BLK 8-K 10/18/2016 Section 1: 8-K (FORM 8-K) 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): October 18, 2016 BLACKROCK, INC. (Exact name of registrant as specified in its charter) DELAWARE 001-33099 32-0174431 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) 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))
Item 2.02. Results of Operations and Financial Condition On October 18, 2016, BlackRock, Inc. (the Company ) reported results of operations for the three and nine months ended 2016. 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 2016 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 October 18, 2016 issued by the Company 99.2 Third Quarter 2016 Earnings Earnings Release Supplement
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: October 18, 2016 By: /s/ Gary Shedlin Gary S. Shedlin Senior Managing Director and Chief Financial Officer
EXHIBIT INDEX 99.1 Earnings release dated October 18, 2016 issued by the Company 99.2 Third Quarter 2016 Earnings Earnings Release Supplement (Back To Top) Section 2: EX-99.1 (EARNINGS RELEASE DATED OCTOBER 18, 2016) Exhibit 99.1 Tom Wojcik, Investor Relations Brian Beades, Media Relations 212.810.8127 212.810.5596 BlackRock Reports Third Quarter 2016 Diluted EPS of $5.26, or $5.14 as adjusted $70 billion of total net inflows, including $55 billion in long-term net inflows, reflects positive flows across all product types, investment styles and regions 4% increase in base fees year-over-year driven by organic growth and market performance, offset by mix change favoring fixed income and cash 13% growth in Aladdin revenue year-over-year reflects ongoing demand for risk management technology Expansion in operating margin from prior year driven by continued expense discipline in the current quarter 5% increase in diluted EPS (3% as adjusted) year-over-year Consistent capital management with $275 million of quarterly share repurchases FINANCIAL RESULTS (in millions, except Q3 Q3 Q2 Nine Months Ended per share data) 2016 2015 Change 2016 Change 2016 2015 Change AUM $5,117,421 $4,505,721 14% $4,890,121 5% $ 5,117,421 $ 4,505,721 14% GAAP basis: Revenue $ 2,837 $ 2,910 (3)% $ 2,804 1% $ 8,265 $ 8,538 (3)% Operating income $ 1,209 $ 1,222 (1)% $ 1,173 3% $ 3,345 $ 3,527 (5)% Operating margin 42.6% 42.0% 60 bps 41.8% 80 bps 40.5% 41.3% (80) bps Net income(1) $ 875 $ 843 4% $ 789 11% $ 2,321 $ 2,484 (7)% Diluted EPS $ 5.26 $ 5.00 5% $ 4.73 11% $ 13.92 $ 14.68 (5)% Weighted average diluted shares 166.3 168.7 (1)% 166.6 % 166.8 169.2 (1)% As Adjusted: Operating income(2) $ 1,216 $ 1,227 (1)% $ 1,179 3% $ 3,442 $ 3,552 (3)% Operating margin(2) 44.8% 43.9% 90 bps 43.9% 90 bps 43.5% 43.4% 10 bps Net income(1) (2) $ 854 $ 844 1% $ 797 7% $ 2,362 $ 2,512 (6)% Diluted EPS(2) $ 5.14 $ 5.00 3% $ 4.78 8% $ 14.16 $ 14.85 (5)% (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, October 18, 2016 BlackRock, Inc. (NYSE: BLK) today reported financial results for the three and nine months ended 2016. BlackRock s business model was built to thrive in all market environments, commented Laurence D. Fink, Chairman and CEO of BlackRock. In the third quarter, even as investor preferences continued to migrate from equity to fixed income and cash, and away from active strategies, the diversity of our platform drove nearly $70 billion of total net inflows. Our $55 billion of long-term net inflows were positive across both active and index strategies, and positive across every asset class and region. Retail and institutional investors continued turning to ishares as an effective way to express market views and generate alpha. ishares once again captured the #1 market share of net new business in the United States, in Europe and globally, across both equity and fixed income. Our European fixed income ETFs reached $100 billion of AUM and fixed income remains an important growth area for ishares. With pensions and insurers facing continued challenges to fund future liabilities in a lower-for-longer environment, we saw $8 billion of long-term active net inflows from institutional clients in the quarter, reflecting demand for BlackRock s customized fixed income solutions and multi-asset strategies. Institutional demand for investment and risk management technology remains strong and drove 13% growth in our Aladdin revenue year-over-year. Regulatory change continues to have a material impact on our industry. In retail, the DoL fiduciary rule will increasingly influence the choices that financial intermediaries make for their clients. Anticipating that change, BlackRock is using our scale to provide distribution partners with the highest quality investment
strategies at the best value, as well as portfolio construction and risk tools, to help them build better portfolios. In cash management, where more than $1 trillion dollars has shifted from prime to government funds as a result of money market reform, the breadth of our platform and our -1-
ability to both embrace and adapt ahead of change have enabled us to meet our clients evolving needs and increase market share, and we saw $15 billion of net inflows into cash management in the third quarter. I want to thank our employees for their ongoing commitment to improving our clients financial futures. We continue to evolve our business model and invest in our future to help clients achieve their investment goals and deliver long-term value for shareholders. LONG-TERM RESULTS BY CLIENT TYPE 2016 AUM % of Total Q3 2016 Base Fees(1) % of Total (in millions), (unaudited) Q3 2016 Net flows 2016 AUM Q3 2016 Base Fees (1) Retail $ (2,228) $ 554,778 $ 821 12% 34% ishares 51,257 1,246,166 901 26% 37% Institutional: Active 7,531 1,039,653 465 22% 19% Index (1,376) 1,877,501 241 40% 10% Total institutional 6,155 2,917,154 706 62% 29% Total long-term $ 55,184 $ 4,718,098 $ 2,428 100% 100% LONG-TERM RESULTS BY PRODUCT TYPE 2016 AUM % of Total Q3 2016 Base Fees(1) % of Total (in millions), (unaudited) Q3 2016 Net flows 2016 AUM Q3 2016 Base Fees (1) Equity $ 13,350 $ 2,566,039 $ 1,270 54% 52% Fixed income 36,981 1,628,268 693 34% 29% Multi-asset 3,038 402,261 285 9% 12% Alternatives 1,815 121,530 180 3% 7% Total long-term $ 55,184 $ 4,718,098 $ 2,428 100% 100% LONG-TERM RESULTS BY INVESTMENT STYLE 2016 AUM % of Total Q3 2016 Base Fees (1) % of Total (in millions), (unaudited) Q3 2016 Net flows 2016 AUM Q3 2016 Base Fees(1) Active $ 4,039 $ 1,547,473 $ 1,274 33% 52% Index and ishares 51,145 3,170,625 1,154 67% 48% Total long-term $ 55,184 $ 4,718,098 $ 2,428 100% 100% (1) Base fees include investment advisory, administration fees and securities lending revenue. Long-Term Business Highlights Long-term net inflows were positive across all major regions, with net inflows of $38.7 billion, $13.4 billion and $3.1 billion from clients in the Americas, EMEA and Asia-Pacific, respectively. At 2016, BlackRock managed 63% of its long-term AUM for investors in the Americas and 37% for clients in EMEA and Asia-Pacific. A discussion of the Company s net flows by client type for the third quarter of 2016 is presented below. Retail long-term net outflows of $2.2 billion reflected net outflows of $1.9 billion and $0.3 billion from the United States and internationally, respectively. Fixed income saw net inflows of $5.8 billion, paced by flows into emerging market debt and high yield bond funds. Equity net outflows of $3.9 billion were primarily related to outflows from European and U.S. equities. Multi-asset net outflows of $3.5 billion were largely due to outflows from world allocation strategies. ishares long-term net inflows of $51.3 billion were led by equity net inflows of $25.5 billion, with strength in emerging market precision exposures and ishares Core ETFs. Fixed income net inflows of $22.7 billion were diversified across corporate, emerging markets and core bond funds. Commodities ishares generated $2.9 billion of net inflows. -2-
Institutional active long-term net inflows of $7.5 billion were led by multi-asset net inflows of $6.5 billion, driven by ongoing demand for solutions offerings and the LifePath target-date series. Fixed income net inflows of $5.1 billion reflected strong flows from insurance clients in the quarter. Equity net outflows of $3.4 billion were primarily due to outflows from Scientific Active equities and European equities. Institutional index long-term net outflows of $1.4 billion reflected equity net outflows of $4.9 billion, partially offset by fixed income inflows of $3.4 billion, driven by inflows into liability-driven investment solutions. Cash management AUM increased 4% to $389.0 billion, driven by $14.7 billion of net inflows, primarily into government funds ahead of money market reform. Advisory AUM ended the third quarter at $10.3 billion. INVESTMENT PERFORMANCE AT SEPTEMBER 30, 2016 (1) One-year period Three-year period Five-year period Fixed Income: Actively managed AUM above benchmark or peer median Taxable 59% 79% 88% Tax-exempt 60% 60% 65% Index AUM within or above applicable tolerance 89% 98% 98% Equity: Actively managed AUM above benchmark or peer median Fundamental 50% 66% 53% Scientific 31% 83% 93% Index AUM within or above applicable tolerance 96% 99% 97% (1) Past performance is not indicative of future results. The performance information shown is based on preliminary available data. Please refer to page 16 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 Tuesday, October 18, 2016 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 92557521). 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 Tuesday, October 18, 2016 and ending at midnight on Tuesday, November 1, 2016. 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 92557521. To access the webcast, please visit the investor relations section of www.blackrock.com. About BlackRock BlackRock is a global leader in investment management, risk management and advisory services for institutional and retail clients. At 2016, BlackRock s AUM was $5.1 trillion. BlackRock helps clients around the world 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. As of 2016, the firm had approximately 13,000 employees in 30 countries and a major presence in 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 -3-
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION (in millions, except shares and per share data), (unaudited) Three Months Ended See pages 13-15 for the reconciliation to GAAP and notes (1) through (4) for more information on as adjusted items. -4- Three Months Ended June 30, 2016 Change 2016 2015 Change Revenue Investment advisory, administration fees and securities lending revenue $ 2,546 $ 2,456 $ 90 $ 2,489 $ 57 Investment advisory performance fees 58 208 (150) 74 (16) BlackRock Solutions and advisory 174 167 7 172 2 Distribution fees 10 14 (4) 11 (1) Other revenue 49 65 (16) 58 (9) Total revenue 2,837 2,910 (73) 2,804 33 Expense Employee compensation and benefits 969 1,023 (54) 977 (8) Distribution and servicing costs 114 102 12 109 5 Amortization of deferred sales commissions 8 12 (4) 9 (1) Direct fund expense 200 198 2 195 5 General and administration 312 319 (7) 316 (4) Amortization of intangible assets 25 34 (9) 25 Total expense 1,628 1,688 (60) 1,631 (3) Operating income 1,209 1,222 (13) 1,173 36 Nonoperating income (expense) Net gain (loss) on investments 31 (10) 41 20 11 Interest and dividend income 22 12 10 6 16 Interest expense (52) (50) (2) (51) (1) Total nonoperating income (expense) 1 (48) 49 (25) 26 Income before income taxes 1,210 1,174 36 1,148 62 Income tax expense 333 342 (9) 353 (20) Net income 877 832 45 795 82 Less: Net income (loss) attributable to noncontrolling interests 2 (11) 13 6 (4) Net income attributable to BlackRock, Inc. $ 875 $ 843 $ 32 $ 789 $ 86 Weighted-average common shares outstanding Basic 164,129,214 166,045,291 (1,916,077) 164,758,612 (629,398) Diluted 166,256,598 168,665,303 (2,408,705) 166,639,290 (382,692) Earnings per share attributable to BlackRock, Inc. common stockholders (4) Basic $ 5.33 $ 5.08 $ 0.25 $ 4.79 $ 0.54 Diluted $ 5.26 $ 5.00 $ 0.26 $ 4.73 $ 0.53 Cash dividends declared and paid per share $ 2.29 $ 2.18 $ 0.11 $ 2.29 $ Supplemental information: AUM (end of period) $ 5,117,421 $ 4,505,721 $ 611,700 $ 4,890,121 $ 227,300 Shares outstanding (end of period) 163,858,070 166,057,085 (2,199,015) 164,463,297 (605,227) GAAP: Operating margin 42.6% 42.0% 60 bps 41.8% 80 bps Effective tax rate 27.6% 28.8% (120) bps 30.9% (330) bps As adjusted: Operating income (1) $ 1,216 $ 1,227 $ (11) $ 1,179 $ 37 Operating margin (1) 44.8% 43.9% 90 bps 43.9% 90 bps Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests (2) $ (1) $ (32) $ 31 $ (31) $ 30 Net income attributable to BlackRock, Inc. (3) $ 854 $ 844 $ 10 $ 797 $ 57 Diluted earnings attributable to BlackRock, Inc. common stockholders per share (3) (4) $ 5.14 $ 5.00 $ 0.14 $ 4.78 $ 0.36 Effective tax rate 29.7% 29.3% 40 bps 30.6% (90) bps
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION (in millions, except shares and per share data), (unaudited) Nine Months Ended 2016 2015 Change Revenue Investment advisory, administration fees and securities lending revenue $ 7,394 $ 7,380 $ 14 Investment advisory performance fees 166 452 (286) BlackRock Solutions and advisory 517 475 42 Distribution fees 32 44 (12) Other revenue 156 187 (31) Total revenue 8,265 8,538 (273) Expense Employee compensation and benefits 2,893 3,016 (123) Distribution and servicing costs 320 306 14 Amortization of deferred sales commissions 27 37 (10) Direct fund expense 583 578 5 General and administration 946 970 (24) Restructuring charge 76 76 Amortization of intangible assets 75 104 (29) Total expense 4,920 5,011 (91) Operating income 3,345 3,527 (182) Nonoperating income (expense) Net gain (loss) on investments 49 59 (10) Interest and dividend income 33 21 12 Interest expense (154) (153) (1) Total nonoperating income (expense) (72) (73) 1 Income before income taxes 3,273 3,454 (181) Income tax expense 954 971 (17) Net income 2,319 2,483 (164) Less: Net income (loss) attributable to noncontrolling interests (2) (1) (1) Net income attributable to BlackRock, Inc. $ 2,321 $ 2,484 $ (163) Weighted-average common shares outstanding Basic 164,756,355 166,579,805 (1,823,450) Diluted 166,760,912 169,157,188 (2,396,276) Earnings per share attributable to BlackRock, Inc. common stockholders (4) Basic $ 14.09 $ 14.91 $ (0.82) Diluted $ 13.92 $ 14.68 $ (0.76) Cash dividends declared and paid per share $ 6.87 $ 6.54 $ 0.33 Supplemental information: AUM (end of period) $ 5,117,421 $ 4,505,721 $ 611,700 Shares outstanding (end of period) 163,858,070 166,057,085 (2,199,015) GAAP: Operating margin 40.5% 41.3% (80) bps Effective tax rate 29.1% 28.1% 100 bps As adjusted: Operating income (1) $ 3,442 $ 3,552 $ (110) Operating margin (1) 43.5% 43.4% 10 bps Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests (2) $ (70) $ (71) $ 1 Net income attributable to BlackRock, Inc. (3) $ 2,362 $ 2,512 $ (150) Diluted earnings attributable to BlackRock, Inc. common stockholders per share (3) (4) $ 14.16 $ 14.85 $ (0.69) Effective tax rate 30.0% 27.8% 220 bps See pages 13-15 for the reconciliation to GAAP and notes (1) through (4) for more information on as adjusted items. -5-
ASSETS UNDER MANAGEMENT (in millions), (unaudited) Current Quarter Component Changes by Client Type and Product June 30, 2016 Net inflows (outflows) Market Change FX impact (1) 2016 Retail: Equity $ 191,980 $ (3,889) $ 8,550 $ (510) $ 196,131 $ 195,266 Fixed income 223,710 5,801 1,228 103 230,842 228,099 Multi-asset 111,456 (3,452) 3,435 (70) 111,369 112,263 Alternatives 17,281 (688) (190) 33 16,436 16,753 Retail subtotal 544,427 (2,228) 13,023 (444) 554,778 552,381 ishares: Equity 826,768 25,519 38,628 95 891,010 868,747 Fixed income 304,896 22,730 1,607 229 329,462 320,249 Multi-asset 2,328 124 56 (2) 2,506 2,430 Alternatives 20,130 2,884 160 14 23,188 22,162 ishares subtotal 1,154,122 51,257 40,451 336 1,246,166 1,213,588 Institutional: Active: Equity 120,127 (3,357) 7,455 (455) 123,770 122,790 Fixed income 549,686 5,060 6,538 (485) 560,799 557,357 Multi-asset 264,937 6,533 8,909 27 280,406 274,516 Alternatives 74,971 (705) 565 (153) 74,678 74,741 Active subtotal 1,009,721 7,531 23,467 (1,066) 1,039,653 1,029,404 Index: Equity 1,293,683 (4,923) 68,226 (1,858) 1,355,128 1,335,780 Fixed income 488,364 3,390 21,566 (6,155) 507,165 499,187 Multi-asset 7,799 (167) 322 26 7,980 7,982 Alternatives 6,808 324 169 (73) 7,228 7,081 Index subtotal 1,796,654 (1,376) 90,283 (8,060) 1,877,501 1,850,030 Institutional subtotal 2,806,375 6,155 113,750 (9,126) 2,917,154 2,879,434 Long-term 4,504,924 55,184 167,224 (9,234) 4,718,098 4,645,403 Cash management 374,684 14,696 219 (617) 388,982 383,424 Advisory(3) 10,513 (71) (14) (87) 10,341 10,419 Total $4,890,121 $ 69,809 $ 167,429 $ (9,938) $ 5,117,421 $5,039,246 Average AUM(2) Current Quarter Component Changes by Product Type (Long-term) June 30, 2016 Net inflows (outflows) Market Change FX impact (1) 2016 Equity: Active $ 276,348 $ (7,831) $ 13,725 $ (516) $ 281,726 $ 281,136 ishares 826,768 25,519 38,628 95 891,010 868,747 Non-ETF index 1,329,442 (4,338) 70,506 (2,307) 1,393,303 1,372,700 Equity subtotal 2,432,558 13,350 122,859 (2,728) 2,566,039 2,522,583 Fixed income: Active 765,431 10,182 7,455 (210) 782,858 777,109 ishares 304,896 22,730 1,607 229 329,462 320,249 Non-ETF index 496,329 4,069 21,877 (6,327) 515,948 507,534 Fixed income subtotal 1,566,656 36,981 30,939 (6,308) 1,628,268 1,604,892 Multi-asset 386,520 3,038 12,722 (19) 402,261 397,191 Alternatives: Core 89,912 (1,408) 372 (145) 88,731 89,149 Currency and commodities(4) 29,278 3,223 332 (34) 32,799 31,588 Alternatives subtotal 119,190 1,815 704 (179) 121,530 120,737 Long-term $4,504,924 $ 55,184 $ 167,224 $ (9,234) $ 4,718,098 $4,645,403 Average AUM(2) Current Quarter Component Changes by Investment Style (Long-term) June 30, 2016 Net inflows (outflows) Market Change FX impact (1) 2016 Average AUM (2) Active $ 1,510,424 $ 4,039 $ 33,900 $ (890) $ 1,547,473 $ 1,536,517 Index and ishares 2,994,500 51,145 133,324 (8,344) 3,170,625 3,108,886 Long-term $4,504,924 $ 55,184 $ 167,224 $ (9,234) $ 4,718,098 $4,645,403 (1) Foreign exchange reflects the impact of translating 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-
ASSETS UNDER MANAGEMENT (in millions), (unaudited) Year-to-Date Changes by Client Type and Product December 31, 2015 Net inflows (outflows) Acquisition (1) Market Change FX impact (2) 2016 Retail: Equity $ 193,755 $ (9,171) $ $ 13,929 $ (2,382) $ 196,131 $ 192,072 Fixed income 212,653 10,239 7,929 21 230,842 220,956 Multi-asset 115,307 (7,668) 4,216 (486) 111,369 112,464 Alternatives 19,410 (2,279) (803) 108 16,436 17,904 Retail subtotal 541,125 (8,879) 25,271 (2,739) 554,778 543,396 ishares: Equity 823,156 24,264 40,747 2,843 891,010 828,932 Fixed income 254,190 60,238 14,126 908 329,462 296,192 Multi-asset 2,730 (340) 110 6 2,506 2,341 Alternatives 12,485 7,016 3,642 45 23,188 18,100 ishares subtotal 1,092,561 91,178 58,625 3,802 1,246,166 1,145,565 Institutional: Active: Equity 121,442 (4,644) 8,459 (1,487) 123,770 119,626 Fixed income 514,428 8,967 34,779 2,625 560,799 542,375 Multi-asset 252,041 7,664 20,920 (219) 280,406 263,307 Alternatives 74,941 (375) 549 (437) 74,678 74,835 Active subtotal 962,852 11,612 64,707 482 1,039,653 1,000,143 Index: Equity 1,285,419 (16,990) 83,247 3,452 1,355,128 1,291,634 Fixed income 441,097 15,204 71,566 (20,702) 507,165 475,562 Multi-asset 6,258 (285) 1,569 438 7,980 7,443 Alternatives 6,003 960 576 (311) 7,228 6,518 Index subtotal 1,738,777 (1,111) 156,958 (17,123) 1,877,501 1,781,157 Institutional subtotal 2,701,629 10,501 221,665 (16,641) 2,917,154 2,781,300 Long-term 4,335,315 92,800 305,561 (15,578) 4,718,098 4,470,261 Cash management 299,884 11,556 80,635 206 (3,299) 388,982 345,881 Advisory(4) 10,213 (216) (120) 464 10,341 10,419 Total $ 4,645,412 $ 104,140 $ 80,635 $305,647 $ (18,413) $ 5,117,421 $4,826,561 Average AUM (3) Year-to-Date Component Changes by Product Type (Long-term) December 31, 2015 Net Inflows (outflows) Market Change FX impact (2) 2016 Acquisition Equity: Active $ 281,319 $ (15,680) $ $ 17,980 $ (1,893) $ 281,726 $ 276,494 ishares 823,156 24,264 40,747 2,843 891,010 828,932 Non-ETF index 1,319,297 (15,125) 87,655 1,476 1,393,303 1,326,838 Equity subtotal 2,423,772 (6,541) 146,382 2,426 2,566,039 2,432,264 Fixed income: Active 719,653 18,110 41,727 3,368 782,858 755,462 ishares 254,190 60,238 14,126 908 329,462 296,192 Non-ETF index 448,525 16,300 72,547 (21,424) 515,948 483,431 Fixed income subtotal 1,422,368 94,648 128,400 (17,148) 1,628,268 1,535,085 Multi-asset 376,336 (629) 26,815 (261) 402,261 385,555 Alternatives: Core 92,085 (2,382) (309) (663) 88,731 90,424 Currency and commodities(5) 20,754 7,704 4,273 68 32,799 26,933 Alternatives subtotal 112,839 5,322 3,964 (595) 121,530 117,357 Long-term $ 4,335,315 $ 92,800 $ $305,561 $ (15,578) $ 4,718,098 $4,470,261 Average AUM(3) Year-to-Date Component Changes by Investment Style (Long-term) December 31, 2015 Net Inflows (outflows) Acquisition Market Change FX impact (2) 2016 Average AUM (3) Active $ 1,462,672 $ (228) $ $ 84,589 $ 440 $ 1,547,473 $ 1,500,466 Index and ishares 2,872,643 93,028 220,972 (16,018) 3,170,625 2,969,795 Long-term $ 4,335,315 $ 92,800 $ $305,561 $ (15,578) $ 4,718,098 $4,470,261 (1) Amount represents AUM acquired in the BofA Global Capital Management transaction in April 2016. (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 ten months. (4) Advisory AUM represents long-term portfolio liquidation assignments. (5) Amounts include commodity ishares.
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ASSETS UNDER MANAGEMENT (in millions), (unaudited) Year-over-Year Component Changes by Client Type and Product 2015 Net inflows (outflows) Acquisitions(1) Market Change FX impact (2) 2016 Average AUM(3) Retail: Equity $ 184,265 $ (2,443) $ $ 18,203 $ (3,894) $ 196,131 $ 192,360 Fixed income 210,605 14,175 6,755 (693) 230,842 218,901 Multi-asset 120,486 (11,233) 366 2,444 (694) 111,369 114,089 Alternatives 19,852 (2,358) (1,025) (33) 16,436 18,374 Retail subtotal 535,208 (1,859) 366 26,377 (5,314) 554,778 543,724 ishares: Equity 748,458 71,824 71,109 (381) 891,010 821,038 Fixed income 246,712 72,177 11,342 (769) 329,462 286,110 Multi-asset 1,808 577 120 1 2,506 2,246 Alternatives 13,515 6,824 2,843 6 23,188 17,042 ishares subtotal 1,010,493 151,402 85,414 (1,143) 1,246,166 1,126,436 Institutional: Active: Equity 116,718 (4,421) 14,226 (2,753) 123,770 120,066 Fixed income 522,509 5,581 32,670 39 560,799 538,467 Multi-asset 245,776 10,674 27,244 (3,288) 280,406 261,256 Alternatives 74,351 160 560 362 (755) 74,678 74,820 Active subtotal 959,354 11,994 560 74,502 (6,757) 1,039,653 994,609 Index: Equity 1,223,796 (18,036) 152,702 (3,334) 1,355,128 1,289,332 Fixed income 465,811 2,872 66,253 (27,771) 507,165 473,484 Multi-asset 6,931 (869) 1,557 361 7,980 7,282 Alternatives 6,201 1,161 253 (387) 7,228 6,454 Index subtotal 1,702,739 (14,872) 220,765 (31,131) 1,877,501 1,776,552 Institutional subtotal 2,662,093 (2,878) 560 295,267 (37,888) 2,917,154 2,771,161 Long-term 4,207,794 146,665 926 407,058 (44,345) 4,718,098 4,441,321 Cash management 285,692 27,323 80,635 29 (4,697) 388,982 332,029 Advisory(4) 12,235 (1,963) (124) 193 10,341 10,596 Total $ 4,505,721 $172,025 $ 81,561 $ 406,963 $ (48,849) $ 5,117,421 $ 4,783,946 Year-over-Year Component Changes by Product Type (Long-term) 2015 Net inflows (outflows) Acquisitions (1) Market Change FX impact (2) 2016 Average AUM (3) Equity: Active $ 270,423 $ (10,814) $ $ 26,313 $ (4,196) $ 281,726 $ 277,777 ishares 748,458 71,824 71,109 (381) 891,010 821,038 Non-ETF index 1,254,356 (14,086) 158,818 (5,785) 1,393,303 1,323,981 Equity subtotal 2,273,237 46,924 256,240 (10,362) 2,566,039 2,422,796 Fixed income: Active 725,802 18,341 38,470 245 782,858 749,590 ishares 246,712 72,177 11,342 (769) 329,462 286,110 Non-ETF index 473,123 4,287 67,208 (28,670) 515,948 481,262 Fixed income subtotal 1,445,637 94,805 117,020 (29,194) 1,628,268 1,516,962 Multi-asset 375,001 (851) 366 31,365 (3,620) 402,261 384,873 Alternatives: Core 91,358 (1,424) 560 (667) (1,096) 88,731 90,760 Currency and commodities(5) 22,561 7,211 3,100 (73) 32,799 25,930 Alternatives subtotal 113,919 5,787 560 2,433 (1,169) 121,530 116,690 Long-term $ 4,207,794 $146,665 $ 926 $ 407,058 $ (44,345) $ 4,718,098 $ 4,441,321 Year-over-Year Component Changes by Investment Style (Long-term) Net inflows FX impact 2015 (outflows) Acquisitions (1) Market Change (2) 2016 Average AUM (3) Active $ 1,456,692 $ 4,771 $ 926 $ 93,805 $ (8,721) $ 1,547,473 $ 1,495,906 Index and ishares 2,751,102 141,894 313,253 (35,624) 3,170,625 2,945,415 Long-term $ 4,207,794 $146,665 $ 926 $ 407,058 $ (44,345) $ 4,718,098 $ 4,441,321 (1) Amounts represent $560 million of AUM acquired in the Infraestructura Institucional acquisition in October 2015, $366 million of AUM acquired in the FutureAdvisor acquisition in October 2015 and $80.6 billion of AUM acquired in the BofA Global Capital Management transaction in April 2016. The FutureAdvisor acquisition amount does not include AUM that was held in ishares holdings.
(2) Foreign exchange reflects the impact of translating 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-
SUMMARY OF REVENUE Three Months Ended Three Months Ended Nine Months Ended (in millions), (unaudited) 2016 2015 Change June 30, 2016 Change 2016 2015 Change Investment advisory, administration fees and securities lending revenue: Equity: Active $ 409 $ 427 $ (18) $ 406 $ 3 $ 1,201 $ 1,296 $ (95) ishares 691 673 18 656 35 1,970 2,085 (115) Non-ETF Index 170 158 12 174 (4) 508 511 (3) Equity subtotal 1,270 1,258 12 1,236 34 3,679 3,892 (213) Fixed income: Active 427 402 25 414 13 1,237 1,162 75 ishares 188 139 49 172 16 512 407 105 Non-ETF Index 78 70 8 69 9 217 210 7 Fixed income subtotal 693 611 82 655 38 1,966 1,779 187 Multi-asset 285 322 (37) 291 (6) 860 942 (82) Alternatives: Core 156 166 (10) 168 (12) 488 481 7 Currency and commodities 24 18 6 20 4 61 56 5 Alternatives subtotal 180 184 (4) 188 (8) 549 537 12 Long-term 2,428 2,375 53 2,370 58 7,054 7,150 (96) Cash management 118 81 37 119 (1) 340 230 110 Total base fees 2,546 2,456 90 2,489 57 7,394 7,380 14 Investment advisory performance fees: Equity 14 23 (9) 42 (28) 67 121 (54) Fixed income 2 3 (1) 2 9 10 (1) Multi-asset 1 3 (2) 2 (1) 6 19 (13) Alternatives 41 179 (138) 28 13 84 302 (218) Total performance fees 58 208 (150) 74 (16) 166 452 (286) BlackRock Solutions and advisory 174 167 7 172 2 517 475 42 Distribution fees 10 14 (4) 11 (1) 32 44 (12) Other revenue 49 65 (16) 58 (9) 156 187 (31) Total revenue $ 2,837 $ 2,910 $ (73) $ 2,804 $ 33 $ 8,265 $ 8,538 $ (273) Highlights Investment advisory, administration fees and securities lending revenue increased $90 million from the third quarter of 2015 reflecting the impact of organic growth, higher markets on long-term average AUM and the effect of AUM acquired in the BofA Global Capital Management transaction, partially offset by mix shift from equities to fixed income and cash products. Securities lending revenue of $142 million in the current quarter increased $27 million from the third quarter of 2015, primarily reflecting higher average balances of securities on loan and higher spreads. Investment advisory, administration fees and securities lending revenue increased $57 million from the second quarter of 2016, driven by higher average AUM and the effect of one additional day in the current quarter. Securities lending revenue decreased $9 million from the second quarter of 2016. Performance fees decreased $150 million from the third quarter of 2015, primarily reflecting strong performance from a single hedge fund with an annual measurement period that ended in the third quarter of 2015, and decreased $16 million from the second quarter of 2016. BlackRock Solutions and advisory revenue increased $7 million from the third quarter of 2015 and $2 million from the second quarter of 2016. BlackRock Solutions and advisory revenue included $152 million of Aladdin revenue in the current quarter compared with $135 million in the third quarter of 2015 and $146 million in the second quarter of 2016. -9-
SUMMARY OF OPERATING EXPENSE Three Three Months Months Ended Ended Nine Months Ended June 30, (in millions), (unaudited) 2016 2015 Change 2016 Change 2016 2015 Change Operating Expense Employee compensation and benefits $ 969 $ 1,023 $ (54) $ 977 $ (8) $ 2,893 $ 3,016 $ (123) Distribution and servicing costs 114 102 12 109 5 320 306 14 Amortization of deferred sales commissions 8 12 (4) 9 (1) 27 37 (10) Direct fund expense 200 198 2 195 5 583 578 5 General and administration 312 319 (7) 316 (4) 946 970 (24) Restructuring charge 76 76 Amortization of intangible assets 25 34 (9) 25 75 104 (29) Total Operating Expense $1,628 $1,688 $ (60) $ 1,631 $ (3) $ 4,920 $ 5,011 $ (91) Highlights Employee compensation and benefits decreased $54 million from the third quarter of 2015, reflecting lower incentive compensation, driven primarily by lower performance fees, and decreased $8 million from the second quarter of 2016. General and administration expense decreased $7 million from the third quarter of 2015, reflecting expense discipline, and decreased $4 million from the second quarter of 2016. INCOME TAX EXPENSE Three Three Months Months Ended Ended Nine Months Ended June 30, (in millions), (unaudited) 2016 2015 Change 2016 Change 2016 2015 Change Income tax expense $ 333 $ 342 $ (9) $ 353 $ (20) $ 954 $ 971 $ (17) Highlights The third quarter 2016 income tax expense included a $26 million net noncash tax benefit, primarily related to the revaluation of certain deferred income tax liabilities as a result of legislation enacted in the United Kingdom, and domestic state and local tax changes. The second quarter 2016 income tax expense included a $4 million net noncash expense, primarily related to the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes. The third quarter 2015 income tax expense included a $6 million noncash tax benefit, primarily associated with the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes. -10-
SUMMARY OF NONOPERATING INCOME (EXPENSE) Three Months Ended Three Months Ended June 30, Nine Months Ended (in millions), (unaudited) 2016 2015 Change 2016 Change 2016 2015 Change Nonoperating income (expense), GAAP basis $ 1 $ (48) $ 49 $ (25) $ 26 $ (72) $ (73) $ 1 Less: Net income (loss) attributable to NCI 2 (11) 13 6 (4) (2) (1) (1) Nonoperating income (expense)(1) $ (1) $ (37) $ 36 $ (31) $ 30 $ (70) $ (72) $ 2 Estimated economic investments at 2016 (2) Three Months Ended Three Months Ended June 30, 2016 Nine Months Ended (in millions), (unaudited) 2016 2015 Change Change 2016 2015 Change Net gain (loss) on investments(1) Private equity 15-20% $ 2 $ 25 $ (23) $ 7 $ (5) $ 11 $ 35 $ (24) Real assets 5-10% 2 5 (3) 1 1 5 9 (4) Other alternatives(3) 10-15% 9 (10) 19 4 5 13 (6) 19 Other investments(4) 60-65% 16 (19) 35 2 14 22 (23) 45 Subtotal 29 1 28 14 15 51 15 36 Other gains(5) 45 (45) Total net gain (loss) on investments(1) 29 1 28 14 15 51 60 (9) Interest and dividend income 22 12 10 6 16 33 21 12 Interest expense (52) (50) (2) (51) (1) (154) (153) (1) Net interest expense (30) (38) 8 (45) 15 (121) (132) 11 Total nonoperating income (expense)(1) (1) (37) 36 (31) 30 (70) (72) 2 Compensation expense related to (appreciation) depreciation on deferred compensation plans 5 (5) 1 (1) Nonoperating income (expense), as adjusted(1) $ (1) $ (32) $ 31 $ (31) $ 30 $ (70) $ (71) $ 1 (1) Net of net income (loss) attributable to noncontrolling interests ( NCI ). (2) Percentages represent estimated percentages of BlackRock s corporate economic investment portfolio at 2016. Economic investment amounts at June 30, 2016 for private equity, real assets, other alternatives and other investments were $351 million, $106 million, $230 million and $826 million, respectively. (3) Amounts primarily include net gains (losses) related to direct hedge fund strategies and hedge fund solutions. (4) Amounts include net gains (losses) related to equity and fixed income investments, and BlackRock s seed capital hedging program. (5) Amount for the nine months ended 2015 primarily includes a gain related to the acquisition of certain assets of BlackRock Kelso Capital Advisors LLC. Highlights Net interest expense in the current quarter reflected higher dividend income compared with third quarter of 2015 and second quarter of 2016. -11-
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) 2016 (Est.) December 31, 2015 Total balance sheet assets $ 227 $ 225 Separate account assets and separate account collateral held under securities lending agreements (184) (182) Consolidated sponsored investment funds (1) Goodwill and intangible assets, net (31) (30) Economic tangible assets $ 12 $ 12-12-
RECONCILIATION OF U.S. GAAP OPERATING INCOME AND OPERATING MARGIN TO OPERATING INCOME AND OPERATING MARGIN, AS ADJUSTED Three Months Ended Nine Months Ended June 30, (in millions), (unaudited) 2016 2015 2016 2016 2015 Operating income, GAAP basis $ 1,209 $ 1,222 $ 1,173 $ 3,345 $ 3,527 Non-GAAP expense adjustments: Restructuring charge 76 PNC LTIP funding obligation 7 10 6 21 26 Compensation expense related to appreciation (depreciation) on deferred compensation plans (5) (1) Operating income, as adjusted 1,216 1,227 1,179 3,442 3,552 Product launch costs and commissions 5 Operating income used for operating margin measurement $ 1,216 $ 1,227 $ 1,179 $ 3,442 $ 3,557 Revenue, GAAP basis $ 2,837 $ 2,910 $ 2,804 $ 8,265 $ 8,538 Non-GAAP adjustments: Distribution and servicing costs (114) (102) (109) (320) (306) Amortization of deferred sales commissions (8) (12) (9) (27) (37) Revenue used for operating margin measurement $ 2,715 $ 2,796 $ 2,686 $ 7,918 $ 8,195 Operating margin, GAAP basis 42.6% 42.0% 41.8% 40.5% 41.3% Operating margin, as adjusted 44.8% 43.9% 43.9% 43.5% 43.4% 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 Nine Months Ended June 30, (in millions), (unaudited) 2016 2015 2016 2016 2015 Nonoperating income (expense), GAAP basis $ 1 $ (48) $ (25) $ (72) $ (73) Less: Net income (loss) attributable to NCI 2 (11) 6 (2) (1) Nonoperating income (expense), net of NCI (1) (37) (31) (70) (72) Compensation expense related to (appreciation) depreciation on deferred compensation plans 5 1 Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted $ (1) $ (32) $ (31) $ (70) $ (71) 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 Nine Months Ended June 30, (in millions, except per share data), (unaudited) 2016 2015 2016 2016 2015 Net income attributable to BlackRock, Inc., GAAP basis $ 875 $ 843 $ 789 $ 2,321 $ 2,484 Non-GAAP adjustments: Restructuring charge (including $23 tax benefit) 53 PNC LTIP funding obligation, net of tax 5 7 4 14 18 Income tax matters (26) (6) 4 (26) 10 Net income attributable to BlackRock, Inc., as adjusted $ 854 $ 844 $ 797 $2,362 $2,512 Diluted weighted-average common shares outstanding(4) 166.3 168.7 166.6 166.8 169.2 Diluted earnings per common share, GAAP basis(4) $ 5.26 $ 5.00 $ 4.73 $13.92 $14.68 Diluted earnings per common share, as adjusted(4) $ 5.14 $ 5.00 $ 4.78 $14.16 $14.85 See notes (3) and (4) to the Condensed Consolidated Statements of Income and Supplemental Information on page 15 for more information on as adjusted items and the reconciliation to GAAP. -13-
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 that 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. A restructuring charge comprised of severance and accelerated amortization expense of previously granted deferred compensation awards has been excluded to provide more meaningful analysis of BlackRock s ongoing operations and to ensure comparability among periods presented. 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 product launch costs (e.g. closed-end fund launch 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. Management believes nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, provides comparability of information among reporting periods and is an effective measure for reviewing BlackRock s nonoperating contribution to results. -14-
(3) Net income attributable to BlackRock, Inc., as adjusted: Management believes net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted, are useful measures of BlackRock s profitability and financial performance. Net income attributable to BlackRock, Inc., as adjusted, equals net income attributable to BlackRock, Inc., GAAP basis, adjusted for significant nonrecurring items, charges that ultimately will not impact BlackRock s book value or certain tax items that do not impact cash flow. See aforementioned discussion regarding operating income, as adjusted, and operating margin, as adjusted, for information on the PNC LTIP funding obligation and the restructuring charge. For each period presented, the non-gaap adjustment related to the restructuring charge and PNC LTIP funding obligation was tax effected at the respective blended rates applicable to the adjustments. Amounts for income tax matters represent net noncash (benefits) expense primarily associated with the revaluation of certain deferred tax liabilities related to intangible assets and goodwill. Amounts have been excluded from the as adjusted results as these items will not have a cash flow impact and to ensure comparability among periods presented. Per share amounts reflect net income attributable to BlackRock, as adjusted divided by diluted weighted average common shares outstanding. (4) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations. -15-
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 2016 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 August 31, 2016. The performance data does not include accounts terminated prior to 2016 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 institutional and high net worth separate accounts, and net-of-fees for retail funds. The performance tracking shown for index accounts is based on gross-of-fees performance and includes all institutional accounts and all ishares funds globally using an index strategy. AUM information is based on AUM available as of 2016 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. (Back To Top) -16- Section 3: EX-99.2 (THIRD QUARTER 2016 EARNINGS - EARNINGS RELEASE SUPPLEMENT) Exhibit 99.2
Exhibit Q3 Earnings October 201699.2 18, Earnings Release 2016 Supplement:
Q3 Long-term Product Institutional 29% Equity 54% 62% Retail Fixed 34% Index ishares Multi-asset Alternatives AUM Note: 1 broadly 2016 52% 33% 26% EMEA Income Base Index ishares 63% Equity 41% 37% Type Long-term Institutional diversified Assets Fees ishares 12% 64% 3% Active 29% EMEA Client Retail Active Alternatives AUM and 26% 29% Under 12% 37% Base Type AUM business 52% Base ishares Management Fees Style Americas by Fees 7% across of region Region $2.428 AUM 11% clients, Americas data of Asia-Pacific Base $4.718 billion is products based Fees trillion AUM 8% and client at Asia-Pacific Base geographies September domicile. Fees 7% 30, 2016
Long-term LTM Total 4% 6% $88 $70 $54 $29 $23 $14 $(7) ishares 9% $60 $44 $35 $18 $11 $(13) $(29) Q3 2014 Note: $5 Q4 11% 5% 6% $55 $51 $11 2014 $(8) organic Long-Term LTM $23 $35 Q1 5% 7% $7 14% Q2 $24 net 2015 $36 $7 4% organic 6% asset 11% Q3 $0 flows $21 $5 $(6) 4% $16 6% 2015 Q4 Institutional 12% growth 4% $21 asset $6 6% $(2) ($ Q1 2015 in 13% 4% growth Q2 billions) rate 3% 2015 2% Retail Q3 11% (%) 3% rate Q3 2014 $12 2016 11% LTM Q4 measures $6 2014 2016 15% Q1 11% organic Q2 2015 0% 2016 11% rolling Q3 1% base 2015 2014 10% Q4 2% last fee Q1 2015 10% 2014 1% twelve growth Q2 1% 7% 2015 Q3 (1)% 4% months rate 2016 2015 1% (1)% (%) 2016 0% 2015 net 0% flows 2016 2015 0% over 2016 beginning 2016 2016 of period assets.
Profitability 44.9% 44.2% 41.2% $1,248 $1,214 $1,154 $1,077 2014 $5.21 $4.82 $4.75 $4.25 $890 $711 Q3 Net Operating For Qs 3 and Q4 further Income, $838 2014 $4.78 $5.00 $4.89 41.6% 43.6% Q1 8-Ks. $1,227 $1,143 $1,047 Income, Q2 $844 2015 information and ($ $5.14 $4.96 as 43.9% 41.6% Q3 adjusted EPS, $854 2015 $1,179 millions, $1,216 and Q4 as 43.9% adjusted as Q1 $821 Margin, 2015 and EPS, Q2 except reconciliations $830 2015 44.8% Q3 as Operating as adjusted 2014 $797 2016 share 2014 $801 2016 Margin, between data) 2015 2016 as 2015 GAAP adjusted 2015 and 2015 as adjusted, 2016 2016 see 2016 page 9 of this earnings release supplement, notes (1) through (4) in the current earnings release as well as previously filed Form 10-Ks, 10-
Capital 170.8 169.1 167.4 $300 Share Amounts 109%(1) 81% 76% 63% 47% 44% $2.29 $2.18 $1.93 Q3 2014 Dividends GAAP Total GAAP Q4 83% 74% 64% 48% 43% $275 2014 repurchases Repurchases $1.93 $2.29 $2.18 170.4 168.7 166.6 Q1 management above 78% 74% 42% and Dividend GAAP Q2 $275 2015 $2.29 $2.18 169.7 168.6 166.3 Payout Q3 70% 43% exclude $275 2015 Payout and Dividend Q4 Weighted $2.18 40% Payout (amounts Q1 weighted $275 2015 Ratios repurchases Q2 35% = $275 2015 Payout Ratio (Dividends average Q3 in = millions, $275 2016 and Ratio of diluted Total employee $250 2016 declared Total except declared GAAP shares $250 2016 shares GAAP + tax per share Payout / withholdings share GAAP Payout repurchases) data) Ratio net Ratio income. include related / GAAP the to employee pre-tax net income. restructuring stock transactions. charge of $76 million.
Major % Spot 9/30/2015 Equity Domestic Global MSCI S&P Fixed Barclays Foreign GBP EUR Source: 5 Change 9/30/2016 Global 500 to market Income Europe AC Emerging Barra Indices: USD Bloomberg Exchange U.S. 1,920 6/30/2016 Asia % Natural World 1.51 indices 1.12 Aggregate Index: Change Pacific vs. 2,099 Markets 1.33 1.11 Rates: Average Index 117 Resources and 9/30/2016 2,168 Index 1.30 1.12 112 Bond exchange Index 1,582 Q3 (2)% 3% 116 1% 124 Index 2,365 792 6/30/2016 1,653 13% -% 4% 129 (14)% rates 834 1.11 (1)% 1,936 vs. 2,768 2,026 140 1,726 903 1.55 1.13 9% 9/30/2015 127 2,028 2,930 2,075 8% 4% 1.44 13% 1.12 114% 9% 2,037 6% 2,161 1.31 135 115 (1)% 1,691 Q3 860 24% 128 1% -% (9)% 4% 2015 1% 819 1,656 2,714 5% (9)% 137 7% (15)% 887 Q2 1,924 7% 1,712 2,720 2016 8% 1% 1,997 3% 2,888 Q3 1% 2016 2,035 6% Q2 6% 2% 2016 6% Q3 2015
Quarterly 85% 5%2% Percentage Base Securities Performance Aladdin Distribution Other Total $(73) $27 Q3 $33 $66 Q2 6 2015 2016 1% $6 $17 million Fees (3)% Revenue BRS 5% $(1) 13% $(4) Base Compared $2,837 revenue Lending ex. Change 1% (31)% $(4) Fees $(10) 4% Securities SL Fees (25)% $(9) million (29)% (72)% (15)% 23% Year-over-Year $(16) ex to $(9) 3% (16)% Securities Aladdin Q3 Q2 (6)% (22)% (9)% Lending $(150) 2015 2016 $(16) Distribution $2,804 $63 Aladdin Securities Sequential $2,910 $2,837 Distribution Lending Other $2,837 BRS Performance Other BRS Securities Fees Other Aladdin Performance Other Q3 BRS 2016 Sec Lending Lending fees Revenue fees Revenue Lending Fees
Quarterly Investment 27% 19% 3% 6% Active $90 $12 $25 $37 Q3 $57 $16 Q2 7 $3 2016 2015: 5% $8 $18 $2,546 $13 million 6% 27% $(1) Equity $(4) 8% 17% $(37) $2,546 ishares Compared investment 26% $(4) advisory, 13% $2,456 $(18) 17% $(6) $35 3% ishares Cash million 16% $49 to $(8) $2,489 11% administration advisory, 16% Equity Q3 Q2 5% Active Q3 3% 2015 2016 2016: 11% ishares administration Non-ETF 3% fees $2,546 Non-ETF Index and Active million securities fees Equity Non-ETF Cash and Q2 Active lending securities Non-ETF 2016: Alts Fixed $2,489 revenue Active lending Multi- Income million Multi- revenue Alts ishares Q3 2016 Fixed EQ FI Income FI FI EQ FI FI EQ Non-ETF EQ FI EQ Index Asset Fixed Income Multi-Asset Alternatives Cash
Quarterly 7% 60% 12% 19% Percentage Employee Distribution Amort. Direct General Amortization Total $(62) $1,683 Q3 $(4) $1,625 Q2 Expense, 2016. information, 8 2016 2015 million (4)% % Expense, Fund $(56) $(9) of & Compared $1,621 as expense Deferred Comp. Administrative Change $(4) adjusted, Expense see & $(9) of Servicing as & Intangibles notes $(1) million & $(7) adjusted, Amort G&A Year-over-Year Sales to Benefits 1% by includes $5 (1) Q3 Q2 $(4) category Amort Def $5 3% Commissions Costs through (2)% 2015, 2016, (26)% % $2 also $1,621 (6)% Distribution non-gaap $12 (1)% 12% includes as (4) Amort Def Sequential (1)% $1,621 adjusted 5% Direct (33)% the a & adjustments non-gaap current Servicing Distribution (11)% Direct earnings Distribution Costs related adjustments Q3 release. Direct 2016 to PNC Q3 Benefits for Fund 2016 LTIP compensation Expense Benefits Sales funding Comm General Intang obligation related Fund & Sales to Administration & appreciation of Comm Servicing $7 million Fund (depreciation) in Amortization & the Servicing third quarter on of Assets certain Intangibles of 2016, deferred $10 compensation million in third plans quarter of $(5) of 2015 million and in $6 the million third quarter in the of second 2015. quarter For further of
Reconciliation 2014 Q3 Operating Nonoperating (Expense) Net adjustments As Non-GAAP tax For 9 Adjusted Q4 matters, further Income 2015 $(52) Q1 $917 $1,157 Income Q2 2016 information as 44 adjustments (27) $(8) $890 $813 $(60) $1,214 Q3 Income applicable. between $1,144 6108 (5) $(54) Q4 $821 $822 10 8 $16 $1,154 (9) 19 10 Q1 $1,067 and $11 $(41) GAAP 1 $819 $830 16 include 5 Q2 (60) 6 (10) reconciliation $(50) $1,077 $(48) Q3 $843 $838 $1,238 54 and 10 amounts 6 $(32) 87 $11 (6) $861 $844 as (21) $1,248 $1,222 adjusted (2) $(48) related $657 $801 between $(38) $1,227 $1,137 $(25) $789 $711 ($ to $(31) in GAAP a $1,143 $875 $797 millions) restructuring $963 $(1) and $854 $1,173 $1,047 as adjusted, charge, $1,209 $1,179 see PNC $1,216 notes LTIP (1) funding through obligation, (4) in the compensation current earnings related release to appreciation as well as previously (depreciation) filed Form on certain 10-Ks, deferred 10-Qs compensation and 8-Ks. plans and noncash income Important BlackRock s believe, future materially In results economic management; resolution protection; agencies financial impact BlackRock; securities This page 10 addition presentation, 9 to of relating and conditional differ lending this or changes of Notes from comfortable, (9) cautions assumes to (14) industry legal capital future (3) risk earnings the materially historical BlackRock s the also impact and proceedings; factors financial that no markets, other verbs relative tax conditions, includes other release duty legislation, performance. from of previously expect, indemnification such to legislative statements and specific supplement, success forward-looking and (7) non-gaap as business the absolute The will, the does anticipate, including interest disclosed industries PNC extent and that not performance, statements maintaining investment obligations; would, our financial regulatory BlackRock, Financial undertake rate and income, statements environment, BlackRock s timing current, BlackRock; are measures. should, performance the Services strategies actions and earnings to payroll subject Inc. of update distribution (16) any intention, ( BlackRock ) historical foreign and You (11) Securities Group, could, release the share forward-looking of reforms, numerous expectations. transaction impact the can BlackRock s repurchases; of exchange Inc.; dated performance: ability find its may estimate, and of including products; (10) our assumptions, October problems Exchange taxes, rates Forward-looking and presentations terrorist attract statements. make, investment (8) similar and (1) the (15) position, 18, and Commission financial may Dodd-Frank activities, taxation 2016, impact, other risks retain expressions. introduction, Actual contain products; impact financial and the statements and extent assume, highly international BlackRock s results uncertainties, most forward-looking products reports Wall of capital (4) and institutions talented withdrawal, directly Street could the are timing and markets, outlook, impact typically hostilities transactions, those differ Reform other professionals; which comparable electing statements which success technological identified the periodic materially continue, increased change and failure could to Consumer which and GAAP natural provide reports, (12) over within elsewhere from timing result competition; by changes negative fluctuations could remain, time. financial disasters, words those support the which Protection of affect Forward-looking changes meaning business and anticipated performance this are measures to maintain, (5) phrases which the available its presentation, Act, the adequacy of value products initiatives demand may impact carrying the such calculated of proposition forward-looking Private adversely regulatory, sustain, statements as products of from BlackRock s the and trend, value future intellectual products Securities following time strategies; accordance affect of to seek, speak acquisitions supervisory BlackRock s other potential, to clients statements time the website property, Litigation factors, only services financial (2) achieve, general and, with changes as or any among generally, opportunity, of information economic enforcement and GAAP divestitures; www.blackrock.com. Reform institutions. economy, the potential future and date others, and similar volatility value Act, investments; they results our domestic and liabilities (6) actions tax could with pipeline, are of reconciliations expressions, cyber the position could assets made, respect cause unfavorable of political, and security related government (13) differ under of and local actual to the to on (Back To Top)