BLACKROCK, INC. BlackRock, Inc. (NYSE:BLK):
FINANCIAL RESULTS | |||||||||||||||||||||||||||||
| (in millions, except per share data) | Q3 2016 | Q3 2015 | Change | Q2 2016 | Change | Nine Months Ended September 30, | |||||||||||||||||||||||
| 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 for more information on as adjusted items and the reconciliation to GAAP. |
BlackRock, Inc. (NYSE:BLK) today reported financial results for the three and nine months ended September 30, 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 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 | |||||||||||||
| (in millions), (unaudited) | Q3 2016 Net flows | September 30, 2016 AUM | Q3 2016 Base Fees(1) | September 30, 2016 AUM % of Total | Q3 2016 Base Fees(1) % of Total | ||||||||
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 | ||||||||||||
| (in millions), (unaudited) | Q3 2016 Net flows | September 30, 2016 AUM | Q3 2016 Base Fees(1) | September 30, 2016 AUM % of Total | Q3 2016 Base Fees(1) % of Total | |||||||
| 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 | ||||||||||||
| (in millions), (unaudited) | Q3 2016 Net flows | September 30, 2016 AUM | Q3 2016 Base Fees(1) | September 30, 2016 AUM % of Total | Q3 2016 Base Fees(1) % of Total | |||||||
| 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 September 30, 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.
- 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 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 September 30, 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 September 30, 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION (in millions, except shares and per share data), (unaudited) | |||||||||||||||
| Three Months | |||||||||||||||
| Three Months Ended | Ended | ||||||||||||||
| September 30, | June 30, | ||||||||||||||
| 2016 | 2015 | Change | 2016 | 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 | 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. | |||||||||||||||
| 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 | $(1 | ) | $(32 | ) | $31 | $(31 | ) | $30 | |||||||
| Net income attributable to BlackRock, Inc. (3) | $854 | $844 | $10 | $797 | $57 | ||||||||||
Diluted earnings attributable to BlackRock, Inc. | $5.14 | $5.00 | $0.14 | $4.78 | $0.36 | ||||||||||
| Effective tax rate | 29.7 | % | 29.3 | % | 40 bps | 30.6 | % | (90) bps | |||||||
See the reconciliation to GAAP and notes (1) through (4) for more information on as adjusted items. | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION (in millions, except shares and per share data), (unaudited) | |||||||||
| Nine Months Ended | |||||||||
| September 30, | |||||||||
| 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 | $(70 | ) | $(71 | ) | $1 | ||||
| Net income attributable to BlackRock, Inc. (3) | $2,362 | $2,512 | $(150 | ) | |||||
Diluted earnings attributable to BlackRock, Inc. common
stockholders per | $14.16 | $14.85 | $(0.69 | ) | |||||
| Effective tax rate | 30.0 | % | 27.8 | % | 220 bps | ||||
See the reconciliation to GAAP and notes (1) through (4) for more information on as adjusted items. | |||||||||
ASSETS UNDER MANAGEMENT (in millions), (unaudited) | |||||||||||||||||||
| Current Quarter Component Changes by Client Type and Product | |||||||||||||||||||
| Net | |||||||||||||||||||
| June 30, | inflows | September 30, | |||||||||||||||||
| 2016 | (outflows) | Market Change | FX impact (1) | 2016 | Average AUM (2) | ||||||||||||||
| 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 | ||||||||||||
| Current Quarter Component Changes by Product Type (Long-term) | |||||||||||||||||||
| Net | |||||||||||||||||||
| June 30, | inflows | September 30, | |||||||||||||||||
| 2016 | (outflows) | Market Change | FX impact (1) | 2016 | Average AUM (2) | ||||||||||||||
| 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 | ||||||||||||
| Current Quarter Component Changes by Investment Style (Long-term) | |||||||||||||||||||
| Net | |||||||||||||||||||
| June 30, | inflows | September 30, | |||||||||||||||||
| 2016 | (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. |
ASSETS UNDER MANAGEMENT (in millions), (unaudited) | |||||||||||||||||
| Year-to-Date Changes by Client Type and Product | |||||||||||||||||
| Net | |||||||||||||||||
| December 31, | inflows | September 30, | |||||||||||||||
| 2015 | (outflows) | Acquisition (1) | Market Change | FX impact (2) | 2016 | Average AUM (3) | |||||||||||
| 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 | |||||||||
| Year-to-Date Component Changes by Product Type (Long-term) | |||||||||||||||||
| Net | |||||||||||||||||
| December 31, | inflows | September 30, | |||||||||||||||
| 2015 | (outflows) | Acquisition | Market Change | FX impact (2) | 2016 | Average AUM (3) | |||||||||||
| 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 | |||||||||
| Year-to-Date Component Changes by Investment Style (Long-term) | |||||||||||||||||
| Net | |||||||||||||||||
| December 31, | inflows | September 30, | |||||||||||||||
| 2015 | (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. |
ASSETS UNDER MANAGEMENT (in millions), (unaudited) | |||||||||||||||||
| Year-over-Year Component Changes by Client Type and Product | |||||||||||||||||
| Net | |||||||||||||||||
| September 30, | inflows | September 30, | |||||||||||||||
| 2015 | (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) | |||||||||||||||||
| Net | |||||||||||||||||
| September 30, | inflows | September 30, | |||||||||||||||
| 2015 | (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 | |||||||||||||||||
| September 30, | inflows | September 30, | |||||||||||||||
| 2015 | (outflows) | Acquisitions(1) | Market Change | FX impact (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. |
SUMMARY OF REVENUE | |||||||||||||||||||
| Three Months Ended September 30, | Change |
Three Months | Change |
Nine Months Ended | |||||||||||||||
| (in millions), (unaudited) | 2016 | 2015 | 2016 | 2015 | Change | ||||||||||||||
Investment advisory, administration fees | |||||||||||||||||||
| 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.
SUMMARY OF OPERATING EXPENSE | |||||||||||||||||||
Three
Months Ended |
Three |
Nine Months Ended | |||||||||||||||||
| (in millions), (unaudited) | 2016 | 2015 | Change | June 30, | Change | 2016 | 2015 | Change | |||||||||||
| Operating Expense | |||||||||||||||||||
Employee compensation and | $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 | 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 Months Ended | Three Months Ended |
Nine Months Ended | ||||||||||||||
| (in millions), (unaudited) | 2016 | 2015 | Change |
June 30, 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.
SUMMARY OF NONOPERATING INCOME (EXPENSE) | ||||||||||||||||||||||||||
Three Months |
Three Months |
Nine Months Ended | ||||||||||||||||||||||||
| (in millions), (unaudited) | 2016 | 2015 | Change | Change | 2016 | 2015 | Change | |||||||||||||||||||
Nonoperating income (expense), GAAP | $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 |
Three Months |
Three Months | Nine Months Ended September 30, | |||||||||||||||||||||||
| (in millions), (unaudited) | 2016 | 2015 | Change | Change | 2016 | 2015 | Change | |||||||||||||||||||
Net gain (loss) on | ||||||||||||||||||||||||||
| 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 | - | 5 | (5 | ) | - | - | - | 1 | (1 | ) | ||||||||||||||||
Nonoperating income (expense), as | $(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 September 30, 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 September 30, 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.
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.
| September 30, | December 31, | |||||
| (in billions), (unaudited) | 2016 (Est.) | 2015 | ||||
| Total balance sheet assets | $227 | $225 | ||||
Separate account assets and separate account collateral held under | (184 | ) | (182 | ) | ||
| Consolidated sponsored investment funds | - | (1 | ) | |||
| Goodwill and intangible assets, net | (31 | ) | (30 | ) | ||
| Economic tangible assets | $12 | $12 | ||||
RECONCILIATION OF U.S. GAAP OPERATING INCOME AND OPERATING
MARGIN TO OPERATING INCOME | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | June 30, | September 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 | - | (5 | ) | - | - | (1 | ) | ||||||||
| Operating income, as adjusted | 1,216 | 1,227 | 1,179 | 3,442 | 3,552 | ||||||||||
Product launch costs and | - | - | - | - | 5 | ||||||||||
Operating income used for operating | $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 | (8 | ) | (12 | ) | (9 | ) | (27 | ) | (37 | ) | |||||
Revenue used for operating margin | $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 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 | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | June 30, | September 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) | - | 5 | - | - | 1 | ||||||||||
Nonoperating income (expense), less net income | $(1 | ) | $(32 | ) | $(31 | ) | $(70 | ) | $(71 | ) | |||||
See note (2) to the Condensed Consolidated Statements of Income and Supplemental Information 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 | |||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | June 30, | September 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 for more information on as adjusted items and the reconciliation to GAAP.
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.
(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.
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 September 30, 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 September 30, 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 September 30, 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.
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