BLK BlackRock Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 15, 2015

 

 

BLACKROCK, INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE		001-33099		32-0174431
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

55 East 52nd Street, New York, New York		10055
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 810-5300

 

 

 

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02. Results of Operations and Financial Condition

On July 15, 2015, BlackRock, Inc. (the “Company”) reported results of operations for the three and six months ended June 30, 2015. A copy of the earnings release issued by the Company is attached as Exhibit 99.1. In addition, a copy of the Company’s Earnings Release Supplement for the quarter ended June 30, 2015 is being furnished as Exhibit 99.2 to this Form 8-K.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

 

99.1		Earnings release dated July 15, 2015 issued by the Company
99.2		Second Quarter 2015 Earnings – Earnings Release Supplement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				BlackRock, Inc.
				(Registrant)
Date: July 15, 2015				By:		/s/ Gary Shedlin
						Gary S. Shedlin
						Senior Managing Director and Chief Financial Officer

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EXHIBIT INDEX

 

99.1		Earnings release dated July 15, 2015 issued by the Company
99.2		Second Quarter 2015 Earnings – Earnings Release Supplement

Exhibit 99.1

 

 

Tom Wojcik, Investor Relations				Brian Beades, Media Relations
212.810.8127				212.810.5596

 

BlackRock Reports Second Quarter 2015 Diluted EPS of $4.84, or $4.96 as adjusted

 

•

5% revenue growth from the second quarter of 2014 driven by growth in base fees

 

•

10% operating income growth from the second quarter of 2014

 

•

3% AUM growth from the second quarter of 2014

 

•

$7.3 billion of long-term net outflows for the second quarter of 2015

 

•

$23.6 billion of active and iShares net inflows drove organic base fee growth, offsetting the impact of $30.9 billion of low-fee non-ETF index net outflows

 

•

Consistent capital management with $275 million of quarterly share repurchases

FINANCIAL RESULTS

 

(in millions, except per share data)		Q2 2015				Q2 2014				Change				Q1 2015				Change				Six Months Ended June 30,
																						2015				2014				Change
AUM		$	4,721,294			$	4,593,612				3	%		$	4,774,192				(1	%)		$	4,721,294			$	4,593,612				3	%
GAAP basis:
Revenue		$	2,905			$	2,778				5	%		$	2,723				7	%		$	5,628			$	5,448				3	%
Operating income		$	1,238			$	1,122				10	%		$	1,067				16	%		$	2,305			$	2,173				6	%
Operating margin			42.6	%			40.4	%			220 bps				39.2	%			340 bps				41.0	%			39.9	%			110 bps
Net income(1)		$	819			$	808				1	%		$	822				0	%		$	1,641			$	1,564				5	%
Diluted EPS		$	4.84			$	4.72				3	%		$	4.84				0	%		$	9.69			$	9.12				6	%
Weighted average diluted shares			169.1				171.2				(1	%)			169.7				0	%			169.4				171.5				(1	%)
As Adjusted:
Operating income(2)		$	1,248			$	1,133				10	%		$	1,077				16	%		$	2,325			$	2,195				6	%
Operating margin(2)			44.9	%			42.4	%			250 bps				41.2	%			370 bps				43.2	%			41.9	%			130 bps
Net income(1) (2)		$	838			$	837				0	%		$	830				1	%		$	1,668			$	1,599				4	%
Diluted EPS(2)		$	4.96			$	4.89				1	%		$	4.89				1	%		$	9.85			$	9.32				6	%

 

(1)	Net income represents net income attributable to BlackRock, Inc.

(2)	See notes (1) through (4) to the Condensed Consolidated Statements of Income and Supplemental Information on pages 13 through 15 for more information on as adjusted items and the reconciliation to GAAP.

New York, July 15, 2015 — BlackRock, Inc. (NYSE:BLK) today reported financial results for the three and six months ended June 30, 2015.

“Although continued market volatility impacted asset flows in the second quarter, BlackRock’s diversified business model drove strong financial results, with revenue up 5% and operating income up 10% year-over-year” commented Laurence D. Fink, Chairman and CEO of BlackRock. “BlackRock’s unique combination of active and index investment offerings, across all asset classes on a single platform, enables us to provide solutions for our clients’ evolving needs. Despite the impact of more than $30 billion of low-fee institutional index outflows, net inflows into higher-fee active and iShares products drove robust organic base fee growth for the quarter.

“Year-to-date, a desire to reallocate and/or address cash needs drove ten of our largest clients to redeem over $40 billion of institutional index equity assets. However, those same clients reinvested across BlackRock’s active equity and fixed income, multi-asset and alternatives strategies, resulting in a positive net revenue impact for the firm. This demonstrates the value of the deep, strategic relationships we maintain with our clients and validates the strength of our solutions-oriented business model.

“In the face of a challenging quarter for industry flows in US active mutual funds, the strength of BlackRock’s franchise positioned us to garner US retail net inflows of $7 billion – growing our domestic market share and achieving a “top-5” ranking in US retail mutual fund industry flows. Internationally, BlackRock saw more than $3 billion of net inflows and maintained its #1 position in cross-border mutual fund flows year-to-date, driven by strength in European and Asian equities.

“Executing on our plan to reinvigorate the performance of our fundamental active equity platform remains critical to our success and, while we still have work to do, we are pleased that 78% and 61% of fundamental active equity assets performed above benchmark or peer median for the one- and three-year periods ended June 30, 2015. Long-term performance in active fixed income and scientific active equities remains strong, with 89% and 95% of assets above benchmark or peer median for the three-year period, respectively.

 

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“BlackRock’s global platform and unique product offering across investment styles and asset classes – combined with our Aladdin technology platform – enable us to deliver solutions for our clients, no matter their near- or long-term goals. This differentiated business model allowed us to produce strong financial performance in the second quarter and positions us well for stable growth in the future. I would like to thank our employees for their ongoing commitment to superior investment performance and client service as we work to create better financial futures for our clients and drive long-term value for our shareholders.”

RESULTS BY CLIENT TYPE

 

(in millions), (unaudited)		Q2 2015 Net flows				June 30, 2015 AUM				Q2 2015 Base Fees(1)				June 30, 2015 AUM % of Total				Q2 2015 Base Fees(1) % of Total
Retail		$	10,765			$	561,062			$	839				13	%			34	%
iShares			10,850				1,075,589				884				24	%			36	%
Institutional:
Active			2,516				975,483				483				22	%			20	%
Index			(31,434	)			1,824,755				252				41	%			10	%
Total institutional			(28,918	)			2,800,238				735				63	%			30	%
Total long-term		($	7,303	)		$	4,436,889			$	2,458				100	%			100	%

RESULTS BY PRODUCT

 

(in millions), (unaudited)		Q2 2015 Net flows				June 30, 2015 AUM				Q2 2015 Base Fees(1)				June 30, 2015 AUM % of Total				Q2 2015 Base Fees(1) % of Total
Equity		($	27,261	)		$	2,505,317			$	1,365				56	%			56	%
Fixed income			12,847				1,422,434				597				32	%			24	%
Multi-asset			5,049				395,009				316				9	%			13	%
Alternatives			2,062				114,129				180				3	%			7	%
Total long-term		($	7,303	)		$	4,436,889			$	2,458				100	%			100	%

 

(1)	Base fees include investment advisory, administration fees and securities lending revenue.

Long-Term Business Highlights

Long-term net inflows of $17.5 billion in the Americas were offset by net outflows of $24.1 billion and $0.7 billion from clients in EMEA and Asia-Pacific, respectively. At June 30, 2015, BlackRock managed 62% of its long-term AUM for investors in the Americas and 38% for clients in EMEA and Asia-Pacific.

A discussion of the Company’s net flows by client type for the second quarter of 2015 is presented below.

 

•

Retail long-term net inflows of $10.8 billion included net inflows of $7.4 billion in the United States and $3.4 billion internationally. Net inflows were led by fixed income net inflows of $9.8 billion, which were diversified across exposures, with $2.7 billion of inflows into unconstrained strategies, $1.6 billion into the High Yield suite, and $1.2 billion into Total Return. In equities, European Equities raised $1.5 billion, while multi-asset net inflows were led by $1.6 billion into the Multi-Asset Income fund family.

 

•

iShares® long-term net inflows of $10.9 billion included equity net inflows of $8.8 billion, driven by demand for international developed market exposures. Fixed income net inflows of $1.5 billion reflected flows into investment grade corporate, U.S. aggregate and emerging markets bonds.

 

•

Institutional active long-term net inflows of $2.5 billion were led by multi-asset net inflows of $4.4 billion, reflecting solutions-based insurance fundings in the quarter and ongoing demand for the LifePath® target-date suite. Alternatives net inflows of $0.6 billion were led by flows into alternatives solutions and infrastructure, and included the impact of $1.0 billion of capital returned to investors.

 

•

Institutional index long-term net outflows of $31.4 billion were driven by equity net outflows of $34.6 billion linked to asset allocation, re-balancing and cash needs.

Cash management AUM decreased 7% to $271.5 billion, driven by seasonal outflows.

Advisory AUM decreased $5.2 billion to $12.9 billion.

 

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INVESTMENT PERFORMANCE AT JUNE 30, 2015⁽¹⁾

 

		One-year period				Three-year period				Five-year period
Fixed Income:
Actively managed products above benchmark or peer median
Taxable			71	%			89	%			91	%
Tax-exempt			65	%			71	%			73	%
Index products within or above applicable tolerance			96	%			98	%			98	%
Equity:
Actively managed products above benchmark or peer median
Fundamental			78	%			61	%			52	%
Scientific			85	%			95	%			96	%
Index products within or above applicable tolerance			97	%			98	%			98	%

 

(1)	Past performance is not indicative of future results. The performance information shown is based on preliminary available data. Please refer to page 15 for performance disclosure detail.

Teleconference, Webcast and Presentation Information

Chairman and Chief Executive Officer, Laurence D. Fink, and Chief Financial Officer, Gary S. Shedlin, will host a teleconference call for investors and analysts on Wednesday, July 15, 2015 at 8:30 a.m. (Eastern Time). Members of the public who are interested in participating in the teleconference should dial, from the United States, (800) 374-0176, or from outside the United States, (706) 679-8281, shortly before 8:30 a.m. and reference the BlackRock Conference Call (ID Number 74398078). A live, listen-only webcast will also be available via the investor relations section of www.blackrock.com.

Both the teleconference and webcast will be available for replay by 12:30 p.m. (Eastern Time) on Wednesday, July 15, 2015 and ending at midnight on Wednesday, July 29, 2015. To access the replay of the teleconference, callers from the United States should dial (855) 859-2056 and callers from outside the United States should dial (404) 537-3406 and enter the Conference ID Number 74398078. To access the webcast, please visit the investor relations section of www.blackrock.com.

About BlackRock

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At June 30, 2015, BlackRock’s AUM was $4.721 trillion. BlackRock helps clients meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares^® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions^®. Headquartered in New York City, as of June 30, 2015, the firm had approximately 12,400 employees in more than 30 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company’s website at www.blackrock.com | Twitter: @blackrock_news | Blog: www.blackrockblog.com | LinkedIn: www.linkedin.com/company/blackrock

 

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION

(in millions, except shares and per share data), (unaudited)

 

														Three Months
		Three Months Ended												Ended
		June 30,												March 31,
		2015				2014				Change				2015				Change
Revenue
Investment advisory, administration fees and securities lending revenue		$	2,534			$	2,434			$	100			$	2,390			$	144
Investment advisory performance fees			136				115				21				108				28
BlackRock Solutions and advisory			161				146				15				147				14
Distribution fees			13				18				(5)				17				(4)
Other revenue			61				65				(4)				61				—
Total revenue			2,905				2,778				127				2,723				182
Expense
Employee compensation and benefits			1,012				948				64				981				31
Distribution and servicing costs			105				89				16				99				6
Amortization of deferred sales commissions			12				14				(2)				13				(1)
Direct fund expense			191				187				4				189				2
General and administration			312				377				(65)				339				(27)
Amortization of intangible assets			35				41				(6)				35				—
Total expense			1,667				1,656				11				1,656				11
Operating income			1,238				1,122				116				1,067				171
Nonoperating income (expense)
Net gain (loss) on investments			(6)				45				(51)				59				(65)
Net gain (loss) on consolidated variable interest entities			12				28				(16)				4				8
Interest and dividend income			5				3				2				4				1
Interest expense			(52)				(60)				8				(51)				(1)
Total nonoperating income (expense)			(41)				16				(57)				16				(57)
Income before income taxes			1,197				1,138				59				1,083				114
Income tax expense			371				297				74				258				113
Net income			826				841				(15)				825				1
Less:
Net income (loss) attributable to noncontrolling interests			7				33				(26)				3				4
Net income attributable to BlackRock, Inc.		$	819			$	808			$	11			$	822			($	3)
Weighted-average common shares outstanding
Basic			166,616,558				168,712,221				(2,095,663)				167,089,037				(472,479)
Diluted			169,114,759				171,150,153				(2,035,394)				169,723,167				(608,408)
Earnings per share attributable to BlackRock, Inc. common stockholders (4)
Basic		$	4.92			$	4.79			$	0.13			$	4.92			$	—
Diluted		$	4.84			$	4.72			$	0.12			$	4.84			$	—
Cash dividends declared and paid per share		$	2.18			$	1.93			$	0.25			$	2.18			$	—
Supplemental information:
AUM (end of period)		$	4,721,294			$	4,593,612			$	127,682			$	4,774,192			($	52,898)
Shares outstanding (end of period)			166,379,267				168,363,315				(1,984,048)				167,084,582				(705,315)
GAAP:
Operating margin			42.6	%			40.4	%			220	bps			39.2	%			340	bps
Effective tax rate			31.2	%			26.8	%			440	bps			23.9	%			730	bps
As adjusted:
Operating income (1)		$	1,248			$	1,133			$	115			$	1,077			$	171
Operating margin (1)			44.9	%			42.4	%			250	bps			41.2	%			370	bps
Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests (2)		($	50)			($	20)			($	30)			$	11			($	61)
Net income attributable to BlackRock, Inc. (3)		$	838			$	837			$	1			$	830			$	8
Diluted earnings attributable to BlackRock, Inc. common stockholders per share (3) (4)		$	4.96			$	4.89			$	0.07			$	4.89			$	0.07
Effective tax rate			30.1	%			24.8	%			530	bps			23.7	%			640	bps

Note: During the second quarter of 2015, the Company adopted new accounting guidance on consolidations effective January 1, 2015 using the modified retrospective method. Upon adoption, the Company recorded a change to total nonoperating income (expense) with an equal and offsetting change to noncontrolling interests for the three months ended March 31, 2015. There was no impact to net income attributable to BlackRock, Inc. or to BlackRock’s earnings per share.

See pages 13 -15 for the reconciliation to GAAP and notes (1) through (4) for more information on as adjusted items.

 

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION

(in millions, except per share data), (unaudited)

 

		Six Months Ended
		June 30,
		2015				2014				Change
Revenue
Investment advisory, administration fees and securities lending revenue		$	4,924			$	4,725			$	199
Investment advisory performance fees			244				273				(29)
BlackRock Solutions and advisory			308				300				8
Distribution fees			30				37				(7)
Other revenue			122				113				9
Total revenue			5,628				5,448				180
Expense
Employee compensation and benefits			1,993				1,930				63
Distribution and servicing costs			204				178				26
Amortization of deferred sales commissions			25				29				(4)
Direct fund expense			380				366				14
General and administration			651				690				(39)
Amortization of intangible assets			70				82				(12)
Total expense			3,323				3,275				48
Operating income			2,305				2,173				132
Nonoperating income (expense)
Net gain (loss) on investments			53				121				(68)
Net gain (loss) on consolidated variable interest entities			16				12				4
Interest and dividend income			9				13				(4)
Interest expense			(103)				(113)				10
Total nonoperating income (expense)			(25)				33				(58)
Income before income taxes			2,280				2,206				74
Income tax expense			629				621				8
Net income			1,651				1,585				66
Less:
Net income (loss) attributable to noncontrolling interests			10				21				(11)
Net income attributable to BlackRock, Inc.		$	1,641			$	1,564			$	77
Weighted-average common shares outstanding
Basic			166,851,492				168,895,801				(2,044,309)
Diluted			169,418,964				171,540,018				(2,121,054)
Earnings per share attributable to BlackRock, Inc. common stockholders (4)
Basic		$	9.84			$	9.26			$	0.58
Diluted		$	9.69			$	9.12			$	0.57
Cash dividends declared and paid per share		$	4.36			$	3.86			$	0.50
Supplemental information:
AUM (end of period)		$	4,721,294			$	4,593,612			$	127,682
Shares outstanding (end of period)			166,379,267				168,363,315				(1,984,048)
GAAP:
Operating margin			41.0	%			39.9	%			110	bps
Effective tax rate			27.7	%			28.4	%			(70	bps)
As adjusted:
Operating income (1)		$	2,325			$	2,195			$	130
Operating margin (1)			43.2	%			41.9	%			130	bps
Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests (2)		($	39)			$	6			($	45)
Net income attributable to BlackRock, Inc. (3)		$	1,668			$	1,599			$	69
Diluted earnings attributable to BlackRock, Inc. common stockholders per share (3) (4)		$	9.85			$	9.32			$	0.53
Effective tax rate			27.0	%			27.4	%			(40	bps)

Note: During the second quarter of 2015, the Company adopted new accounting guidance on consolidations effective January 1, 2015 using the modified retrospective method. Upon adoption, the Company recorded a change to total nonoperating income (expense) with an equal and offsetting change to noncontrolling interests for the three months ended March 31, 2015. There was no impact to net income attributable to BlackRock, Inc. or to BlackRock’s earnings per share.

See pages 13 -15 for the reconciliation to GAAP and notes (1) through (4) for more information on as adjusted items.

 

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ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

Current Quarter Component Changes by Client Type and Product

 

						Net
		March 31,				inflows												June 30,
		2015				(outflows)				Market change				FX impact (1)				2015				Average AUM (2)
Retail:
Equity		$	201,706			$	300			($	400	)		$	1,767			$	203,373			$	205,427
Fixed income			201,405				9,802				(2,688	)			537				209,056				206,177
Multi-asset			128,402				714				(312	)			384				129,188				129,864
Alternatives			19,467				(51	)			(47	)			76				19,445				19,381
Retail subtotal			550,980				10,765				(3,447	)			2,764				561,062				560,849
iShares:
Equity			824,336				8,808				(8,833	)			3,746				828,057				833,952
Fixed income			233,183				1,544				(6,089	)			2,097				230,735				234,884
Multi-asset			1,772				101				(31	)			2				1,844				1,833
Alternatives			14,839				397				(329	)			46				14,953				15,006
iShares subtotal			1,074,130				10,850				(15,282	)			5,891				1,075,589				1,085,675
Institutional:
Active:
Equity			128,036				(1,761	)			(518	)			2,275				128,032				129,512
Fixed income			526,117				(760	)			(12,123	)			4,017				517,251				524,246
Multi-asset			257,084				4,418				(9,150	)			4,612				256,964				259,498
Alternatives			73,045				619				(953	)			525				73,236				73,190
Active subtotal			984,282				2,516				(22,744	)			11,429				975,483				986,446
Index:
Equity			1,373,052				(34,608	)			(3,072	)			10,483				1,345,855				1,379,088
Fixed income			467,775				2,261				(18,642	)			13,998				465,392				468,699
Multi-asset			8,054				(184	)			(926	)			69				7,013				7,617
Alternatives			5,324				1,097				(106	)			180				6,495				5,807
Index subtotal			1,854,205				(31,434	)			(22,746	)			24,730				1,824,755				1,861,211
Institutional subtotal			2,838,487				(28,918	)			(45,490	)			36,159				2,800,238				2,847,657
Long-term			4,463,597				(7,303	)			(64,219	)			44,814				4,436,889			$	4,494,181
Cash management			292,495				(23,890	)			26				2,875				271,506
Advisory (3)			18,100				(5,452	)			(136	)			387				12,899
Total		$	4,774,192			($	36,645	)		($	64,329	)		$	48,076			$	4,721,294

Current Quarter Component Changes by Product (Long-term)

 

						Net
		March 31,				inflows												June 30,
		2015				(outflows)				Market change				FX impact (1)				2015				Average AUM (2)
Equity:
Active		$	298,118			($	2,079	)		($	450	)		$	3,295			$	298,884			$	302,364
iShares			824,336				8,808				(8,833	)			3,746				828,057				833,952
Non-ETF index			1,404,676				(33,990	)			(3,540	)			11,230				1,378,376				1,411,663
Equity subtotal			2,527,130				(27,261	)			(12,823	)			18,271				2,505,317				2,547,979
Fixed income:
Active			720,094				9,089				(14,621	)			4,291				718,853				722,831
iShares			233,183				1,544				(6,089	)			2,097				230,735				234,884
Non-ETF index			475,203				2,214				(18,832	)			14,261				472,846				476,291
Fixed income subtotal			1,428,480				12,847				(39,542	)			20,649				1,422,434				1,434,006
Multi-asset			395,312				5,049				(10,419	)			5,067				395,009				398,812
Alternatives:
Core			89,086				1,229				(1,014	)			653				89,954				89,582
Currency and commodities (4)			23,589				833				(421	)			174				24,175				23,802
Alternatives subtotal			112,675				2,062				(1,435	)			827				114,129				113,384
Long-term		$	4,463,597			($	7,303	)		($	64,219	)		$	44,814			$	4,436,889			$	4,494,181

Current Quarter Component Changes by Investment Style (Long-term)

 

						Net
		March 31,				inflows												June 30,
		2015				(outflows)				Market change				FX impact (1)				2015				Average AUM (2)
Active		$	1,496,210			$	12,711			($	25,533	)		$	13,183			$	1,496,571			$	1,507,127
Index and iShares			2,967,387				(20,014	)			(38,686	)			31,631				2,940,318				2,987,054
Long-term		$	4,463,597			($	7,303	)		($	64,219	)		$	44,814			$	4,436,889			$	4,494,181

 

(1)	Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(2)	Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months.

(3)	Advisory AUM represents long-term portfolio liquidation assignments.

(4)	Amounts include commodity iShares.

 

-6-

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ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

Year-to-Date Changes by Client Type and Product

 

 

						Net
		December 31,				inflows																June 30,
		2014				(outflows)				Acquisition(1)				Market change				FX impact (2)				2015				Average AUM (3)
Retail:
Equity		$	200,445			$	631			$	—			$	4,703			($	2,406	)		$	203,373			$	203,459
Fixed income			189,820				22,589				—				(1,726	)			(1,627	)			209,056				200,941
Multi-asset			125,341				2,116				—				2,113				(382	)			129,188				128,454
Alternatives			18,723				(400	)			1,293				249				(420	)			19,445				18,963
Retail subtotal			534,329				24,936				1,293				5,339				(4,835	)			561,062				551,817
iShares:
Equity			790,067				25,533				—				19,366				(6,909	)			828,057				818,378
Fixed income			217,671				20,138				—				(3,498	)			(3,576	)			230,735				231,196
Multi-asset			1,773				83				—				(1	)			(11	)			1,844				1,838
Alternatives			14,717				573				—				(280	)			(57	)			14,953				15,000
iShares subtotal			1,024,228				46,327				—				15,587				(10,553	)			1,075,589				1,066,412
Institutional:
Active:
Equity			125,143				(1,593	)			—				5,688				(1,206	)			128,032				128,094
Fixed income			518,590				4,964				—				(2,577	)			(3,726	)			517,251				524,816
Multi-asset			242,913				16,135				—				3,400				(5,484	)			256,964				254,528
Alternatives			72,514				995				—				140				(413	)			73,236				72,950
Active subtotal			959,160				20,501				—				6,651				(10,829	)			975,483				980,388
Index:
Equity			1,335,456				(30,891	)			—				50,287				(8,997	)			1,345,855				1,366,131
Fixed income			467,572				1,444				—				(2,458	)			(1,166	)			465,392				469,534
Multi-asset			7,810				(493	)			—				(108	)			(196	)			7,013				7,732
Alternatives			5,286				1,312				—				(133	)			30				6,495				5,620
Index subtotal			1,816,124				(28,628	)			—				47,588				(10,329	)			1,824,755				1,849,017
Institutional subtotal			2,775,284				(8,127	)			—				54,239				(21,158	)			2,800,238				2,829,406
Long-term			4,333,841				63,136				1,293				75,165				(36,546	)			4,436,889			$	4,447,634
Cash management			296,353				(23,329	)			—				(15	)			(1,503	)			271,506
Advisory (4)			21,701				(7,749	)			—				391				(1,444	)			12,899
Total		$	4,651,895			$	32,058			$	1,293			$	75,541			($	39,493	)		$	4,721,294

Year-to-Date Component Changes by Product (Long-term)

 

						Net
		December 31,				inflows																June 30,
		2014				(outflows)				Acquisition(1)				Market change				FX impact (2)				2015				Average AUM (3)
Equity:
Active		$	292,802			($	1,533	)		$	—			$	10,995			($	3,380	)		$	298,884			$	298,932
iShares			790,067				25,533				—				19,366				(6,909	)			828,057				818,378
Non-ETF index			1,368,242				(30,320	)			—				49,683				(9,229	)			1,378,376				1,398,752
Equity subtotal			2,451,111				(6,320	)			—				80,044				(19,518	)			2,505,317				2,516,062
Fixed income:
Active			701,324				26,944				—				(4,174	)			(5,241	)			718,853				718,356
iShares			217,671				20,138				—				(3,498	)			(3,576	)			230,735				231,196
Non-ETF index			474,658				2,053				—				(2,587	)			(1,278	)			472,846				476,935
Fixed income subtotal			1,393,653				49,135				—				(10,259	)			(10,095	)			1,422,434				1,426,487
Multi-asset			377,837				17,841				—				5,404				(6,073	)			395,009				392,552
Alternatives:
Core			88,006				1,028				1,293				411				(784	)			89,954				88,784
Currency and commodities (5)			23,234				1,452				—				(435	)			(76	)			24,175				23,749
Alternatives subtotal			111,240				2,480				1,293				(24	)			(860	)			114,129				112,533
Long-term		$	4,333,841			$	63,136			$	1,293			$	75,165			($	36,546	)		$	4,436,889			$	4,447,634

Year-to-Date Component Changes by Investment Style (Long-term)

 

 

						Net
		December 31,				inflows																June 30,
		2014				(outflows)				Acquisition(1)				Market change				FX impact (2)				2015				Average AUM (3)
Active		$	1,453,613			$	44,256			$	1,293			$	12,730			($	15,321	)		$	1,496,571			$	1,492,182
Index and iShares			2,880,228				18,880				—				62,435				(21,225	)			2,940,318				2,955,452
Long-term		$	4,333,841			$	63,136			$	1,293			$	75,165			($	36,546	)		$	4,436,889			$	4,447,634

 

(1)	Amount represents $1.3 billion of AUM acquired in the acquisition of certain assets of BlackRock Kelso Capital Advisors LLC in March 2015.

(2)	Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(3)	Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing seven months.

(4)	Advisory AUM represents long-term portfolio liquidation assignments.

(5)	Amounts include commodity iShares.

 

-7-

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ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

Year-over-Year Component Changes by Client Type and Product

 

 

						Net
		June 30,				inflows																June 30,
		2014				(outflows)				Acquisition(1)				Market change				FX impact (2)				2015				Average AUM (3)
Retail:
Equity		$	216,469			($	1,493	)		$	—			($	2,188	)		($	9,415	)		$	203,373			$	206,230
Fixed income			172,672				43,394				—				(2,909	)			(4,101	)			209,056				190,498
Multi-asset			126,392				10,813				—				(6,433	)			(1,584	)			129,188				127,589
Alternatives			18,969				36				1,293				210				(1,063	)			19,445				19,010
Retail subtotal			534,502				52,750				1,293				(11,320	)			(16,163	)			561,062				543,327
iShares:
Equity			774,053				63,589				—				11,662				(21,247	)			828,057				798,383
Fixed income			200,519				44,049				—				(4,133	)			(9,700	)			230,735				219,806
Multi-asset			1,624				278				—				(33	)			(25	)			1,844				1,731
Alternatives			17,636				810				—				(3,259	)			(234	)			14,953				15,659
iShares subtotal			993,832				108,726				—				4,237				(31,206	)			1,075,589				1,035,579
Institutional:
Active:
Equity			133,780				(7,694	)			—				9,369				(7,423	)			128,032				129,195
Fixed income			523,665				4,191				—				9,904				(20,509	)			517,251				522,187
Multi-asset			239,207				23,863				—				11,891				(17,997	)			256,964				248,591
Alternatives			73,781				1,319				—				548				(2,412	)			73,236				72,828
Active subtotal			970,433				21,679				—				31,712				(48,341	)			975,483				972,801
Index:
Equity			1,338,283				(21,851	)			—				81,155				(51,732	)			1,345,855				1,351,919
Fixed income			443,869				17,031				—				34,857				(30,365	)			465,392				460,652
Multi-asset			7,250				5				—				766				(1,008	)			7,013				7,498
Alternatives			6,536				1,301				—				(1,078	)			(264	)			6,495				5,857
Index subtotal			1,795,938				(3,514	)			—				115,700				(83,369	)			1,824,755				1,825,926
Institutional subtotal			2,766,371				18,165				—				147,412				(131,710	)			2,800,238				2,798,727
Long-term			4,294,705				179,641				1,293				140,329				(179,079	)			4,436,889			$	4,377,633
Cash management			268,388				11,288				—				193				(8,363	)			271,506
Advisory (4)			30,519				(15,131	)			—				1,094				(3,583	)			12,899
Total		$	4,593,612			$	175,798			$	1,293			$	141,616			($	191,025	)		$	4,721,294

Year-over-Year Component Changes by Product (Long-term)

 

						Net
		June 30,				inflows																June 30,
		2014				(outflows)				Acquisition(1)				Market change				FX impact (2)				2015				Average AUM (3)
Equity:
Active		$	320,830			($	14,157	)		$	—			$	6,911			($	14,700	)		$	298,884			$	303,735
iShares			774,053				63,589				—				11,662				(21,247	)			828,057				798,383
Non-ETF index			1,367,702				(16,881	)			—				81,425				(53,870	)			1,378,376				1,383,609
Equity subtotal			2,462,585				32,551				—				99,998				(89,817	)			2,505,317				2,485,727
Fixed income:
Active			689,724				46,529				—				6,490				(23,890	)			718,853				705,640
iShares			200,519				44,049				—				(4,133	)			(9,700	)			230,735				219,806
Non-ETF index			450,482				18,087				—				35,362				(31,085	)			472,846				467,697
Fixed income subtotal			1,340,725				108,665				—				37,719				(64,675	)			1,422,434				1,393,143
Multi-asset			374,473				34,959				—				6,191				(20,614	)			395,009				385,409
Alternatives:
Core			88,758				1,882				1,293				948				(2,927	)			89,954				88,513
Currency and commodities (5)			28,164				1,584				—				(4,527	)			(1,046	)			24,175				24,841
Alternatives subtotal			116,922				3,466				1,293				(3,579	)			(3,973	)			114,129				113,354
Long-term		$	4,294,705			$	179,641			$	1,293			$	140,329			($	179,079	)		$	4,436,889			$	4,377,633

Year-over-Year Component Changes by Investment Style (Long-term)

 

						Net
		June 30,				inflows																June 30,
		2014				(outflows)				Acquisition(1)				Market change				FX impact (2)				2015				Average AUM (3)
Active		$	1,468,823			$	68,471			$	1,293			$	19,626			($	61,642	)		$	1,496,571			$	1,477,361
Index and iShares			2,825,882				111,170				—				120,703				(117,437	)			2,940,318				2,900,272
Long-term		$	4,294,705			$	179,641			$	1,293			$	140,329			($	179,079	)		$	4,436,889			$	4,377,633

 

(1)	Amount represents $1.3 billion of AUM acquired in the acquisition of certain assets of BlackRock Kelso Capital Advisors LLC in March 2015.

(2)	Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(3)	Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.

(4)	Advisory AUM represents long-term portfolio liquidation assignments.

(5)	Amounts include commodity iShares.

 

-8-

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SUMMARY OF REVENUE

 

		Three Months Ended June 30,								Change				Three Months Ended March 31, 2015								Six Months Ended June 30,
(in millions), (unaudited)		2015				2014												Change				2015				2014				Change
Investment advisory, administration fees and securities lending revenue:
Equity:
Active		$	447			$	478			($	31	)		$	422			$	25			$	869			$	941			($	72	)
iShares			728				677				51				684				44				1,412				1,311				101
Non-ETF Index			190				183				7				163				27				353				341				12
Equity subtotal			1,365				1,338				27				1,269				96				2,634				2,593				41
Fixed income:
Active			387				346				41				373				14				760				670				90
iShares			138				122				16				130				8				268				235				33
Non-ETF Index			72				71				1				68				4				140				129				11
Fixed income subtotal			597				539				58				571				26				1,168				1,034				134
Multi-asset			316				300				16				304				12				620				586				34
Alternatives:
Core			161				161				—				154				7				315				320				(5	)
Currency and commodities			19				23				(4	)			19				—				38				45				(7	)
Alternatives subtotal			180				184				(4	)			173				7				353				365				(12	)
Long-term			2,458				2,361				97				2,317				141				4,775				4,578				197
Cash management			76				73				3				73				3				149				147				2
Total base fees			2,534				2,434				100				2,390				144				4,924				4,725				199
Investment advisory performance fees:
Equity			61				31				30				37				24				98				53				45
Fixed income			3				5				(2	)			4				(1	)			7				13				(6	)
Multi-asset			8				10				(2	)			8				—				16				13				3
Alternatives			64				69				(5	)			59				5				123				194				(71	)
Total performance fees			136				115				21				108				28				244				273				(29	)
BlackRock Solutions and advisory			161				146				15				147				14				308				300				8
Distribution fees			13				18				(5	)			17				(4	)			30				37				(7	)
Other revenue			61				65				(4	)			61				—				122				113				9
Total revenue		$	2,905			$	2,778			$	127			$	2,723			$	182			$	5,628			$	5,448			$	180

Highlights

 

•

Investment advisory, administration fees and securities lending revenue increased $100 million from the second quarter of 2014 driven by organic growth and market appreciation, which outpaced the impact of foreign exchange movements. Securities lending fees of $147 million in the current quarter increased $7 million from the second quarter of 2014.

Investment advisory, administration fees and securities lending revenue increased $144 million from the first quarter of 2015 reflecting organic base fee growth, the effect of one additional revenue day in the current quarter and seasonally higher securities lending fees. Securities lending fees increased $33 million from the first quarter of 2015.

 

•

Performance fees increased $21 million from the second quarter of 2014 and $28 million from the first quarter of 2015, primarily reflecting higher fees from equity products.

 

•

BlackRock Solutions® and advisory revenue increased $15 million from the second quarter of 2014 due to higher revenue from the Aladdin® business. BlackRock Solutions and advisory revenue included $129 million in Aladdin business revenue in the current quarter compared with $113 million in the second quarter of 2014.

BlackRock Solutions and advisory revenue increased $14 million from the prior quarter due to higher Financial Markets Advisory Services revenue. BlackRock Solutions and advisory revenue included $129 million in Aladdin business revenue in the current quarter compared with $126 million in the first quarter of 2015.

 

-9-

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SUMMARY OF OPERATING EXPENSE

 

		Three Months Ended June 30,												Three Months Ended March 31, 2015								Six Months Ended June 30,
(in millions), (unaudited)		2015				2014				Change								Change				2015				2014				Change
Operating Expense
Employee compensation and benefits		$	1,012			$	948			$	64			$	981			$	31			$	1,993			$	1,930			$	63
Distribution and servicing costs			105				89				16				99				6				204				178				26
Amortization of deferred sales commissions			12				14				(2	)			13				(1	)			25				29				(4	)
Direct fund expense			191				187				4				189				2				380				366				14
General and administration			312				377				(65	)			339				(27	)			651				690				(39	)
Amortization of intangible assets			35				41				(6	)			35				—				70				82				(12	)
Total Operating Expense		$	1,667			$	1,656			$	11			$	1,656			$	11			$	3,323			$	3,275			$	48

Highlights

 

•

Employee compensation and benefits increased $64 million from the second quarter of 2014, reflecting higher headcount and higher incentive compensation driven by higher operating income, partially offset by the impact of foreign exchange movements.

Employee compensation and benefits increased $31 million from the first quarter of 2015, primarily reflecting higher incentive compensation driven by higher operating income, partially offset by lower seasonal employer payroll taxes.

 

•

General and administration expense decreased $65 million from the second quarter of 2014, primarily reflecting lower marketing and promotional expense, and lower legal and regulatory expense.

General and administration expense decreased $27 million from the first quarter of 2015, primarily reflecting lower marketing and promotional expense.

INCOME TAX EXPENSE

 

		Three Months Ended June 30,												Three Months Ended March 31, 2015								Six Months Ended June 30,
(in millions), (unaudited)		2015				2014				Change								Change				2015				2014				Change
Income tax expense		$	371			$	297			$	74			$	258			$	113			$	629			$	621			$	8

Highlights

 

•

Income tax expense in the second quarter of 2015 included a $13 million net noncash expense, primarily associated with the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes.

Income tax expense in the first quarter of 2015 benefited from $69 million of nonrecurring items.

The second quarter 2014 GAAP tax rate included a $23 million net noncash expense, primarily associated with the revaluation of certain deferred income tax liabilities arising from the state and local tax effect of changes in the Company’s organizational structure. In addition, the second quarter 2014 GAAP tax rate benefited from an improvement in the geographic mix of earnings and included a $34 million net tax benefit related to several favorable nonrecurring items.

 

-10-

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SUMMARY OF NONOPERATING INCOME (EXPENSE)

 

		Three Months Ended June 30,												Three Months Ended March 31, 2015								Six Months Ended June 30,
(in millions), (unaudited)		2015				2014				Change								Change				2015				2014				Change
Nonoperating income (expense), GAAP basis		($	41	)		$	16			($	57	)		$	16			($	57	)		($	25	)		$	33			($	58	)
Less: Net income (loss) attributable to NCI			7				33				(26	)			3				4				10				21				(11	)
Nonoperating income (expense)(1)		($	48	)		($	17	)		($	31	)		$	13			($	61	)		($	35	)		$	12			($	47	)

 

		Estimated economic investments at June 30, 2015(3)		Three Months Ended June 30,												Three Months Ended March 31, 2015								Six Months Ended June 30,
(in millions), (unaudited)				2015				2014				Change								Change				2015				2014				Change
Net gain (loss) on investments(1) (2)
Private equity		25-30%		$	9			$	12			($	3	)		$	1			$	8			$	10			$	56			($	46	)
Real estate		5-10%			2				8				(6	)			2				—				4				10				(6	)
Other alternatives(4)		10-15%			—				14				(14	)			4				(4	)			4				35				(31	)
Other investments(5)		50-55%			(14	)			3				(17	)			6				(20	)			(8	)			5				(13	)
Subtotal					(3	)			37				(40	)			13				(16	)			10				106				(96	)
Other gains(6)					—				—				—				45				(45	)			45				—				45
Investments related to deferred compensation plans					2				3				(1	)			2				—				4				6				(2	)
Total net gain (loss) on investments(1)					(1	)			40				(41	)			60				(61	)			59				112				(53	)
Interest and dividend income					5				3				2				4				1				9				13				(4	)
Interest expense					(52	)			(60	)			8				(51	)			(1	)			(103	)			(113	)			10
Net interest expense					(47	)			(57	)			10				(47	)			—				(94	)			(100	)			6
Total nonoperating income (expense)(1)					(48	)			(17	)			(31	)			13				(61	)			(35	)			12				(47	)
Compensation expense related to (appreciation) depreciation on deferred compensation plans					(2	)			(3	)			1				(2	)			—				(4	)			(6	)			2
Nonoperating income (expense), as adjusted(1)				($	50	)		($	20	)		($	30	)		$	11			($	61	)		($	39	)		$	6			($	45	)

 

(1)	Net of net income (loss) attributable to noncontrolling interests (“NCI”).

(2)	Amounts include net gain (loss) on consolidated variable interest entities.

(3)

Percentages represent estimated percentages of BlackRock’s corporate economic investment portfolio at June 30, 2015. Economic investment amounts at March 31, 2015 for private equity, real estate, other alternatives and other investments were $358 million, $118 million, $247 million and $688 million, respectively. See the 2015 first quarter Form 10-Q for more information.

(4)	Amounts primarily include net gains (losses) related to direct hedge fund strategies and hedge fund solutions. The prior year quarter also included net gains related to opportunistic credit strategies.

(5)	Amounts include net gains (losses) related to equity and fixed income investments, and BlackRock’s seed capital hedging program.

(6)	Amount primarily includes a gain related to the acquisition of certain assets of BlackRock Kelso Capital Advisors LLC.

Highlights

 

•

Net gain (loss) on investments decreased $41 million from the second quarter of 2014 due to lower marks in the second quarter of 2015.

Net gain (loss) on investments decreased $61 million from the first quarter of 2015, primarily due to lower marks in the second quarter of 2015 and a $40 million gain related to BlackRock Kelso Capital Advisors LLC recorded in the first quarter of 2015.

 

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ECONOMIC TANGIBLE ASSETS

The Company presents economic tangible assets as additional information to enable investors to exclude certain assets that have equal and offsetting liabilities or noncontrolling interests that ultimately do not have an impact on stockholders’ equity or cash flows. In addition, goodwill and intangible assets are excluded from economic tangible assets.

Economic tangible assets include cash, receivables, seed and co-investments, regulatory investments and other assets.

 

(in billions), (unaudited)		June 30, 2015 (Est.)				December 31, 2014
Total balance sheet assets		$	236			$	240
Separate account assets and separate account collateral held under securities lending agreements			(195	)			(195	)
Consolidated VIEs/sponsored investment funds(1)			(1	)			(4	)
Goodwill and intangible assets, net			(30	)			(30	)
Economic tangible assets		$	10			$	11

 

(1)

During the second quarter of 2015, the Company adopted new accounting guidance on consolidations effective January 1, 2015 using the modified retrospective method. As a result of the adoption, the Company’s estimated balance sheet at June 30, 2015 reflects the deconsolidation of the Company’s previously consolidated collateralized loan obligations.

 

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RECONCILIATION OF U.S. GAAP OPERATING INCOME AND OPERATING MARGIN TO OPERATING INCOME AND OPERATING MARGIN, AS ADJUSTED

 

		Three Months Ended												Six Months Ended
		June 30,								March 31, 2015				June 30,
(in millions), (unaudited)		2015				2014								2015				2014
Operating income, GAAP basis		$	1,238			$	1,122			$	1,067			$	2,305			$	2,173
Non-GAAP expense adjustments:
PNC LTIP funding obligation			8				8				8				16				16
Compensation expense related to appreciation (depreciation) on deferred compensation plans			2				3				2				4				6
Operating income, as adjusted			1,248				1,133				1,077				2,325				2,195
Product placement fee costs and commissions			5				—				—				5				—
Operating income used for operating margin measurement		$	1,253			$	1,133			$	1,077			$	2,330			$	2,195
Revenue, GAAP basis		$	2,905			$	2,778			$	2,723			$	5,628			$	5,448
Non-GAAP adjustments:
Distribution and servicing costs			(105	)			(89	)			(99	)			(204	)			(178	)
Amortization of deferred sales commissions			(12	)			(14	)			(13	)			(25	)			(29	)
Revenue used for operating margin measurement		$	2,788			$	2,675			$	2,611			$	5,399			$	5,241
Operating margin, GAAP basis			42.6	%			40.4	%			39.2	%			41.0	%			39.9	%
Operating margin, as adjusted			44.9	%			42.4	%			41.2	%			43.2	%			41.9	%

See note (1) to the Condensed Consolidated Statements of Income and Supplemental Information on page 14 for more information on as adjusted items and the reconciliation to GAAP.

RECONCILIATION OF U.S. GAAP NONOPERATING INCOME NET OF NCI TO NONOPERATING INCOME NET OF NCI, AS ADJUSTED

 

		Three Months Ended												Six Months Ended
		June 30,								March 31, 2015				June 30,
(in millions), (unaudited)		2015				2014								2015				2014
Nonoperating income (expense), GAAP basis		($	41	)		$	16			$	16			($	25	)		$	33
Less: Net income (loss) attributable to NCI			7				33				3				10				21
Nonoperating income (expense), net of NCI			(48	)			(17	)			13				(35	)			12
Compensation expense related to (appreciation) depreciation on deferred compensation plans			(2	)			(3	)			(2	)			(4	)			(6	)
Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted		($	50	)		($	20	)		$	11			($	39	)		$	6

See note (2) to the Condensed Consolidated Statements of Income and Supplemental Information on page 14 for more information on as adjusted items and the reconciliation to GAAP.

RECONCILIATION OF U.S. GAAP NET INCOME ATTRIBUTABLE TO BLACKROCK TO NET INCOME ATTRIBUTABLE TO BLACKROCK, AS ADJUSTED

 

		Three Months Ended												Six Months Ended
		June 30,								March 31, 2015				June 30,
(in millions, except per share data), (unaudited)		2015				2014								2015				2014
Net income attributable to BlackRock, Inc., GAAP basis		$	819			$	808			$	822			$	1,641			$	1,564
Non-GAAP adjustments, net of tax:
PNC LTIP funding obligation			6				6				5				11				12
Income tax matters			13				23				3				16				23
Net income attributable to BlackRock, Inc., as adjusted		$	838			$	837			$	830			$	1,668			$	1,599
Diluted weighted-average common shares outstanding(4)			169.1				171.2				169.7				169.4				171.5
Diluted earnings per common share, GAAP basis(4)		$	4.84			$	4.72			$	4.84			$	9.69			$	9.12
Diluted earnings per common share, as adjusted(4)		$	4.96			$	4.89			$	4.89			$	9.85			$	9.32

See notes (3) and (4) to the Condensed Consolidated Statements of Income and Supplemental Information on page 14 and 15 for more information on as adjusted items and the reconciliation to GAAP.

 

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION (unaudited)

BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. Management also uses non-GAAP financial measures as a benchmark to compare its performance with other companies and to enhance the comparability of this information for the reporting periods presented. Non-GAAP measures may pose limitations because they do not include all of BlackRock’s revenue and expense. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Management uses both GAAP and non-GAAP financial measures in evaluating BlackRock’s financial performance. Adjustments to GAAP financial measures (“non-GAAP adjustments”) include certain items management deems nonrecurring or occur infrequently, transactions that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.

Computations for all periods are derived from the condensed consolidated statements of income as follows:

(1) Operating income, as adjusted, and operating margin, as adjusted: Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock’s financial performance over time and, therefore, provide useful disclosure to investors.

 

•

Operating income, as adjusted, includes non-GAAP expense adjustments. The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by The PNC Financial Services Group, Inc. (“PNC”) has been excluded because it ultimately does not impact BlackRock’s book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in nonoperating income (expense).

 

•

Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end fund launch costs and product placement fee costs, and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenue associated with the expenditure of these costs will not fully impact BlackRock’s results until future periods.

Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, substantially offset distribution fee revenue the Company earns. For each of these items, BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenue.

(2) Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted: Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, equals nonoperating income (expense), GAAP basis, less net income (loss) attributable to NCI, adjusted for compensation expense associated with (appreciation) depreciation on investments related to certain BlackRock deferred compensation plans. The compensation expense offset is recorded in operating income. This compensation expense has been included in nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, to offset returns on investments set aside for these plans, which are reported in nonoperating income (expense), GAAP basis.

(3) Net income attributable to BlackRock, Inc., as adjusted: See aforementioned discussion regarding operating income, as adjusted, and operating margin, as adjusted, for information on the PNC LTIP funding obligation.

For each period presented, the non-GAAP adjustment related to the PNC LTIP funding obligation was tax effected at the respective blended rates applicable to the adjustments. The three and six months ended June 30, 2015 included $13 million and $16 million, respectively, of net noncash tax expense primarily related to the revaluation of certain deferred tax liabilities. The three and six months ended June 30, 2014 included a $23 million net noncash tax expense primarily related to the revaluation of certain deferred tax liabilities. The resulting increase in income taxes has been excluded from net income attributable to BlackRock, Inc., as adjusted, as these items will not have a cash flow impact and to ensure comparability among periods presented.

 

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(4) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations.

Forward-looking Statements

This earnings release, and other statements that BlackRock may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” and similar expressions.

BlackRock cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and BlackRock assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to risk factors previously disclosed in BlackRock’s Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this earnings release, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the introduction, withdrawal, success and timing of business initiatives and strategies; (2) changes and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (3) the relative and absolute investment performance of BlackRock’s investment products; (4) the impact of increased competition; (5) the impact of future acquisitions or divestitures; (6) the unfavorable resolution of legal proceedings; (7) the extent and timing of any share repurchases; (8) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (9) the impact of legislative and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or PNC; (10) terrorist activities, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (11) the ability to attract and retain highly talented professionals; (12) fluctuations in the carrying value of BlackRock’s economic investments; (13) the impact of changes to tax legislation, including income, payroll and transaction taxes, and taxation on products or transactions, which could affect the value proposition to clients and, generally, the tax position of the Company; (14) BlackRock’s success in maintaining the distribution of its products; (15) the impact of BlackRock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations; and (16) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.

BlackRock’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and BlackRock’s subsequent filings with the SEC, accessible on the SEC’s website at www.sec.gov and on BlackRock’s website at www.blackrock.com, discuss these factors in more detail and identify additional factors that can affect forward-looking statements. The information contained on the Company’s website is not a part of this earnings release.

Performance Notes

Past performance is not indicative of future results. Except as specified, the performance information shown is as of June 30, 2015 and is based on preliminary data available at that time. The performance data shown reflects information for all actively and passively managed equity and fixed income accounts, including U.S. registered investment companies, European-domiciled retail funds and separate accounts for which performance data is available, including performance data for high net worth accounts available as of May 31, 2015. The performance data does not include accounts terminated prior to June 30, 2015 and accounts for which data has not yet been verified. If such accounts had been included, the performance data provided may have substantially differed from that shown.

Performance comparisons shown are gross-of-fees for U.S. retail, institutional and high net worth separate accounts as well as EMEA institutional separate accounts, and net-of-fee for European domiciled retail funds. The performance tracking shown for institutional index accounts is based on gross-of-fee performance and includes all institutional accounts and all iShares funds globally using an index strategy. AUM information is based on AUM available as of June 30, 2015 for each account or fund in the asset class shown without adjustment for overlapping management of the same account or fund. Fund performance reflects the reinvestment of dividends and distributions.

Source of performance information and peer medians is BlackRock, Inc. and is based in part on data from Lipper Inc. for U.S. funds and Morningstar, Inc. for non-U.S. funds.

 

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