claims in this lawsuit are without merit.

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 agreed to indemnify 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. The amount of securities on loan as of June 30, 2020 and subject to this type of indemnification was $234 billion. In the Company’s capacity as lending agent, cash and securities totaling $251 billion were held as collateral for indemnified securities on loan at June 30, 2020. The fair value of these indemnifications was not material at June 30, 2020.

 

29


 

16. Revenue

 

The table below presents detail of revenue for the three and six months ended June 30, 2020 and 2019 and includes the product mix of investment advisory, administration fees and securities lending revenue (collectively “base fees”) and performance fees.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

Investment advisory, administration fees and

   securities lending revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

$

381

 

 

$

385

 

 

$

779

 

 

$

760

 

iShares ETFs

 

792

 

 

 

870

 

 

 

1,671

 

 

 

1,717

 

Non-ETF Index

 

178

 

 

 

163

 

 

 

341

 

 

 

327

 

Equity subtotal

 

1,351

 

 

 

1,418

 

 

 

2,791

 

 

 

2,804

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

464

 

 

 

474

 

 

 

945

 

 

 

931

 

iShares ETFs

 

261

 

 

 

234

 

 

 

520

 

 

 

454

 

Non-ETF Index

 

129

 

 

 

98

 

 

 

241

 

 

 

195

 

Fixed income subtotal

 

854

 

 

 

806

 

 

 

1,706

 

 

 

1,580

 

Multi-asset

 

270

 

 

 

288

 

 

 

563

 

 

 

564

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Illiquid alternatives

 

128

 

 

 

118

 

 

 

276

 

 

 

228

 

Liquid alternatives

 

117

 

 

 

102

 

 

 

229

 

 

 

196

 

Currency and commodities(1)

 

35

 

 

 

24

 

 

 

67

 

 

 

48

 

Alternatives subtotal

 

280

 

 

 

244

 

 

 

572

 

 

 

472

 

Long-Term

 

2,755

 

 

 

2,756

 

 

 

5,632

 

 

 

5,420

 

Cash management

 

211

 

 

 

147

 

 

 

389

 

 

 

288

 

Total base fees

 

2,966

 

 

 

2,903

 

 

 

6,021

 

 

 

5,708

 

Investment advisory performance fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

23

 

 

 

4

 

 

 

25

 

 

 

4

 

Fixed income

 

2

 

 

 

 

 

 

4

 

 

 

2

 

Multi-asset

 

2

 

 

 

6

 

 

 

3

 

 

 

6

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Illiquid alternatives

 

32

 

 

 

15

 

 

 

49

 

 

 

35

 

Liquid alternatives

 

53

 

 

 

39

 

 

 

72

 

 

 

43

 

Alternatives subtotal

 

85

 

 

 

54

 

 

 

121

 

 

 

78

 

Total performance fees

 

112

 

 

 

64

 

 

 

153

 

 

 

90

 

Technology services revenue

 

278

 

 

 

237

 

 

 

552

 

 

 

441

 

Distribution fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retrocessions

 

162

 

 

 

164

 

 

 

331

 

 

 

325

 

12b-1 fees (US mutual fund distribution fees)

 

78

 

 

 

88

 

 

 

169

 

 

 

177

 

Other

 

13

 

 

 

15

 

 

 

29

 

 

 

27

 

Total distribution fees

 

253

 

 

 

267

 

 

 

529

 

 

 

529

 

Advisory and other revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory

 

17

 

 

 

22

 

 

 

34

 

 

 

41

 

Other

 

22

 

 

 

31

 

 

 

69

 

 

 

61

 

Total advisory and other revenue

 

39

 

 

 

53

 

 

 

103

 

 

 

102

 

Total revenue

$

3,648

 

 

$

3,524

 

 

$

7,358

 

 

$

6,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_____________________________________________________________

(1)      Amounts include commodity iShares ETFs.

30


 

The tables below present the investment advisory, administration fees and securities lending revenue by client type and investment style:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

By client type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

$

825

 

 

$

846

 

 

$

1,697

 

 

$

1,672

 

iShares ETFs

 

1,089

 

 

 

1,128

 

 

 

2,259

 

 

 

2,219

 

Institutional:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

546

 

 

 

537

 

 

 

1,120

 

 

 

1,037

 

Index

 

295

 

 

 

245

 

 

 

556

 

 

 

492

 

Total institutional

 

841

 

 

 

782

 

 

 

1,676

 

 

 

1,529

 

Long-Term

 

2,755

 

 

 

2,756

 

 

 

5,632

 

 

 

5,420

 

Cash management

 

211

 

 

 

147

 

 

 

389

 

 

 

288

 

Total

$

2,966

 

 

$

2,903

 

 

$

6,021

 

 

$

5,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By investment style:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

$

1,354

 

 

$

1,365

 

 

$

2,781

 

 

$

2,672

 

Index and iShares ETFs

 

1,401

 

 

 

1,391

 

 

 

2,851

 

 

 

2,748

 

Long-Term

 

2,755

 

 

 

2,756

 

 

 

5,632

 

 

 

5,420

 

Cash management

 

211

 

 

 

147

 

 

 

389

 

 

 

288

 

Total

$

2,966

 

 

$

2,903

 

 

$

6,021

 

 

$

5,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31


 

Investment advisory and administration fees – remaining performance obligation

 

The tables below present estimated investment advisory and administration fees expected to be recognized in the future related to the unsatisfied portion of the performance obligations at June 30, 2020 and 2019:

 

June 30, 2020

 

Remainder of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

2020

 

 

 

2021

 

 

 

2022

 

 

 

2023

 

 

Thereafter

 

 

Total

 

Investment advisory and

   administration fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternatives(1)(2)

$

63

 

 

$

114

 

 

$

98

 

 

$

84

 

 

$

55

 

 

$

414

 

 

June 30, 2019

 

Remainder of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

2019

 

 

 

2020

 

 

 

2021

 

 

 

2022

 

 

Thereafter

 

 

Total

 

Investment advisory and

   administration fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternatives(1)(2)

$

41

 

 

$

74

 

 

$

62

 

 

$

53

 

 

$

50

 

 

$

280

 

 

(1)

Investment advisory and administration fees include management fees related to certain alternative products, which are based on contractual committed capital outstanding at June 30, 2020 and 2019. Actual management fees could be higher to the extent additional committed capital is raised. These fees are generally billed on a quarterly basis in arrears.

(2)

The Company elected the following practical expedients and therefore does not include amounts related to (1) performance obligations with an original duration of one year or less, and (2) variable consideration related to future service periods.  

 

Change in Deferred Carried Interest Liability

The table below presents changes in the deferred carried interest liability, which is included in other liabilities on the condensed consolidated statements of financial condition, for the three and six months ended June 30, 2020 and 2019:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

Beginning balance

$

535

 

 

$

327

 

 

$

483

 

 

$

293

 

Net increase (decrease) in unrealized allocations

 

(87

)

 

 

48

 

 

 

(25

)

 

 

99

 

Performance fee revenue recognized

 

(30

)

 

 

(10

)

 

 

(40

)

 

 

(27

)

Ending balance

$

418

 

 

$

365

 

 

$

418

 

 

$

365

 

 

 

32


 

Technology services revenue – remaining performance obligation

The tables below present estimated technology services revenue expected to be recognized in the future related to the unsatisfied portion of the performance obligations at June 30, 2020 and 2019:

 

June 30, 2020

 

 

Remainder of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

2020

 

 

 

2021

 

 

 

2022

 

 

 

2023

 

 

Thereafter

 

 

Total

 

Technology services revenue(1)(2)

$

72

 

 

$

75

 

 

$

40

 

 

$

17

 

 

$

12

 

 

$

216

 

 

June 30, 2019

 

Remainder of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

2019

 

 

 

2020

 

 

 

2021

 

 

 

2022

 

 

Thereafter

 

 

Total

 

Technology services revenue(1)(2)

$

60

 

 

$

47

 

 

$

33

 

 

$

19

 

 

$

12

 

 

$

171

 

 

(1)

Technology services revenue primarily includes upfront payments from customers, which the Company generally recognizes as services are performed.  

(2)

The Company elected the following practical expedients and therefore does not include amounts related to (1) performance obligations with an original duration of one year or less, and (2) variable consideration related to future service periods.

 

In addition to amounts disclosed in the tables above, certain technology services contracts require fixed minimum fees, which are billed on a monthly or quarterly basis in arrears. The Company recognizes such revenue as services are performed. As of June 30, 2020, the estimated fixed minimum fees for the remainder of the year approximated $330 million. The term for these contracts, which are either in their initial or renewal period, ranges from one to five years.

The table below presents changes in the technology services deferred revenue liability for the three and six months ended June 30, 2020 and 2019, which is included in other liabilities on the condensed consolidated statements of financial condition:

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

Beginning balance

$

114

 

 

$

73

 

 

$

116

 

 

$

70

 

Acquisition (1)(2)

 

 

 

 

24

 

 

 

 

 

 

24

 

Additions (2)

 

28

 

 

 

12

 

 

 

58

 

 

 

23

 

Revenue recognized that was included in the

    beginning balance

 

(34

)

 

 

(9

)

 

 

(66

)

 

 

(17

)

Ending balance

$

108

 

 

$

100

 

 

$

108

 

 

$

100

 

 

 

(1)

The increase during the three and six months ended June 30, 2019 resulted from the eFront Transaction. See Note 3, Acquisition, for information on the eFront Transaction.

(2)

Amounts are net of revenue recognized.

 

 

 

33


 

17. Stock-Based Compensation

Restricted Stock and RSUs.

Restricted stock and restricted stock units (“RSUs”) activity for the six months ended June 30, 2020 is summarized below.

 

Outstanding at

Restricted

Stock and

RSUs

 

 

Weighted-

Average

Grant Date

Fair Value

 

December 31, 2019

 

2,236,452

 

 

$

444.02

 

Granted

 

935,337

 

 

$

532.09

 

Converted

 

(873,774

)

 

$

425.37

 

Forfeited

 

(61,736

)

 

$

476.20

 

June 30, 2020(1)

 

2,236,279

 

 

$

487.25

 

 

(1) 

At June 30, 2020, approximately 2.1 million awards are expected to vest and 0.1 million awards have vested but have not been converted.

In January 2020, the Company granted 504,403 RSUs or shares of restricted stock to employees as part of 2019 annual incentive compensation that vest ratably over three years from the date of grant and 393,161 RSUs or shares of restricted stock to employees that cliff vest 100% on January 31, 2023. The Company values restricted stock and RSUs at their grant-date fair value as measured by BlackRock’s common stock price. The total fair market value of RSUs/restricted stock granted to employees during the six months ended June 30, 2020 was $498 million.  

At June 30, 2020, the intrinsic value of outstanding RSUs was $1.2 billion, reflecting a closing stock price of $544.09.

At June 30, 2020, total unrecognized stock-based compensation expense related to unvested RSUs was $587 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.6 years.

Performance-Based RSUs.  

Performance-based RSU activity for the six months ended June 30, 2020 is summarized below.

 

Outstanding at

Performance-

Based RSUs

 

 

Weighted-

Average

Grant Date

Fair Value

 

December 31, 2019

 

742,918

 

 

$

436.84

 

Granted

 

238,478

 

 

$

533.58

 

Additional shares granted due to attainment of

    performance measures

 

30,600

 

 

$

375.26

 

Converted

 

(311,779

)

 

$

375.26

 

June 30, 2020

 

700,217

 

 

$

494.51

 

 

In January 2020, the Company granted 238,478 performance-based RSUs to certain employees that cliff vest 100% on January 31, 2023. These awards are amortized over a service period of three years. The number of shares distributed at vesting could be higher or lower than the original grant based on the level of attainment of predetermined Company performance measures. In January 2020, the Company also granted 30,600 additional RSUs related to prior awards to certain employees based on the attainment of Company performance measures during the performance period.

The Company initially 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 granted to employees during the six months ended June 30, 2020 was $139 million.

At June 30, 2020, the intrinsic value of outstanding performance-based RSUs was $381 million, reflecting a closing stock price of $544.09.

34


 

At June 30, 2020, total unrecognized stock-based compensation expense related to unvested performance-based awards was $175 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.7 years.

See Note 18, Stock-Based Compensation, in the 2019 Form 10-K for more information on performance-based RSUs.

Performance-based Stock Options.

Stock option activity for the six months ended June 30, 2020 is summarized below.

Outstanding at

Shares

Under

Option

 

 

Weighted

Average

Exercise

Price

 

December 31, 2019

 

1,941,145

 

 

$

513.50

 

Forfeited

 

(25,353

)

 

$

513.50

 

June 30, 2020

 

1,915,792

 

 

$

513.50

 

 

 

At June 30, 2020, total unrecognized stock-based compensation expense related to unvested performance-based stock options was $98 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 3.4 years. 

See Note 18, Stock-Based Compensation, in the 2019 Form 10-K for more information on performance-based stock options.

 

 

18. 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 may have adverse tax consequences that could discourage such transfers.

At June 30, 2020, the Company was required to maintain approximately $2.1 billion in net capital in certain regulated subsidiaries, including BTC (a wholly owned subsidiary of the Company that is chartered as a national bank whose powers are limited to trust and other fiduciary 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.

 

19. Accumulated Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

Beginning balance

$

(810

)

 

$

(623

)

 

$

(571

)

 

$

(691

)

Foreign currency translation adjustments(1)

 

29

 

 

 

(41

)

 

 

(210

)

 

 

27

 

Ending balance

$

(781

)

 

$

(664

)

 

$

(781

)

 

$

(664

)

 

(1)

Amounts for the three months ended June 30, 2020 and 2019 include a loss from a net investment hedge of $14 million (net of tax benefit of $4 million) and $8 million (net of tax benefit of $2 million), respectively. Gain (loss) from a net investment hedge was immaterial for the six months ended June 30, 2020 and 2019.

 

 

35


 

20. Capital Stock

Nonvoting Participating Preferred Stock.  The Company’s preferred shares authorized, issued and outstanding consisted of the following:

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

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

 

Series C

 

 

 

 

 

 

 

 

Shares authorized, $0.01 par value

 

 

6,000,000

 

 

 

6,000,000

 

Shares issued and outstanding

 

 

 

 

 

 

Series D

 

 

 

 

 

 

 

 

Shares authorized, $0.01 par value

 

 

20,000,000

 

 

 

20,000,000

 

Shares issued and outstanding

 

 

 

 

 

 

 

(1) 

Shares held by PNC.

May 2020 PNC Secondary Offering and Share Repurchase.  On May 15, 2020, a subsidiary of The PNC Financial Services Group, Inc. (“PNC”) completed the secondary offering of 31,628,573 shares of the Company’s common stock at a price of $420 per share, which included 823,188 shares of common stock issued upon the conversion of the Company’s Series B Convertible Participating Preferred Stock and 2,875,325 shares of common stock under the fully exercised underwriters’ option to purchase additional shares. Also on May 15, 2020, PNC completed the sale of 2,650,857 shares to the Company at a price of $414.96 per share. The shares repurchased by the Company were in addition to the share repurchase authorization under the Company’s existing share repurchase program. The secondary offering and the Company’s share repurchase resulted in PNC’s exit of its entire ownership position in the Company, other than 500,000 shares that PNC contributed to The PNC Foundation.

Share Repurchases.  During the six months ended June 30, 2020, the Company repurchased 0.8 million common shares in open market transactions under the share repurchase program for approximately $412 million. At June 30, 2020, there were 5.1 million shares still authorized to be repurchased. During the six months ended June 30, 2020, the Company has repurchased an aggregate of approximately $1.5 billion of common shares, including the repurchase from PNC described above.

 

 

21. Income Taxes

The six months ended June 30, 2020 income tax benefit included a discrete tax benefit of $241 million recognized in connection with the Charitable Contribution.

The six months ended June 30, 2020 and 2019 income tax expense (benefit) included $66 million and $14 million, respectively, of discrete tax benefits, including benefits related to stock-based compensation awards that vested in the first quarter of each year.  

36


 

22. 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. As of June 30, 2020, there were 0 shares of preferred stock outstanding.

The following table sets forth the computation of basic and diluted EPS for the three and six months ended June 30, 2020 and 2019 under the treasury stock method:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions, except shares and per share data)

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income attributable to BlackRock

$

1,214

 

 

$

1,003

 

 

$

2,020

 

 

$

2,056

 

Basic weighted-average shares outstanding

 

153,732,878

 

 

 

155,354,552

 

 

 

154,488,079

 

 

 

156,803,244

 

Dilutive effect of nonparticipating RSUs and stock options

 

979,154

 

 

 

1,006,189

 

 

 

1,068,108

 

 

 

1,050,467

 

Total diluted weighted-average shares outstanding

 

154,712,032

 

 

 

156,360,741

 

 

 

155,556,187

 

 

 

157,853,711

 

Basic earnings per share

$

7.90

 

 

$

6.46

 

 

$

13.08

 

 

$

13.11

 

Diluted earnings per share

$

7.85

 

 

$

6.41

 

 

$

12.99

 

 

$

13.02

 

 

The amount of anti-dilutive RSUs was immaterial for the three and six months ended June 30, 2020 and 2019. In addition, performance-based RSUs and stock options are excluded from potential dilution until the designated performance conditions are met.

 

23. Segment Information

The Company’s management directs BlackRock’s operations as 1 business, the asset management business. The Company utilizes a consolidated approach to assess performance and allocate resources. As such, the Company operates in one business segment.

 

The following table illustrates total revenue for the three and six months ended June 30, 2020 and 2019 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the customer resides or affiliated services are provided.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

(in millions)

 

June 30,

 

 

June 30,

 

Revenue

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Americas

 

$

2,470

 

 

$

2,366

 

 

$

4,950

 

 

$

4,606

 

Europe

 

 

1,020

 

 

 

995

 

 

 

2,087

 

 

 

1,938

 

Asia-Pacific

 

 

158

 

 

 

163

 

 

 

321

 

 

 

326

 

Total revenue

 

$

3,648

 

 

$

3,524

 

 

$

7,358

 

 

$

6,870

 

 

See Note 16, Revenue, for further information on the Company’s sources of revenue.

 

37


 

The following table illustrates long-lived assets that consist of goodwill and property and equipment at June 30, 2020 and December 31, 2019 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,

 

 

December 31,

 

Long-lived Assets

 

2020

 

 

2019

 

Americas

 

$

13,811

 

 

$

13,830

 

Europe

 

 

1,355

 

 

 

1,360

 

Asia-Pacific

 

 

87

 

 

 

87

 

Total long-lived assets

 

$

15,253

 

 

$

15,277

 

 

Americas is primarily comprised of the United States, Latin America and Canada, while Europe is primarily comprised of the United Kingdom, the Netherlands and Luxembourg. Asia-Pacific is primarily comprised of Hong Kong, Australia, Japan and Singapore.

24. Subsequent Events

Tax Legislation in the United Kingdom

In July 2020, the United Kingdom enacted legislation increasing its corporate tax rate. The legislation will result in a revaluation of certain of the Company’s deferred tax assets and liabilities, which will result in a noncash net income tax expense of approximately $55 million in the third quarter of 2020.

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

38


 

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.

BlackRock has previously disclosed risk factors in its Securities and Exchange Commission (“SEC”) reports. These risk factors and those identified elsewhere in this report, among others, could cause actual results to differ materially from forward-looking statements or historical performance and include: (1) a pandemic or health crisis, including the COVID-19 pandemic, and its impact on financial institutions, the global economy or capital markets, as well as BlackRock’s products, clients, vendors and employees, and BlackRock’s results of operations, the full extent of which may be unknown; (2) the introduction, withdrawal, success and timing of business initiatives and strategies; (3) 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”); (4) the relative and absolute investment performance of BlackRock’s investment products; (5) BlackRock’s ability to develop new products and services that address client preferences; (6) the impact of increased competition; (7) the impact of future acquisitions or divestitures; (8) BlackRock’s ability to integrate acquired businesses successfully; (9) the unfavorable resolution of legal proceedings; (10) the extent and timing of any share repurchases; (11) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (12) attempts to circumvent BlackRock’s operational control environment or the potential for human error in connection with BlackRock’s operational systems; (13) the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock; (14) changes in law and policy and uncertainty pending any such changes; (15) 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; (16) the ability to attract and retain highly talented professionals; (17) fluctuations in the carrying value of BlackRock’s economic investments; (18) 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; (19) BlackRock’s success in negotiating distribution arrangements and maintaining distribution channels