2012 AnnuAl RepoRt
THE NEW WORLD
OF INVESTING
Table of Contents
02 Business Highlights
03 Financial Highlights
04 Letter to Shareholders
10 Business Overview
12 Investment Strategies
16 Client Businesses
20 Global Executive Committee
21 Board of Directors
22 Important Notes
23 Annual Report on Form 10-K
IBC Corporate Information
THE WORLD OF
INVESTING ISN’T
STANDING STILL.
BLACKROCK
CONTINUES TO
EVOLVE TO HELP
LEAD THE WAY.
2
#
1
market share
ETFs
$1.4 trillion
non-ETF
Index assets
$404. 9 billion
Defined Contribution
long-term AUM
$79.4 billion
Flagship Global
Allocation fund
$109.8 billion
Alternatives
AUM
$518 million
Record revenues in
BlackRock Solutions
®
UNPARALLELED
PRODUCT
BREADTH
2012 BUSINESS HIGHLIGHTS
INTENSELY FOCUSED ON
PERFORMANCE
$9.3 billion
Record revenue
$3.6 billion
adjusted
Operating
income
$6.00 per share
Dividend, up 9%
$13.68
adjusted EPS,
up 15%
$ 1. 5 billion**
Share repurchases
104%
* *
Total payout ratio
$2. 7billion
adjusted
Operating
cash flow
4 0.4%
adjusted
Operating
margin
$107.7billion*
long-term Net inflows
$3.8 trillion
Record AUM
DEMONSTRATED
FINANCIAL
RESULTS
CONTINUED
GROWTH
STRONG
OPERATING
RESULTS
SOUND CAPITAL
MANAGEMENT
EARNINGS
MOMENTUM
Please review the Important Notes on page 22 for information on certain non-GAAP figures shown above and on page 3 as well as for source information on other data points above.
*2012 long-term net inflows exclude the $110.2 billion effect of two low-fee non-ETF index fixed income outflows.
**Includes $1.0 billion in share repurchases from affiliates of Barclays Bank PLC in connection with their 2Q12 secondary offering of BLK shares.
#
1
Most-admired
asset manager
Improving Performance
76%
89%
AUM above 3-year benchmark /
peer median
Active Fixed
Income
Scientific Active
Equity
FOCUS ON
SERVING
CLIENTS
50
financial firms across
the globe rely on
Aladdin
®
to manage investments
3
Revenue
Net Income attributable to BlackRock, Inc., GAAP
Operating Income, as adjusted
Operating Margin, as adjusted
Net Income, as adjusted
Per Share
Diluted Earnings, GAAP
Diluted Earnings, as adjusted
Dividends Declared
Diluted weighted-average common shares
Assets Under Management
($mm, except per share data)
FINANCIAL HIGHLIGHTS
2012
$ 9,337
2,458
3,574
40.4
$ 2,438
$ 13.79
13.68
$ 6.00
178,017,679
$3,791,588
% %
2011
$ 9,081
2,337
3,392
39.7
$ 2,239
$ 12.37
11.85
$ 5.50
187,116,410
$3,512,681
2010
$ 8,612
2,063
3,167
39.3
$ 2,139
$ 10.55
10.94
$ 4.00
192,692,047
$3,560,968
%
2009
$ 4,700
875
1,570
38.2
$ 1,021
$ 6.11
7.1 3
$ 3.12
139,481,449
$3,346,256
%
2008
$ 5,064
784
1,662
38.7
$ 856
$ 5.78
6.30
$ 3.12
131,376,517
$1,307,151
%
$9.3 BILLION REVENUE $3.792 TRILLION AUM
•
Equity Base Fees
45%
•
Fixed Income Base Fees
20%
•
Multi-Asset Base Fees
10%
•
Alternatives Base Fees
7%
•
BlackRock Solutions
6%
•
Performance Fees
5%
•
Cash Management Base Fees
4%
•
Distribution Fees & Other
3%
•
Equity 49%
•
Fixed Income
33%
•
Multi-Asset 7%
•
Cash Management
7%
•
Alternatives 3%
•
Advisory 1%
104%
TOTAL PAYOUT RATIO
•
Tactical Share Repurchases
•
Open Market Share Repurchases
•
Dividends
44% 157%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
201220112010
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
201220112010
($mm, except payout ratio)
$916
$3,660
$2,561
ADJUSTED EPS
0
3
6
9
12
15
201220112010
0
3
6
9
12
15
201220112010
$10.94
$11.85
$13.68
+25%
0
3
6
9
12
15
201220112010
0
3
6
9
12
15
201220112010
12%
to $6.72
annualized
1Q13
dividend
4
MY FELLOW SHAREHOLDERS
March 2013
The investment climate in 2012 could be summed up in one word:
challenging.
Interest rates remained at historical lows. Growth in many markets
was anemic. Policy gridlock and political risk drove uncertainty.
And the assets of many pension funds — and the nest eggs of
many individuals — continued to fall short of the increasing
financial demands created by people living longer. The result is a
growing retirement gap in many societies.
In this environment, BlackRock’s continued effort to help investors
achieve better financial futures has never been more critical. More
and more individuals and institutions are turning to us with the
question, “So, what should I do with my money?”
For just that reason, we’ve built an investment platform that spans
asset classes, geographies and investment styles. It is grounded
in our risk management approach fueled by Aladdin
®
. We believe
it positions us better than any other firm in the industry to offer
clients the investment solutions that these times demand.
BlackRock’s history reflects one constant commitment: to evolve
our firm to anticipate and meet the needs of investors in a
dynamic investment landscape. We strive every day to be students
of the market and to interpret the world around us so we can
determine how best to position our clients to succeed. We are
constantly focused on what lies ahead — while learning from the
past — with a firm belief that success rests on patient, long-term
investing to deliver on client goals.
1
Please review the Important Notes on page 22 for information on certain non-GAAP figures and for source information on other data points in this letter.
So, as we mark BlackRock’s 25th anniversary in 2013, I have never
been more proud of our ability to help our clients navigate this
challenging investment landscape. And we are committed, over
the next 25 years, to become an even more trusted and essential
partner to our clients.
RECORD RESULTS DRIVEN BY KEY AREAS OF GROWTH
The platform we’ve built is not only serving clients — it also
continues to deliver for shareholders. We achieved record earnings
and assets under management (AUM) in 2012, with robust flows in
iShares
®
exchange-traded funds (ETFs) and multi-asset offerings.
These are areas of growing demand as more and more investors
seek diversified portfolios and solutions that blend active and
index strategies to meet their needs.
From our conviction that financial complexity makes powerful
technology essential to risk management, to our view that
investors would value combining efficient beta with enhanced
alpha, we have always sought to deliver exceptional long-term
value to our clients and shareholders not just by preparing for
change but also by driving it.
Today, this commitment underpins our momentum and relentless
focus on finding good opportunities for investors and engineering
the outcome-oriented solutions and advisory services they need.
STRENGTH IN OUR DIVERSIFIED PLATFORM
1
In 2012, our diversified platform enabled BlackRock to achieve
strong financial performance in the face of continued volatility
and political and regulatory overhang:
• We earned a record $2.4 billion on an adjusted basis, or $13.68
per share, up 15% from 2011, and generated a 3% increase
in revenues to $9.3 billion, with a 5% increase in adjusted
operating earnings.
• Our scale and financial flexibility enabled us to produce a
40.4% adjusted operating margin, delivering on our 40% target
and improving our margin by 70 basis points from the prior year.
• Our significant operating cash flow, of approximately $3 billion
as adjusted, allowed us to continue extending our product
offerings and service capabilities, invest in our brand and make
selective tactical acquisitions to help drive future growth.
4
The platform we’ve built is not only
serving clients — it also continues to
deliver for shareholders
5
We also maintained our commitment to sound capital
management by returning cash to shareholders through cash
dividends and share repurchases. Our dividend of $6.00 per
share in 2012 increased by 9% over 2011 and represented a
43% dividend payout ratio. In January 2013, we announced an
additional 12% increase in our annual dividend to $6.72 per share.
In addition, during 2012, we repurchased nearly 9.1 million shares,
resulting in an overall payout ratio of 104%. This included support
of a successful secondary offering of more than 26 million shares,
representing Barclays Bank PLC’s overall investment in the firm,
and involved our repurchase of $1.0 billion in shares.
In total, including the repurchase of 13.6 million shares from Bank
of America in June 2011, BlackRock has reduced its share count
by approximately 11% since March 2011, helping to drive our
15% growth in earnings per share in 2012. Equally important, our
shareholder base has been transformed in just over two years,
as our public ownership has increased from roughly 20% to 80%,
with a market capitalization of over $43 billion at the end of
March 2013.
TRENDS SHAPING THE NEW WORLD OF INVESTING
— AND BLACKROCK
Over the last year, the “aftershocks” of the global financial crisis
continued to affect the investment environment.
Macroeconomic and political risk persisted across the globe
and roiled financial markets — including the fiscal challenges
facing Europe and the United States, slower growth and political
succession in China and turmoil in the Middle East. While US
equity markets delivered strong returns, the picture in other
markets was mixed. Memories of the 2008 financial crisis weighed
on attitudes to risk. These barriers to confidence led businesses,
institutions and individual investors to keep billions of dollars on
the sidelines.
Investors also felt little relief from global regulatory uncertainty.
The wave of post-crisis regulation in areas including proprietary
trading, derivatives and the taxation of financial transactions is
starting to have a cumulative effect that is reducing liquidity and
increasing costs for investors to a degree that may indeed slow
economic recovery. BlackRock has continued to make sure the
voice of the investor is heard as policy makers consider reforms
related to US money markets and financial benchmarks, and
pursue complex initiatives in Europe that may significantly alter
how markets operate.
Market direction and investor behavior were further impacted by
several megatrends that are reshaping the landscape for investors
across the globe.
The first of these megatrends is the aging of populations around
the world. Not only are the numbers of people retiring every year
growing as the boomer generation “comes of age,” individuals
are also living much longer in retirement without adequate
preparation. Both corporate and public pension plans, as well as
far too many individuals, face significant shortfalls in meeting
future needs for retirement income. This funding crisis is also
being compounded by the shift from employer-funded defined
benefit (DB) plans to defined contribution (DC) plans that
transfer the risk to individuals. In this era of historically low bond
yields, this shift will leave many people woefully unprepared
for retirement since individuals have made significantly higher
allocations to bonds than institutional investors.
BlackRock has continued to make sure
the voice of the investor is heard
6
BlackRock feels a strong responsibility to lead the way in
addressing this retirement gap. We will continue to speak out
on the need to face up to fiscal challenges, as we work with plan
sponsors and companies to match their strategies to their long-
term liabilities, educate their constituents, and provide cutting-
edge lifecycle and direct contribution funds.
The second megatrend is the secular shift to passive investing in
ETFs and indexing. ETF inflows hit new record highs industry-wide
in 2012, both in North America and globally. In our view, this shift is
more than just a short-term market phenomenon; it is a systemic
behavioral change. This has significant implications for the asset
management industry, and BlackRock stands to benefit from this
trend given our iShares ETF platform.
The third megatrend is a “rethinking of risk.” After a flight to
so-called “safe-haven” assets, investors are now realizing that at
current low and even negative returns, bonds are not a risk-free
asset — in fact, in many ways, they are risky investments because
of the outlook for inflation and interest rates. As it stands, this
world we face is one in which investors are taking on more risk
— and getting far less return — than many realize because of
their positioning in fixed income. Investors need to consider a
broader mix of investments than ever before, and our diverse
platform positions us well to help clients rethink and diversify
their portfolios.
MEETING CLIENTS’ GOALS IN AN
OUTCOME-ORIENTED WORLD
In this dynamic environment, investors are seeking new
approaches to investing as their goals and interests change.
BlackRock continues to evolve to meet these new demands and
build value for the long term.
Indeed, against this backdrop, investors are redefining the very
notion of performance: from tracking benchmarks to achieving
desired outcomes — whether a target income level or lifecycle
asset allocation. Valuing consistency of returns over absolute
returns, investors now also increasingly seek higher-yielding
opportunities and greater diversification, through strategies
such as barbelling to maximize returns with an appropriate risk/
reward balance. We believe that BlackRock is unique among asset
managers in our ability to meet this need with our full breadth of
tools and risk management services.
We’ve also seen more and more clients — from the largest
institutions to individual investors — look to combine superior
investment products with the broader risk management, asset
allocation and asset/liability solutions that we offer through our
BlackRock Solutions
®
advisory services and the analytical power
of our Aladdin technology platform.
In anticipation of changing investor objectives, we invested last
year in five strategic areas. These areas represented 75% of our
net new flows for 2012 and — with the addition of Emerging
Markets — remain priorities in 2013:
• iShares ETFs — Demand for efficient and targeted market
exposures — along with the October 2012 launch of the iShares
Core Series of 10 US ETFs designed for buy-and-hold retail
investors — drove 14% organic AUM growth in iShares last year.
6
Our diverse platform positions us
well to help clients rethink and diversify
their portfolios
7
More than $85 billion of net new flows helped iShares remain
the leader in global AUM and market share. We intend to build
on this success through further innovation in our product suite,
particularly in fixed income, and expansion into new markets.
• OutcomeInvesting — We believe that BlackRock’s breadth
of products and industry-leading technology and risk
management capabilities uniquely position us to deliver
outcome-driven multi-asset solutions. In 2012, strong,
sustained demand for multi-asset solutions resulted in $16
billion in flows and record AUM in our multi-asset product class.
We will work to capitalize on this trend as more investors seek
outcome-oriented results.
• Retirement — In 2012, we continued to develop new strategies
for public and private pension funds and DC plan sponsors,
while launching a digital retirement center to educate individual
investors. Our DC business achieved 9% organic growth and
our LifePath
®
target date products attracted more than $13
billion in flows, representing 32% year-on-year organic growth.
We expect the global market for retirement assets to grow by
more than 60% by 2020, which offers significant opportunity to
expand our presence.
• Income — Last year our income-oriented products, including
active and index high-yield and equity dividend funds,
generated nearly $18 billion in flows. As the quest for yield
drives investors toward non-traditional sources of income, we
will continue to develop additional solutions and products to
meet this need.
• Alternatives — The desire for uncorrelated investments
allocated by risk budgets rather than traditional asset classes
should drive new flows to a range of alternative and multi-
alternative solutions, often in combination with advisory
services. BlackRock is well positioned to respond to this
demand, along with growing retail interest: by the end of 2012,
the retail alternative mutual funds we launched in late 2011
had already raised close to $0.8 billion in assets.
• EmergingMarkets — BlackRock has built a strong platform
in emerging markets and today is one of the world’s largest
investors in these markets with more than $200 billion of
assets under management, the majority in index products. We
see tremendous potential to grow our active franchise and are
investing accordingly.
INVESTMENT PERFORMANCE: EXCEEDING
EXPECTATIONS
As we pursue these priorities, BlackRock has taken a series of
steps aimed at exceeding client expectations for consistent,
long-term performance. Over the last three years, we acted to
strengthen performance in quantitative Scientific Active Equity
(SAE) and fundamental Fixed Income, and more recently replaced
four of five US-focused Fundamental Equity teams and added
new talent to our bench of portfolio managers.
These efforts are paying off. At year-end, 83%, 78% and 64% of
active taxable fixed income AUM exceeded its benchmark or peer
median over one, three and five years, respectively — among the
best in the industry. In SAE, 85% of our products exceeded their
benchmarks for one year and 89% for three years.
Our performance in fundamental equities, while still not
satisfactory, has shown signs of turning around. We believe our
top quartile performance in European equity funds positions
BlackRock well for anticipated re-risking in Europe. Additionally,
our emerging markets equity team, which we brought on board
in early 2012, ended the year delivering returns well above their
benchmark.
We also hired seven specialists to form an Emerging Markets
Debt team to invest in hard currency, local currency and corporate
emerging markets assets. And, we brought in new talent to
spearhead BlackRock’s Real Estate Securities Management
business to offer clients an unrivaled set of real estate solutions.
We’ve taken steps aimed at exceeding
client expectations for consistent
long-term performance
CONSTANTLY EVOLVING TO MEET INVESTORS’ NEEDS
We also enhanced our organizational structure last year with
that same focus on serving changing client needs and improving
performance:
• Our new investment team structure deepens our leadership
bench and aims to maximize our intellectual capital. We
centered specialized investment groups on five core portfolio
building blocks: Alpha Strategies, Beta Strategies, Multi-Asset
Strategies, Alternatives Strategies, and Trading and Liquidity
Strategies. Despite distinct investment processes, the teams
benefit from shared access to all of the firm’s risk management,
trading and analytics capabilities.
• We aligned our BlackRock Solutions group with our Institutional
client platform to meet growing institutional demand for
holistic views of their assets and liabilities. We expect this
alignment will allow us to offer a broader group of clients
seamless access to our full capabilities — including the
world-class blend of deep analytics and specialized portfolio
management strategies available through BlackRock Solutions.
• To satisfy a growing desire for blended active and index
solutions and to capitalize on growth potential in Retail, which
represents 12% of our long-term assets but contributes more
than 30% of our long-term base fees, we aligned Retail with
iShares last year. We also integrated our US BlackRock and
iShares retail sales teams to better deliver the breadth of our
capabilities to our distribution partners, who look more and
more to BlackRock to help them address their business model
challenges in the face of regulatory complexities. As financial
advisers increasingly serve as portfolio managers and asset
allocators for their clients, BlackRock is actively working to
support their success with outcome-oriented model portfolios
and retail-focused multi-asset solutions.
Finally, the BlackRock Investment Institute again harnessed
insights to promote dialogue among investors across the firm and
to create high-value research for our clients on topics including
the US housing market, China’s evolving economic role and the
impact of the sovereign debt crisis in Europe, among others.
INVESTING IN FUTURE GROWTH
Over the past year, we made tactical acquisitions to grow
individual businesses and our geographic footprint. Our
acquisition of Claymore Investments in March expanded our
offering of ETFs in the Canadian market. In September, we
purchased Swiss Re Ltd.’s European private equity and
infrastructure fund of funds unit, bolstering our strong
alternatives business. We will continue to look for opportunities to
enhance inorganic growth where it makes sense to do so.
We continued to invest in talent, both by developing and elevating
internal leaders and attracting new leaders from outside the firm.
Philipp Hildebrand, former Chairman of the Swiss National Bank,
joined BlackRock as Vice Chairman and oversees our largest
institutional client relationships in EMEA and Asia Pacific. More
recently, Gary Shedlin, a long-time strategic and financial advisor
to BlackRock, joined the firm from Morgan Stanley to become
our new Chief Financial Officer. We also enhanced our presence
in Asia, where Hsueh-ming Wang joined the firm as Chairman of
BlackRock China.
BlackRock’s first global brand initiative — our “Investing for a
New World” campaign — drove awareness of our capabilities
and expertise among existing and potential clients. The growing
strength of our brand was reflected this spring when Fortune
magazine named BlackRock the “World’s Most Admired Company”
in our industry.
We enhanced our organizational
structure with a focus on serving
changing client needs
8
9
LOOKING AHEAD WITH A FOCUS ON EXECUTION
As we move through 2013, this is an important time for investors.
Many are stepping off the sidelines and making their first forays
back into the markets after seeking the safety of cash or low-
yielding bonds in recent years. As they do so, we feel the need to
make sure the traditional investments that investors have long
relied on as a safe haven are not holding them back.
Thus far in 2013 we’ve seen strong performance of risk assets and
a trend toward more economic stability, whether in the United
States, Europe or China, thanks in part to central banks continuing
to maintain easy monetary policies. Many of the risks that
weighed on the markets in 2012 — such as the eurozone crisis
and the US fiscal cliff — have subsided.
While the global economy should improve further in the second
half of the year, the investment environment nevertheless remains
fragile. We believe that pressures from political dynamics, shifting
global economics, changing demographics and persistent low
rates will continue to strain the markets and cause volatility.
Implementation of new regulation may also have unintended
consequences for investors. BlackRock supports financial reform
that increases transparency, protects investors and facilitates
responsible growth of capital markets, while preserving consumer
choice and maintaining a level playing field across products. In
our engagement with policy makers, we focus on constructive
solutions that meet the need for greater clarity and transparency
for investors, especially retail investors, without slowing economic
recovery or burdening returns with undue cost and complexity.
Despite these headwinds, I am increasingly optimistic that the
steps we have taken position BlackRock for outperformance
through a wide range of market and investment cycles. Our
size and scale — our global reach and local presence — allow
BlackRock to stay ahead of the changing landscape. Our strong
cash flow and capital position enable us to invest in technology
and operations not only to comply with regulation but also to
innovate as a market leader.
Our greatest asset is our team of more than 10,000 talented
individuals who work to advance the business we have built and
adapt it to ever-changing circumstances every moment, every day.
They are the founders of our future, and I am grateful to them for
their dedication.
Last year, we made our employees’ contributions and our culture
even more central to our operations by formalizing the BlackRock
Principles. These principles — Being a Fiduciary for our Clients,
Passion for Performance, Working as One BlackRock, and
Innovation — offer employees a shared understanding of who we
are and what we stand for as we strive to create a better financial
future for our clients, serve our communities and deliver for our
shareholders.
I also want to thank our Board of Directors for the insight,
engagement and guidance that help make BlackRock’s success
possible. We further strengthened the Board in the past year with
the election of Susan L. Wagner, a Founding Partner of BlackRock
who retired as Vice Chairman of the firm; Jessica Einhorn, former
Dean of the Paul H. Nitze School of Advanced International
Studies at The Johns Hopkins University; and Fabrizio Freda,
President and Chief Executive Officer of The Estée Lauder
Companies Inc.
The groundwork we laid over the past quarter century and during
2012 will allow us to continue to anticipate and build the solutions
today’s investors need for tomorrow’s outcomes. Our capabilities,
strategies and focus position us well to further enhance the long-
term value we create for our clients and shareholders.
Thank you for your interest in the success of BlackRock.
Sincerely,
Laurence D. Fink
Chairman and Chief Executive Officer
Our greatest asset is our team of more
than 10,000 talented individuals
10
BUSINESS OVERVIEW
THE BLACKROCK PRINCIPLES
Our mission is to create a better financial future for our clients by
building the most respected investment and risk manager in the
world. To do so, we must provide the leadership and answers clients
need to navigate today’s investment world.
The BlackRock Principles guide this mission.
WE ARE A FIDUCIARY
TO OUR CLIENTS
We operate our business with
a fiduciary mindset — which
means putting our clients’
interests first. Their trust and
confidence in us is our most
valuable asset, and we seek to
earn it every day.
WE ARE PASSIONATE
ABOUT PERFORMANCE
We are passionate about our
work and intensely focused on
performing at the highest levels.
We take emotional ownership of
every aspect of the work we do.
WE ARE INNOVATORS
Continuous innovation helps
us bring the best of BlackRock
to our clients. This requires
that we are respectfully anti-
bureaucratic, that
we challenge the status
quo and are not afraid of
failure.
WE ARE ONE BLACKROCK
We challenge ourselves
— and each other — to
collectively raise our game.
The best solutions result from
the ideas and contributions of
a diverse team of partners.
ORGANIZATIONAL STRUCTURE
$9.3 BILLION REVENUE $3.792 TRILLION AUM
•
Retail/HNW LT Base Fees 28%
•
Institutional LT Base Fees 28%
•
iShares LT Base Fees 27%
•
Other Revenue 17%
CLIENT TYPE
•
Equity Base Fees 45%
•
Fixed Income Base Fees 20%
•
Multi-Asset Base Fees 10%
•
Alternatives Base Fees 7%
•
BlackRock Solutions 6%
•
Performance Fees 5%
•
Cash Management Base Fees 4%
•
Distribution Fees & Other 3%
PRODUCT
•
Institutional 68%
•
iShares 20%
•
Retail/HNW 12%
CLIENT TYPE
•
Equity 49%
•
Fixed Income 33%
•
Multi-Asset 7%
•
Cash Management 7%
•
Alternatives 3%
•
Advisor y 1%
PRODUCT
Since 1988, BlackRock has deliberately and continuously evolved to anticipate and meet the rapidly changing investment and risk
management needs of a growing number of clients and partners across the globe. Our firm was founded on the conviction that
bringing together outstanding investment professionals with a comprehensive understanding of risk and highly sophisticated
technology would create a firm positioned to deliver superior risk-adjusted returns and exceptional service to our clients.
Today we stand as the world’s largest and most diversified asset manager with a unique platform that offers alpha and beta products
across the full spectrum of asset classes. Our 10,500 employees located in 30 countries work tirelessly to serve the investment
management needs of clients in more than 100 countries around the world. This global footprint provides us with the unique ability
to capture continued growth opportunities while maintaining our financial strength and stability across a wide range
of market environments.
BlackRock is organized around four key areas: Investment
Strategies, Client Businesses, Corporate Operations, and Business
Operations and Technology. We also utilize regional governance
across the Americas; Europe, the Middle East and Africa (EMEA);
and Asia-Pacific. The firm is united by Aladdin, our proprietary risk
management and trading platform, which supports our Risk and
Quantitative Analysis capabilities, and brings together our powerful
solutions-oriented products and services.
Our “One BlackRock” culture encourages teamwork, communication
and a relentless focus on serving clients in the most efficient and
effective manner. We also utilize the Strategic Product Management,
BlackRock Investment Institute, and our Government Relations and
Public Policy teams to harness resources across the firm to deliver
continued improvement in outcomes for clients. Our culture, global
presence and scale enable us to maintain a strong understanding
of the cultural, business, economic and regulatory factors across
regions that drive investors’ needs.
We are committed to continuously evolving our platform, serving
as an advocate for our clients and communities, and working with
business partners, governments and regulators to create a better
investment landscape. We believe this focus will continue to deliver
enhanced value and position us to capture attractive opportunities
for our clients and shareholders in the future.
11
UNPARALLELED GLOBAL REACH
61% 64%
AUM REVENUE
AUM BY CLIENT TYPE
•
Institutional 59%
•
Retail/HNW 15%
•
iShares 26%
5,850 employees
AMERICAS
AMERICA
EUROPE
ASIA-PAC
organized in order as given by client
3-6-2013
AUM BY CLIENT TYPE
•
Institutional 81%
•
Retail/HNW 7%
•
iShares 12%
2,825 employees
EMEA
31% 27%
AUM REVENUE
AMERICA
EUROPE
ASIA-PAC
organized in order as given by client
3-6-2013
AUM BY CLIENT TYPE
•
Institutional 87%
•
Retail/HNW 10%
•
iShares 3%
1,825 employees
ASIA-PACIFIC
8% 9%
AUM REVENUE
AMERICA
EUROPE
ASIA-PAC
organized in order as given by client
3-6-2013
$3.792 trillion
in AUM
$9.3 billion
in revenue
Offices in
30 countries
Clients in
100 countries
*See Important Notes section on page 22.
**Multi-asset includes funds managed for unlevered, absolute return.
2012 — YEAR OF CONTINUED MOMENTUM
CONTINUED INVESTMENT TO DRIVE GROWTH
During 2012 we continued investing in our business to ensure that we
are well positioned to capture growth opportunities.
GLOBAL BRAND INITIATIVE
In February, we launched the firm’s first global branding campaign to
help drive organic growth by increasing marketplace awareness of the
unique capabilities of our diversified global platform and build value
for the long term. The initial and subsequent campaigns have been
built around a simple premise: It’s a new world of investing, with new
opportunities, and we believe BlackRock has the breadth of capabilities
and expertise across asset classes, geographies, and active and passive
strategies to help investors build the more dynamic, more diverse
portfolios these times require.
ACQUISITIONS TO STRENGTHEN PLATFORM
In March, we further enhanced our retail focus and fixed income, tax-
advantaged and commodities ETF capabilities with the acquisition of
Claymore Investments, Inc., a $7.6 billion Canadian AUM platform. In
September, we acquired Swiss Re’s $6.2 billion European private equity
and infrastructure fund of funds franchise, and in January 2013, we
announced the acquisition of Credit Suisse’s ETF business, which will
further strengthen our platform and presence in Switzerland.
FOSTERING AND INVESTING IN TALENT
In 2012, we continued to take steps to more fully leverage the firm’s
existing talent and expanded our senior leadership team, attracting
highly respected leaders from outside the organization. In mid-2012,
we adopted a new firm architecture aimed at empowering more
leaders to drive innovation and growth. We also added select
senior leaders to the Global Executive Committee to ensure it more
effectively represents views from across the firm. During 2012, we
added a total of 400 employees, up 4.0% from 2011, while enhancing
our operations and systems.
RELENTLESSLY FOCUSED ON PERFORMANCE
In 2012, we realized the benefits of the steps we took in recent years
that drove a turnaround in fundamental fixed income performance,
with 84% of AUM at or above benchmarks/peers for the one-year
period ended December 31, 2012. During 2012 we took similar steps
to address performance issues in fundamental equity and realigned
the teams with new leaders in Large Cap Series, Basic Value,
Fundamental Large Cap Growth, Global Emerging Markets and
Flexible Equity. While improving performance is a multi-year process,
we are confident that we have the right leaders in place and we are
already pleased with the results the teams are producing.
Throughout 2012 we continued to deliver for clients and shareholders by focusing on generating strong performance across alpha and beta, and
driving organic AUM growth. We placed significant emphasis on strategic opportunities in Exchange Traded Funds (ETFs), Solutions, Retirement,
Income and Alternatives all while maintaining financial and risk management discipline. At the same time our scale and scope enabled us to
maintain our strong commitment to investing in talent, and expanding and enhancing our product and service capabilities to drive future growth.
OVERALL INVESTMENT PERFORMANCE* — At or above peer group/benchmark/tolerance
FIXED INCOME
•
Active — Taxable
•
Active — Tax-Exempt
•
Passive
EQUITY
•
Active — Fundamental
•
Active — Scientific
•
Passive
MULTI-ASSET
•
Active — Multi-Asset
2012 LONG-TERM NET INFLOWS*
($bn)
-20 0 20 40 60 80 100120
TOTAL NET FLOWS
ALTERNATIVES
MULTI-ASSET
FIXED INCOME
EQUITY
$54.0
$43.4
$15.8
($5.5)
$107.7
EQUITY
FIXED INCOME
MULTI-ASSET
ALTERNATIVES
TOTAL LT NET FLOWS
Revenue and AUM data based on client domicile.
TAXABLE 83%
TAX EXEMPT 67%
PASSIVE 95%
Real Es tate Equity 5%
0 50 100 150 200 250
MULTI-ASSET
EQUITY
FIXED INCOME
0 50 100 150 200 250
MULTI-ASSET
EQUITY
FIXED INCOME
0 50 100 150 200 250
MULTI-ASSET
EQUITY
FIXED INCOME
FIXED
INCOME
EQUITY
MULTI-
ASSET
**
ONE-YEAR THREE-YEAR FIVE-YEAR
83% 67% 95%
30% 85% 96%
38%
78% 64% 97%
38% 89% 97%
27%
64% 77% 90%
46% 88% 96%
81%
12
ALPHA STRATEGIES
Alpha Strategies, with 745 investment professionals across the globe,
focuses on generating excess returns across actively managed mutual
funds, fixed income ETFs, commingled funds and separate accounts.
The group comprises four core teams: Fixed Income, Fundamental
Equity, Scientific Active Equity and Private Investors.
Fixed Income, with 262 portfolio managers and 113 research
analysts leverages BlackRock’s global resources and investment
insights to generate strong performance across fundamental,
model-based and index investment styles. The team is organized
regionally between Americas Fixed Income and International
Fixed Income.
Americas Fixed Income is organized by sector and invests across
investment grade, leveraged finance, securitized products, interest
rates and municipal bonds. They focus on both active and passive
fixed income investing, including the North American iShares suite
of products.
International Fixed Income employs both active and index investment
approaches across the risk spectrum in portfolios with exposure to
regional securities in EMEA and Asia-Pacific, as well as multi-sector
portfolios with global exposure.
In 2012, as market volatility continued, clients turned to fixed income
with a focus on high-yielding, risk-adjusted returns. We witnessed
record demand for income strategies with particular interest in high
yield credit and municipal bond products.
Equity, with 239 investment professionals globally, is predominantly
organized across two teams. Fundamental Equity utilizes proprietary
research to actively manage through both fundamental and
quantitative investment approaches across various styles, geographies
and market capitalizations. The team is divided regionally between
the Americas and International, and has 83 portfolio managers and 91
research analysts. Scientific Active Equity (SAE) utilizes a quantitative
stock selection process that aims to systematically find and exploit
pricing opportunities while actively managing risk and cost. SAE is
divided regionally between North America/Europe/Developed Cross
Border, and Asia-Pacific/Emerging Markets, and has 36 portfolio
managers and 29 research analysts.
During 2012 income-oriented strategies continued as a predominant
client theme and our flagship Equity Dividend product attracted record
inflows in 2012.
ACTIVE EQUITY AND FIXED INCOME AUM
($bn)
0 20 40 60 80 100
2010
2011
2012
64% 23% 7% 6%
64% 23% 7% 6%
60% 26% 10% 4%
•
Fundamental Fixed Income
•
Fundamental Equity
•
Scientific Active Equity
•
Model-Based Fixed Income
$944
$890
$927
0 20 40 60 80 100
2010
2011
2012
INVESTMENT STRATEGIES
We have built an investment platform with a unique breadth and depth of investment capabilities across asset classes and
investment styles. Our clients increasingly require superior investment products coupled with broader risk management, asset
allocation and asset/liability solutions. BlackRock continues to evolve to help meet this need and serve as a trusted solutions-
oriented advisor that can help investors achieve specific outcomes in an increasingly complex world.
Investment Strategies is organized across five groups joined by a common
culture of teamwork and information sharing: Alpha Strategies, Beta
Strategies, Multi-Asset Strategies, Alternative Strategies and Trading &
Liquidity Strategies. These teams manage our $3.746 trillion portfolio of
Active Equity and Fixed Income, iShares Equity and Fixed Income, Non-
ETF Index Equity and Fixed Income, Multi-asset, Alternatives and Cash
Management products. Additionally, our $45.5 billion of Advisory AUM is
managed within BlackRock Solutions. Increasingly, investors are moving
toward achieving desired outcomes by utilizing alpha and beta strategies
together, and our unique platform positions us well to deliver for them.
With 22 investment centers across the globe and more than 1,600 investment professionals, we are uniquely positioned to leverage our
deep knowledge of local markets, and share intellectual capital and best practices, to help drive strong performance across portfolios
and geographies. The expertise of our investment professionals is supported by the global resources and capabilities of Aladdin, our
proprietary risk management and trading platform, the BlackRock Investment Institute and our Risk and Quantitative Analysis team.
$3.792 TRILLION IN AUM
•
Non-ETP Index Equity 27%
•
Fixed Income Active 17%
•
Equity iShares 14%
•
Non-ETP Index Fixed Income 11%
•
Equity Active 8%
•
Multi-Asset 7%
•
Cash Management 7%
•
Fixed Income iShares 5%
•
Alternatives 3%
•
Advisor y 1%
13
97%
of non-ETF Index
& iShares AUM
above or within
3-year tolerance
*
BlackRock Investment Institute
BlackRock Investment Institute (BII) was launched in April 2011 to
support BlackRock portfolio managers with the goal of delivering
superior investment results to clients by leveraging BlackRock’s
expertise across markets, asset classes and client segments.
BII structures topical investment debates across global investment
teams where portfolio managers are able to challenge each other’s
thinking, refine investment theses, generate new investment ideas and
share insights. BII also develops knowledge-sharing tools that allow
portfolio managers to leverage expertise, resources and insights on
a daily basis. BII helps deepen BlackRock’s engagement with clients
through thought-provoking publications, individual client meetings and
larger client events that foster investment dialogue.
Exceptional Risk Management
BlackRock’s Risk and Quantitative Analysis (RQA) helps drive continued improvement in our investment
and solutions capabilities, and generate positive outcomes for our clients. As an independent risk
management partner, RQA continuously strives to improve our investment management processes,
and enhance performance and operational excellence. In partnership with the investment teams,
RQA leverages our extensive analytical systems, and both proprietary and third-party data, to identify,
measure and manage a wide range of risks, including investment, market, liquidity, counterparty
and operational risk. The 138-member team seeks to ensure these risks are deliberate, diversified and
appropriately scaled, and coordinates the standards for firm-wide performance measurement.
BETA STRATEGIES
Beta Strategies, or “Index Strategies,” with 118 investment
professionals across the Americas, EMEA and Asia-Pacific, focuses
on delivering efficient market exposure opportunities through
collective funds, iShares exchange-traded fund products (ETFs),
index mutual funds and other index-related investment vehicles.
These index products are designed to deliver the same returns as a
targeted benchmark and are measured by tracking error relative to
that benchmark. Our scale and expertise in portfolio management
and beta solutions are a competitive advantage and typically help
drive lower tracking error. The team manages portfolios across 600
different benchmarks. The group is divided into two strategy types.
Index Equity, including our iShares Equity products, focuses on
creating efficient beta opportunities for BlackRock clients. Through
our detailed understanding of index benchmarks, the team analyzes
index composition, changes and transaction costs, and integrates
those insights into the portfolio construction process to achieve index
replication or optimization. Our historical expertise and knowledge
of benchmark investing enables us to more accurately predict
forthcoming index changes. With a dedicated trading research
team, we incorporate thoughtful trading strategies to provide index
solutions that track their benchmarks within tolerance.
Index Asset Allocation offers a wide array of fund of funds, target-
date and derivative-based hedging and overlay strategies across all
asset classes. The platform comprises more than 1,800 funds and
customized client strategies. Clients benefit from tailored rebalancing
methodologies, expert beta exposure selection (funds or derivatives)
as well as reduced transaction and operational costs. Common to all
BlackRock strategies is the firm’s rigorous risk management practices,
which have characterized our investment process since the firm’s
inception. Beta Strategies manages the LifePath target-date and
target-risk series of funds launched in 1993, which utilize a proprietary
asset allocation model that seeks to balance risk and return over an
investment horizon based on the investor’s expected retirement time
horizon. These assets are included in Multi-asset AUM.
GROWING DEMAND FOR EFFICIENT BETA
NON-ETF INDEX
& iSHARES AUM
($tn)
NON-ETF INDEX
& iSHARES NET INFLOWS*
($bn)
•
Equity
•
Fixed
Income
•
Other
0
30
60
90
120
150
201220112010
$133.1
$70.1
$118.8*
Organic
Growth
Rates
+8% +4% +6%
0
500
1000
1500
2000
2500
201220112010
$1.941
$1.950
$2.201
+13%
*See Important Notes section on page 22.
•
Non- ETF
Index
•
iShares
14
*Source: Simfund—December 31,2012*Source: Simfund—December 31,2012
MULTI-ASSET STRATEGIES
Multi-Asset Strategies has 135 investment professionals focused
on generating alpha for retail and institutional clients through
diversified asset allocation and bespoke products. We believe our
multi-asset capabilities provide a large growth opportunity given
the strong global trend toward flexible, unconstrained, outcome-
oriented solutions. Since 2011, flexible funds have attracted 22%
of US mutual fund flows.* With a highly diversified range of equity,
fixed income, currency and commodity capabilities, we believe
BlackRock is uniquely positioned to bring together the best of
alpha and beta to deliver outcome-oriented solutions, ranging
from building blocks to fully customized portfolios.
Multi-Asset Strategies is composed of four key teams.
Global Allocation focuses on generating consistently strong,
absolute long-term returns with lower risk than traditional
equity-only products. The team’s flagship product, the BlackRock
Global Allocation Fund, is broadly diversified across asset classes,
regions, sectors, industries, currencies and securities.
Global Market Strategies specializes in investing across
developed and emerging markets in global macro-style strategies
to help generate excess return across equity, fixed income,
currency and commodity markets. The team is responsible for
managing currency, commodity and risk-parity funds.
Global Multi-Asset Solutions develops and manages investment
solutions involving multiple strategies and asset classes, and
combines traditional and alternative sources of investment.
Model Portfolio Solutions specializes in helping financial
advisers and registered investment advisors deliver dynamic,
diverse portfolios that help meet client goals, mitigate specific
risks and combine the best of both active and index investments.
The models are designed to optimize allocations across mutual
funds and iShares ETFs, and leverage the same risk management
expertise delivered to BlackRock’s largest institutional investors.
The firm’s suite of multi-asset products includes asset
allocation and balanced products that provide a tailored solution
relative to a specific benchmark and within a risk budget. In
certain cases, these strategies seek to minimize downside risk
through diversification, derivatives strategies and tactical asset
allocation decisions.
•
Asset Allocation and Balanced
•
Target Date/Risk
•
Fiduciary
•
Asset Allocation and Balanced
•
Target Date/Risk
•
Fiduciary
INCREASING NEED FOR
OUTCOME-ORIENTED SOLUTIONS
MULTI-ASSET
AUM
($bn)
$185.6
$225.2
$267.7
+44%
MULTI-ASSET
BASE FEES
($mm)
$740
$894
$957
+29%
Our reported Multi-asset AUM includes the LifePath target-date and target-risk series
of funds managed by Beta Strategies. Target-date and target-risk products utilize
a proprietary asset allocation model that seeks to balance risk and return over an
investment horizon based on the investor’s expected retirement time horizon. We leverage
more than 20 years of experience to apply disciplined and goal-focused asset allocation
strategies to achieve clearly defined outcomes for clients.
DEMONSTRATED RECORD
OF GROWING ASSETS
Our largest global, flexible, multi-asset
flagship fund has generated an impressive
annualized return for investors since
inception in 1989.
$80.7 Billion Global Allocation AUM
UNCONSTRAINED IN SEARCH
OF OPPORTUNITY
The funds typically invest in more than
700 securities, across 40 countries in
30 currencies, and across traditional
and non-traditional asset classes,
sectors and capital structures.
EXPERIENCED GLOBAL MULTI-ASSET TEAM
A seasoned management team of more
than 40 dedicated professionals uses a
research-intensive approach that combines
a fundamental, bottom-up security selection
process with top-down asset allocation to
seek out undervalued investment opportunities
around the globe.
*Source: Simfund—December 31,2012
MULTI-ASSET STRATEGIES
Multi-Asset Strategies has 135 investment professionals focused
on generating alpha for retail and institutional clients through
diversified asset allocation and bespoke products. We believe our
multi-asset capabilities provide a large growth opportunity given
the strong global trend toward flexible, unconstrained, outcome-
oriented solutions. Since 2011, flexible funds have attracted 22%
of US mutual fund flows.* With a highly diversified range of equity,
fixed income, currency and commodity capabilities, we believe
BlackRock is uniquely positioned to bring together the best of
alpha and beta to deliver outcome-oriented solutions, ranging
from building blocks to fully customized portfolios.
Multi-Asset Strategies is composed of four key teams.
Global Allocation focuses on generating consistently strong,
absolute long-term returns with lower risk than traditional
equity-only products. The team’s flagship product, the BlackRock
Global Allocation Fund, is broadly diversified across asset classes,
regions, sectors, industries, currencies and securities.
Global Market Strategies specializes in investing across
developed and emerging markets in global macro-style strategies
to help generate excess return across equity, fixed income,
currency and commodity markets. The team is responsible for
managing currency, commodity and risk-parity funds.
Global Multi-Asset Solutions develops and manages investment
solutions involving multiple strategies and asset classes, and
combines traditional and alternative sources of investment.
Model Portfolio Solutions specializes in helping financial
advisers and registered investment advisors deliver dynamic,
diverse portfolios that help meet client goals, mitigate specific
risks and combine the best of both active and index investments.
The models are designed to optimize allocations across mutual
funds and iShares ETFs, and leverage the same risk management
expertise delivered to BlackRock’s largest institutional investors.
The firm’s suite of multi-asset products includes asset
allocation and balanced products that provide a tailored solution
relative to a specific benchmark and within a risk budget. In
certain cases, these strategies seek to minimize downside risk
through diversification, derivatives strategies and tactical asset
allocation decisions.
•
Asset Allocation and Balanced
•
Target Date/Risk
•
Fiduciary
•
Asset Allocation and Balanced
•
Target Date/Risk
•
Fiduciary
INCREASING NEED FOR
OUTCOME-ORIENTED SOLUTIONS
MULTI-ASSET
AUM
($bn)
$185.6
$225.2
$267.7
+44%
MULTI-ASSET
BASE FEES
($mm)
$740
$894
$957
+29%
DEMONSTRATED RECORD
OF GROWING ASSETS
Our largest global, flexible, multi-asset
flagship fund has generated an impressive
annualized return for investors since
inception in 1989.
$80.7 Billion Global Allocation AUM
UNCONSTRAINED IN SEARCH
OF OPPORTUNITY
The funds typically invest in more than
700 securities, across 40 countries in
30 currencies, and across traditional
and non-traditional asset classes,
sectors and capital structures.
EXPERIENCED GLOBAL MULTI-ASSET TEAM
A seasoned management team of more
than 40 dedicated professionals uses a
research-intensive approach that combines
a fundamental, bottom-up security selection
process with top-down asset allocation to
seek out undervalued investment opportunities
around the globe.
0
50
100
150
200
250
300
201220112010
$185.6
$225.2
$267.7
0
200
400
600
800
1000
201220112010
$740
$894
$957
15
ALTERNATIVE STRATEGIES
With 230 alternative investment professionals armed with industry-
leading access, insights and investment opportunities, and
sophisticated risk management processes, BlackRock Alternative
Investors (BAI) focuses on sourcing and managing high-alpha
investments with lower correlation than traditional products.
BAI is organized around four core investment teams that manage the
core alternatives portfolios:
BlackRock Alternative Advisors (BAA), BlackRock’s hedge fund
solutions team, offers a range of products and services and, in many
cases, serves as an extension of client investment teams by providing
customized advice and implementation of hedge fund strategies. The
team typically invests across traditional and niche hedge funds and
hedge fund-related investments, including single-strategy, multi-
strategy, global macro, and distressed and opportunistic offerings.
With more than $17 billion in assets under management, BAA is one
of the world’s largest allocators to hedge funds.
Real Estate invests multinationally across a broad spectrum of real
estate equity and debt strategies, and across a spectrum of property
types through multiple investment vehicles, such as REITs, commingled
funds and separate accounts.
BlackRock Private Equity Partners (PEP) is a global provider of
private market investment solutions specializing in the management
of diversified private equity portfolios, including primary and
secondary private equity funds and direct co-investments in both
commingled and customized separate account structures. The 2012
Swiss Re Private Equity Partners acquisition increased PEP’s global
presence and doubled total commitments under management to
approximately $15.0 billion.
Renewable Power invests in wind and solar power projects to
generate and sell electricity to utilities, and deliver attractive risk-
adjusted, non-correlated returns for investors.
Additionally, the Special Opportunities Group leverages insights
and relationships across BlackRock to identify and invest in unique
investment opportunities driven by dislocations in the global
financial markets.
We expect demand for alternative products in both our retail
and institutional channels to grow as investors increasingly “barbell”
higher alpha products with efficient beta strategies, seeking to
maximize return with the appropriate risk/reward balance.
We continue to build out our platform to become a premium provider
of multi-alternative solutions, developing a holistic approach to
solving clients’ challenges in alternatives. We currently manage
$9.7 billion in AUM in retail alternative products, and this sector
represents a significant area of focus and opportunity for growth.
TRADING & LIQUIDITY STRATEGIES
With more than 415 team members, Trading and Liquidity Strategies (T&LS) leverages
BlackRock’s scale and platform to drive performance via sourcing liquidity as well as managing
counterparty risk exposures and relationships. The group serves clients directly through
investment management and indirectly as a service provider for other investment teams.
T&LS is organized across four main business activities, all of which are performance-
driven: Cash Management, Securities Lending, Transition Management and Trading.
The combination of these functions underscores the firm’s dedication to performance,
our intense focus on providing solutions to our clients’ complex investment challenges,
and our responsibility to both our clients and corporate shareholders. T&LS is a unique
connection point — an integral component of nearly all investment processes at the firm,
interfacing with counterparties across the spectrum of the capital markets.
Strategic Product
Management
Strategic Product Management (SPM)
partners with our Investment Teams and
Client Businesses to bring our clients
high-quality products that they can use to
build better financial futures. SPM identifies
key market trends to innovate and incubate
new strategies, manages our new product
approval process and systematically reviews
all of BlackRock’s offerings to help ensure
that they meet the needs of our clients and
the high standards we demand.
ALTERNATIVES AUM
$109.8 BILLION
•
Currency and Commodities 38%
•
Funds of Funds 26%
•
Single-Strategy Hedge Funds 22%
•
Real Estate and Hard Assets 12%
•
Opportunistic and Other Funds 2%
Our reported Alternatives AUM reflect a split between Core Alternatives and Currency
and Commodities Alternatives. Currency and Commodities AUM largely represent iShares
commodities and currency AUM managed by Beta Strategies. Core Alternatives include
single-strategy hedge funds managed by Alpha and Multi-Asset Strategies, funds of funds
(hedge funds and private equity), and real estate and hard-asset offerings.
Since 2009, BAA’s active portfolios have
outperformed their relative benchmarks on
a weighted-average AUM basis by 4.8%.
*
*See Important Notes section on page 22.
16
CLIENT BUSINESSES
iSHARES
iShares, BlackRock’s industry-leading exchange-traded funds (ETF)
platform, provides a broad and deep range of index products that
offer retail and institutional investors efficient and transparent access
to targeted market exposures, and provide a key building block for
many asset allocation strategies. Over the past several years, the
asset management industry has seen a large secular shift toward
index investing. ETFs are attracting a broader base of global
investors than ever before, driven by regional regulatory developments,
deepening ETF liquidity, and increasing awareness among both
retail and institutional clients. Launched in 2000, the iShares brand
continues to be the “go-to” product for all types of investors in the
United States and internationally — from those seeking deep liquidity
or specialized exposures to the rapidly growing buy-and-hold segment
of the market.
iShares continues to innovate to provide convenient access to hard-
to-reach markets and now offers more than 600 products trading on
20 exchanges globally, across the entire range of asset classes from
US domestic equity and fixed income to emerging and frontier markets.
In addition to enhancing our product and service capabilities through
innovation, we continue to opportunistically add complementary
products and services, and extend our geographic presence through
selective acquisitions and strategic alliances.
In March 2012, we extended our retail presence in Canada and
BlackRock serves a diverse mix of institutional and retail clients worldwide. Our client teams are organized across iShares,
Global Retail, Institutional and BlackRock Solutions, and share a relentless focus on delivering superior investment products,
risk management tools, advisory and portfolio management solutions to our broad client base. The needs of our clients and
distribution partners can vary significantly across geographies, so we tailor our approach by region across the Americas,
EMEA and Asia-Pacific. Our more than 55 client-facing offices enable the firm to leverage our broad global footprint while still
maintaining valuable local market expertise. Our newly combined US Retail and iShares direct and wholesale sales force of
more than 250 professionals seamlessly delivers the full breadth of our active, index and outcome-oriented capabilities through
relationships with distribution partners across the globe. We view iShares through both a product and a client lens.
Pioneering index strategies since 1971
Low-rate world driving greater need for efficiency
and liquidity provided by fixed income ETFs
• 150xedincomeproductsglobally
• 10-yeartrackrecordofproviding
tax-efficient ETFs
Launched the iShares Core Series in October 2012
• 10lower-costUSETFstargetingbuy-and-hold
investors
• Solidearlyresultswith$4.6billionofinows
from launch through year-end 2012
Launched major brand initiative in 4Q12
highlighting iShares’ differentiated value
proposition
Global platform well positioned to benefit
from increasing adoption, particularly outside
the United States and across new retail and
institutional client segments
Focused on developing new uses for ETFs and
client-centric product development
Since December 2009, iShares AUM have grown
at 15% CAGR
bolstered our ETF offerings through the acquisition of Claymore’s
$7.6 billion platform and, in January 2013, we announced the
acquisition of Credit Suisse’s ETF business, which will further
strengthen our platform and presence in Switzerland. In March 2013,
we announced an expanded strategic alliance with Fidelity Investments
and will become their go-to ETF brand for all index ETF strategies.
Fidelity also more than doubled the number of commission-free
iShares ETF products — from 30 to 65 — that are available to their
more than 10 million clients on their platforms and through registered
investment advisors (RIAs). We expect future growth will be focused
around leveraging opportunities across new client segments, expanding
our global presence, innovating and continuing to extend the use of our
existing products.
Leading ETF Provider
with more than
600 products
across 35
categories
iShares Innovation and Value to Drive Growth
RECORD GLOBAL
iSHARES AUM
($bn)
+28%
iSHARES
MARKET SHARE
OF AUM*
0
100000
200000
300000
400000
500000
600000
700000
800000
201220112010
$590.2
•
Equity
•
Fixed Income
•
Alternatives
•
Multi-Ass e t
$593.4
$752.7
0 5 1015 202530 35404550
ALL OTHERS
NEXT 10 LARGEST
# 3 PROVIDER
# 2 PROVIDER
iSHARES
39%
17%
13%
17%
14%
iShares
# 2 Provider
# 3 Provider
Next 10 Largest
All Others
market share
of flows —
$85.2 billion,
or 33%
*
#
1
*See Important Notes section on page 22.
17
$403.5$363.4$374.0
GLOBAL RETAIL
Global Retail delivers open-end and closed-end mutual funds, ETFs,
alternative products and solutions to retail and high net worth clients
through third-party distribution partners across the globe. The needs of
retail and high net worth clients differ significantly across geographies,
and as a result the Retail Client team is organized regionally, with a
team focused on the United States and Canada, and a team focused on
International clients.
US Retail & Canada serves an estimated 95,000 financial advisers
across multiple distribution channels, including wirehouses, regionals,
independent firms, registered investment advisors (RIAs), banks
and insurance companies through relationships with 2,000 third-
party distributors.
Our largest distribution relationship is with Merrill Lynch, which
increased significantly following our 2006 acquisition of Merrill Lynch
Investment Managers. As a result, we have a dedicated team focused
on serving the needs of that platform.
Retail also manages relationships across five additional distribution
channels. Private Client, which has relationships with more than 850
firms, covers the remainder of the “traditional” intermediated space
(wires, independents, bank broker dealers). It has been the primary
growth engine for US Retail over the past five years. Registered
Investment Advisors has 17 dedicated professionals focused on serving
RIAs, the fastest-growing portion of the intermediated landscape. Bank
Wealth Management channel was launched in January 2013 to focus
on serving private banks and private client institutions, building on the
strong iShares sales model. The Strategic Alliances Group consists of a
quasi-institutional sales team dedicated to covering variable annuity
providers and insurance companies by offering sub-advised strategies
and mutual funds. Finally, Retail DC is dedicated to covering large
defined contribution-focused retail advisers and partners with other US
Retail sales teams.
In addition, US Retail has a team of specialists focused on distributing
products to DC plans as well as specialized sales teams covering
seperately managed accounts, alternatives and 529 plans.
Over the past five years, US Retail has generated strong growth outside
the Merrill Lynch platform and we expect to continue to drive growth by
increasing our penetration across the rest of the intermediary market.
We are specifically focused on growing our market share among
independent advisers and RIAs.
International Retail provides retail funds and solutions to a broad
spectrum of private investors across EMEA, Latin America and the
Asia-Pacific region. Through relationships with approximately 10,000
intermediaries, our intermediary clients include global and multi-
Our combined global sales force partners with
an estimated 12,000 third-party distributors.
Uniquely positioned to educate and
collaborate to capitalize on opportunities
in the face of increasing regulatory and
investment complexity across the globe.
Continuing to partner to introduce innovative
products and new technology and tools
designed to meet the growing retail demand
for outcome-oriented needs.
national banks, private banks, wealth managers and insurers focused
on delivering discretionary investment management and financial
advisory services through three dedicated teams in our largest markets.
Discretionary serves fund of funds and other portfolio constructors and
packagers, while Regional Wholesaling manages direct relationships
with smaller Independent Financial Advisers, bank and insurance
company adviser networks, financial advisers and independent wealth
managers. Strategic Alliances works with DC and Life Platforms to help
deliver bespoke products to help meet their retail and high net worth
clients’ evolving needs. Additionally, International Retail has specialized
teams focused on distributing alternatives and covering family offices
and charities.
Our International Retail product suite includes a broad range of actively
managed, index, alternatives and closed-end funds, including our
flagship BlackRock Global Funds (BGF), and domestic retail products in
the United Kingdom, Japan and Australia. BGF products are designed to
meet the needs of cross-border retail investors, and are registered and
distributed in more than 36 countries. The team also delivers bespoke,
outcome-oriented investment portfolios to strategic partners, often
acting as an outsourced portfolio manager on behalf of large distributors.
Our growth strategy across the Retail platform is focused on enhancing
distribution in the United States and internationally, combining active
and index strategies on one platform, and expanding our alternatives
capabilities. The global distribution landscape is evolving, as regulation
shifts and client preferences change. Clients are no longer seeking to buy
just one product — they are looking for combinations of products and
tools to achieve the outcomes they need. The ability to package the entire
suite of active and index products, coupled with our history of delivering
innovation, is a strong differentiator and has enabled us to become the
“go-to” solutions provider for a wide range of distribution partners.
US & INTERNATIONAL RETAIL AND HNW LONG-TERM AUM
($bn)
•
Equity
•
Fixed Income
•
Multi-Asset
•
Alternatives
0
50
100
150
200
250
300
Int’lU.S.
$245.7
$128.3
2010
US Int’l
0
50
100
150
200
250
300
Int’lU.S.
$258.6
$104.8
2011
US Int’l
0
50
100
150
200
250
300
Int’lU.S.
$115.1
$288.4
2012
US Int’l
+8%
Total
Retail Well Positioned to Capitalize on Global Opportunities
We made these panels out of a
new color tint combo
18
INSTITUTIONAL
Our Institutional platform is organized geographically and by specialty client
type to tailor our investment services to meet the particular needs of each
client, and greatly benefits from our ability to leverage our understanding of
local markets and regulatory environments. Each team develops and maintains
relationships with institutional investors worldwide, including tax-exempt
institutions, such as defined benefit and defined contribution public and
private pension plans; official institutions, such as central banks, sovereign
wealth funds, supra nationals, and other government entities, foundations,
endowments and taxable institutions, including insurance companies,
financial institutions, corporations and third-party fund sponsors, family
offices and industry consultants. We have client teams in the Americas, EMEA
and Asia-Pacific who are focused on specialized client segments, including
Defined Benefit, Defined Contribution, Official Institutions and Financial
Institutions. We have 180 team members in the United States and Canada, 240
team members in EMEA, and 85 team members focused on the unique needs
of Financial Institutions and Official Institutions across the globe.
BlackRock is committed to developing outcome-oriented solutions and
delivering a more holistic approach to investing — one that involves
understanding each client’s specific objectives and working with them to
deliver bespoke investment solutions and services. Our unmatched range
of capabilities enables us to help investors achieve the financial outcomes
they desire. With 595 client service officers in 33 cities across the globe, our
institutional footprint allows us to serve clients with a local presence. The
firm’s global presence, role as a fiduciary and excellence in risk management
provide clients with differentiated service across our institutional channels,
and positions us well to deepen and enhance existing relationships and
acquire new clients.
Our growth strategy in Institutional is also focused on growing market share
in key areas such as defined contribution and outcome-oriented solutions,
and providing differentiated alpha through alternatives. Organizations around
the world are shifting from defined benefit to defined contribution employee
retirement plans. We are well positioned to help provide the solutions they
need and continue to deliver new capabilities to support plan sponsors and
the employees they serve.
Voice of the Investor
As a leader in the asset management industry,
our Government Relations and Public Policy
team works to represent the “voice of the
investor” in public policy and regulatory reform
discussions around the world. The team aims
to encourage and participate in constructive
dialogue with policymakers to help ensure that
investor concerns are considered and addressed.
The team proactively engages on legislation
and regulation affecting the industry and our
clients, serving as a resource for policymakers,
supporting client education and advocacy
efforts, and demonstrating thought leadership
that helps investors understand the market
implications of public policy issues. During 2012
we continued to engage on numerous regulatory
topics across the globe, working tirelessly to
address growing debates across a wide array
of regulatory topics affecting investors and the
asset management industry.
INSTITUTIONAL LONG-TERM AUM
($bn)
0
500
1000
1500
2000
2500
201220112010
$2,166.9
•
Defined Contribution
•
Defined Benefit
•
Official Institutions
•
Insurance
•
Subadvisory
•
Other
$2,181.2
$2,326.2
+7%
DEFINED CONTRIBUTION
With $404.9 billion in long-term defined contribution (DC) AUM and
more than 70 dedicated DC professionals across the globe, BlackRock
serves the growing retirement needs of a wide range of institutional
and retail investors. Our global scale, deep capabilities across index
and active management and broad experience with DC plans of every
size uniquely position BlackRock to capitalize on the shift of retirement
assets from defined benefit to DC plans. Our open-architecture,
investment-only platform enables us to work with plan sponsors,
consultants, financial advisers and external platforms to provide
asset management, plan design, client engagement and participant
communications backed by objective recommendations that are not
limited to any single investment style or vehicle.
Our LifePath target-date products, with a 20-year track record and
strong focus on delivering more predictable outcomes, offer an
enhanced value proposition for plan sponsors and participants.
LIFEPATH AUM
($bn)
+26% +19% +32%
Organic
Growth
Rates
0
10
20
30
40
50
60
70
80
201220112010
$37. 3
$44.0
$63.8
0
10
20
30
40
50
60
70
80
201220112010
DEFINED CONTRIBUTION
LONG-TERM AUM
($bn)
+35%
0
100
200
300
400
500
0
100
200
300
400
500
201220112010
201220112010
$300.7
•
EQ In d e x
•
FI Index
•
MA Target Date
•
FI Active
•
EQ Active
•
MA Other
•
Alternatives
$330.0
$404.9
0
100
200
300
400
500
0
100
200
300
400
500
201220112010
201220112010
19
0
100
200
300
400
500
600
201220112010
BLACKROCK SOLUTIONS
REVENUE
($mm)
$460
+13%
$510
$518
•
Ala d din Busin e s s
•
Financial Markets Advisory
0
3
6
9
12
15
201220112010
ASSETS ON ALADDIN
($tn)
$10.0
+37%
$10.2
$13.7
On-boarded
over $2 trillion
in new client
assets in 2012
0
500
1000
1500
2000
201220112010
$1.7 TRILLION NON-US
ASSETS ON ALADDIN
($bn)
$596
+185%
$687
$1,700
BlackRock Solutions (BRS) serves as the analytical core of the firm
and enables us to truly differentiate and deliver comprehensive
outcome-oriented solutions to clients. BRS offers investment
management platforms, risk management services and advisory
services to our Investment Strategy Teams and Client Businesses,
and to a range of external clients, including asset managers,
insurers, banks, governments and official institutions. By leveraging
the combined power of Aladdin, our proprietary risk analytics and
trading platforms, and our global capital markets expertise, BRS
provides customized solutions to help clients navigate their most
complex capital markets and investment process challenges.
BRS has two components, the Aladdin Business and Financial
Markets Advisory.
Approximately 75% of BRS revenues are driven by the Aladdin
Business, which provides risk analytics, portfolio management and
trading systems, and accounting services to approximately 150
clients. The Aladdin Business has historically demonstrated very high
retention rates, resulting in highly predictable revenue streams. We
continue to innovate and expand our platform and service capabilities
across asset classes and into new regions to deepen existing
relationships and attract new global and multi-asset clients.
Financial Markets Advisory (FMA) provides balance sheet and
capital markets advisory and asset disposition services to public
and private institutions globally. This cross-disciplinary team
consists of dedicated portfolio managers, financial modeling/
analytics specialists, industry experts and experienced project
managers. Services include deriving bottom-up valuations and cash
flow projections for complex exposures, developing balance sheet
and portfolio strategies based on valuation and risk analyses, and
providing specialized disposition services. Many of FMA’s assignments
involve providing one-time valuations or multi-quarter analyses
with fairly complex deliverables. FMA assignments often lead to
ongoing monitoring, strategic disposition assignments, broader
relationships on the Aladdin platform or incremental investment
management mandates. During 2012, FMA advisory distributions
of $72.4 billion were driven by asset dispositions related to the New
York Federal Reserve Bank’s Maiden Lane vehicles which generated
net gains benefitting the US public.
BRS also has dedicated investment teams in its Client Solutions
group with deep expertise in pension asset liability management and
liability-driven investments (LDI) and fiduciary outsourcing mandates.
This team is focused on providing support for complex institutional client
needs and inquiries, particularly in situations requiring the integration
of multiple investment strategies and complex services to deliver
outcome-oriented solutions and customized products and services.
BLACKROCK SOLUTIONS
19%
of Aladdin
revenue from
non-US clients
in 2012,
up from 12%
in 2010
Significantly enhanced Aladdin capabilities
to support growing portfolio of equity mandates
Continued investment
in risk analytics, portfolio modeling, trading and operations technology
On-boarded
First multi-asset Aladdin client
20
GLOBAL EXECUTIVE COMMITTEE
Front row from left to right:
Matthew J. Mallow
General Counsel
Charles S. Hallac
Chief Operating Officer
Ann Marie Petach
Chief Financial Officer
Robert L. Goldstein
Global Head of Institutional
Client Business & BlackRock
Solutions
PatrickM.Olson
Global Head of Strategy and
Planning & Secretary of the
Global Executive Committee
KendrickR.Wilson,III
Vice Chairman
Second row from left to right:
Quintin R. Price
Global Head of Alpha Strategies
BarbaraG.Novick
Vice Chairman
DerekN.Stein
Global Head of Business
Operations & Technology
Robert S. Kapito
President
Amy L. Schioldager
Global Head of
Beta Strategies
Bennett W. Golub, Ph.D.
Chief Risk Officer
J. Richard Kushel
Deputy Chief Operating
Officer
Last row from left to right:
MarkS.McCombe
Chairman, Asia-Pacific
Philipp M. Hildebrand
Vice Chairman
Gary S. Shedlin
Senior Managing Director
LaurenceD.Fink
Chairman & Chief Executive
Officer
Jeffrey A. Smith, Ph.D.
Global Head of Human
Resources
Kenneth F. Kroner
Global Head of Multi-Asset
Strategies & Head and
Chief Investment Officer of
Scientific Active Equity
Linda Gosden Robinson
Global Head of Marketing
and Communications
Robert W. Fairbairn
Global Head of Retail & iShares
MarkK.Wiedman
Global Head of iShares
N. James Charrington
Chairman, Europe, Middle East
and Africa
Peter R. Fisher
Senior Director of the BlackRock
Investment Institute
21
BOARD OF DIRECTORS
AbdlatifY.Al-Hamad*
(4,5)
Director General and Chairman
of the Board of Directors
Arab Fund for Economic and
Social Development
MathisCabiallavetta*
(1,4,5)
Vice Chairman of the Board
Swiss Re Ltd
Dennis D. Dammerman*
(1,3)
Former Vice Chairman of the
Board and Executive Officer
General Electric Company
and Former Chairman and
Chief Executive Officer
GE Capital Services, Inc.
WilliamS.Demchak
(5)
President**
The PNC Financial Services
Group, Inc.
Jessica P. Einhorn*
(5)
Former Dean
Paul H. Nitze School of
Advanced International
Studies (SAIS) at The Johns
Hopkins University
LaurenceD.Fink
(2)
Chairman and Chief
Executive Officer
BlackRock, Inc.
Fabrizio Freda*
(4)
President and Chief
Executive Officer
The Estée Lauder
Companies Inc.
Murry S. Gerber*
(1,2,3,5)
Former Chairman and
Chief Executive Officer
EQT Corporation
JamesJ. Grosfeld*
(3,4)
Former Chairman and
Chief Executive Officer
Pulte Homes, Inc.
RobertS.Kapito
President
BlackRock, Inc.
DavidH.Komansky*
(3)
Former Chairman and
Chief Executive Officer
Merrill Lynch & Co., Inc.
SirDeryckMaughan*
(3,5)
Senior Advisor
Kohlberg Kravis Roberts &
Co. L.P.
ThomasK.Montag
(5)
Co-Chief Operating Officer
Bank of America Corporation
ThomasH.O’Brien*
(1,4)
Former Chairman and
Chief Executive Officer
The PNC Financial Services
Group, Inc.
JamesE.Rohr
(2)
Chairman and Chief
Executive Officer**
The PNC Financial Services
Group, Inc.
IvanG.Seidenberg*
(1,4)
Former Chairman of the Board
and Chief Executive Officer
Verizon Communications
Marco AntonioSlim Domit*
(5)
Chairman of the Board
of Directors
Grupo Financiero Inbursa
JohnS. Varley*
(1)
Former Chief Executive
Barclays PLC
Susan L. Wagner
Former Vice Chairman
BlackRock, Inc.
Committees
(1)
Audit
(2)
Executive
(3)
Management Development
& Compensation
(4)
Nominating & Governance
(5)
Risk
*Independent Director.
**On April 23, 2013, Mr. Rohr is expected to become Executive Chairman and Mr. Demchak is expected to become President and Chief Executive Officer.
22
Opinions
Opinions expressed through page 22 are those ofBlackRock, Inc. as
of March 2013 and are subject to change.
BlackRockDataPoints
AUM, Performance Data, ETFs offered, market cap, number of
countries, offices, clients and employee data are as of December 31,
2012. All other data reflect full-year 2012 results unless otherwise
noted.
Net Inflows and Net New Business
2012 net inflows exclude the $110.2 billion effect of two low-fee
non-ETF index fixed income outflows. 2011 and 2010 net inflows
exclude BGI merger-related outflows due to manager concentration
considerations prior to third quarter 2011 and outflows from
Scientific Active Equity performance prior to second quarter 2011.
As a result of client investment manager concentrations limits and
the Scientific Active Equity performance, outflows were expected to
occur for a period of time subsequent to the close of the transaction.
Adjusted and As Adjusted Results
Diluted earnings per share, operating income, operating margin,
operating cash flow and net income are presented on an “as
adjusted” basis. See pages 2 and 39-41 of BlackRock’s 2012 Annual
Report on Form 10-K for Explanation of Use of Non-GAAP Financial
Measures.
Most-Admired Asset Manager
BlackRock ranked first within the Securities/Asset Management
industry in Fortune Magazine —“World’s Most Admired Companies,”
March 2013.
Performance Data
Past performance is not indicative of future results. Investing involves
risk, including possible loss of principal. The performance information
shown is based on preliminarily available data. The performance
information for actively managed accounts reflects US open-end
and closed-end mutual funds and similar EMEA-based products
with respect to peer median comparisons, and actively managed
institutional and high net worth separate accounts and funds located
globally with respect to benchmark comparisons, as determined using
objectively based internal parameters, using the most current verified
information available as of December 31, 2012.
Accounts terminated prior to December 31, 2012 are not included. In
addition, accounts that have not been verified as of January 29, 2013
have not been included. If such terminated and other accounts had
been included, the performance information may have substantially
differed from that shown. The performance information does
not include funds or accounts that are not measured against a
benchmark, any benchmark-based alternatives product, private
equity products, CDOs or liquidation accounts managed by
BlackRock’s Financial Markets Advisory Group. Comparisons are
based on gross-of-fee performance for US retail, institutional and
high net worth separate accounts and EMEA institutional separate
accounts and net-of-fee performance for EMEA-based retail
products. The performance tracking information for institutional
index accounts is based on gross-of-fee performance as of
December 31, 2012, and includes all institutional accounts and all
iShares funds globally using an index strategy. AUM information
is based on AUM for each account or fund in the asset class
shown without adjustment for overlapping management of the
same account or fund, as of December 31, 2012. The information
reported may differ slightly from that reported previously due to the
increased number of accounts that have been verified since the last
performance disclosure. BlackRock considers these differences to
be not material.
Source of performance information and peer medians is BlackRock,
Inc. and is based in part on data from Lipper Inc. for US funds and
Morningstar, Inc. for non-US funds. Fund performance reflects the
reinvestment of dividends and distributions, but does not reflect
sales charges.
S&P 500
®
Index is a widely recognized, unmanaged index of common
stock prices of industrial, utility, transportation and financial
companies in US markets.
Barclays Capital US Aggregate Index is an unmanaged index
considered representative of the US investment-grade, fixed rate
bond market.
Alternative Performance Data
BlackRock Alternative Advisors’ active portfolios exclude direct
coinvestment funds and liquidating funds and investments.
Other Revenue
Page 10—Other Revenue includes BlackRock Solutions and advisory,
Cash management base fees, Investment advisory performance
fees, Distribution fees and Other revenue.
Flexible Fund Flows as a Percent of Mutual
Fund Flows
Source: SimFund – December 31, 2012
IMPORTANT NOTES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 001-33099
BlackRock, Inc.
(Exact name of registrant as specified in its charter)
Delaware 32-0174431
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
55 East 52nd Street, New York, NY 10055
(Address of Principal Executive Offices)
(212) 810-5300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer È Accelerated filer ‘
Non-accelerated filer ‘ (Do not check if a smaller reporting company) Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
The aggregate market value of the voting common stock and non-voting common stock equivalents held by non-affiliates of
the registrant as of June 30, 2012 was approximately $28.7 billion.
As of January 31, 2013, there were 169,961,312 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference herein:
Portions of the definitive Proxy Statement of BlackRock, Inc. to be filed pursuant to Regulation 14A of the general rules and
regulations under the Securities Exchange Act of 1934, as amended, for the 2013 annual meeting of stockholders to be held
on May 30, 2013 (“Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.
BlackRock, Inc.
TABLE OF CONTENTS
PART I
Item 1 Business 1
Item 1A Risk Factors 20
Item 1B Unresolved Staff Comments 29
Item 2 Properties 30
Item 3 Legal Proceedings 30
Item 4 Mine Safety Disclosures 30
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities 31
Item 6 Selected Financial Data 32
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 34
Item 7A Quantitative and Qualitative Disclosures About Market Risk 71
Item 8 Financial Statements and Supplemental Data 72
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 72
Item 9A Controls and Procedures 72
Item 9B Other Information 75
PART III
Item 10 Directors, Executive Officers and Corporate Governance 75
Item 11 Executive Compensation 75
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 75
Item 13 Certain Relationships and Related Transactions, and Director Independence 75
Item 14 Principal Accountant Fees and Services 75
PART IV
Item 15 Exhibits and Financial Statement Schedules 75
Signatures 78
Part I
Item 1. BUSINESS
Overview
BlackRock, Inc. (NYSE: BLK; “BlackRock” or the
“Company”) is the world’s largest publicly traded
investment management firm with employees in 30
countries that serve clients in over 100 countries across
the globe. We provide a broad range of investment and risk
management services and had $3.792 trillion of assets
under management (“AUM”) at December 31, 2012. Our
clients include retail, high net worth (“HNW”) and
institutional investors, comprised of pension funds,
official institutions, endowments, insurance companies,
corporations, financial institutions, central banks and
sovereign wealth funds. The Company is highly regulated
and serves its clients as a fiduciary. We do not engage in
proprietary trading activities that could conflict with the
interests of our clients.
Our unique platform enables us to offer active (alpha)
investments with index (beta) products and risk
management to develop tailored solutions for clients. Our
product range includes single- and multi-asset class
portfolios investing in equities, fixed income, alternatives
and/or money market instruments. We offer our products
directly and through intermediaries in a variety of
vehicles, including open-end and closed-end mutual
funds, iShares
®
exchange-traded funds (“ETFs”) and
other exchange-traded products (together with ETFs,
“ETPs”), collective investment funds and separate
accounts. We also offer our BlackRock Solutions
®
(“BRS”)
investment systems, risk management and advisory
services primarily to institutional investors.
BlackRock is an independent, publicly traded company,
with no single majority shareholder and a majority of
independent directors on its Board of Directors. At
December 31, 2012, The PNC Financial Services Group,
Inc. (“PNC”) owned approximately 20.8% of BlackRock’s
voting common shares outstanding and approximately
21.9% of total capital stock.
Management seeks to achieve attractive returns for
stockholders over time by, among other things,
capitalizing on the following factors:
• the Company’s diversified alpha and beta product
offerings, which enhance its ability to offer a variety
of traditional and alternative investment products
across the risk spectrum and to tailor single- and
multi-asset class investment solutions to address
specific client needs;
• the Company’s focus on strong performance
providing alpha for active products and limited or
no tracking error for passive products;
• the Company’s longstanding commitment to risk
management and the continued development of,
and increased interest in, BRS products and
services;
• the Company’s positioning in the face of macro
challenges driving trends in investor behavior,
including the secular shift to passive investing and
ETPs, a focus on income and retirement, and
barbelling of risk using passive and high alpha
products including alternatives;
• the Company’s global presence and commitment to
best practices around the world, with
approximately 45% of employees outside the
United States supporting local investment
capabilities and serving clients, and approximately
44% of total AUM managed for clients domiciled
outside the United States; and
• the growing recognition of the global BlackRock
brand, and the depth and breadth of the Company’s
intellectual capital.
BlackRock operates in a global marketplace characterized
by a high degree of market volatility and economic
uncertainty, factors that can significantly affect earnings
and stockholder returns in any given period.
The Company’s ability to increase revenue, earnings and
stockholder value over time is predicated on its ability to
generate new business, including business in BRS
products and services. New business efforts are
dependent on BlackRock’s ability to achieve clients’
investment objectives in a manner consistent with their
risk preferences and to deliver excellent client service. All
of these efforts require the commitment and contributions
of BlackRock employees. Accordingly, the ability to
attract, develop and retain talented professionals is
critical to the Company’s long-term success.
1
Financial Highlights
Selected GAAP Financial Results
(Dollar amounts in millions, except per share amounts) 2012 2011 2010 2009 2008 2007
5-Year
CAGR
(4)
Total revenue ........................................... $9,337 $9,081 $8,612 $4,700 $5,064 $4,845 14%
Operating income ........................................ $3,524 $3,249 $2,998 $1,278 $1,593 $1,294 22%
Operating margin ........................................ 37.7% 35.8% 34.8% 27.2% 31.5% 26.7% 7%
Non-operating income (expense)
(1)
......................... $ (36) $ (116) $ 36 $ (28) $ (422) $ 162 (174%)
Net income attributable to BlackRock, Inc. .................. $2,458 $2,337 $2,063 $ 875 $ 784 $ 993 20%
Diluted earnings per common share ........................ $13.79 $12.37 $10.55 $ 6.11 $ 5.78 $ 7.37 13%
Selected Non-GAAP Financial Results
(Dollar amounts in millions, except per share amounts) 2012 2011 2010 2009 2008 2007
5-Year
CAGR
(4)
As adjusted
(2)
:
Operating income ........................................ $3,574 $3,392 $3,167 $1,570 $1,662 $1,518 19%
Operating margin
(3)
....................................... 40.4% 39.7% 39.3% 38.2% 38.7% 37.4% 2%
Non-operating income (expense)
(1)
......................... $ (42) $ (113) $ 25 $ (46) $ (384) $ 150 (178%)
Net income attributable to BlackRock, Inc. .................. $2,438 $2,239 $2,139 $1,021 $ 856 $1,077 18%
Diluted earnings per common share ........................ $13.68 $11.85 $10.94 $ 7.13 $ 6.30 $ 7.99 11%
(1)
Net of net income (loss) attributable to non-controlling interests.
(2)
BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”); however,
management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP basis 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. 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. GAAP reported
results include certain significant items, the after-tax impact of which management considers non-recurring or transactions that ultimately will not impact
BlackRock’s book value and, therefore, are excluded in calculating as adjusted results as described below.
As adjusted operating income excluded certain expenses incurred related to the integration of the acquisitions of Merrill Lynch Investment Managers (“MLIM”),
the fund of funds business of Quellos Group, LLC (“Quellos”) and Barclays Global Investors (“BGI”), as well as advisory fees, legal fees and consulting
transaction expenses related to the acquisition of BGI from Barclays on December 1, 2009 (the “BGI Transaction”), a 2007 termination fee for closed-end fund
administration and servicing arrangements with Merrill Lynch, 2011 and 2012 U.K. lease exit costs, 2008, 2009 and 2011 restructuring charges and a one-time
contribution to certain of the Company’s bank-managed short-term investment funds (“STIFs”) in 2012. 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 PNC and a Merrill Lynch
cash compensation contribution has been excluded because, exclusive of the impact related to the exercise of LTIP participants’ put options, primarily in the
three months ended March 31, 2007, these charges do not impact BlackRock’s book value. The expense related to the Merrill Lynch cash compensation
contribution ceased at the end of third quarter 2011. As of first quarter 2012, all of the Merrill Lynch contributions had been received. Compensation expense
associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded from operating and
non-operating income, as adjusted, as returns on investments set aside for these plans, which substantially offset this expense, are reported in non-operating
income (expense).
(3)
Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end fund launch
costs and commissions. Management believes that excluding such costs and commissions is useful because these costs can fluctuate considerably and
revenues associated with the expenditure of these costs will not fully impact the Company’s results until future periods. Revenue used for operating margin, as
adjusted, excludes distribution and servicing costs. 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 earned by the Company. In addition, in 2008 and 2007,
revenue used for operating margin, as adjusted, excluded reimbursable property management compensation, which represented compensation and benefits
paid to personnel of Metric Property Management, Inc. (“Metric”), a subsidiary of BlackRock Realty Advisors, Inc. (“Realty”). Prior to the transfer in 2008 to a
third party, these employees were retained on Metric’s payroll when certain properties were acquired by Realty’s clients. The related compensation and benefits
were fully reimbursed by Realty’s clients and have been excluded from revenue used for operating margin, as adjusted, because they did not bear an economic
cost to BlackRock.
Net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted exclude the after-tax impact of the items listed
above and also include the effect on deferred income tax expense attributable to changes in corporate income tax rates as a result of income tax law changes
and a state tax election.
(4)
Percentage represents compounded annual growth rate.
See reconciliation to GAAP measures in Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Non-GAAP Financial Measures for further information on as adjusted items.
2
Assets Under Management
A summary of the Company’s AUM for the years 2007 through 2012 is presented below:
AUM by Asset Class
December 31,
(Dollar amounts in millions) 2012 2011 2010 2009 2008 2007
Equity ..................................... $1,845,501 $1,560,106 $1,694,467 $ 1,536,055 $ 203,292 $ 362,705
Fixed income ............................... 1,259,322 1,247,722 1,141,324 1,055,627 481,365 510,207
Multi-asset class ............................ 267,748 225,170 185,587 142,029 77,516 98,623
Alternatives ................................ 109,795 104,948 109,738 102,101 61,544 71,771
Long-term .............................. 3,482,366 3,137,946 3,131,116 2,835,812 823,717 1,043,306
Cash management ........................... 263,743 254,665 279,175 349,277 338,439 313,338
Advisory ................................... 45,479 120,070 150,677 161,167 144,995 —
Total ................................... $3,791,588 $3,512,681 $3,560,968 $3,346,256 $1,307,151 $1,356,644
Component Changes in AUM by Asset Class
Five Years Ended December 31, 2012
(Dollar amounts in millions) 12/31/2007
Net New
Business
Acquired
AUM,
net
(1)
Market /
FX App
(Dep) 12/31/2012
5-Year
CAGR
(2)
Equity ........................................ $ 362,705 $ 185,225 $ 1,053,952 $243,619 $ 1,845,501 38%
Fixed income .................................. 510,207 (588) 502,520 247,183 1,259,322 20%
Multi-asset class .............................. 98,623 101,866 39,909 27,350 267,748 22%
Alternatives ................................... 71,771 (8,801) 55,734 (8,909) 109,795 9%
Long-term ................................ 1,043,306 277,702 1,652,115 509,243 3,482,366 27%
Cash management ............................. 313,338 (102,727) 53,616 (484) 263,743 (3%)
Advisory ...................................... — 39,935 (10) 5,554 45,479 NM
Total ..................................... $1,356,644 $ 214,910 $1,705,721 $514,313 $3,791,588 23%
NM - Not meaningful.
(1)
Amounts include acquisition adjustments and reclassification of certain AUM acquired from BGI in December 2009, Swiss Re Private Equity Partners (“SRPEP”)
in September 2012 and Claymore Investments, Inc. (“Claymore”) in March 2012 and other reclassifications to conform to current period combined AUM policy
and presentation. Amounts also include BGI merger-related outflows due to manager concentration considerations prior to third quarter 2011 and outflows from
scientific active equity performance prior to second quarter 2011. As a result of client investment manager concentration limits and the scientific active equity
performance, outflows were expected to occur for a period of time subsequent to the close of the transaction.
(2)
Percentage represents compounded annual growth rate.
AUM represents the broad ranges of financial assets we
manage for clients on a discretionary basis pursuant to
investment management agreements that are expected to
continue for at least 12 months. In general, reported AUM
reflects the valuation methodology that corresponds to
the basis used for billing (for example, net asset value).
Reported AUM does not include assets for which we
provide risk management or other forms of non-
discretionary advice, or assets that we are retained to
manage on a short-term, temporary basis.
Investment management fees are typically expressed as a
percentage of AUM. We also earn performance fees on
certain portfolios relative to an agreed-upon benchmark
or return hurdle. On some products, we also may earn
securities lending fees. In addition, BlackRock offers its
proprietary Aladdin
®
investment system as well
as risk management, outsourcing and advisory services, to
institutional investors under the BRS name. Revenue for
these services may be based on several criteria including
value of positions, number of users, accomplishment of
specific deliverables or other objectives.
At December 31, 2012, total AUM was $3.792 trillion,
representing a compounded annual growth rate of 23% over
the last five years. AUM growth during the period was
achieved through the combination of net market valuation
gains, net new business and acquisitions, including BGI,
which added approximately $1.844 trillion of AUM in
December 2009 and Claymore and SRPEP, which added
$13.7 billion of AUM in 2012. These acquisitions significantly
changed our AUM mix, from predominantly active fixed
income and equity in 2007 to a broadly diversified product
range, as described below.
3
The Company considers the categorization of its AUM by product type, investment style, client type and client region useful
to understanding its business. The following discussion of the Company’s AUM will be organized as follows:
Product Client Type Client Region
Š Equity Š Institutional Š Americas
Š Fixed Income Š Retail and HNW Š Europe, the Middle East and Africa (“EMEA”)
Š Multi-Asset Š Asia-Pacific
Š Alternatives
Š Cash Management
Š iShares
Products
Component changes in AUM by product type and investment style for 2012 are presented below.
(Dollar amounts in millions) 12/31/2011
Net New
Business
Net
Acquired
Market /FX
App (Dep) 12/31/2012
Equity:
Active $ 275,156 $ (18,111) $ — $ 30,170 $ 287,215
iShares 419,651 52,973 3,517 58,507 534,648
Fixed income:
Active 614,804 892 — 40,635 656,331
iShares 153,802 28,785 3,026 7,239 192,852
Multi-asset class 225,170 15,817 78 26,683 267,748
Alternatives:
Core 63,647 (3,922) 6,166 2,476 68,367
Currency and commodities 41,301 (1,547) 860 814 41,428
Sub-total 1,793,531 74,887 13,647 166,524 2,048,589
Non-ETP Index:
Equity 865,299 19,154 95 139,090 1,023,638
Fixed income 479,116 (96,506) — 27,529 410,139
Sub-total non-ETP index 1,344,415 (77,352) 95 166,619 1,433,777
Long-term 3,137,946 (2,465) 13,742 333,143 3,482,366
Cash management 254,665 5,048 — 4,030 263,743
Advisory 120,070 (74,540) — (51) 45,479
Total AUM $3,512,681 $(71,957) $13,742 $337,122 $3,791,588
At year-end 2012, products invested primarily in long-
term assets represented 92% of total AUM, or $3.482
trillion, of which 53% were equity mandates, 36% fixed
income accounts, 8% multi-asset class portfolios and 3%
alternative investments. The remaining AUM was in cash
management products and advisory mandates
representing long-term portfolio liquidation assignments.
Net new business in long-term products totaled $107.7
billion excluding the effect of two large, low-fee non-ETP
index fixed income outflows from two institutional clients
of $36.0 billion in the first quarter of 2012 and $74.2 billion
in the third quarter of 2012. Net inflows in long-term
products, excluding these outflows, were augmented by
net inflows into cash management products. Long-term
and cash product net inflows were offset by advisory
distributions due to the successful completion of asset
dispositions related to the three Maiden Lane vehicles
associated with the Federal Reserve Bank of New York,
marking the repayment of all senior and junior obligations
of the three vehicles and the generation of net gains
benefiting the U.S. public.
Long-term product offerings include active and passive
(index) strategies. Our active strategies seek to earn
attractive returns in excess of a market benchmark or
performance hurdle (alpha) while maintaining an
appropriate risk profile. We offer two types of active
strategies: those that rely primarily on fundamental
research and those that utilize primarily quantitative
models to drive portfolio construction. In contrast, passive
strategies seek to closely track the returns of a
corresponding index (beta), generally by investing in
substantially the same underlying securities within the
index or in a subset of those securities selected to
approximate a similar risk and return profile of the index.
Passive strategies include both our institutional non-ETP
index products and iShares ETPs.
4
Although many clients use both active and passive
strategies, the application of these strategies differs
greatly. For example, clients may use index products to
gain exposure to a market or asset class pending
reallocation to an active manager. This has the effect of
increasing turnover of index AUM. In addition, institutional
non-ETP index assignments tend to be very large (multi-
billion dollars) and typically reflect low fee rates. This has
the potential to exaggerate the significance of net flows in
institutional index products on BlackRock’s revenues and
earnings.
Equity
Year-end 2012 equity AUM of $1.845 trillion increased by
$285.4 billion, or 18%, from the end of 2011, largely due to
flows into regional, country-specific and global mandates
and the effect of higher market valuations. Equity AUM
growth included $54.0 billion in net new business and $3.6
billion in new assets related to the acquisition of Claymore.
Net new business of $54.0 billion was driven by net inflows
of $53.0 billion and $19.1 billion into iShares and non-ETP
index accounts, respectively. Passive inflows were offset
by active net outflows of $18.1 billion, with net outflows of
$10.0 billion and $8.1 billion from fundamental and
scientific active equity products, respectively.
Passive strategies represented 84% of equity AUM with
the remaining 16% in active mandates. Institutional
investors represented 62% of equity AUM, while iShares,
and retail and HNW represented 29% and 9%,
respectively. At year-end 2012, 63% of equity AUM was
managed for clients in the Americas (defined as the United
States, Caribbean, Canada, Latin America and Iberia)
compared with 28% and 9% managed for clients in EMEA
and Asia-Pacific, respectively.
BlackRock’s effective fee rates fluctuate due to changes
in AUM mix. Approximately half of BlackRock’s equity AUM
is tied to international markets, including emerging
markets, which tend to have higher fee rates than similar
U.S. equity strategies. Accordingly, fluctuations in
international equity markets, which do not consistently
move in tandem with U.S. markets, may have a greater
impact on BlackRock’s effective equity fee rates and
revenues.
Fixed Income
Fixed income AUM ended 2012 at $1.259 trillion, rising
$11.6 billion, or 1%, relative to December 31, 2011. Growth
in AUM reflected $43.3 billion in net new business,
excluding the two large previously mentioned low-fee
outflows, $75.4 billion in market and foreign exchange
gains and $3.0 billion in new assets related to Claymore.
Net new business was led by flows into domestic specialty
and global bond mandates, with net inflows of $28.8
billion, $13.6 billion and $3.1 billion into iShares, non-ETP
index and model-based products, respectively, partially
offset by net outflows of $2.2 billion from fundamental
strategies.
Fixed Income AUM was split between passive and active
strategies with 48% and 52%, respectively. Institutional
investors represented 74% of fixed income AUM while
iShares and retail and HNW represented 15% and 11%,
respectively. At year-end 2012, 59% of fixed income AUM
was managed for clients in the Americas compared with
33% and 8% managed for clients in EMEA and Asia-
Pacific, respectively.
Multi-Asset Class
Component Changes in Multi-Asset Class AUM
(Dollar amounts in millions) 12/31/2011
Net New
Business
Net
Acquired
Market /FX
App (Dep) 12/31/2012
Asset allocation $126,067 $ 1,575 $ 78 $12,440 $140,160
Target date/risk 49,063 14,526 — 6,295 69,884
Fiduciary 50,040 (284) — 7,948 57,704
Multi-asset $225,170 $15,817 $ 78 $26,683 $267,748
Multi-asset class AUM totaled $267.7 billion at year-end
2012, up 19%, or $42.6 billion, reflecting $15.8 billion in
net new business and $26.7 billion in portfolio valuation
gains. BlackRock’s multi-asset class team manages a
variety of bespoke mandates for a diversified client base
that leverages our broad investment expertise in global
equities, currencies, bonds and commodities, and our
extensive risk management capabilities. Investment
solutions might include a combination of long-only
portfolios and alternative investments as well as tactical
asset allocation overlays.
At December 31, 2012, institutional investors represented
66% of multi-asset class AUM, while retail and HNW
accounted for the remaining AUM. Additionally, 58% of
multi-asset class AUM is managed for clients based in the
Americas with 37% and 5% managed for clients in EMEA
and Asia-Pacific, respectively. Flows reflected ongoing
institutional demand for our advice in an increasingly
5
challenging investment environment with $15.0 billion, or
95%, of net inflows coming from institutional clients, with
the remaining $0.8 billion, or 5%, generated by retail and
HNW clients. Defined contribution plans of institutional
clients remained a significant driver of flows. This client
group added $13.1 billion of net new business in 2012.
During the year, Americas net inflows of $18.5 billion were
partially offset by net outflows of $2.6 billion collectively
from EMEA and Asia-Pacific clients.
The Company’s multi-asset strategies include the
following:
• Asset allocation and balanced products represented
52%, or $140.2 billion, of multi-asset class AUM at
year-end, up $14.1 billion, with growth in AUM
driven by net new business of $1.6 billion and $12.4
billion in market and foreign exchange gains. These
strategies combine equity, fixed income and
alternative components for investors seeking a
tailored solution relative to a specific benchmark
and within a risk budget. In certain cases, these
strategies seek to minimize downside risk through
diversification, derivatives strategies and tactical
asset allocation decisions.
• Target date and target risk products ended the year
at $69.9 billion, up $20.8 billion, or 42%, since
December 31, 2011. Growth in AUM was driven by
net new business of $14.5 billion, a year-over-year
organic growth rate of 30%. Institutional investors
represented 90% of target date and target risk
AUM, with defined contribution plans accounting
for over 80% of AUM. The remaining 10% of target
date and target risk AUM consisted of retail client
investments. Flows were driven by defined
contribution investments in our LifePath and
LifePath Retirement Income
®
offerings, which are
qualified investment options under the Pension
Protection Act of 2006. These products utilize a
proprietary asset allocation model that seeks to
balance risk and return over an investment horizon
based on the investor’s expected retirement timing.
• Fiduciary management services accounted for 22%,
or $57.7 billion, of multi-asset AUM at
December 31, 2012 and increased $7.7 billion
during the year due to market and foreign exchange
gains. These are complex mandates in which
pension plan sponsors retain BlackRock to assume
responsibility for some or all aspects of plan
management. These customized services require
strong partnership with the clients’ investment
staff and trustees in order to tailor investment
strategies to meet client-specific risk budgets and
return objectives.
Alternatives
Component Changes in Alternatives AUM
(Dollar amounts in millions) 12/31/2011
Net New
Business
Net
Acquired
Market /FX
App (Dep) 12/31/2012
Core $ 63,647 $(3,922) $6,166 $2,476 $ 68,367
Currency and commodities 41,301 (1,547) 860 814 41,428
Alternatives $104,948 $(5,469) $7,026 $3,290 $109,795
Alternatives AUM totaled $109.8 billion at year-end 2012,
up $4.8 billion, or 5%, reflecting $3.3 billion in portfolio
valuation gains and $7.0 billion in new assets related to
the acquisitions of SRPEP, which deepened our
alternatives footprint in the European and Asian markets,
and Claymore. Core alternative outflows of $3.9 billion
were driven almost exclusively by return of capital to
clients. Currency net outflows of $5.0 billion were partially
offset by net inflows of $3.5 billion into iShares
commodity funds.
We continued to make significant investments in our
alternatives platform as demonstrated by our acquisition
of SRPEP, successful closes on the renewable power
initiative and our build out of an alternatives retail
platform, which now stands at nearly $10.0 billion in AUM.
We believe that as alternatives become more conventional
and investors adapt their asset allocation strategies to
best meet their investment objectives, they will further
increase their use of alternative investments to
complement core holdings.
Institutional investors represented 69%, or $75.8 billion,
of alternatives AUM with retail and HNW investors
comprising an additional 9%, or $9.7 billion, at year-end
2012. iShares commodity products accounted for the
remaining $24.3 billion, or 22%, of AUM at year-end.
Alternative clients are geographically diversified with
56%, 26%, and 18% of clients located in the Americas,
EMEA and Asia-Pacific, respectively.
The BlackRock Alternative Investors (“BAI”) group
coordinates our alternative investment efforts, including
6
product management, business development and client
service. Our alternatives products fall into two main
categories – core, which includes hedge funds, funds of
funds (hedge funds and private equity) and real estate
offerings, and currency and commodities. The products
offered under the BAI umbrella are described below.
Core.
• Hedge Funds ended the year with $26.6 billion in
AUM, down $1.4 billion as net inflows into single-
strategy hedge funds of $1.0 billion were more than
offset by return of capital on opportunistic funds.
Market valuation gains contributed $1.1 billion to
AUM growth. Hedge fund AUM includes a variety of
single-strategy, multi-strategy, and global macro,
as well as portable alpha, distressed and
opportunistic offerings. Products include both
open-end hedge funds and similar products, and
closed-end funds created to take advantage of
specific opportunities over a defined, often longer-
term investment horizon.
• Funds of Funds AUM increased $6.3 billion, or 28%,
to $29.1 billion at December 31, 2012, including
$17.1 billion in funds of hedge funds and hybrid
vehicles and $12.0 billion in private equity funds of
funds. Growth largely reflected $6.2 billion of
assets from SRPEP as we expanded our fund of
funds product offerings and further engage in
European and Asian markets.
• Real Estate and Hard Assets AUM totaled $12.7
billion, down $0.1 billion, or 1%, reflecting $0.6 billion
in client net redemptions and distributions and $0.5
billion in portfolio valuation gains. Offerings include
high yield debt and core, value-added and
opportunistic equity portfolios and renewable power
funds. We continued to expand our real estate
platform and product offerings with the launch of our
first U.S. real estate investment trust (“REIT”) mutual
fund and addition of an infrastructure debt team to
further increase and diversify our offerings within
global infrastructure investing.
Currency and Commodities. AUM in currency and
commodities strategies totaled $41.4 billion at year-end
2012, flat from year-end 2011, reflecting net outflows of
$1.5 billion, primarily from active currency and currency
overlays, and $0.8 billion of market and foreign exchange
gains. Claymore also contributed $0.9 billion of AUM.
Currency and commodities products include a range of
active and passive products. Our iShares commodities
products represented $24.3 billion of AUM, including $0.7
billion acquired from Claymore, and are not eligible for
performance fees.
Cash Management
Cash management AUM totaled $263.7 billion at
December 31, 2012, up $9.1 billion, or 4%, from year-end
2011. Cash management products include taxable and
tax-exempt money market funds and customized separate
accounts. Portfolios may be denominated in U.S. dollar,
Euro or British pound.
At year-end 2012, 84% of cash AUM was managed for
institutions and 16% for retail and HNW investors. The
investor base was also predominantly in the Americas,
with 69% of AUM managed for investors in the Americas
and 31% for clients in other regions, mostly EMEA-based.
We generated net inflows of $5.0 billion during 2012,
reflecting continued uncertainty around future regulatory
changes and a challenging investing environment. To meet
investor needs, we sought to provide new solutions and
choices for our clients by launching short duration
products in the United States, which both immediately
address the challenge of a continuing low interest rate
environment and will also be important investment
options should regulatory changes occur. In the EMEA
business, and in particular for our Euro product set, we
have taken action to ensure that we can provide effective
cash management solutions in the face of a potentially
negative yield environment by taking steps to launch new
products and re-engineer our existing product set.
iShares
Our industry-leading U.S. and international iShares ETP suite is discussed below.
Component Changes in AUM – iShares
(Dollar amounts in millions) 12/31/2011
Net New
Business
Net
Acquired
Market /FX
App (Dep) 12/31/2012
Equity $419,651 $52,973 $3,517 $58,507 $534,648
Fixed income 153,802 28,785 3,026 7,239 192,852
Multi-asset class 562 178 78 51 869
Alternatives 19,341 3,232 701 1,064 24,338
Long-term $593,356 $85,168 $7,322 $66,861 $752,707
7
The ETP industry experienced a banner year as annual
inflow records from 2008 were broken in the United
States, the Asia-Pacific region and on a global basis,
propelled by exceptional growth in fixed income and
emerging markets equity products
1
. The industry saw
$260 billion
1
of net new business, representing 17% in
organic growth during 2012, with year-end AUM totaling
$1.902 trillion
1
.
The global growth of the ETP market reflects both
continued adoption and new product introduction with
investor product preferences driven to varying degrees by
performance (as measured by tracking error, which is the
difference between net returns on the ETP and the
corresponding targeted index), liquidity (bid-ask spread),
tax-efficiency, transparency and client service. Fixed
income and emerging markets were drivers of industry
growth. Fixed income ETPs globally gathered a record $70
billion of net inflows, $54 billion of which was U.S.-listed,
led by investment grade and high yield demand as
investors shunned the record low yields of government
securities in favor of higher yielding products. Both
developed and emerging markets equity ETPs saw strong
inflows in 2012 as central banks around the world
continued to pump liquidity into the global economy via
asset purchase programs and accommodative monetary
policy to help spur economic growth. U.S. equity ETPs
globally had inflows of $116 billion, $82 billion of which
was into U.S.-listed funds, and emerging markets equity
ETPs globally had $55 billion of net inflows, $30 billion of
which was into U.S.-listed funds.
1
iShares is the leading ETP provider in the world, with
$752.7 billion of AUM at December 31, 2012, which
increased $159.4 billion, or 27%, since year-end 2011.
iShares was the top asset gatherer globally in 2012
1
with
$85.2 billion of net inflows for an organic growth rate of
14%, with additional AUM growth of $66.9 billion due to
market valuation improvements. During 2012, iShares
introduced 85 new ETPs, acquired Claymore’s 35 ETPs in
Canada and continued our dual commitment to innovation
and responsible product structuring. Our broad product
range offers investors a precise, transparent and low-cost
way to tap market returns and gain access to a full range
of asset classes and global markets that have been
difficult or expensive for many investors to access until
now, as well as the liquidity required to make adjustments
to their exposures quickly and cost-efficiently.
At year-end, iShares AUM included $534.7 billion, or 71%,
in equity offerings, $192.9 billion, or 26%, in fixed income
ETPs and $25.2 billion, or 3%, in multi-asset class and
alternative investments. iShares equity AUM increased
$115.0 billion, or 27%, from year-end 2011, with $53.0
billion in net inflows and $58.5 billion of market and
1
BlackRock; Bloomberg
foreign exchange valuation gains. iShares fixed income
AUM rose $39.1 billion, or 25%, over the previous year,
with 74% of the increase being driven by $28.8 billion of
net inflows. iShares multi-asset class and alternatives
AUM grew by $5.3 billion, or 27%, with $3.4 billion of net
inflows, predominantly into gold commodity products
resulting from a macro environment dominated by
accommodative monetary policies and resulting currency
debasement with an additional $1.1 billion of market and
foreign exchange valuation gains.
iShares offers the most diverse product set in the industry
with 621 ETPs at year-end 2012 and serves the broadest
client base, covering 27 countries on five continents
including North America, South America, Europe, Asia and
Australia. iShares was the ETP leader in asset gathering in
2012 with four of the top ten products and the highest
number of leading products as measured by total assets,
with five of the top ten
1
. Notwithstanding an increase in
the number of ETP products offered in the industry,
iShares continued to maintain the largest share of global
AUM with 39% at December 31, 2012
1
.
•
U.S. iShares AUM ended at $552.3 billion with $61.0
billion of net inflows driven by strong demand for
our yield-oriented and equity dividend products
with our flagship emerging markets fund also
attracting strong flows in 2012. In the United
States, we re-gained the top position for 2012 ETP
flows with more than 30% market share, and at
year-end 2012, iShares was the largest ETP provider
in the United States with 41% share of AUM
1
.
During the fourth quarter of 2012, we debuted the
core series in the United States, designed to
provide the essential building blocks for buy-and-
hold investors to use in constructing the core of
their portfolio. The core series demonstrated solid
early results with four new and six rebranded
products covering U.S. and international equities
and U.S. fixed income.
•
International iShares AUM ended at $200.4 billion
with robust net new business of $24.2 billion for the
year, led by emerging markets equity and corporate
fixed income products. In Europe, we captured 80%
and 71% of 2012 fixed income and equity net
inflows, respectively. At year-end 2012, iShares was
the largest European provider with 38% of AUM and
55% of total 2012 industry inflows in the European
market
1
.
In addition, we were the largest ETP manager in Latin
America with over 85% of AUM at December 31, 2012
1
.We
continue to look for opportunities to further diversify
product offerings in key strategic focus areas including
attractive, high-growth markets both organically and
8
through acquisitions as demonstrated by our acquisition
of Claymore and our 2013 agreement with Credit Suisse to
acquire their ETF business, the closing of which is subject
to customary closing conditions.
In general, we expect to maintain relatively stable pricing,
so long as it is supported by performance and the iShares
value proposition, although we continually seek to achieve
efficiencies and pass them on to our clients.
Clients
We serve a diverse mix of institutional and retail investors worldwide. Clients include tax-exempt institutions, such as
defined benefit and defined contribution pension plans, charities, foundations and endowments; official institutions, such
as central banks, sovereign wealth funds, supranationals and other government entities; taxable institutions, including
insurance companies, financial institutions, corporations and third-party fund sponsors; and retail and HNW investors. We
also serve both institutional and retail and HNW investors who acquire iShares on exchanges worldwide. iShares is
presented under “Products” above, with investments in iShares by institutions and retail and HNW clients excluded from
figures and discussions in their respective sections below.
AUM by Style & Client Type
December 31, 2012
(Dollar amounts in millions) Institutional Retail/HNW iShares Total
Active $ 884,695 $396,599 — $1,281,294
Non-ETP index 1,441,480 6,885 — 1,448,365
iShares — — 752,707 752,707
Long-term 2,326,175 403,484 752,707 3,482,366
Cash management 221,447 42,296 — 263,743
Advisory 45,466 13 — 45,479
Total $2,593,088 $445,793 $752,707 $3,791,588
In 2012, we completed an internal reorganization of the
firm, structuring ourselves to ensure that strong
investment performance is our highest priority, and better
align with our clients’ needs to capitalize on broader
industry trends. Specifically, we organized the client side
of our business into two groups: one comprising Retail and
iShares and another comprising Institutional and
BlackRock Solutions. The separation of the client
functions into these two teams allows us to better focus
on the unique needs of these client groups by bringing the
full capabilities of the firm to bear in an organized,
cohesive approach. Additionally, we split our investments
functions into five distinct strategies: Alpha, Beta, Multi-
Asset, Alternatives and Trading/Liquidity. This new
organizational structure allows us to enhance our focus on
performance and client engagement.
Institutional Investors (excluding Investments in iShares)
Institutional Long-Term AUM by Asset Class, Style & Client Region
December 31, 2012
(Dollar amounts in millions) Americas EMEA Asia-Pacific Total
Active:
Equity $ 51,242 $ 54,499 $ 23,283 $ 129,024
Fixed income 336,998 126,530 54,575 518,103
Multi-asset class 77,105 83,797 5,805 166,707
Alternatives 32,362 20,507 17,992 70,861
Index:
Equity 580,605 318,862 117,613 1,017,080
Fixed income 132,150 235,875 41,918 409,943
Multi-asset class 950 4,434 4,161 9,545
Alternatives 1,464 3,325 123 4,912
Long-term institutional $1,212,876 $847,829 $265,470 $2,326,175
9
Long-term assets managed for institutional investors
totaled $2.326 trillion, or 61%, of total AUM at year-end
2012. During the year, net outflows in long-term products
totaled $99.2 billion, which includes two large low-fee
non-ETP index fixed income outflows from two institutional
clients totaling $110.2 billion. Excluding these outflows,
long-term net new business from institutional clients
totaled $11.0 billion with investment performance, market
appreciation and foreign exchange valuation gains
contributing $237.9 billion to AUM growth.
BlackRock’s institutional AUM is well diversified by both
product and region, with 49% of long-term AUM in
equities, 40% in fixed income, 8% in multi-asset class and
3% in alternatives. We serve institutional investors on six
continents, with 52% of long-term AUM managed on
behalf of investors in the Americas, 37% in EMEA and 11%
in Asia-Pacific. Institutional AUM is further diversified by
investment style and by sub-categories: pensions,
endowments and foundations, official institutions, and
financial institutions, as described below.
The mix by investment style was 38% active and 62%
passive (excluding institutional investors in iShares). As
noted earlier, non-ETP index accounts tend to be larger
institutional mandates managed for relatively low fee
rates and subject to higher turnover.
A discussion of the Company’s Institutional AUM is
presented below:
Institutional active AUM ended the quarter at $884.7
billion, up $53.4 billion, or 6%, since year-end 2011,
earning base fees of $1.8 billion. Institutional active
represented 25% of long-term firm AUM and 23% of long-
term base fees. Growth in AUM included market and
investment performance gains of $71.3 billion and
continued strength in multi-asset class products with net
inflows of $12.3 billion largely into defined contribution
plans, target date and asset allocation offerings. Multi-
asset net inflows were offset by equity net outflows of
$14.1 billion, which were split between active
fundamental and scientific active equity, and fixed income
net outflows of $15.1 billion, reflecting outflows from U.S.
core and local currency mandates. Core alternatives net
outflows were $0.3 billion, excluding $3.9 billion of return
of capital.
Institutional non-ETP index AUM totaled $1.441 trillion at
December 31, 2012, reflecting net outflows of $75.1 billion,
which included two large low-fee fixed income outflows from
two clients of $36.0 billion and $74.2 billion. Excluding these
outflows, net new business was $35.0 billion, with ma rket
and foreign exchange valuation gains contributing $166.6
billion to AUM growth. The shift to passive strategies has
proven to be a significant and long-term trend in the
industry. Flows were led by equities with net inflows of
$20.5 billion with flows primarily into global mandates as
clients increasingly looked to use passive vehicles for macro
exposure as they modestly re-risked. In 2012, institutional
non-ETP index equity AUM crossed the $1 trillion threshold.
Excluding the two previously mentioned outflows, fixed
income garnered net inflows of $13.6 billion, led by flows
into U.S. sector specialty and global bond mandates. While
institutional non-ETP index represented 41% of long-term
firm AUM, it accounted for 11% of long-term base fees.
The Company’s institutional clients consist of the following:
•
Pensions, Endowments and Foundations.
BlackRock is among the largest managers of
pension plan assets in the world with $1.542
trillion, or 66%, of long-term institutional AUM
managed for defined benefit, defined contribution
and other pension plans for corporations,
governments and unions at December 31, 2012.
Retirement is a key theme as longevity, aging
populations and changing demographics worldwide
are driving investment decisions. The market
landscape is shifting from defined benefit to
defined contribution, driving strong flows in our
defined contribution channel, which had $28.4
billion of long-term net inflows for the year, or 9%
organic growth. Defined contribution net inflows
were led by $13.1 billion into multi-asset class
products, with our LifePath target date suite serving
as a key component of our retirement solutions. We
ended 2012 with $404.9 billion in defined
contribution AUM and remain well positioned to
capitalize on the on-going evolution of the defined
contribution market and demand for outcome-
oriented investments. An additional $58.1 billion
was managed for other tax-exempt investors,
including charities, foundations and endowments.
•
Official Institutions. We also manag ed $171.2 billion,
or 7%, of long-term institutional AUM, for official
institutions, including central banks, sovereign
wealth funds, supranationals, multilateral entities
and government ministries and agencies at year-end
2012. This specialty client group flourished with
long-term net new business of $24.5 billion for the
year. These clients often require specialized
investment policy advice, the use of customized
benchmarks and training support.
•
Financial Institutions. BlackRock is a top
independent manager of assets for insurance
companies, which accounted for $226.6 billion, or
10%, of institutional long-term AUM at year-end
2012. Assets managed for other taxable
institutions, including corporations, banks and
third-party fund sponsors for which we provide
sub-advisory services, totaled $328.2 billion, or
14%, of long-term institutional AUM at year-end.
10
Retail and HNW Investors (Excluding Investments in iShares)
Retail / HNW Long-Term AUM by Asset Class & Client Region
December 31, 2012
(Dollar amounts in millions) Americas EMEA Asia-Pacific Total
Equity $ 94,805 $53,140 $16,803 $164,748
Fixed income 121,640 11,444 5,341 138,425
Multi-asset class 76,714 9,538 4,374 90,626
Alternatives 4,865 3,577 1,243 9,685
Long-term retail/HNW $298,024 $77,699 $27,761 $403,484
BlackRock serves retail and HNW investors globally
through separate accounts, open-end and closed-end
funds, unit trusts and private investment funds. At
December 31, 2012, long-term assets managed for retail
and HNW investors totaled $403.5 billion, up 11%, or
$40.1 billion, versus year-end 2011. During the year, net
inflows of $11.6 billion in long-term products were
augmented by market valuation improvements of $28.3
billion.
Retail and HNW investors are served principally through
intermediaries, including broker-dealers, banks, trust
companies, insurance companies and independent
financial advisors. Clients invest primarily in mutual
funds, which totaled $322.4 billion, or 80%, of retail and
HNW long-term AUM at year-end, with the remainder
invested in private investment funds and separately
managed accounts. The product mix is well diversified,
with 41% of long-term AUM in equities, 34% in fixed
income, 23% in multi-asset class and 2% in alternatives.
The vast majority (98%) of long-term AUM is invested in
active products, although this is partially inflated by the
fact that iShares is shown separately, since we do not
identify all of the underlying investors.
The client base is also diversified geographically, with
74% of long-term AUM managed for investors based in the
Americas, 19% in EMEA and 7% in Asia-Pacific at year-
end 2012.
• U.S. retail and HNW long-term inflows of $9.8 billion
were driven by strong demand for U.S. sector-
specialty and municipal fixed income mutual fund
offerings and income-oriented equity. In 2012, we
broadened the distribution of alternatives funds to
bring higher alpha, institutional quality hedge fund
products to retail investors as three mutual funds
launched at the end of 2011 gained traction and
acceptance, raising close to $0.8 billion of assets.
U.S. retail alternatives AUM crossed the $5.0 billion
threshold in 2012. The year also included the launch
of the BlackRock Municipal Target Term Trust
(“BTT”) with $2.1 billion of assets raised, making it
the largest municipal fund ever launched and the
largest overall industry offering since 2007. We are
the leading U.S. manager by AUM of separately
managed accounts, the second largest closed-end
fund manager and a top-ten manager of long-term
open-end mutual funds
2
.
• International retail net inflows of $1.8 billion in 2012
were driven by fixed income net inflows of $5.2 billion.
Investor demand remained distinctly risk-off in 2012,
largely driven by macro political and economic
instability and continued trends toward de-risking.
Equity net outflows of $2.9 billion were predominantly
from sector-specific and regional and country-
specific equity strategies due to uncertainty in
European markets. Our international retail and HNW
offerings include our Luxembourg cross-border fund
families, BlackRock Global Funds (“BGF”), BlackRock
Strategic Funds with $83.1 billion and $2.4 billion of
AUM at year-end 2012, respectively, and a range of
retail funds in the United Kingdom. BGF contained
67 funds registered in 35 jurisdictions at year-end
2012. Over 60% of the funds were rated by S&P. In
2012, we were ranked as the third largest cross
border fund provider
3
.IntheUnitedKingdom,we
ranked among the five largest fund managers
3
,and
are known for our innovative product offerings,
especially within natural resources, European equity,
Asian equity and equity income.
Global Clientele
Our footprint in each of these regions reflects strong
relationships with intermediaries and an established
ability to deliver our global investment expertise in funds
and other products tailored to local regulations and
requirements.
2
Simfund, Cerulli
3
Lipper FERI
11
Americas. At year-end 2012, assets managed on behalf of
clients domiciled in the Americas totaled $2.326 trillion, or
61%, of total AUM, up $203.0 billion, or 10%, since year-
end 2011. Net new business in long-term products of
$69.8 billion and in cash management of $1.9 billion was
offset by planned advisory distributions of $72.4 billion,
primarily due to the successful completion of asset
dispositions related to the Maiden Lane vehicles. Market
valuation gains contributed an additional $195.7 billion to
AUM growth. During the year, we served clients through
offices in 30 states in the United States as well as Canada,
Mexico, Brazil, Chile, Colombia and Spain.
EMEA. AUM for clients based in EMEA ended the year at
$1.158 trillion, or 31%, of total AUM, an increase of $131.3
billion from year-end 2011. During the year, clients
awarded net new business of $9.0 billion, including
inflows from investors in 22 countries across the region. In
the first quarter 2012, flows were impacted by one $36.0
billion low-fee institutional index fixed income redemption
from a single client relating to the client’s decision to
insource. Excluding this redemption, EMEA net new
business was $45.0 billion, led by equity net inflows of
$32.7 billion as clients slowly began to re-risk in the face
of improving confidence in European markets. Our
offerings include fund families in the United Kingdom,
Luxembourg and Dublin and iShares listed on stock
exchanges throughout Europe as well as separate
accounts and pooled investment products.
Asia-Pacific. Clients in the Asia-Pacific region are served
through offices in Japan, Australia, Hong Kong, Singapore,
Taiwan and Korea, and joint ventures in China and India.
At December 31, 2012, we managed $306.8 billion of AUM
for clients in the region, a decrease of 15%, or $55.4
billion, from year-end 2011. Net outflows of $80.3 billion
included one large low-fee institutional index fixed income
redemption. Market and investment performance were
favorable with $24.9 billion of gains.
Investment Performance
Investment performance across active and passive
products as of December 31, 2012 was as follows:
One-year
period
Three-year
period
Five-year
period
Fixed Income:
Actively managed products
above benchmark or peer
median
Taxable 83% 78% 64%
Tax-exempt 67% 64% 77%
Passively managed products
within or above tolerance 95% 97% 90%
Equity:
Actively managed products
above benchmark or peer
median
Fundamental 30% 38% 46%
Scientific 85% 89% 88%
Passively managed products
within or above tolerance 96% 97% 96%
Multi-Asset*:
Actively managed products
above benchmark or peer
median 38% 27% 81%
* Includes funds managed for unlevered, absolute return.
Product Performance Notes. Past performance is not
indicative of future results. The performance information
shown is based on preliminarily available data. The
performance information for actively managed accounts
reflects U.S. open-end and closed-end mutual funds and
similar EMEA-based products with respect to peer median
comparisons, and actively managed institutional and HNW
separate accounts and funds located globally with respect
to benchmark comparisons, as determined using
objectively based internal parameters, using the most
current verified information available as of December 31,
2012.
Accounts terminated prior to December 31, 2012 are not
included. In addition, accounts that have not been verified
as of January 29, 2013 have not been included. If such
terminated and other accounts had been included, the
performance information may have differed substantially
from that shown. The performance information does not
include funds or accounts that are not measured against a
benchmark, any benchmark-based alternatives product,
private equity products, CDOs, or liquidation accounts
managed by BlackRock’s FMA group. Comparisons are
based on gross-of-fee performance for U.S. retail,
institutional and HNW separate accounts and EMEA
institutional separate accounts and net-of-fee
performance for EMEA based retail products. The
performance tracking information for institutional non-
ETP index accounts is based on gross-of-fee performance
12
as of December 31, 2012, and includes all institutional
accounts and all iShares funds globally using an index
strategy. AUM information is based on AUM for each
account or fund in the asset class shown without
adjustment for overlapping management of the same
account or fund as of December 31, 2012. The information
reported may differ slightly from that reported previously
due to the increased number of accounts that have been
verified since the last performance disclosure. BlackRock
considers these differences to be not material.
The source of performance information and peer medians
is BlackRock and is based in part on data from Lipper Inc.
for U.S. funds and Morningstar, Inc. for non-U.S. funds.
Fund performance reflects the reinvestment of dividends
and distributions, but does not reflect sales charges.
BlackRock Solutions
BlackRock Solutions offers investment management
technology systems, risk management services and
advisory services on a fee basis. At December 31, 2012,
approximately $13.7 trillion of positions were processed
on our Aladdin proprietary technology platform, which
serves as the investment system for both BlackRock and a
growing number of sophisticated institutional investors
around the world. BRS also offers comprehensive risk
reporting capabilities via the Green Package
®
and risk
management advisory services; interactive fixed income
analytics through our web-based calculator, AnSer
®
;
middle and back office outsourcing services; and
investment accounting. BRS’ Financial Markets Advisory
(“FMA”) group provides services such as valuation and risk
assessment of illiquid assets, portfolio restructuring,
workouts and dispositions of distressed assets and
financial and balance sheet strategies, for a wide range of
global clients.
In the face of increasing regulatory scrutiny, clients have
increased their focus on risk management and demand for
BRS services continues to be robust. During 2012, BRS
added 43 net new assignments and ended the year with
record revenues of $518 million. At year-end, BRS served
169 clients, including banks, insurance companies, official
institutions, pension funds, asset managers and other
institutional investors across North America, Europe, Asia
and Australia.
Our Aladdin business posted strong annual growth of 16%.
In 2012, we added $3.5 trillion in new assets to the Aladdin
platform with the addition of 16 clients and expansion of
10 existing client mandates. We now have 51 Aladdin
clients and $14 trillion of assets on the platform with the
average size of the Aladdin client growing substantially in
the last year. Aladdin assignments are long-term
contracts that provide significant levels of recurring
revenue.
In FMA, the nature of assignments is shifting to longer-
term advisory and risk monitoring engagements. Advisory
AUM decreased 62% to $45.5 billion, driven by $74.5
billion of planned client distributions reflecting our
continued success in disposing of assets for clients at, or
above, targeted levels.
Securities Lending
Securities lending, which is offered as a potential source
of incremental returns on long-term portfolios, is
managed by a dedicated team, supported by quantitative
analysis, proprietary technology and disciplined risk
management. The cash management team invests the
cash we receive as collateral for securities on loan in other
portfolios. Fees for securities lending can be structured as
a share of earnings and/or as a management fee based on
a percentage of the value of the cash collateral. The value
of the securities on loan and the revenue earned is
captured in the corresponding asset class being managed.
The value of the collateral is not included in AUM.
Outstanding loan balances ended the year at
approximately $134 billion, up from $122 billion at year-
end 2011. Spreads were approximately flat compared to
2011, as lending premiums increased and offset declining
cash reinvestment spreads. The proportion of securities
commanding premium lending fees grew slowly through
the year, and started 2012 above the 2011 average.
BlackRock employs a conservative investment style for
cash and securities lending collateral that emphasizes
quality, liquidity and superior client service through all
market cycles. Disciplined risk management, including a
rigorous credit surveillance process, is an integral part of
the investment process. BlackRock’s Cash Management
Risk Committee has established risk limits, such as
aggregate issuer exposure limits and maturity limits,
across many of the products BlackRock manages,
including over all of its cash management products. In the
ordinary course of our business, there may be instances
when a portfolio may exceed an internal risk limit or when
an internal risk limit may be changed. No such instances,
individually or in the aggregate, have been material to the
Company. To the extent that daily evaluation/reporting of
the profile of the portfolios identifies that a limit has been
exceeded, the relevant portfolio will be adjusted. To the
extent a portfolio manager would like to obtain a
temporary waiver of a risk limit, the portfolio manager
must obtain approval from the credit research team,
which is independent from the cash management portfolio
managers. While a risk limit may be waived, such
temporary waivers are infrequent.
13
Risk & Quantitative Analysis
Across all asset classes, in addition to the efforts of the
portfolio management teams, the Risk & Quantitative
Analysis (“RQA”) group at BlackRock draws on extensive
analytical systems and proprietary and third-party data to
identify, measure and manage a wide range of risks. RQA
provides risk management advice and independent risk
oversight of the investment management processes,
identifies and helps manage counterparty and operational
risks, coordinates standards for firm wide investment
performance measurement and determines risk
management-related analytical and information
requirements. Where appropriate, RQA will work with
portfolio managers and developers to facilitate the
development or improvement of risk models and analytics.
Competition
BlackRock competes with investment management firms,
mutual fund complexes, insurance companies, banks,
brokerage firms and other financial institutions that offer
products that are similar to, or alternatives to, those
offered by BlackRock. In order to grow its business,
BlackRock must be able to compete effectively for AUM.
Key competitive factors include investment performance
track records, the efficient delivery of beta for passively
managed products, investment style and discipline, client
service and brand name recognition. Historically, the
Company has competed principally on the basis of its
long-term investment performance track record, its
investment process, its risk management and analytic
capabilities and the quality of its client service. These
factors may place BlackRock at a competitive
disadvantage and there can be no assurance that the
Company’s strategies and efforts to maintain its existing
AUM and to attract new business will be successful.
Geographic Information
At December 31, 2012, BlackRock had clients in over 100
countries across the globe, including the United States,
the United Kingdom and Japan.
The following table illustrates the Company’s total
revenue for 2012, 2011 and 2010 by geographic region.
These amounts are aggregated on a legal entity basis and
do not necessarily reflect where the customer resides.
(Dollar amounts in millions)
Revenue 2012 2011 2010
Americas ..................... $6,429 $6,064 $5,824
Europe ....................... 2,460 2,517 2,300
Asia-Pacific ................... 448 500 488
Total revenue .............. $9,337 $9,081 $8,612
The following table illustrates the Company’s long-lived
assets, including goodwill and property and equipment at
December 31, 2012, 2011 and 2010 by geographic region.
These amounts are aggregated on a legal entity basis and
do not necessarily reflect where the asset is physically
located.
(Dollar amounts in millions)
Long-lived Assets 2012 2011 2010
Americas ..................... $13,238 $13,133 $13,092
Europe ....................... 166 123 42
Asia-Pacific ................... 63 73 99
Total long-lived assets ...... $13,467 $13,329 $13,233
Americas primarily comprises the United States, Canada,
Brazil and Mexico, while Europe primarily comprises the
United Kingdom. Asia-Pacific primarily comprises Japan,
Australia and Hong Kong.
Employees
At December 31, 2012, BlackRock had a total of
approximately 10,500 employees, including approximately
4,800 located in offices outside the United States.
Consistent with our commitment to continually expand
and enhance our talent base to support our clients, we
added approximately 400 employees during the year,
including in strategic focus areas such as business
operations, Aladdin applications development, iShares,
alternatives, institutional sales and Asia.
Regulation
Virtually all aspects of BlackRock’s business are subject
to various laws and regulations both in and outside the
United States, some of which are summarized below.
These laws and regulations are primarily intended to
protect investment advisory clients, investors in
registered and unregistered investment companies, trust
customers of BlackRock Institutional Trust Company, N.A.
(“BTC”), PNC and its bank subsidiaries and their
customers, and the financial system. Under these laws
and regulations, agencies that regulate investment
advisers, investment funds and financial and bank holding
companies and their subsidiaries, such as BlackRock and
its subsidiaries, have broad administrative powers,
including the power to limit, restrict or prohibit the
regulated entity from carrying on business if it fails to
comply with such laws and regulations. Possible
sanctions for significant compliance failures include the
suspension of individual employees, limitations on
engaging in certain lines of business for specified periods
of time, revocation of investment adviser and other
registrations, censures and fines. The rules governing the
regulation of financial institutions and their holding
companies and subsidiaries are very detailed and
technical. Accordingly, the discussion below is general in
nature, does not purport to be complete and is current
only as of the date of this report.
14
Regulatory Reform
In July 2010, the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “DFA”) was signed into law
in the United States. The DFA is expansive in scope and
requires the adoption of extensive regulations and
numerous regulatory decisions in order to be fully
implemented. The continued adoption of these regulations
and decisions will in large measure determine the impact
of the DFA on BlackRock and other financial services
firms. The DFA may significantly change BlackRock’s
operating environment and the financial markets in
general in unpredictable ways. It is not possible to predict
the ultimate effects that the DFA, or subsequent
implementing regulations and decisions, will have upon
BlackRock’s business, financial condition, and results of
operations. Among the potential impacts, provisions of the
DFA referred to as the Volcker Rule could, to the extent
the final Volcker Rule is determined to apply to
BlackRock’s activities, affect the extent to which
BlackRock invests in and transacts with certain of its
investment funds, including private equity funds, hedge
funds and fund of funds platforms. The impact of the
Volcker Rule on liquidity and pricing in the broader
financial markets is unknown at this time. For a further
discussion of the Volcker Rule, see “Item 1A – Risk
Factors – Legal and Regulatory Risks.” In addition,
BlackRock could be designated a systemically important
financial institution (“SIFI”) and become subject to direct
supervision by the Board of Governors of the Federal
Reserve System (the “Federal Reserve”). If BlackRock
were designated a SIFI, it could be subject to enhanced
prudential, supervisory and other requirements, such as
risk-based capital requirements; leverage limits; liquidity
requirements; resolution plan and credit exposure report
requirements; concentration limits; a contingent capital
requirement; enhanced public disclosures; short-term
debt limits; and overall risk management requirements.
Further, new regulations under the DFA, relating to
regulation of swaps and derivatives, will impact the
manner by which BlackRock and BlackRock-advised funds
and accounts use and trade swaps and other derivatives,
and may significantly increase the costs of derivatives
trading. Similarly, BlackRock’s management of funds and
accounts that use and trade swaps and derivatives could
be adversely impacted by recently adopted changes to the
Commodity Futures Trading Commission’s (the “CFTC”)
regulations. These rule changes include those concerning,
among other things, the registration and regulation of
commodity pool operators and commodity trading
advisors (and the accompanying registration and
regulation of such entities by the National Futures
Association (the “NFA”)), the registration status of dealer
counterparties and other counterparties who are major
participants in the swap markets, and requirements
concerning mandatory clearing of certain swap
transactions. Jurisdictions outside the United States
in which BlackRock operates are also in the process of
devising or considering more pervasive regulation of many
elements of the financial services industry, which could have
a similar impact on BlackRock and the broader markets.
The DFA and its regulations, and other new laws or
regulations, or changes in enforcement of existing laws or
regulations, could materially and adversely impact the
scope or profitability of BlackRock’s business activities;
require BlackRock to change certain business practices;
divert management’s time and attention from BlackRock’s
business activities to compliance activities; and expose
BlackRock to additional costs (including compliance and
tax costs) and liabilities, as well as reputational harm. For
example, in addition to regulatory changes mandated by
the DFA, the Securities and Exchange Commission (the
“SEC”) continues to review the role of and risks related to,
money market funds and has indicated that it may adopt
additional regulations. Some of the proposed changes, if
adopted, could significantly alter money market fund
products and the entire money market fund industry. In
2012, the Office of the Comptroller of the Currency of the
United States (the “OCC”) amended the regulations
governing bank-maintained short-term investment funds
(“STIFs”) to include new disclosure requirements
regarding portfolio holdings and to more closely align
portfolio limitations, such as maximum weighted average
maturity and weighted average life, with those applicable
to SEC registered money market funds. Similarly, the SEC
continues to review the distribution fees paid to mutual
fund distributors under Rule 12b-1 under the Investment
Company Act of 1940 (the “Investment Company Act”),
which are important to a number of the mutual funds
BlackRock manages. Any changes to 12b-1 fees would
alter the way BlackRock’s distribution partners distribute
BlackRock products. Additionally, the SEC, the Internal
Revenue Service (“IRS”) and the CFTC each continue to
review the use of futures and derivatives by mutual funds,
and such reviews could result in regulations that further
limit the use of futures and derivatives by mutual funds. If
adopted, these limitations could require BlackRock to
change certain mutual fund business practices or to
register additional entities with the CFTC, which could
result in additional costs and/or restrictions. In addition,
BlackRock has begun reporting certain information about
a number of its private funds to the SEC and certain
information about a number of its commodity pools to the
CFTC, pursuant to systemic risk reporting requirements
adopted by both agencies, which have required, and will
continue to require, investments in people and systems to
assure timely and accurate reporting. Still another
example of
changes in the regulatory landscape was the IRS’
implementation
of Foreign Account Tax Compliance Act
(“FATCA”). FATCA w as enacted in 2010 and is intended to
address tax compliance issues associated with U.S.
taxpayers with foreign accounts. FATCA requires foreign
15
financial
institutions to report to the IRS information
about financial accounts held by U.S. taxpayers and
imposes withholding, documentation and reporting
requirements on foreign financial institutions. Final
regulations were issued by the IRS on January 17, 2013,
with the earliest effective dates beginning in January 1,
2014. In many instances, however, the precise nature of
what needs to be implemented will be governed by
bilateral Intergovernmental Agreements (“IGAs”) between
the United States and the countries in which BlackRock
does business. Many of these IGAs have yet to be
concluded. FATCA could cause the Company to incur
significant administrative and compliance costs and
subject clients to U.S. tax withholding.
An example of changes in the regulatory landscape in
Europe is the European Union (“EU”) Alternative
Investment Fund Managers Directive (“AIFMD”), which
became effective on July 21, 2011 and is required to be
implemented by EU member states by July 22, 2013. The
AIFMD regulates managers of, and service providers to, a
broad range of alternative investment funds (“AIFs”)
domiciled within and (depending on the precise
circumstances) outside the EU. The AIFMD also regulates
the marketing of all AIFs inside the European Economic
Area (the “EEA”). In general, the AIFMD is expected to
have a staged implementation between mid-2013 and
2018. Compliance with the AIFMD’s requirements may
restrict AIF marketing and will place additional
compliance and disclosure obligations regarding
remuneration, capital requirements, leverage, valuation,
stakes in EU companies, depositaries, the domicile of
custodians and liquidity management.
Globally, regulators are examining the potential risks in
ETFs and may impose additional regulations on ETFs,
including requirements to promote increased
transparency and to limit the ability of ETFs to utilize
derivatives. The International Organization of Securities
Commissions is also examining the appropriate level of
regulatory oversight of financial benchmarks, whether
standards should apply to methodologies for benchmark
calculation, and transparency and governance issues in
the benchmarking process. Any of these regulatory
changes could also lead to business disruptions, could
materially and adversely impact the value of assets in
which BlackRock has invested directly and/or on behalf of
clients, and, to the extent the regulations strictly control
the activities of financial services firms, could make it
more difficult for BlackRock to conduct certain
businesses or distinguish itself from competitors.
Additional legislation, changes in rules promulgated by
regulators and self-regulatory organizations, or changes in
the interpretation or enforcement of existing laws and
regulations may directly affect the method of operation
and profitability of BlackRock. BlackRock’s profitability
also could be materially and adversely affected by
modification of the rules and regulations that impact the
business and financial communities in general, including
changes to the laws governing taxation, antitrust
regulation and electronic commerce. See the “–Non-U.S.
Regulation” section below for a further discussion of
regulatory reforms being considered and/or adopted
outside of the United States.
U.S. Regulation
BlackRock and certain of its U.S. subsidiaries are subject
to regulation, primarily at the federal level, by the SEC, the
Department of Labor (the “DOL”), the Federal Reserve, the
OCC, the Financial Industry Regulatory Authority
(“FINRA”), the NFA, the CFTC and other government
agencies and regulatory bodies. Certain of BlackRock’s
U.S. subsidiaries are also subject to various anti-terrorist
financing, privacy, anti-money laundering regulations and
economic sanctions laws and regulations established by
various agencies.
The Investment Advisers Act of 1940 (the “Advisers Act”),
imposes numerous obligations on registered investment
advisers such as BlackRock, including record-keeping,
operational and marketing requirements, disclosure
obligations and prohibitions on fraudulent activities. The
Investment Company Act imposes stringent governance,
compliance, operational, disclosure and related
obligations on registered investment companies and their
investment advisers and distributors, such as BlackRock.
The SEC is authorized to institute proceedings and impose
sanctions for violations of the Advisers Act and the
Investment Company Act, ranging from fines and censure
to termination of an investment adviser’s registration.
Investment advisers also are subject to certain state
securities laws and regulations. Non-compliance with the
Advisers Act, the Investment Company Act or other federal
and state securities laws and regulations could result in
investigations, sanctions, disgorgement, fines and
reputational damage.
BlackRock’s trading and investment activities for client
accounts are regulated under the Securities Exchange Act
of 1934 (the “Exchange Act”), as well as the rules of
various U.S. and non-U.S. securities exchanges and self-
regulatory organizations, including laws governing trading
on inside information, market manipulation and a broad
number of technical requirements (e.g., short sale limits,
volume limitations, reporting obligations) and market
regulation policies in the United States and globally.
Depending on the scope of the rules to be adopted by the
SEC, provisions added to the Exchange Act by the DFA
may require certain BlackRock subsidiaries to register as
municipal advisors in relation to their services for state
16
and local governments, pension plans and other
investment programs, such as college savings plans. In
addition, BlackRock manages a variety of investment
funds listed on U.S. and non-U.S. exchanges, which are
subject to the rules of such exchanges. Violation of these
laws and regulations could result in restrictions on the
Company’s activities and damage its reputation.
BlackRock manages a variety of private pools of capital,
including hedge funds, funds of hedge funds, private
equity funds, CDOs, real estate funds, collective
investment trusts, managed futures funds and hybrid
funds. Congress, regulators, tax authorities and others
continue to explore, on their own and in response to
demands from the investment community and the public,
increased regulation related to private pools of capital,
including changes with respect to investor eligibility,
certain limitations on trading activities, record-keeping
and reporting, the scope of anti-fraud protections,
safekeeping of client assets and a variety of other
matters. BlackRock may be materially and adversely
affected by new legislation, rule-making or changes in the
interpretation or enforcement of existing rules and
regulations imposed by various regulators.
Certain BlackRock subsidiaries are subject to the
Employee Retirement Income Security Act of 1974
(“ERISA”), and to regulations promulgated thereunder by
the DOL, insofar as they act as a “fiduciary” under ERISA
with respect to benefit plan clients. ERISA and applicable
provisions of the Internal Revenue Code impose certain
duties on persons who are fiduciaries under ERISA,
prohibit certain transactions involving ERISA plan clients
and impose excise taxes for violations of these
prohibitions, mandate certain required periodic reporting
and disclosures and require BlackRock to carry bonds
ensuring against losses caused by fraud or dishonesty.
ERISA also imposes additional compliance, reporting and
operational requirements on BlackRock that otherwise are
not applicable to non-benefit plan clients.
BlackRock has seven subsidiaries that are registered as
commodity pool operators (“CPOs”) and/or commodity
trading advisors with the CFTC and are members of the
NFA. Additional BlackRock entities may need to register
as a CPO or commodity trading advisor as a result of
recently enacted regulatory changes by the CFTC. The
CFTC and NFA each administer a comparable regulatory
system covering futures contracts and various other
financial instruments, including swaps as a result of the
DFA, in which certain BlackRock clients may invest. Three
of BlackRock’s other subsidiaries, BlackRock
Investments, LLC (“BRIL”), BlackRock Capital Markets,
LLC and BlackRock Execution Services, are registered
with the SEC as broker-dealers and are member-firms of
FINRA. Each broker-dealer has a membership agreement
with FINRA that limits the scope of such broker-dealer’s
permitted activities. BRIL is also an approved person with
the New York Stock Exchange (“NYSE”) and a member of
the Municipal Securities Rulemaking Board (“MSRB”)
subject to MSRB rules.
U.S. Banking Regulation
PNC is a bank holding company and regulated as a
“financial holding company” by the Federal Reserve under
the Bank Holding Company Act of 1956 (the “BHC Act”).
Based on PNC’s interests in and relationships with
BlackRock, BlackRock is deemed to be a non-bank
subsidiary of PNC and is therefore subject to the
supervision and regulation of the Federal Reserve and to
most banking laws, regulations and orders that apply to
PNC, including the Volcker Rule. The supervision and
regulation of PNC and its subsidiaries under applicable
banking laws is intended primarily for the protection of its
banking subsidiaries, its depositors, the Deposit
Insurance Fund of the Federal Deposit Insurance
Corporation, and the financial system as a whole, rather
than for the protection of stockholders, creditors or
clients of PNC or BlackRock. PNC’s relationships and good
standing with its regulators are important to the conduct
of BlackRock’s business. BlackRock may also be subject
to foreign banking laws and supervision that could affect
its business.
BTC is a limited purpose national trust company that does
not accept deposits or make commercial loans and is a
member of the Federal Reserve System. Accordingly, BTC
is examined and supervised by the OCC and is subject to
various banking laws and regulations enforced by the OCC,
such as capital adequacy, regulations governing
fiduciaries, conflicts of interest, self-dealing, and anti-
money laundering laws and regulations. BTC is also
subject to various Federal Reserve regulations applicable
to member institutions, such as regulations restricting
transactions with affiliates. Many of these laws and
regulations are meant for the protection of BTC’s
customers and not BTC, BlackRock and its affiliates, or
BlackRock’s stockholders.
BlackRock generally may conduct only activities that are
authorized for a “financial holding company” under the
BHC Act. Investment management is an authorized
activity, but must be conducted within applicable
regulatory requirements, which in some cases are more
restrictive than those BlackRock faces under applicable
securities laws. BlackRock may also invest in investment
companies and private investment funds to which it
provides advisory, administrative or other services, only to
the extent consistent with applicable law and regulatory
17
interpretations. The Federal Reserve has broad powers to
approve, deny or refuse to act upon applications or
notices for BlackRock to conduct new activities, acquire
or divest businesses or assets, or reconfigure existing
operations. There are limits on the ability of bank
subsidiaries of PNC to extend credit to or conduct other
transactions with BlackRock or its funds. PNC and its
subsidiaries are also subject to examination by various
banking regulators, which results in examination reports
and ratings that may adversely impact the conduct and
growth of BlackRock’s businesses.
The Federal Reserve has broad enforcement authority over
BlackRock, including the power to prohibit BlackRock
from conducting any activity that, in the Federal Reserve’s
opinion, is unauthorized or constitutes an unsafe or
unsound practice in conducting BlackRock’s business.
The Federal Reserve may also impose substantial fines
and other penalties for violations of applicable banking
laws, regulations and orders. The DFA strengthened the
Federal Reserve’s supervisory and enforcement authority
over a bank holding company’s non-bank affiliates, such
as BlackRock.
Any failure of PNC to maintain its status as a financial
holding company could result in substantial limitations on
certain BlackRock activities and its growth. Such a change
of status could be caused by any failure of one of PNC’s
bank subsidiaries to remain “well capitalized,” by any
examination downgrade of one of PNC’s bank subsidiaries,
or by any failure of one of PNC’s bank subsidiaries to
maintain a satisfactory rating under the Community
Reinvestment Act. In addition, the DFA broadened the
requirements for maintaining financial holding company
status by also requiring the holding company to remain
“well capitalized” and “well managed.”
Non-U.S. Regulation
BlackRock’s international operations are subject to the
laws and regulations of non-U.S. jurisdictions and non-
U.S. regulatory agencies and bodies and, in certain cases,
are affected by U.S. laws and regulations that have extra-
territorial application. As BlackRock continues to expand
its international presence, a number of its subsidiaries
and international operations have become subject to
regulatory frameworks comparable to those affecting its
operations in the United States.
The Financial Services Authority (the “FSA”) currently
regulates certain BlackRock subsidiaries in the United
Kingdom. Authorization by the FSA is required to conduct
any financial services related business in the United
Kingdom under the Financial Services and Markets Act
2000. The FSA’s rules made under that Act govern a firm’s
capital resources requirements, senior management
arrangements, conduct of business, interaction with
clients, and systems and controls. The FSA also
supervises the Company’s U.K.-regulated subsidiaries
under a “close and continuous” regime – which include
regular visits and meetings with senior management and
control functions – to monitor the Company’s compliance
with regulatory requirements. Breaches of the FSA’s rules
may result in a wide range of disciplinary actions against
the Company’s U.K.-regulated subsidiaries. In April 2013,
the FSA is expected to be replaced by Prudential
Regulation Authority and the Financial Conduct Authority.
Pending formal implementation, the FSA has introduced a
shadow internal structure in anticipation of the creation of
the Prudential Regulation Authority and the Financial
Conduct Authority, and the Bank of England has created
an interim Financial Policy Committee.
In addition to the above, the Company’s U.K.-regulated
subsidiaries and other European subsidiaries and
branches, must comply with the pan-European regulatory
regime established by the Markets in Financial
Instruments Directive (“MiFID”), which became effective
on November 1, 2007 and regulates the provision of
investment services and activities throughout the EEA, as
well as the Capital Requirements Directive, which
delineates regulatory capital requirements. MiFID sets out
detailed requirements governing the organization and
conduct of business of investment firms and regulated
markets. It also includes pre- and post-trade
transparency requirements for equity markets and
extensive transaction reporting requirements.
The United Kingdom has adopted the MiFID rules into
national legislation and FSA regulations, as have those
other European jurisdictions in which BlackRock has a
presence (excluding Switzerland which is not part of the
EU or EEA). A review of MiFID by the European Commission
has led to the publication of a draft amendment Directive
and a draft new Markets in Financial Instruments
Regulation. The proposals, if implemented, are likely to
result in changes to pre- and post-trade reporting
obligations and an expansion of the types of instruments
subject to these requirements. They may affect the buying
and selling of derivatives by moving most derivative
trading onto regulated trading venues and may control the
activities of algorithmic trading. The proposals may also
result in changes to conduct of business requirements
including selling practices, intermediary inducements and
client categorization. The proposals also envisage giving
the European Commission power to ban certain products
and services. A further European Commission Regulation,
the European Market Infrastructure Regulation (“EMIR”),
was adopted in August 2012, and requires the central
clearing of standardized OTC derivatives and the
mandatory reporting of all derivative contracts. Some of
the EMIR technical standards have recently been finalized
and the remainder are expected to be finalized in 2013.
18
In addition, the FSA has finalized rules relating to its retail
distribution review. These rules, which came into effect on
December 31, 2012, have changed how retail clients pay
for investment advice given in respect of all retail
investment products, including open-end and closed-end
funds, structured products and insurance-based savings
products. The FSA is also considering further rules that
would ban payments by product providers to distribution
platforms for both advised and non-advised business.
In the aftermath of the financial crisis, the European
Commission set out a detailed plan for EU financial
reform, outlining a number of initiatives to be reflected in
new or updated directives, regulations and
recommendations of which the MiFID review (mentioned
above) was a part. These, together with the changes
contemplated by the AIFMD (mentioned above), will have
direct and indirect effects on BlackRock’s operations in
the EEA.
The European Commission has also published proposals
to replace the Market Abuse Directive with a regulation on
insider dealing and market manipulation and with an
accompanying directive on criminal sanctions. There are
also ongoing plans to reform the framework to which
regulated firms are subject, including in relation to
regulatory capital and the protection of client assets,
which will have a direct effect on some of BlackRock’s
European operations.
The next iteration of the Undertakings for Collective
Investment in Transferable Securities Directive (“UCITS
IV”), was required to be adopted in the national law of
each EU member state by July 1, 2011. The United
Kingdom has adopted UCITS IV requirements into national
legislation and FSA regulation. Luxembourg and Ireland
have also adopted UCITS IV into their national legislation.
However, several other EU member states are still in
various stages of the adoption process. UCITS IV
introduced new requirements including a requirement on
UCITS funds to provide a key investor information
document. There are also European Commission
consultations in process that are intended to improve
retail investor protection, including UCITS V, which
addresses, among other items, custodial liability, and
UCITS VI, which includes proposals on depositaries,
money market funds and product management.
Proposals on packaged retail investment products
(“PRIPs”) are to be implemented through the
strengthening of MiFID standards (for non-insurance
PRIPs), revisions to the Insurance Mediation Directive’s
selling standard (for all insurance-based PRIPs) and new
investor disclosure requirements for all PRIPs though a
separate EU legislative process.
Certain individual EU Member States, such as France and
Italy, have enacted national financial transaction taxes
(“FTTs”), and a group of Member States also could adopt
an FTT under an EU Enhanced Cooperation procedure that
would apply only in those Member States. In general, any
tax on securities and derivatives transactions would likely
have a negative impact on the liquidity of the securities
and derivatives markets, could diminish the
attractiveness of certain types of products that we
manage in those countries and could cause clients to shift
assets away from such products. An FTT could
significantly increase the operational costs of our entering
into, on behalf of our clients, securities and derivatives
transactions that would be subjected to an FTT, which
would adversely impact our revenues.
For the insurance sector the Solvency II process will
increase the amount of capital that insurers will have to
set aside and will have an indirect effect on fund
managers with insurance clients. The Solvency II process
has been delayed from an original compliance date of
January 1, 2014; no new timetable has been currently
proposed.
In addition to the FSA, the activities of certain BlackRock
subsidiaries, branches, and representative offices are
overseen by financial services regulators in Germany, The
Netherlands, Ireland, Luxembourg, Switzerland, Isle of
Man, Jersey, France, Belgium, Italy, Poland, South Africa,
Spain and Sweden. Regulators in these jurisdictions have
authority with respect to financial services including,
among other things, the authority to grant or cancel
required licenses or registrations. In addition, these
regulators may subject certain BlackRock subsidiaries to
net capital requirements. Other BlackRock subsidiaries,
branches, and representative offices are regulated in
Japan, Australia, China, Hong Kong, Singapore, Taiwan,
South Korea, India, Dubai, Cayman Islands, Brazil, Chile,
Mexico and Canada.
In Japan, a BlackRock subsidiary is subject to the
Financial Instruments and Exchange Law (the “FIEL”) and
the Law Concerning Investment Trusts and Investment
Corporations. These laws are administered and enforced
by the Japanese Financial Services Agency (the “JFSA”),
which establishes standards for compliance, including
capital adequacy and financial soundness requirements,
customer protection requirements and conduct of
business rules. The JFSA is empowered to conduct
administrative proceedings that can result in censure,
fine, the issuance of cease and desist orders or the
suspension or revocation of registrations and licenses
granted under the FIEL.
19
In Australia, BlackRock’s subsidiaries are subject to
various Australian federal and state laws and certain
subsidiaries are regulated by the Australian Securities and
Investments Commission (“ASIC”) and the Australian
Prudential Regulation Authority (“APRA”). ASIC regulates
companies and financial services in Australia and is
responsible for promoting investor, creditor and consumer
protection. APRA is the prudential regulator of the
Australian financial services industry and oversees banks,
credit unions, building societies, general insurance and
reinsurance companies, life insurance, friendly societies
and most members of the superannuation (pension)
industry. Failure to comply with applicable law and
regulations could result in the cancellation, suspension or
variation of the regulated subsidiaries licenses in
Australia.
The activities of certain BlackRock subsidiaries in Hong
Kong are subject to the Securities and Futures Ordinance
(the “SFO”) which governs the securities and futures
markets and regulates, among others, offers of
investments to the public and provides for the licensing of
intermediaries. The SFO is administered by the Securities
and Futures Commission (the “SFC”). The SFC is also
empowered under the SFO to establish standards for
compliance as well as codes and guidelines. The relevant
BlackRock subsidiaries and the employees conducting any
of the regulated activities specified in the SFO are
required to be licensed with the SFC, and are subject to
the rules, codes and guidelines issued by the SFC from
time to time. Failure to comply with the applicable laws,
regulations, codes and guidelines issued by the SFC could
result in the suspension or revocations of the licenses
granted by the SFC.
There are parallel legal and regulatory arrangements in
force in many other non-U.S. jurisdictions where
BlackRock’s subsidiaries are authorized to conduct
business.
Available Information
BlackRock files annual, quarterly and current reports,
proxy statements and all amendments to these reports
and other information with the SEC. BlackRock makes
available free-of-charge, on or through its website at
http://www.blackrock.com, the Company’s Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, proxy statements and all
amendments to those filings, as soon as reasonably
practicable after such material is electronically filed with
or furnished to the SEC. The Company also makes
available on its website the charters for the Audit
Committee, Management Development and Compensation
Committee, Nominating and Governance Committee and
Risk Committee of the Board of Directors, its Code of
Business Conduct and Ethics, its Code of Ethics for Chief
Executive and Senior Financial Officers and its Corporate
Governance Guidelines. Further, BlackRock will provide,
without charge, upon written request, a copy of the
Company’s Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements and all amendments to those filings as well as
the committee charters, its Code of Business Conduct and
Ethics, its Code of Ethics for Chief Executive and Senior
Financial Officers and its Corporate Governance
Guidelines. Requests for copies should be addressed to
Investor Relations, BlackRock, Inc., 55 East 52nd Street,
New York, New York 10055. Investors may read and copy
any document BlackRock files at the SEC’s Public
Reference Room at 100 F Street N.E., Washington, D.C.
20549. Please call 1-800-SEC-0330 for further information
on the operation of the Public Reference Room. Reports,
proxy statements and other information regarding issuers
that file electronically with the SEC, including BlackRock’s
filings, are also available to the public from the SEC’s
website at http://www.sec.gov.
Item 1A. RISK FACTORS
As a leading investment management firm, risk is an
inherent part of BlackRock’s business. Global markets, by
their nature, are prone to uncertainty and subject
participants to a variety of risks. While BlackRock devotes
significant resources across all of its operations to
identify, measure, monitor, manage and analyze market
and operating risks, BlackRock’s business, financial
condition, operating results or non-operating results
could be materially adversely affected, or the Company’s
stock price could decline as a result of any of the following
risks.
Risks Related to BlackRock’s Business and Competition
Changes in the value levels of the capital, commodities or
currency markets or other asset classes could lead to a
decline in revenues and earnings.
BlackRock’s investment management revenues are
primarily comprised of fees based on a percentage of the
value of AUM and, in some cases, performance fees
expressed as a percentage of the returns earned on AUM.
Movements in equity, debt, commodity, real estate or
alternative investment market prices, interest rates or
foreign exchange rates could cause:
• the value of AUM to decrease;
• the returns realized on AUM to decrease;
20
• clients to withdraw funds in favor of products in
markets that they perceive offer greater
opportunity that BlackRock may not serve;
• clients to rebalance assets away from products that
BlackRock manages into products that it may not
manage;
• clients to rebalance assets away from products that
earn higher fees into products with lower fees; and
• an impairment to the value of intangible assets and
goodwill.
The occurrence of any of these events could result in
lower investment advisory, administration and
performance fees or earnings and cause the Company’s
stock price to decline.
Poor investment performance could lead to the loss of
clients and a decline in revenues and earnings.
The Company’s management believes that investment
performance, including the efficient delivery of beta for
passively managed products, is one of the most important
factors for the growth and retention of AUM. Poor
investment performance relative to applicable portfolio
benchmarks or to competitors could reduce revenues and
cause earnings to decline as a result of:
• existing clients withdrawing funds in favor of better
performing products, which could result in lower
investment advisory and administration fees;
• the diminishing ability to attract funds from
existing and new clients;
• the Company earning minimal or no performance
fees; and
• an impairment to the value of intangible assets and
goodwill.
The determination to provide support to particular
products from time to time or provide securities lending
indemnifications may reduce earnings or other
investments in the business.
BlackRock may, at its option, from time to time support
investment products through capital or credit support.
Such support and indemnifications utilize capital that
would otherwise be available for other corporate
purposes. Losses or prohibitions on such support and
indemnifications, or failure to have or devote sufficient
capital to support products and securities lending, could
have an adverse impact on revenues and earnings.
On behalf of certain clients, BlackRock lends securities to
highly rated banks and broker-dealers. In these securities
lending transactions, the borrower is required to provide
and maintain collateral at or above regulatory minimums.
Securities on loan are marked to market daily to
determine if the borrower is required to pledge additional
collateral. BlackRock has issued certain indemnifications
to certain securities lending clients against potential loss
resulting from a borrower’s failure to fulfill its obligations
should the value of the collateral pledged by the borrower
at the time of default be insufficient to cover the
borrower’s obligations under the securities lending
agreement. These indemnifications cover only the
collateral shortfall described above, and do not guarantee,
assume or otherwise insure the investment performance
or return of any cash collateral vehicle into which
securities lending cash collateral is invested. The amount
of securities on loan as of December 31, 2012 and subject
to indemnification was $99.5 billion. BlackRock held, as
agent, cash and securities totaling $104.8 billion as
collateral for indemnified securities on loan at
December 31, 2012 . BlackRock expects indemnified
balances to increase over time.
While the collateral pledged by a borrower is intended to
be sufficient to offset the borrower’s obligations to return
securities borrowed in the event of a borrower default,
BlackRock can give no assurance that the collateral
pledged by the borrower will be sufficient to fulfill such
obligations. If the amount of pledged collateral is not
sufficient to fulfill obligations to a client for whom
BlackRock has provided indemnification, BlackRock would
be responsible for the amount of the shortfall, which
could result in additional costs to BlackRock that cannot
be estimated with certainty at this time.
Changes in the value levels of the capital markets or other
asset classes could lead to a decline in the value of
investments that BlackRock owns.
At December 31, 2012, BlackRock’s net economic
investment exposure of approximately $1.2 billion in its
investments (see “Item 7A – Quantitative and Qualitative
Disclosures About Market Risk”) primarily resulted from
co-investments and seed investments in its sponsored
investment funds. A decline in the prices of equity or debt
securities, or the value of real estate or other alternative
investments within or outside the United States could
lower the value of these investments and result in a
decline of non-operating income and an increase in the
volatility of BlackRock’s earnings.
Continued capital losses on investments could have
adverse income tax consequences.
The Company may generate realized and unrealized
capital losses on seed investments and co-investments.
21
Realized capital losses may be carried back three years
and carried forward five years and offset against realized
capital gains for federal income tax purposes. The
Company has unrealized capital losses for which a
deferred tax asset has been established. In the event such
unrealized losses are realized, the Company may not be
able to offset such losses within the carryback or
carryforward period or from future realized capital gains,
in which case the deferred tax asset will not be realized.
The failure to utilize the deferred tax asset could
materially increase BlackRock’s income tax expense.
The soundness of other financial institutions could
adversely affect BlackRock.
Financial services institutions are interrelated as a result
of trading, clearing, counterparty, or other relationships.
BlackRock, and the products and accounts that it
manages, have exposure to many different industries and
counterparties, and routinely execute transactions with
counterparties in the financial services industry, including
brokers and dealers, commercial banks, investment
banks, clearing organizations, mutual and hedge funds,
and other institutional clients. Many of these transactions
expose BlackRock or the funds and accounts that it
manages to credit risk in the event of default of its
counterparty or client. While BlackRock regularly
conducts assessments of such risk posed by its
counterparties, the risk of non-performance by such
parties is subject to sudden swings in the financial and
credit markets, including the effects of the European
sovereign debt crisis and/or a collapse of the Eurozone
financial system. There is no assurance that any such
losses would not materially and adversely impact
BlackRock’s revenues and earnings.
The failure or negative performance of products of other
financial institutions could lead to reduced AUM in similar
products of BlackRock without regard to the performance
of BlackRock’s products.
The failure or negative performance of products of other
financial institutions could lead to a loss of confidence in
similar products of BlackRock without regard to the
performance of BlackRock’s products. Such a negative
contagion could lead to withdrawals, redemptions and
liquidity issues in such products and have a material
adverse impact on the Company’s AUM, revenues and
earnings.
Loss of employees could lead to the loss of clients and a
decline in revenues.
The ability to attract and retain quality personnel has
contributed significantly to BlackRock’s growth and
success and is important to attracting and retaining
clients. The market for qualified fund managers,
investment analysts, financial advisers and other
professionals is competitive. There can be no assurance
that the Company will be successful in its efforts to
recruit and retain required personnel. Loss of personnel
could have a material adverse effect on the Company.
BlackRock’s investment advisory contracts may be
terminated or may not be renewed by clients and the
liquidation of certain funds may be accelerated at the
option of investors.
Separate account and commingled trust clients may
terminate their investment management contracts with
BlackRock or withdraw funds on short notice. The
Company has, from time to time, lost separate accounts
and could, in the future, lose accounts or significant AUM
due to various circumstances such as adverse market
conditions or poor performance.
Additionally, BlackRock manages its U.S. mutual funds,
closed-end and exchanged-traded funds under
management contracts with the funds that must be
renewed and approved by the funds’ boards of directors
annually. A majority of the directors of each such fund are
independent from BlackRock. Consequently, there can be
no assurance that the board of directors of each fund
managed by the Company will approve the fund’s
management contract each year, or will not condition its
approval on the terms of the management contract being
revised in a way that is adverse to the Company.
Further, the governing agreements of many of the
Company’s private investment funds generally provide
that, subject to certain conditions, investors in those
funds, and in some cases independent directors of those
funds, may remove BlackRock as the investment adviser,
general partner or the equivalent of the fund or liquidate
the fund without cause by a simple majority vote, resulting
in a reduction in the management or performance fees as
well as the total carried interest BlackRock could earn.
Failure to comply with client contractual requirements
and/or guidelines could result in damage awards against
BlackRock and loss of revenues due to client
terminations.
When clients retain BlackRock to manage assets or
provide products or services on their behalf, they typically
specify guidelines or contractual requirements that the
Company is required to observe in the provision of its
services. A failure to comply with these guidelines or
contractual requirements could result in damage to
BlackRock’s reputation or in its clients seeking to recover
losses, withdrawing their AUM or terminating their
contracts, any of which could cause the Company’s
revenues and earnings to decline.
22
Competitive fee pressures could reduce revenues and
profit margins.
The investment management industry, including the
offering of exchange-traded funds, is highly competitive
and has relatively low barriers to entry. To the extent that
BlackRock is forced to compete on the basis of price, it
may not be able to maintain its current fee structure. Fee
reductions on existing or future new business could cause
revenues and profit margins to decline.
Performance fees may increase revenue and earnings
volatility.
A portion of the Company’s revenues is derived from
performance fees on investment and risk management
advisory assignments. Performance fees represented
$463 million, or 5%, of total revenue for the year ended
December 31, 2012. In most cases, performance fees are
based on relative or absolute investment returns,
although in some cases they are based on achieving
specific service standards. Generally, the Company is
entitled to performance fees only if the returns on the
related portfolios exceed agreed-upon periodic or
cumulative return targets. If these targets are not
exceeded, performance fees for that period will not be
earned and, if targets are based on cumulative returns,
the Company may not earn performance fees in future
periods. Performance fees will vary from period to period
in relation to volatility in investment returns and the
timing of revenue recognition, causing earnings to be more
volatile.
Additional acquisitions may decrease earnings and harm
the Company’s competitive position.
BlackRock employs a variety of strategies intended to
enhance earnings and expand product offerings in order to
improve profit margins. These strategies have included
hiring smaller-sized investment teams, acquisitions of
investment management businesses, such as the MLIM,
Quellos and BGI transactions and other small and
medium-sized strategic acquisitions. These strategies
may not be effective, and failure to successfully develop
and implement these strategies may decrease earnings
and harm the Company’s competitive position in the
investment management industry. In the event BlackRock
pursues additional acquisitions, it may not be able to find
suitable businesses to acquire at acceptable prices, and it
may not be able to successfully integrate or realize the
intended benefits from such acquisitions.
Risks Related to BlackRock’s Operations
Failure to maintain adequate infrastructure could impede
BlackRock’s productivity and growth.
The Company’s infrastructure, including its technological
capacity, data centers, and office space, is vital to the
competitiveness of its business. The failure to maintain an
adequate infrastructure commensurate with the size and
scope of its business, including any expansion, could
impede the Company’s productivity and growth, which
could cause the Company’s earnings or stock price to
decline. Additionally, the overall stability of the euro could
pose operational risks to the Company or the funds and
accounts that it manages as a result of the adverse
impacts that such issues may have on the Company’s
trading, clearing, or counterparty relationships.
Failure to maintain adequate business continuity plans
could have a material adverse impact on BlackRock and
its products.
A significant portion of BlackRock’s critical business
operations is concentrated in a few geographic areas,
including San Francisco, California, New York, New York
and London, England. A major earthquake, hurricane, fire,
terrorist or other catastrophic event could result in
disruption to the business. The failure of the Company to
maintain updated adequate business continuity plans,
including secure backup facilities, systems and personnel
could impede the Company’s ability to operate upon a
disruption, which could cause the Company’s earnings or
stock price to decline.
Operating in international markets increases BlackRock’s
operational, regulatory and other risks.
As a result of BlackRock’s extensive international
business activities, the Company faces increased
operational, regulatory, reputational and foreign exchange
rate risks. The failure of the Company’s systems of
internal control to properly mitigate such additional risks,
or of its operating infrastructure to support such
international activities, could result in operational failures
and regulatory fines or sanctions, which could cause the
Company’s earnings or stock price to decline.
Failure to maintain a technological advantage could lead
to a loss of clients and a decline in revenues.
A key element to BlackRock’s continued success is the
ability to maintain a technological advantage in providing the
sophisticated risk analytics incorporated into BlackRock’s
Aladdin technology platform that support investment
advisory and BRS clients. Moreover, the Company’s
technological and software advantage is dependent on a
number of third parties who provide various types of data
and software. The failure of these third parties to provide
such data or software could result in operational difficulties
and adversely impact BlackRock’s ability to provide services
to its investment advisory and BRS clients. There can be no
assurance that the Company will be able to maintain this
technological advantage or be able to effectively protect and
enforce its intellectual property rights in these systems and
processes.
23
Failure to implement effective information and cyber
security policies, procedures and capabilities could
disrupt operations and cause financial losses that could
result in a decrease in BlackRock’s earnings or stock
price.
BlackRock is dependent on the effectiveness of its
information and cyber security policies, procedures and
capabilities to protect its computer and
telecommunications systems and the data that reside on
or are transmitted through them. An externally caused
information security incident, such as a hacker attack,
virus or worm, or an internally caused issue, such as
failure to control access to sensitive systems, could
materially interrupt business operations or cause
disclosure or modification of sensitive or confidential
client or competitive information and could result in
material financial loss, loss of competitive position,
regulatory actions, breach of client contracts,
reputational harm or legal liability, which, in turn, could
cause a decline in the Company’s earnings or stock price.
The failure of a key vendor to BlackRock to fulfill its
obligations could have a material adverse effect on
BlackRock and its products.
BlackRock depends on a number of key vendors for
various fund administration, accounting, custody and
transfer agent roles and other operational needs. The
failure or inability of BlackRock to diversify its sources for
key services or the failure of any key vendors to fulfill their
obligations could lead to operational issues for the
Company and in certain products, which could result in
financial losses for the Company and its clients.
Failure to manage risks in operating BlackRock’s
securities lending program for clients could lead to a loss
of clients and a decline in revenues and liquidity.
The size of BlackRock’s securities lending programs
increased significantly with the completion of the BGI
Transaction. As part of these programs, BlackRock must
manage risks associated with (i) ensuring that the value of
the collateral held against the securities on loan does not
decline in value or become illiquid and that its nature and
value complies with regulatory requirements and
investment requirements; (ii) the potential that a borrower
defaults or does not return a loaned security on a timely
basis; and (iii) errors in the settlement of securities, daily
mark-to-market valuations and collateral collection. The
failure of the Company’s controls to mitigate these risks
could result in financial losses for the Company’s clients
that participate in its securities lending programs as well
as for the Company.
Risks Related to Relationships with Bank of America/
Merrill Lynch, PNC and Other Institutional Investors
Merrill Lynch is an important distributor of BlackRock’s
products, and the Company is, therefore, subject to risks
associated with the business of Merrill Lynch.
Under a global distribution agreement entered into with
Merrill Lynch, Merrill Lynch provides distribution, portfolio
administration and servicing for certain BlackRock
investment management products and services through
its various distribution channels. The Company may not be
successful in distributing products through Merrill Lynch
or in distributing its products and services through other
third-party distributors. If BlackRock is unable to
distribute its products and services successfully or if it
experiences an increase in distribution-related costs,
BlackRock’s business, results of operations or financial
condition may be materially and adversely affected.
Loss of market share within Merrill Lynch’s Global
Wealth & Investment Management business could harm
operating results.
A significant portion of BlackRock’s revenue has
historically come from AUM generated by Merrill Lynch’s
Global Wealth & Investment Management (“GWIM”)
business. BlackRock’s ability to maintain a strong
relationship within GWIM is material to the Company’s
future performance. If one of the Company’s competitors
gains significant additional market share within the GWIM
retail channel at the expense of BlackRock, then
BlackRock’s business, results of operations or financial
condition may be negatively impacted.
PNC has agreed to vote as a stockholder in accordance
with the recommendation of BlackRock’s Board of
Directors, and certain actions will require special board
approval or the prior approval of PNC and Merrill Lynch.
As discussed in our proxy statement, PNC has agreed to
vote all of its voting shares in accordance with the
recommendation of BlackRock’s Board of Directors in
accordance with the provisions of its stockholder
agreement with BlackRock. As a consequence, if the
shares held by PNC constitute a substantial portion of the
outstanding voting shares, matters submitted to a
stockholder vote that require a majority or a plurality of
votes for approval, including elections of directors, will
have a substantial number of shares voted in accordance
with the determinations of the BlackRock Board of
Directors. This arrangement has the effect of
concentrating a significant block of voting control over
BlackRock in its Board of Directors, whether or not
stockholders agree with any particular determination of
the Board. At December 31, 2012, PNC owned
approximately 20.8% of BlackRock’s voting common
stock.
24
As discussed in our proxy statement, pursuant to our
stockholder agreement with PNC, the following may not be
done without prior approval of all of the independent
directors, or at least two-thirds of the directors, then in
office:
• appointment of a new Chief Executive Officer of
BlackRock;
• any merger, issuance of shares or similar
transaction in which beneficial ownership of a
majority of the total voting power of BlackRock
capital stock would be held by persons different
than those currently holding such majority of the
total voting power, or any sale of all or substantially
all assets of BlackRock;
• any acquisition of any person or business which has
a consolidated net income after taxes for its
preceding fiscal year that equals or exceeds 20% of
BlackRock’s consolidated net income after taxes
for its preceding fiscal year if such acquisition
involves the current or potential issuance of
BlackRock capital stock constituting more than
10% of the total voting power of BlackRock capital
stock issued and outstanding immediately after
completion of such acquisition;
• any acquisition of any person or business
constituting a line of business that is materially
different from the lines of business BlackRock and
its controlled affiliates are engaged in at that time if
such acquisition involves consideration in excess of
10% of the total assets of BlackRock on a
consolidated basis;
• except for repurchases otherwise permitted under
their respective stockholder agreements, any
repurchase by BlackRock or any subsidiary of
shares of BlackRock capital stock such that after
giving effect to such repurchase BlackRock and its
subsidiaries shall have repurchased more than 10%
of the total voting power of BlackRock capital stock
within the 12-month period ending on the date of
such repurchase;
• any amendment to BlackRock’s certificate of
incorporation or bylaws;
• any matter requiring stockholder approval pursuant
to the rules of the NYSE; or
• any amendment, modification or waiver of any
restriction or prohibition on Merrill Lynch or its
affiliates provided for under its stockholder
agreements.
Additionally, BlackRock may not enter into any of the
following transactions without the prior approval of PNC:
• any sale of any subsidiary of BlackRock, the
annualized revenues of which, together with the
annualized revenues of any other subsidiaries
disposed of within the same year, are more than
20% of the annualized revenues of BlackRock for
the preceding fiscal year on a consolidated basis;
• for so long as BlackRock is a subsidiary of PNC for
purposes of the BHC Act, entering into any business
or activity that is prohibited for any such subsidiary
under the BHC Act;
• any amendment of any provision of a stockholder
agreement between BlackRock and any stockholder
beneficially owning greater than 20% of BlackRock
capital stock that would be viewed by a reasonable
person as being adverse to PNC or materially more
favorable to the rights of any stockholder
beneficially owning greater than 20% of BlackRock
capital stock than to PNC;
• any amendment, modification, repeal or waiver of
BlackRock’s certificate of incorporation or bylaws
that would be viewed by a reasonable person as
being adverse to the rights of PNC or more favorable
to the rights of any stockholder beneficially owning
greater than 20% of BlackRock capital stock, or any
settlement or consent in a regulatory enforcement
matter that would be reasonably likely to cause
PNC or any of its affiliates to suffer regulatory
disqualification, suspension of registration or
license or other material adverse regulatory
consequences; or
• a voluntary bankruptcy or similar filing by
BlackRock.
As discussed in our proxy statement, under BlackRock’s
stockholder agreement with Merrill Lynch, which
terminates on July 31, 2013, BlackRock may not enter into
any of the following transactions without the prior
approval of Merrill Lynch:
• any amendment, modification or waiver of any
provision of a stockholder agreement between
BlackRock and PNC or any stockholder beneficially
owning greater than 20% of BlackRock capital stock
that would be viewed by a reasonable person as
being adverse to Merrill Lynch or materially more
favorable to the rights of PNC or other stockholder
beneficially owning greater than 20% of BlackRock
capital stock than to Merrill Lynch;
• any amendment, modification, repeal or waiver of
BlackRock’s certificate of incorporation or bylaws
that would be viewed by a reasonable person as
being adverse to the rights of Merrill Lynch or more
favorable to the rights of PNC or other stockholder
beneficially owning greater than 20% of BlackRock
capital stock, or any settlement or consent in a
regulatory enforcement matter that would be
25
reasonably likely to cause Merrill Lynch or any of its
affiliates to suffer regulatory disqualification,
suspension of registration or license or other
material adverse regulatory consequences;
• any acquisition which would be reasonably likely to
require Merrill Lynch to register with the Federal
Reserve as a bank holding company or become
subject to regulation under the BHC Act, the Change
of Bank Control Act of 1978 or Section 10 of the
Homeowners Loan Act of 1934; or
• a voluntary bankruptcy or similar filing by
BlackRock.
Currently, Merrill Lynch and its affiliates own a de minimis
number of shares of our capital stock.
PNC and several other institutional stockholders own a
large portion of BlackRock’s capital stock. Future sales of
our common stock in the public market by the Company or
its large stockholders could adversely affect the trading
price of our common stock.
As of December 31, 2012, PNC owned 21.9% of the
Company’s capital stock and several other institutional
holders own in excess of 5% of BlackRock shares. The
Company has entered into a registration rights agreement
with PNC. The registration rights agreement, which
includes customary “piggyback” registration provisions,
may continue to allow PNC to cause us to file one or more
registration statements for the resale of its shares of
capital stock and cooperate in certain underwritten
offerings. Sales by us or our large stockholders of a
substantial number of shares of our common stock in the
public market pursuant to registration rights or otherwise,
or the perception that these sales might occur,
could cause the market price of our common stock to
decline.
Legal and Regulatory Risks
BlackRock is subject to extensive regulation in the United
States and internationally.
BlackRock’s business is subject to extensive regulation in
the United States and around the world. See the
discussion under “Item 1 – Business – Regulation.”
Violation of applicable laws or regulations could result in
fines, temporary or permanent prohibition of the
engagement in certain activities, reputational harm and
related client terminations, suspensions of personnel or
revocation of their licenses, suspension or termination of
investment adviser or broker-dealer registrations, or other
sanctions, which could have a material adverse effect on
BlackRock’s reputation, business, results of operations or
financial condition and cause the Company’s earnings or
stock price to decline.
BlackRock may be adversely impacted by legal and
regulatory changes in the United States and
internationally.
As previously mentioned, in July 2010, the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the
“DFA”) was signed into law. The DFA is expansive in scope
and requires the adoption of extensive regulations and
numerous regulatory decisions in order to be
implemented. The adoption of these regulations and
decisions will in large measure determine the impact of
the DFA on BlackRock. BlackRock is continuing to review
the impact of the legislation and related rule-making will
have on its business, financial condition and results of
operations.
The business impact of the DFA and its regulations, and
other new laws or regulations, including those affecting
money market funds, or changes in enforcement of
existing laws or regulations in the United States or
internationally, could adversely impact the scope or
profitability of BlackRock’s business activities, could
require BlackRock to change certain business practices
and could expose BlackRock to additional costs (including
compliance and tax costs).
The DFA charges the Board of Governors of the Federal
Reserve System (the “Federal Reserve”) with establishing
enhanced regulatory requirements for non-bank financial
institutions designated as “systemically important” by the
Financial Stability Oversight Council (“FSOC”). Among the
potential impacts of the DFA, if BlackRock were
designated a systemically important financial institution
(a “SIFI”), it could be subject to these enhanced
prudential, supervisory and other requirements, which,
individually or in the aggregate, could adversely impact
BlackRock’s business and operations.
Provisions of the DFA referred to as the “Volcker Rule”
place limitations on the ability of banks, and their
subsidiaries and affiliates, to engage in proprietary
trading and to invest in and transact with certain
investment funds, including hedge funds, private equity
funds and funds of those funds (collectively “covered
funds”). It is expected that the Volcker Rule will apply to
BlackRock by virtue of BlackRock’s relationship to PNC,
and BlackRock could become subject to similar
limitations if it is designated a SIFI. The Volcker Rule
became effective on July 21, 2012; however, final
implementing regulations have not yet been issued.
Entities subject to the Volcker Rule will have until at least
July 21, 2014 to come into compliance with the provisions
of the Volcker Rule. To the extent the Volcker Rule applies
to BlackRock, it would limit BlackRock’s ability to make
and retain investments in covered funds, require
BlackRock to remove its name from the name of its
covered funds, and limit investments in covered funds by
26
BlackRock employees, among other restrictions.
Depending on the final implementation of the Volcker Rule
and the granting of extensions, BlackRock could be
required to sell certain seed and co-investments that it
holds, including at a discount, depending on market
conditions. The scope of the definition of “covered funds”
is not yet known, and therefore these restrictions could
apply to funds other than those commonly referred to as
hedge funds and private equity funds. These limitations
and restrictions could disadvantage BlackRock against
those competitors that are not subject to the Volcker Rule
in the ability to attract clients into BlackRock covered
funds and to retain employees.
Regulatory authorities, including the Securities and
Exchange Commission (the “SEC”), the FSOC and the
International Organization of Securities Commissions,
continue to focus on the need for additional regulations
for money market mutual funds. In November 2012, the
FSOC issued proposed recommendations for money
market mutual fund reform for public comment, which
closed on February 15, 2013. The FSOC recommendations
included floating the net asset value of funds, requiring
net asset value buffers and requiring that a portion of
redemptions be held back by stable net asset value funds
for a period of time, the retention of capital and liquidity
gates and/or redemption fees. If adopted by the SEC,
these proposals could significantly affect money market
fund products and the entire money market fund industry.
In light of the uncertainty regarding what changes may
ultimately be adopted in a final SEC rule, we cannot
predict what investor appetite will be for money market
mutual fund products following the adoption of any such
reforms or the impact of such reforms on BlackRock.
In 2012, the Office of the Comptroller of the Currency of
the United States (the “OCC”) amended the regulations
governing bank-maintained short-term investment funds
(“STIFs”) to include new disclosure requirements
regarding portfolio holdings and to more closely align
portfolio limitations, such as maximum weighted average
maturity and weighted average life, with those applicable
to SEC registered money market funds. As a result of the
new OCC rules, BlackRock chose to sell certain securities
held within certain STIFs during the fourth quarter of 2012
and to make a one-time contribution to the STIFs to
maintain the value of the funds while ensuring compliance
with the OCC rules. As a result of the security sales, these
STIFs are currently in compliance with the new OCC rules.
The ultimate result of these rule changes is uncertain.
Further, regulations under the DFA relating to regulation
of swaps and derivatives could impact the manner by
which BlackRock-advised funds and accounts use and
trade swaps and other derivatives, and could significantly
increase the costs of derivatives trading conducted by
BlackRock on behalf of its clients. BlackRock will also
need to build new compliance mechanisms to monitor
compliance with SEC and Commodity Futures Trading
Commission (“CFTC”) rules concerning, among other
things, the registration and regulation of commodity pool
operators and commodity trading advisors (and the
accompanying registration and regulation of such entities
by the National Futures Association), the registration
status of dealer counterparties and other counterparties
who are major swap participants in the swap markets, and
requirements concerning mandatory clearing of certain
swap transactions. BlackRock, on behalf of its clients, is
also preparing for mandated central clearing of swaps and
mandated trading venue requirements.
In addition, BlackRock has begun reporting certain
information about a number of its private funds to the SEC
and certain information about a number of its commodity
pools to the CFTC, pursuant to systemic risk reporting
requirements adopted by both agencies, which have
required, and will continue to require, investments in
people and systems to assure timely and accurate
reporting.
The SEC, the Internal Revenue Service and the CFTC each
continue to review the use of futures and derivatives by
mutual funds, which could result in regulations that
further limit the use of futures and derivatives by mutual
funds. If adopted, these limitations could require
BlackRock to change certain mutual fund business
practices or to register additional entities with the CFTC,
which could result in additional costs and/or restrictions.
In addition, in the aftermath of the financial crisis, the
European Commission set out a detailed plan for EU
financial reform, outlining a number of initiatives to be
reflected in new or updated directives, regulations and
recommendations of which the review of the Markets in
Financial Instruments Directive (“MiFID”) was a part.
These, together with the changes contemplated by the
Alternative Investment Fund Managers Directive
(“AIFMD”), will have direct and indirect effects on
BlackRock’s operations in the European Economic Area,
including increased compliance, disclosure and other
obligations, which could impact BlackRock’s ability to
expand in these markets.
The foregoing regulatory changes, and other reforms
globally, could also lead to business disruptions, could
adversely impact the value of assets in which BlackRock
has invested on behalf of clients and/or via seed or co-
investments, and, to the extent the regulations strictly
control the activities of financial services firms, could
make it more difficult for BlackRock to conduct certain
business activities or distinguish itself from competitors.
See “Item 1 – Business – Regulation” above for additional
information regarding certain laws and regulations that
affect BlackRock’s business.
27
Failure to comply with the Investment Advisers Act of
1940 (the “Advisers Act”) and the Investment Company
Act of 1940 (the “Investment Company Act”) and related
regulations could result in substantial harm to
BlackRock’s reputation and results of operations.
Certain BlackRock subsidiaries are registered with the
SEC under the Advisers Act and BlackRock’s U.S. mutual
funds and exchange-traded funds are registered with the
SEC under the Investment Company Act. The Advisers Act
imposes numerous obligations and fiduciary duties on
registered investment advisers, including record-keeping,
operating and marketing requirements, disclosure
obligations and prohibitions on fraudulent activities. The
Investment Company Act imposes similar obligations, as
well as additional detailed operational and compliance
requirements, on investment advisers to registered
investment companies. The failure of any of the relevant
subsidiaries to comply with the Advisers Act or the
Investment Company Act could cause the SEC to institute
proceedings and impose sanctions for violations of either
of these acts, including censure, termination of an
investment adviser’s registration or prohibition to serve as
adviser to SEC-registered funds, and could lead to
litigation by investors in those funds or harm to the
Company’s reputation, any of which could cause its
earnings or stock price to decline.
Failure to comply with ERISA regulations could result in
penalties and cause the Company’s earnings or stock
price to decline.
Certain BlackRock subsidiaries are subject to the
Employee Retirement Income Security Act of 1974
(“ERISA”) and to regulations promulgated thereunder,
insofar as they act as a “fiduciary” under ERISA with
respect to benefit plan clients. ERISA and applicable
provisions of the Internal Revenue Code impose duties on
persons who are fiduciaries under ERISA, prohibit
specified transactions involving ERISA plan clients and
provide monetary penalties for violations of these
prohibitions. The failure of any of the relevant subsidiaries
to comply with these requirements could result in
significant penalties that could reduce the Company’s
earnings or cause its stock price to decline.
BlackRock is subject to banking regulations that may limit
its business activities.
Because the total equity ownership interest of PNC in
BlackRock exceeds certain thresholds, BlackRock is
deemed to be a non-bank subsidiary of PNC, which is
regulated as a financial holding company under the Bank
Holding Company Act of 1956. As a non-bank subsidiary of
PNC, BlackRock is subject to banking regulation, including
the supervision and regulation of the Federal Reserve.
Such banking regulation limits the activities and the types
of businesses that BlackRock may conduct. The Federal
Reserve has broad enforcement authority over BlackRock,
including the power to prohibit BlackRock from
conducting any activity that, in the Federal Reserve’s
opinion, is unauthorized or constitutes an unsafe or
unsound practice, and to impose substantial fines and
other penalties for violations. Any failure of PNC to
maintain its status as a financial holding company could
result in substantial limitations on certain BlackRock
activities and its growth. In addition, BlackRock’s trust
bank subsidiary is subject to regulation by the OCC, and is
subject to capital requirements established by the OCC.
The OCC has broad enforcement authority over
BlackRock’s trust bank subsidiary. Also, provisions of the
DFA referred to as the Volcker Rule could, to the extent
the final Volcker Rule is determined to apply to
BlackRock’s activities, affect the method by which
BlackRock invests in and operates its investment funds,
including private equity funds, hedge funds and fund of
funds platforms. Being subject to banking regulation,
including potentially the Volcker Rule, may put BlackRock
at a competitive disadvantage because most of its
competitors are not subject to these limitations.
Failure to comply with laws and regulations in the United
Kingdom, other member states of the European Union,
Hong Kong, Japan, Australia and other non-U.S.
jurisdictions in which BlackRock operates could result in
substantial harm to BlackRock’s reputation and results of
operations.
The FSA regulates BlackRock’s subsidiaries in the United
Kingdom. Authorization by the FSA is required to conduct
any financial services-related business in the United
Kingdom under the Financial Services and Markets Act
2000. The FSA’s rules made under that Act govern a firm’s
capital resources requirements, senior management
arrangements, conduct of business, interaction with
clients and systems and controls. Breaches of these rules
may result in a wide range of disciplinary actions against
the Company’s U.K.-regulated subsidiaries.
In addition, these subsidiaries, and other European
subsidiaries, branches or representative offices, must
comply with the pan-European regime established by
MiFID, which regulates the provision of investment
services and activities throughout the EEA, as well as the
Capital Requirements Directive, which delineates
regulatory capital requirements. As discussed under
“Item 1 - Business - Regulation,” in the aftermath of the
financial crisis the European Commission set out a detailed
plan to complete the EU’s financial reform, outlining a
number of initiatives to be reflected in new or updated
directives, regulations and recommendations. The AIFMD,
which became effective on July 21, 2011, is required to be
28
implemented by EU member states by July 22, 2013.
Compliance with the AIFMD’s requirements may restrict
alternative investment funds marketing and place
additional compliance and disclosure obligations regarding
remuneration, capital requirements, leverage, valuation,
stakes in EU companies, depositaries, the domicile of
custodians and liquidity management. UCITS IV was
required to be adopted in the national law of each EU
member state by July 1, 2011. UC ITS IV was adopted into
national law by the United Kingdom prior to the deadline
but several other EU member states are still in various
stages of the adoption process. There are also European
Commission consultations in process that are intended to
improve retail investor protection including UCITS V, which
addresses, among other items, custodial liability. Recent
proposals on packaged retail investment products
(“PRIPs”) are to be implemented through the strengthening
of MiFID standards (for non-insurance PRIPs), revisions to
the Insurance Mediation Directive’s selling standard (for all
insurance-based PRIPs) and new investor disclosure
requirements for all PRIPs through a separate EU
legislative process. In the United Kingdom, the Bribery Act
2010 came into force in July 2011 and has required the
implementation of additional procedures on the Company’s
U.K.-regulated subsidiaries. In addition, a retail
distribution review initiated by the FSA is expected to
change how investment advice is paid for in the United
Kingdom for all investment products. Final retail
distribution rules were published in 2011, with
implementation at the end of 2012. In a similar area, a
further European Commission Regulation, the European
Market Infrastructure Regulation (“EMIR”), was adopted in
August 2012, and requires the central clearing of
standardized OTC derivatives and the mandatory reporting
of all derivative contracts. Some of the EMIR technical
standards have recently been finalized and the remainder
are expected to be finalized in 2013.
In Japan, a BlackRock subsidiary is subject to the
Financial Instruments and Exchange Law (the “FIEL”) and
the Law Concerning Investment Trusts and Investment
Corporations. These laws are administered and enforced
by the Japanese Financial Services Agency (the “JFSA”),
which establishes standards for compliance, including
capital adequacy and financial soundness requirements,
customer protection requirements and conduct of
business rules. The JFSA is empowered to conduct
administrative proceedings that can result in censure,
fines, the issuance of cease and desist orders or the
suspension or revocation of registrations and licenses
granted under the FIEL.
In Australia, BlackRock’s subsidiaries are subject to
various Australian federal and state laws and certain
subsidiaries are regulated by the Australian Securities and
Investments Commission (“ASIC”) and the Australian
Prudential Regulation Authority. ASIC regulates
companies and financial services in Australia and is
responsible for promoting investor, creditor and consumer
protection. Failure to comply with applicable law and
regulations could result in the cancellation, suspension or
variation of the relevant subsidiaries’ licenses in Australia.
The activities of certain BlackRock subsidiaries in Hong
Kong are subject to the Securities and Futures Ordinance
(the “SFO”), which governs the securities and futures
markets and regulates, among others, offers of
investments to the public and provides for the licensing of
intermediaries. The SFO is administered by the Securities
and Futures Commission (the “SFC”). The SFC is also
empowered under the SFO to establish standards for
compliance as well as codes and guidelines. The relevant
BlackRock subsidiaries and the employees conducting any
of the regulated activities specified in the SFO are
required to be licensed with the SFC, and are subject to
the rules, codes and guidelines issued by the SFC from
time to time. Failure to comply with the applicable laws,
regulations, codes and guidelines issued by the SFC could
result in the suspension or revocations of the licenses
granted by the SFC.
There are similar legal and regulatory arrangements in
force in many other non-U.S. jurisdictions where
BlackRock’s subsidiaries conduct business or where the
funds and products it manages are organized. Failure to
comply with laws and regulations in any of these
jurisdictions could result in substantial harm to
BlackRock’s reputation and results of operation.
Legal proceedings could adversely affect operating
results, financial condition and cash flows for a particular
period.
Many aspects of BlackRock’s business involve substantial
risks of legal liability. The Company and certain of its
subsidiaries have been named as defendants in various
legal actions, including arbitrations, class actions and
other litigation arising in connection with BlackRock’s
activities. From time to time, BlackRock receives
subpoenas or other requests for information from various
U.S. and non-U.S. governmental and regulatory authorities
in connection with certain industry-wide, company-
specific or other investigations or proceedings.
Additionally, certain of the investment funds that the
Company manages are subject to lawsuits, any of which
could potentially harm the investment returns of the
applicable fund or result in the Company being liable to
the funds for any resulting damages.
Item 1B. UNRESOLVED STAFF COMMENTS
The Company has no unresolved comments from the SEC
staff relating to BlackRock’s periodic or current reports
filed with the SEC pursuant to the Exchange Act.
29
Item 2. PROPERTIES
BlackRock’s principal office, which is leased, is located at
55 East 52nd Street, New York, New York. BlackRock
leases additional office space in New York City at 40 East
52nd Street and throughout the world, including Boston,
Chicago, Edinburgh, Gurgaon (India), Hong Kong, London,
Melbourne, Munich, Princeton (New Jersey), San
Francisco, Seattle, Singapore, Sydney, Taipei and Tokyo.
The Company also owns an 84,500 square foot office
building in Wilmington (Delaware).
Item 3. LEGAL PROCEEDINGS
From time to time, BlackRock receives subpoenas or other
requests for information from various U.S. federal, state
governmental and domestic and international regulatory
authorities in connection with certain industry-wide or
other investigations or proceedings. It is BlackRock’s
policy to cooperate fully with such inquiries. The Company
and certain of its subsidiaries have been named as
defendants in various legal actions, including arbitrations
and other litigation arising in connection with BlackRock’s
activities. Additionally, certain of the investment funds
that the Company manages are subject to lawsuits, any of
which potentially could harm the investment returns of
the applicable fund or result in the Company being liable
to the funds for any resulting damages.
Management, after consultation with legal counsel,
currently does not anticipate that the aggregate liability, if
any, arising out of regulatory matters or lawsuits will have
a material effect on BlackRock’s results of operations,
financial position or cash flows. However, there is no
assurance as to whether any such pending or threatened
matters will have a material effect on BlackRock’s results
of operations, financial position or cash flows in any
future reporting period. Due to uncertainties surrounding
the outcome of these matters, management cannot
reasonably estimate the possible loss or range of loss that
may arise from these matters.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
30
Part II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
BlackRock’s common stock is listed on the NYSE and is traded under the symbol “BLK”. At the close of business on
January 31, 2013, there were 339 common stockholders of record. Common stockholders include institutional or omnibus
accounts that hold common stock for multiple underlying investors.
The following table sets forth for the periods indicated the high and low reported sale prices, period-end closing prices for
the common stock and dividends declared per share for the common stock as reported on the NYSE:
Common Stock
Price
Ranges
Closing
Price
Cash
Dividend
DeclaredHigh Low
2012
First Quarter ............................................ $205.60 $179.13 $204.90 $ 1.50
Second Quarter .......................................... $206.57 $163.37 $169.82 $ 1.50
Third Quarter ............................................ $183.00 $164.06 $178.30 $ 1.50
Fourth Quarter ........................................... $209.29 $177.17 $206.71 $ 1.50
2011
First Quarter ............................................ $209.77 $179.52 $201.01 $1.375
Second Quarter .......................................... $207.42 $183.51 $191.81 $1.375
Third Quarter ............................................ $199.10 $140.22 $148.01 $1.375
Fourth Quarter ........................................... $179.77 $137.00 $178.24 $1.375
BlackRock’s closing common stock price as of February 27,
2013 was $241.07.
Dividends
On January 16, 2013, the Board of Directors approved
BlackRock’s quarterly dividend of $1.68 to be paid on
March 25, 2013 to stockholders of record on March 7,
2013.
PNC and their respective affiliates along with other
institutional investors that hold non-voting participating
preferred stock receive dividends on these shares, which
are equivalent to the dividends received by common
stockholders.
Issuer Purchases of Equity Securities
During the three months ended December 31, 2012, the Company made the following purchases of its common stock, which
is registered pursuant to Section 12(b) of the Exchange Act.
Total
Number of
Shares
Purchased
(2)
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
Maximum
Number of
Shares
that
May Yet Be
Purchased
Under the
Plans or
Programs
(1)
October 1, 2012 through October 31, 2012 ...... 199,312 $187.87 189,000 3,404,900
November 1, 2012 through November 30,
2012 ................................... 644,724 $191.16 642,000 2,762,900
December 1, 2012 through December 31,
2012 ................................... 48,029 $197.54 37,500 2,725,400
Total ..................................... 892,065 $190.77 868,500
(1)
In January 2013, the Board of Directors approved an increase in the availability under the Company’s existing share repurchase program to allow for the
repurchase of up to 10.2 million shares of BlackRock common stock with no stated expiration date.
(2)
Includes purchases made by the Company primarily to satisfy income tax withholding obligations of employees and members of our Board of Directors related to
the vesting of certain restricted stock or restricted stock unit awards and purchases made by the Company as part of the publicly announced share repurchase
program.
31
Item 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived in part from, and should be read in conjunction with, the
consolidated financial statements of BlackRock and Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations included in this Form 10-K. Prior year data reflects certain reclassifications to conform to the
current year presentation.
Year ended December 31,
(Dollar amounts in millions, except per share data) 2012 2011 2010
(1)
2009 2008
Income statement data:
Revenue
Related parties
(2)
................................................. $ 5,501 $ 5,431 $ 5,025 $ 2,716 $3,006
Other third parties ............................................... 3,836 3,650 3,587 1,984 2,058
Total revenue ....................................................... 9,337 9,081 8,612 4,700 5,064
Expenses
Restructuring charges ............................................ — 32 — 22 38
Other operating expenses ......................................... 5,813 5,800 5,614 3,400 3,433
Total expenses ...................................................... 5,813 5,832 5,614 3,422 3,471
Operating income .................................................... 3,524 3,249 2,998 1,278 1,593
Total non-operating income (expense) .................................. (54) (114) 23 (6) (577)
Income before income taxes ........................................... 3,470 3,135 3,021 1,272 1,016
Income tax expense .............................................. 1,030 796 971 375 387
Net income ......................................................... 2,440 2,339 2,050 897 629
Less: Net income (loss) attributable to non-controlling interests ......... (18) 2 (13) 22 (155)
Net income attributable to BlackRock, Inc. ............................... $ 2,458 $ 2,337 $ 2,063 $ 875 $ 784
Per share data:
(3)
Basic earnings ...................................................... $ 14.03 $ 12.56 $ 10.67 $ 6.24 $ 5.86
Diluted earnings ..................................................... $ 13.79 $ 12.37 $ 10.55 $ 6.11 $ 5.78
Book value
(4)
........................................................ $148.20 $140.07 $136.09 $128.86 $92.91
Common and preferred cash dividends .................................. $ 6.00 $ 5.50 $ 4.00 $ 3.12 $ 3.12
December 31,
(Dollar amounts in millions) 2012 2011 2010 2009
(1)
2008
Balance sheet data:
Cash and cash equivalents ................................... $ 4,606 $ 3,506 $ 3,367 $ 4,708 $ 2,032
Goodwill and intangible assets, net ............................ 30,312 30,148 30,317 30,346 11,974
Total assets
(5)
.............................................. 200,451 179,896 178,459 178,124 19,924
Less:
Separate account assets
(6)
........................ 134,768 118,871 121,137 119,629 2,623
Collateral held under securities lending agreements
(6)
.. 23,021 20,918 17,638 19,335 —
Consolidated investment vehicles
(7)
................. 2,813 2,006 1,610 282 502
Adjusted total assets ......................... $ 39,849 $ 38,101 $ 38,074 $ 38,878 $16,799
Short-term borrowings ................................... $ 100 $ 100 $ 100 $ 2,234 $ 200
Convertible debentures .................................. — — 67 243 245
Long-term borrowings ................................... 5,687 4,690 3,192 3,191 697
Total borrowings ............................................ $ 5,787 $ 4,790 $ 3,359 $ 5,668 $ 1,142
Total stockholders’ equity .................................... $ 25,403 $ 25,048 $ 26,094 $ 24,329 $12,069
32
December 31,
(Dollar amounts in millions) 2012 2011 2010 2009
(1)
2008
Assets under management:
Equity:
Active ........................................... $ 287,215 $ 275,156 $ 334,532 $ 348,574 $ 152,216
iShares .......................................... 534,648 419,651 448,160 381,399 —
Fixed income:
Active ........................................... 656,331 614,804 592,303 595,580 477,492
iShares .......................................... 192,852 153,802 123,091 102,490 —
Multi-asset class ..................................... 267,748 225,170 185,587 142,029 77,516
Alternatives
(8)
:
Core ............................................ 68,367 63,647 63,603 66,058 60,954
Currency and commodities
(9)
........................ 41,428 41,301 46,135 36,043 590
Sub-total ...................................... 2,048,589 1,793,531 1,793,411 1,672,173 768,768
Non-ETF Index:
Equity ........................................... 1,023,638 865,299 911,775 806,082 51,076
Fixed Income ..................................... 410,139 479,116 425,930 357,557 3,873
Sub-total Non-ETF Index ........................... 1,433,777 1,344,415 1,337,705 1,163,639 54,949
Long-term ........................................... 3,482,366 3,137,946 3,131,116 2,835,812 823,717
Cash management .................................... 263,743 254,665 279,175 349,277 338,439
Sub-total ........................................... 3,746,109 3,392,611 3,410,291 3,185,089 1,162,156
Advisory
(10)
........................................... 45,479 120,070 150,677 161,167 144,995
Total ............................................... $3,791,588 $3,512,681 $3,560,968 $3,346,256 $1,307,151
(1)
Significant increases in 2009 (for balance sheet data and AUM) and 2010 (for income statement data) were primarily the result of the BGI Transaction that closed
on December 1, 2009.
(2)
BlackRock’s related party revenue includes fees for services provided to registered investment companies that it manages, which include mutual funds and
exchange-traded funds, as a result of the Company’s advisory relationship. In addition, equity method investments are considered related parties due to the
Company’s influence over the financial and operating policies of the investee. See Note 15 to the consolidated financial statements for more information on
related parties.
(3)
Participating preferred stock is considered to be a common stock equivalent for purposes of earnings per share calculations.
(4)
Total BlackRock stockholders’ equity, excluding appropriated retained earnings, divided by total common and preferred shares outstanding at December 31 of
the respective year-end.
(5)
Includes separate account assets that are segregated funds held for purposes of funding individual and group pension contracts and collateral held under
securities lending agreements related to these assets that have equal and offsetting amounts recorded in liabilities and ultimately do not impact BlackRock’s
stockholders’ equity or cash flows.
(6)
Equal and offsetting amounts, related to separate account assets and collateral held under securities lending agreements, are recorded in liabilities.
(7)
Includes assets held by consolidated variable interest entities and consolidated sponsored investments funds.
(8)
Data reflects the reclassification of prior period AUM into the current period presentation.
(9)
Amounts include commodity iShares.
(10)
Advisory AUM represents long-term portfolio liquidation assignments.
33
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-looking Statements
This report, and other statements that BlackRock may
make, may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act,
with respect to BlackRock’s future financial or business
performance, strategies or expectations. Forward-looking
statements are typically identified by words or phrases
such as “trend,” “potential,” “opportunity,” “pipeline,”
“believe,” “comfortable,” “expect,” “anticipate,”
“current,” “intention,” “estimate,” “position,” “assume,”
“outlook,” “continue,” “remain,” “maintain,” “sustain,”
“seek,” “achieve,” and similar expressions, or future or
conditional verbs such as “will,” “would,” “should,”
“could,” “may” and similar expressions.
BlackRock cautions that forward-looking statements are
subject to numerous assumptions, risks and
uncertainties, which change over time. Forward-looking
statements speak only as of the date they are made, and
BlackRock assumes no duty to and does not undertake to
update forward-looking statements. Actual results could
differ materially from those anticipated in forward-looking
statements and future results could differ materially from
historical performance.
In addition to risk factors previously disclosed in
BlackRock’s Securities and Exchange Commission (“SEC”)
reports and those identified elsewhere in this report the
following factors, among others, could cause actual
results to differ materially from forward-looking
statements or historical performance: (1) the introduction,
withdrawal, success and timing of business initiatives and
strategies; (2) changes and volatility in political, economic
or industry conditions, the interest rate environment,
foreign exchange rates or financial and capital markets,
which could result in changes in demand for products or
services or in the value of assets under management;
(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 and information security protection; (9) the
impact of legislative and regulatory actions and reforms,
including the Dodd-Frank Wall Street Reform and
Consumer Protection Act, and regulatory, supervisory or
enforcement actions of government agencies relating to
BlackRock or The PNC Financial Services Group, Inc.
(“PNC”); (10) terrorist activities, international hostilities
and natural disasters, which may adversely affect the
general economy, domestic and local financial and capital
markets, specific industries or BlackRock; (11) the ability
to attract and retain highly talented professionals;
(12) fluctuations in the carrying value of BlackRock’s
economic investments; (13) the impact of changes to tax
legislation, including income, payroll and transaction
taxes, and taxation on products or transactions, which
could affect the value proposition to clients and,
generally, the tax position of the Company;
(14) BlackRock’s success in maintaining the distribution of
its products; (15) the impact of BlackRock electing to
provide support to its products from time to time and any
potential liabilities related to securities lending or other
indemnification obligations; and (16) the impact of
problems at other financial institutions or the failure or
negative performance of products at other financial
institutions.
Overview
BlackRock, Inc. (“BlackRock” or the “Company”) is the
world’s largest publicly traded investment management
firm. BlackRock has portfolio managers located around
the world, including the United States, the United
Kingdom, the Netherlands, Japan, Hong Kong, Singapore,
Australia and Germany. At December 31, 2012, the
Company managed $3.792 trillion of assets under
management (“AUM”) on behalf of institutional and
individual investors worldwide. The Company provides a
wide array of products, including passively and actively
managed products in various equity, fixed income, multi-
asset class, alternative investment and cash management
products. BlackRock offers clients diversified access to
global markets through separate accounts, collective
investment trusts, open-end and closed-end mutual
funds, exchange-traded products, hedge funds and funds
of funds. BlackRock also provides global advisory services
for private investment funds and retail products. The
Company’s non-U.S. investment funds are based in a
number of domiciles and cover a range of asset classes,
including equities, fixed income, cash management and
alternatives. In addition, BlackRock Solutions
®
provides
market risk management, financial markets advisory and
enterprise investment system services to a broad base of
clients. Financial markets advisory services include
valuation services relating to illiquid securities,
dispositions and workout assignments (including long-
term portfolio liquidation assignments), risk management
and strategic planning and execution.
In the United States, retail offerings include various open-
end and closed-end funds, including iShares
®
, the global
product leader in exchange-traded products for
institutional, retail and HNW investors. There were 621
iShares products at December 31, 2012 compared with
504 at December 31, 2011 globally across equities, fixed
34
income and commodities, which trade like common stocks
on 20 exchanges worldwide. iShares AUM totaled $752.7
billion at December 31, 2012. The BlackRock Global
Funds, the Company’s primary retail fund group offered
outside the United States, are authorized for distribution
in 35 jurisdictions worldwide. Additional fund offerings
include structured products, real estate funds, hedge
funds, hedge funds of funds, private equity funds and
funds of funds, managed futures funds and exchange-
traded products. These products are sold to both U.S. and
non-U.S. HNW, retail and institutional investors in a wide
variety of active and passive strategies covering both
equity and fixed income assets.
BlackRock’s client base consists of financial institutions
and other corporate clients, pension plans, charities,
official institutions, such as central banks, sovereign
wealth funds, supranational authorities and other
government entities, HNW individuals and retail investors
around the world. BlackRock maintains a significant sales
and marketing presence both inside and outside the
United States that is focused on establishing and
maintaining retail and institutional investment
management relationships by marketing its services to
investors directly and through financial professionals,
pension consultants and establishing third-party
distribution relationships. BlackRock also distributes its
products and services through Merrill Lynch under a
global distribution agreement in effect until January 2014.
After such term, the agreement will renew for one
automatic three-year extension if certain conditions are
met.
On May 29, 2012, BlackRock completed a secondary
offering of 26,211,335 shares of common stock held by
Barclays Bank PLC (“Barclays”) at a price of $160.00 per
share, which included 23,211,335 shares of common stock
issued upon the conversion of Series B Convertible
Participating Preferred Stock (“Series B Preferred”) by a
subsidiary of Barclays. Upon completion of this offering,
BlackRock repurchased 6,377,552 shares directly from
Barclays at a price of $156.80 per share (consisting of
6,346,036 shares of Series B Preferred and 31,516 shares
of common stock). The total transactions, including the
full exercise of the underwriters’ option to purchase
2,621,134 additional shares in the secondary offering,
amounted to 35,210,021 shares, resulting in Barclays
exiting its entire ownership position in BlackRock.
On December 31, 2012, PNC held 20.8% of the Company’s
voting common stock and 21.9% of the Company’s capital
stock, which includes outstanding common and non-
voting preferred stock.
35
Financial information concerning the Company’s results of operations for the 12 months ended December 31, 2012
(“2012”), December 31, 2011 (“2011”) and December 31, 2010 (“2010”) are discussed below.
Executive Summary
(Dollar amounts in millions, except per share data) 2012 2011 2010
GAAP basis:
Total revenue ........................................................... $ 9,337 $ 9,081 $ 8,612
Total expenses ......................................................... 5,813 5,832 5,614
Operating income ....................................................... $ 3,524 $ 3,249 $ 2,998
Operating margin ........................................................ 37.7% 35.8% 34.8%
Non-operating income (expense), less net income (loss) attributable to non-
controlling interests
(1)
.................................................. (36) (116) 36
Income tax expense ..................................................... (1,030) (796) (971)
Net income attributable to BlackRock ...................................... $ 2,458 $ 2,337 $ 2,063
% attributable to common shares .......................................... 99.9% 99.1% 98.6%
Net income attributable to common shares .................................. $ 2,455 $ 2,315 $ 2,033
Diluted EPS components:
Operating income ....................................................... $ 13.65 $ 11.60 $ 10.28
Non-operating income (expense), less net income (loss) attributable to non-
controlling interests
(1)
.................................................. (0.14) (0.41) 0.12
Income tax benefit ...................................................... 0.28 1.18 0.15
Diluted earnings per common share ........................................ $ 13.79 $ 12.37 $ 10.55
Effective tax rate ........................................................ 29.5% 25.4% 32.0%
As adjusted
(2)
:
Total revenue ........................................................... $ 9,337 $ 9,081 $ 8,612
Total expenses ......................................................... 5,763 5,689 5,445
Operating income ....................................................... $ 3,574 $ 3,392 $ 3,167
Operating margin ....................................................... 40.4% 39.7% 39.3%
Non-operating income (expense), less net income (loss) attributable to non-
controlling interests
(1)
.................................................. (42) (113) 25
Income tax expense ..................................................... (1,094) (1,040) (1,053)
Net income attributable to BlackRock ...................................... $ 2,438 $ 2,239 $ 2,139
% attributable to common shares .......................................... 99.9% 99.1% 98.6%
Net income attributable to common shares .................................. $ 2,435 $ 2,218 $ 2,109
Diluted EPS components:
Operating income ....................................................... $ 13.84 $ 12.12 $ 10.85
Non-operating income (expense), less net income (loss) attributable to non-
controlling interests
(1)
.................................................. (0.16) (0.40) 0.09
Income tax benefit ...................................................... — 0.13 —
Diluted earnings per common share ....................................... $ 13.68 $ 11.85 $ 10.94
Effective tax rate ........................................................ 31.0% 31.7% 33.0%
Other:
Assets under management (end of period) ................................... $ 3,791,588 $ 3,512,681 $ 3,560,968
Diluted weighted-average common shares outstanding
(3)
...................... 178,017,679 187,116,410 192,692,047
Shares outstanding (end of period) ......................................... 171,215,729 178,309,109 191,191,553
Book value per share
(4)
................................................... $ 148.20 $ 140.07 $ 136.09
Cash dividends declared and paid per share ................................. $ 6.00 $ 5.50 $ 4.00
(1)
Net of net income (loss) attributable to non-controlling interests (“NCI”) (redeemable and nonredeemable).
(2)
As adjusted items are described in more detail in Non-GAAP Financial Measures.
(3)
Unvested restricted stock units (“RSUs”) that contain non-forfeitable rights to dividends are not included as they are deemed to be participating securities in
accordance with accounting principles generally accepted in the Unites States (“GAAP”). Upon vesting of the participating RSUs the shares are added to the
weighted-average shares outstanding that results in an increase to the percentage of net income attributable to common shares. In addition, non-voting
preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share.
(4)
Total BlackRock stockholders’ equity, excluding appropriated retained earnings, divided by total common and preferred shares outstanding at December 31 of
the respective year-end.
36
2012 Compared with 2011.
GAAP. Operating income of $3,524 million and operating
margin of 37.7% increased $275 million and 190 bps,
respectively, from 2011 reflecting growth in base fees and
higher performance fees. Operating income in 2012
included a $30 million charge related to a contribution to
certain of the Company’s bank-managed short-term
investment funds (“STIFs”). Non-operating income
(expense), less net income (loss) attributable to non-
controlling interests) increased $80 million due to higher
net positive marks on investments in 2012 compared with
2011, partially offset by higher interest expense resulting
from long-term debt issuances in May 2012 and May
2011. In 2012, income tax expense included a $21 million
benefit related to the resolution of certain outstanding tax
positions and a $50 million net non-cash benefit related to
the revaluation of certain deferred income tax liabilities
including tax legislation enacted in the United Kingdom
and the state and local income tax effect resulting from
changes in the Company’s organizational structure. In
2011, income tax expenses included a $24 million benefit
related to the resolution of certain outstanding tax
positions and $198 million of net non-cash tax benefits
due to a state tax election and enacted U.K., Japan, U.S.
state and local tax legislation. Earnings per diluted
common share rose $1.42 from 2011 due to higher net
income and the benefit of share repurchases. During 2012,
the Company repurchased 9.1 million shares.
As Adjusted. Operating income of $3,574 million and
operating margin of 40.4% increased $182 million and 70
bps, respectively, from 2011 reflecting higher revenues.
Operating income on an as adjusted basis excluded non-
GAAP expense adjustments totaling $50 million in 2012
and $143 million in 2011. Non-operating income
(expense), less net income (loss) attributable to non-
controlling interests) increased $71 million. Income tax
expense on an as adjusted basis excluded the $50 million
and $198 million non-cash benefits for 2012 and 2011,
respectively, described above. Earnings per diluted
common share rose $1.83 from 2011 reflecting the
improvement in net income and the benefit of share
repurchases.
See Non-GAAP Financial Measures for further information
on as adjusted items.
2011 Compared with 2010.
GAAP. Operating income of $3,249 million and operating
margin of 35.8% increased $251 million and 100 bps,
respectively, from 2010 reflecting higher base fees and
higher BlackRock Solutions and advisory revenue, partially
offset by lower performance fees and higher operating
expenses related to business growth. Operating income
and operating margin in 2011 also reflected $63 million of
U.K. lease exit costs related to the Company’s exit from
two London locations and $32 million of restructuring
charges. Results for 2010 included $90 million of Barclays
Global Investors (“BGI”) integration costs. Non-operating
income (expense), less net income (loss) attributable to
non-controlling interests) decreased $152 million due to
lower net positive marks on investments compared with
2010 and higher interest expense resulting from long-term
debt issuances in May 2011. Income tax expense in 2011
included the previously mentioned $24 million benefit and
$198 million of net non-cash tax benefits. In 2010, income
tax expense included a $30 million net non-cash benefit
related to the revaluation of certain net deferred income
tax liabilities primarily related to acquired intangible
assets due to enacted U.K. tax legislation. In addition,
2010 included the effect of favorable tax rulings and the
resolution of certain outstanding tax positions. Earnings
per diluted common share rose $1.82 from 2010.
As Adjusted. Operating income of $3,392 million and
operating margin of 39.7% increased $225 million and 40
bps, respectively, from 2010 reflecting higher revenues,
partially offset by net increases in operating expenses as
discussed above. Operating income on an as adjusted
basis excluded non-GAAP expense adjustments totaling
$143 million in 2011 and $169 million in 2010. Non-
operating income (expense), less net income (loss)
attributable to non-controlling interests) decreased $138
million. Income tax expense on an as adjusted basis
excluded the $198 million and $30 million non-cash
benefits in 2011 and 2010, respectively, described above.
Earnings per diluted common share rose $0.91 from 2010.
For further discussion of BlackRock’s revenue, expenses,
non-operating results and income tax expense, see
Discussion of Financial Results herein.
Business Outlook
BlackRock offers clients a broad range of equity, fixed
income, multi-asset and alternative investment products
designed to track various indices (beta), achieve returns in
excess of specified benchmarks (alpha) or deliver absolute
returns. The diversity of BlackRock’s investment platform,
across asset classes, investment styles and geographies
– combined with world-class risk management, analytics
and advisory expertise – positions the Company well to
meet the needs of clients in 2013 and beyond and to
continue to attract asset flows as investor needs and
sentiment evolve.
BlackRock ended 2012 with record assets under
management (“AUM”) of $3.792 trillion as clients sought
efficient tools and innovative solutions to meet their
investment objectives over both the short and long term.
The Company experienced strong client demand for
exchange traded funds and products (“ETFs” and “ETPs”,
respectively), alternative and emerging market investment
products, high-yielding income strategies, outcome-
oriented solutions and retirement-related products, and
the Company expects this demand to continue into 2013.
37
In early 2013, BlackRock continues to see signs of an
improving global economy. While this offers the potential
for greater financial market stability, political and
regulatory dynamics, persistent low interest rates and
protracted periods of heightened volatility will continue to
pose challenges in the investment landscape. BlackRock
will continue to monitor these factors actively in 2013,
along with global credit and monetary policies (including
quantitative easing and the direction of interest rates) and
their effects on corporate earnings growth.
While investing for stable income remains a core objective
for many of its clients, BlackRock expects clients –
particularly in its institutional business – to trend towards
barbelling their risk profile through the combination of
active and index strategies and the use of alternative and
multi-asset investment solutions, complemented with
access to BlackRock’s risk management tools and
advisory services.
AUM and Flows
• BlackRock’s unique combination of index and active
capabilities positions the Company well to help
underfunded corporate and public pension plans
narrow the gap between their assets and liabilities
with barbell strategies that use a combination of
index, alpha, multi-asset and alternative products.
As responsibility for retirement funding continues
to move away from defined benefit plans into
defined contributions plans and ultimately to
individuals, BlackRock is also well positioned to
offer individual investment options through its
LifePath
®
target date portfolios and a wide array of
ETFs and other mutual fund products.
• BlackRock has a leading global market share in
ETPs through iShares, which leads the industry in
AUM and the number of products offered in various
markets. The industry’s global growth reflects both
continued adoption of ETFs by institutional and
retail investors and the introduction of new
products. ETP asset growth has historically been
linked to positive markets, with investors looking to
capitalize on strong market returns. In the
continued environment of ultra-low interest rates,
industry flows shifted in 2012 toward fixed income
products and, within equities, to developed
markets. BlackRock believes there is opportunity in
emerging markets and is well positioned to grow its
active franchise in these markets, including China.
While more asset managers may enter the
marketplace and offer similar products at lower
fees, BlackRock believes that many factors beyond
price influence investor preferences. These
preferences are driven to varying degrees by
performance (as measured by tracking error, or the
difference between net returns on the ETP and the
corresponding targeted index), liquidity (the bid-ask
spread), tax-efficiency, transparency and client
service.
• BlackRock believes alternative investments will
continue to become more important for both
institutional and retail clients seeking higher
returns through alpha-generating products. Several
of BlackRock’s single strategy hedge funds are top
performers in the industry and are well positioned
to grow in 2013.
• Cash management assets may decline from year-
end levels if clients begin to re-risk their portfolios
in the search for yield or equity return opportunities
amid continued low interest rates, including in the
United States where the Federal Reserve expects
rates to remain low until 2014. BlackRock’s
diversified global product offerings, record of client
service and independent advisory capabilities may
enable it to retain a portion of these assets.
Regulatory Reform
• BlackRock will continue to monitor the evolving
regulatory landscape and to assess its influence on
the competitive environment, including on liquidity
and trading costs, which may present risks as well
as opportunities for BlackRock and its clients.
Performance fees and BRS/advisory fees
• BlackRock improved investment performance in key
areas such as fixed income and scientific active
equity in 2012 and strong investment performance
will again be a priority in 2013. Higher market levels
and investment performance may continue to
enable the Company’s alternative investment
products to contribute additional performance fee
revenue.
• BlackRock expects continuing strong global
demand for its Aladdin operating platform and its
comprehensive risk reporting capabilities from
sophisticated institutional investors and
governmental agencies investing in longer-term risk
management solutions. The Company also expects
to see continuing strong demand for its BlackRock
Solutions financial markets advisory services.
Future opportunities
• BlackRock intends to continue to invest in its
people, its platform and its global brand. The
Company will continue to build out its product
offering and geographic presence, including in
emerging markets, and to grow its iShares
franchise, both through organic growth and
targeted acquisitions.
38
Non-GAAP Financial Measures
BlackRock reports its financial results in accordance with
GAAP; however, management believes evaluating the
Company’s ongoing operating results may be enhanced if
investors have additional non-GAAP basis 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. 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.
Computations for all periods are derived from the
consolidated statements of income as follows:
(a) Operating income, as adjusted, and operating margin,
as adjusted:
Operating income, as adjusted, equals operating income,
GAAP basis, excluding certain items management deems
non-recurring, or transactions that ultimately will not
impact BlackRock’s book value, as indicated in the table
below. Operating income used for operating margin
measurement equals operating income, as adjusted,
excluding the impact of closed-end fund launch costs and
commissions. Operating margin, as adjusted, equals
operating income used for operating margin
measurement, divided by revenue (net of distribution and
servicing costs and amortization of deferred sales
commissions) used for operating margin measurement, as
indicated in the table below.
(Dollar amounts in millions) 2012 2011 2010
Operating income, GAAP basis $3,524 $3,249 $2,998
Non-GAAP expense adjustments:
BGI transaction/integration costs
Employee compensation and benefits ............................................ — — 25
General and administration ..................................................... — — 65
Total BGI transaction/integration costs .............................................. — — 90
U.K. lease exit costs ............................................................... (8) 63 —
Contribution to STIFs .............................................................. 30 — —
Restructuring charges ............................................................. — 32 —
PNC LTIP funding obligation ........................................................ 22 44 58
Merrill Lynch compensation contribution ............................................. — 7 10
Compensation expense related to appreciation (depreciation) on deferred compensation
plans ......................................................................... 6 (3) 11
Operating income, as adjusted 3,574 3,392 3,167
Closed-end fund launch costs ...................................................... 22 26 15
Closed-end fund launch commissions ................................................ 3 3 2
Operating income used for operating margin measurement ..................................... $3,599 $3,421 $3,184
Revenue, GAAP basis ..................................................................... $9,337 $9,081 $8,612
Non-GAAP adjustments:
Distribution and servicing costs ..................................................... (364) (386) (408)
Amortization of deferred sales commissions .......................................... (55) (81) (102)
Revenue used for operating margin measurement ............................................. $8,918 $8,614 $8,102
Operating margin, GAAP basis ............................................................. 37.7% 35.8% 34.8%
Operating margin, as adjusted ............................................................. 40.4% 39.7% 39.3%
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:
Operating income, as adjusted reflects non-GAAP expense
adjustments. BGI transaction and integration costs
consisted principally of compensation expense, legal fees,
marketing and promotional, occupancy and consulting
expenses incurred in conjunction with the BGI acquisition
from Barclays. U.K. lease exit costs represent costs to exit
two locations in London in the third quarter 2011. The
amount in 2012 represents an adjustment related to the
estimated costs initially recorded in third quarter 2011.
The contribution to STIFs represents a one-time
contribution to certain of the Company’s bank-managed
STIFs (see Liquidity and Capital Resources for more
information). Restructuring charges consist of
compensation costs and professional fees.
39
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 PNC and a Merrill Lynch & Co.,
Inc. (“Merrill Lynch”) cash compensation contribution, has
been excluded because it ultimately does not impact
BlackRock’s book value. The expense related to the Merrill
Lynch cash compensation contribution ceased at the end
of third quarter 2011. As of first quarter 2012, all of the
Merrill Lynch contributions had been received.
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 non-operating income (expense).
Management believes operating income exclusive of these
items is a useful measure in evaluating BlackRock’s
operating performance and helps enhance the
comparability of this information for the reporting periods
presented.
Operating margin, as adjusted:
Operating income used for measuring operating margin, as
adjusted, is equal to operating income, as adjusted,
excluding the impact of closed-end fund launch costs and
commissions. Management believes the exclusion of such
costs and commissions is useful because these costs can
fluctuate considerably and revenues associated with the
expenditure of these costs will not fully impact the
Company’s results until future periods.
Operating margin, as adjusted, allows the Company to
compare performance from period-to-period by adjusting
for items that may not recur, recur infrequently or may
have an economic offset in non-operating income
(expense). Examples of such adjustments include BGI
transaction and integration costs, U.K. lease exit costs,
contribution to STIFs, restructuring charges, closed-end
fund launch costs, commissions paid to certain employees
as compensation and fluctuations in compensation
expense based on mark-to-market movements in
investments held to fund certain compensation plans. The
Company also uses operating margin, as adjusted, to
monitor corporate performance and efficiency and as a
benchmark to compare its performance with other
companies. Management uses both the GAAP and non-
GAAP financial measures in evaluating the financial
performance of BlackRock. The non-GAAP measure by
itself may pose limitations because it does not include all
of the Company’s revenues and expenses.
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 earned by the Company.
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
revenues.
(b) Non-operating income (expense), less net income
(loss) attributable to non-controlling interests, as
adjusted:
Non-operating income (expense), less net income (loss)
attributable to NCI, as adjusted, is presented below. The
compensation expense offset is recorded in operating
income. This compensation expense has been included in
non-operating 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 non-operating income (expense), GAAP basis.
(Dollar amounts in millions) 2012 2011 2010
Non-operating income (expense), GAAP
basis ............................. $(54) $(114) $ 23
Less: Net income (loss) attributable
toNCI ........................ (18) 2 (13)
Non-operating income (expense)
(1)
...... (36) (116) 36
Compensation expense related to
(appreciation) depreciation on
deferred compensation plans .... (6) 3 (11)
Non-operating income (expense), less net
income (loss) attributable to NCI, as
adjusted .......................... $(42) $(113) $ 25
(1)
Net of net income (loss) attributable to NCI.
Management believes non-operating income (expense),
less net income (loss) attributable to NCI, as adjusted,
provides comparability of this information among
reporting periods and is an effective measure for
reviewing BlackRock’s non-operating contribution to its
results. As compensation expense associated with
(appreciation) depreciation on investments related to
certain deferred compensation plans, which is included in
operating income, substantially offsets the gain (loss) on
the investments set aside for these plans, management
40
believes non-operating income (expense), less net income
(loss) attributable to NCI, as adjusted, provides a useful
measure, for both management and investors, of
BlackRock’s non-operating results that impact book
value.
(c) Net income attributable to BlackRock, as adjusted:
Management believes net income attributable to
BlackRock, 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, as adjusted, equals net income
attributable to BlackRock, GAAP basis, adjusted for
significant non-recurring items, charges that ultimately
will not impact BlackRock’s book value or certain tax
items that do not impact cash flow.
(Dollar amounts in millions, except per share data) 2012 2011 2010
Net income attributable to BlackRock, GAAP basis ........................... $ 2,458 $ 2,337 $ 2,063
Non-GAAP adjustments, net of tax:
(d)
BGI transaction/integration costs .................................. — — 59
U.K. lease exit costs .............................................. (5) 43 —
Contribution to STIFs ............................................. 21 — —
Restructuring charges ............................................ — 22 —
PNC LTIP funding obligation ....................................... 14 30 40
Merrill Lynch compensation contribution ............................ — 5 7
Income tax law changes/election ................................... (50) (198) (30)
Net income attributable to BlackRock, as adjusted ........................... $ 2,438 $ 2,239 $ 2,139
Allocation of net income, as adjusted, to common shares
(e)
.................... $ 2,435 $ 2,218 $ 2,109
Diluted weighted-average common shares outstanding
(f)
...................... 178,017,679 187,116,410 192,692,047
Diluted earnings per common share, GAAP basis
(f)
............................ $ 13.79 $ 12.37 $ 10.55
Diluted earnings per common share, as adjusted
(f)
............................ $ 13.68 $ 11.85 $ 10.94
See note (a) Operating income, as adjusted, and operating margin, as adjusted, for information on BGI transaction/
integration costs, U.K. lease exit costs, contribution to STIFs, restructuring charges, PNC LTIP funding obligation and Merrill
Lynch compensation contribution.
During 2012, income tax changes included adjustments related to the revaluation of certain deferred income tax liabilities
due to tax legislation enacted in the United Kingdom and the state and local income tax effect resulting from changes in the
Company’s organizational structure. During 2011 and 2010, income tax changes included adjustments related to the
revaluation of certain deferred income tax liabilities due to a state tax election and enacted U.K., Japan, U.S. state and local
tax legislation. The resulting decrease in income taxes has been excluded from net income attributable to BlackRock, Inc.,
as adjusted, as these items do not have a cash flow impact and to ensure comparability among periods presented.
(d) In 2012, 2011 and 2010 non-GAAP adjustments were tax effected at 31.4%, 31.8% and 33%, respectively, reflecting a
blended rate applicable to the adjustments.
(e) Amounts exclude net income attributable to participating securities (see below).
(f) Non-voting participating preferred shares are considered to be common stock equivalents for purposes of determining
basic and diluted earnings per share calculations. Certain unvested RSUs are not included in diluted weighted-average
common shares outstanding as they are deemed participating securities in accordance with required provisions of
Accounting Standards Codification (“ASC”) 260-10, Earnings per Share. In 2012, 2011 and 2010, average outstanding
participating securities were 0.2 million, 1.8 million and 2.8 million, respectively.
41
Assets Under Management
AUM for reporting purposes generally is based upon how
investment advisory and administration fees are
calculated for each portfolio. Net asset values, total
assets, committed assets or other measures may be used
to determine portfolio AUM.
December 31, Variance
(Dollar amounts in millions) 2012 2011 2010 2012 vs. 2011 2011 vs. 2010
Equity:
Active ............................................. $ 287,215 $ 275,156 $ 334,532 4% (18%)
iShares ............................................ 534,648 419,651 448,160 27% (6%)
Fixed income:
Active ............................................. 656,331 614,804 592,303 7% 4%
iShares ............................................ 192,852 153,802 123,091 25% 25%
Multi-asset class ....................................... 267,748 225,170 185,587 19% 21%
Alternatives:
Core .............................................. 68,367 63,647 63,603 7% — %
Currency and commodities
(1)
.......................... 41,428 41,301 46,135 — % (10%)
Sub-total ...................................... 2,048,589 1,793,531 1,793,411 14% — %
Non-ETF Index
Equity ............................................. 1,023,638 865,299 911,775 18% (5%)
Fixed Income ....................................... 410,139 479,116 425,930 (14%) 12%
Sub-total Non-ETF Index ......................... 1,433,777 1,344,415 1,337,705 7% 1%
Long-term ......................................... 3,482,366 3,137,946 3,131,116 11% — %
Cash management ...................................... 263,743 254,665 279,175 4% (9%)
Sub-total ............................................. 3,746,109 3,392,611 3,410,291 10% (1%)
Advisory
(2)
............................................. 45,479 120,070 150,677 (62%) (20%)
Total ................................................. $3,791,588 $3,512,681 $3,560,968 8% (1%)
Mix of Assets Under Management – by Asset Class
2012 2011 2010
Equity:
Active ................................................................................... 8% 8% 9%
iShares .................................................................................. 14% 12% 13%
Fixed income:
Active ................................................................................... 17% 18% 17%
iShares .................................................................................. 5% 4% 3%
Multi-asset class ............................................................................. 7% 6% 5%
Alternatives:
Core .................................................................................... 2% 2% 2%
Currency and commodities
(1)
................................................................ 1% 1% 1%
Sub-total ............................................................................ 54% 51% 50%
Non-ETF Index
Equity ................................................................................... 27% 25% 26%
Fixed Income ............................................................................. 11% 14% 12%
Sub-total Non-ETF Index ............................................................... 38% 39% 38%
Long-term ................................................................................. 92% 90% 88%
Cash management ............................................................................ 7% 7% 8%
Sub-total .................................................................................... 99% 97% 96%
Advisory
(2)
................................................................................... 1% 3% 4%
Total ........................................................................................ 100% 100% 100%
(1)
Amounts include commodity iShares.
(2)
Advisory AUM represents long-term portfolio liquidation assignments.
42
The following table presents the component changes in BlackRock’s AUM for 2012, 2011 and 2010.
December 31,
(Dollar amounts in millions) 2012 2011 2010
Beginning assets under management ............................................. $3,512,681 $3,560,968 $3,346,256
Net subscriptions (redemptions)
(1)
Long-term
(2)
....................................................... (2,465) 67,349 131,206
Cash management ................................................. 5,048 (22,899) (61,424)
Advisory
(3)
......................................................... (74,540) (29,903) (12,021)
Total net subscriptions (redemptions) ..................................... (71,957) 14,547 57,761
BGI merger-related outflows
(4)
................................................... — (28,251) (120,969)
Acquisitions
(5)
................................................................. 13,742 — (6,160)
Market appreciation (depreciation) ............................................... 321,377 (27,513) 266,981
Foreign exchange
(6)
............................................................ 15,745 (7,070) 17,099
Total change .................................................................. 278,907 (48,287) 214,712
Ending assets under management ............................................... $3,791,588 $3,512,681 $3,560,968
(1)
Amounts include distributions representing return of capital and return on investment to investors.
(2)
Amounts include the effect of two single client low-fee institutional index fixed income outflows of $36.0 billion and $74.2 billion in first quarter 2012 and third
quarter 2012, respectively.
(3)
Advisory AUM represents long-term portfolio liquidation assignments.
(4)
Amounts include outflows due to manager concentration considerations prior to third quarter 2011 and outflows from scientific active equity performance prior
to second quarter 2011. As a result of client investment manager concentration limits and the scientific active equity performance, outflows were expected to
occur for a period of time subsequent to the close of the transaction.
(5)
Amounts include AUM acquired from Swiss Re Private Equity Partners (the “SRPEP Transaction”) in September 2012 of $6.2 billion, the Claymore Investments,
Inc. acquisition (the “Claymore Transaction”) in March 2012 of $7.6 billion and BGI acquisition adjustments in 2010 of $6.2 billion.
(6)
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
BlackRock has historically grown aggregate AUM through organic growth and acquisitions. Management believes that the
Company will be able to continue to grow AUM by focusing on strong investment performance, the efficient delivery of beta
for index products, client service, by developing new products and new distribution capabilities and by continuing
appropriate acquisitions.
The following table presents the component changes in BlackRock’s AUM for 2012.
(Dollar amounts in millions)
December 31,
2011
Net
subscriptions
(redemptions)
(1)
Acquisitions
(2)
Market
appreciation
(depreciation)
Foreign
exchange
(3)
December 31,
2012
Equity:
Active ........................ $ 275,156 $(18,111) $ — $ 28,550 $ 1,620 $ 287,215
iShares ....................... 419,651 52,973 3,517 56,433 2,074 534,648
Fixed income:
Active ........................ 614,804 892 — 40,524 111 656,331
iShares ....................... 153,802 28,785 3,026 6,325 914 192,852
Multi-asset class .................. 225,170 15,817 78 25,072 1,611 267,748
Alternatives:
Core .......................... 63,647 (3,922) 6,166 2,266 210 68,367
Currency and commodities
(4)
..... 41,301 (1,547) 860 1,307 (493) 41,428
Subtotal .................. 1,793,531 74,887 13,647 160,477 6,047 2,048,589
Non-ETF Index
Equity ........................ 865,299 19,154 95 138,730 360 1,023,638
Fixed Income .................. 479,116 (96,506) — 20,991 6,538 410,139
Sub-total Non-ETF Index ............ 1,344,415 (77,352) 95 159,721 6,898 1,433,777
Long-term ...................... 3,137,946 (2,465) 13,742 320,198 12,945 3,482,366
Cash management ................. 254,665 5,048 — 1,983 2,047 263,743
Sub-total ......................... 3,392,611 2,583 13,742 322,181 14,992 3,746,109
Advisory
(5)
......................... 120,070 (74,540) — (804) 753 45,479
Total ............................. $3,512,681 $(71,957) $13,742 $321,377 $15,745 $3,791,588
43
(1)
Amounts include distributions representing return of capital and return on investment to investors. Amount also includes the effect of two single client low-fee
institutional index fixed income outflows of $36.0 billion and $74.2 billion.
(2)
Amounts represent AUM acquired in the SRPEP Transaction in September 2012 of $6.2 billion and Claymore Transaction in March 2012 of $7.6 billion.
(3)
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(4)
Amounts include commodity iShares.
(5)
Advisory AUM represents long-term portfolio liquidation assignments.
AUM increased $278.9 billion, or 8%, to $3.792 trillion at
December 31, 2012 from $3.513 trillion at December 31,
2011. The increase in AUM was driven largely by market
gains and positive net new business, excluding the effect
of two single client low-fee, institutional index fixed
income outflows of $36.0 billion and $74.2 billion in first
quarter 2012 and third quarter 2012, respectively. Total
flows included $74.5 billion of planned advisory
distributions and acquired AUM related to the SRPEP and
the Claymore Transactions of $13.7 billion.
Net market appreciation of $321.4 billion reflected growth
in U.S. and global equity markets and $67.8 billion
appreciation in fixed income products across the majority
of strategies.
The $15.7 billion net increase in AUM from converting non-
U.S. dollar denominated AUM into U.S. dollars was
primarily due to the weakening of the U.S. dollar against
the pound sterling and the euro, partially offset by the
strengthening of the U.S. dollar against the Japanese yen.
The following table presents the component changes in BlackRock’s AUM for 2011.
(Dollar amounts in millions)
December 31,
2010
Net
subscriptions
(redemptions)
(1)
BGI merger-
related
outflows
(2)
Market
appreciation
(depreciation)
Foreign
exchange
(3)
December 31,
2011
Equity:
Active ........................... $ 334,532 $(22,876) $ (6,943) $(29,793) $ 236 $ 275,156
iShares .......................... 448,160 24,612 — (49,863) (3,258) 419,651
Fixed income:
Active ........................... 592,303 (17,398) (413) 40,366 (54) 614,804
iShares .......................... 123,091 26,876 — 4,824 (989) 153,802
Multi-asset class ..................... 185,587 42,654 — (401) (2,670) 225,170
Alternatives:
Core ............................. 63,603 48 (152) 179 (31) 63,647
Currency and commodities
(4)
........ 46,135 (3,818) — (1,462) 446 41,301
Subtotal ..................... 1,793,411 50,098 (7,508) (36,150) (6,320) 1,793,531
Non-ETF Index
Equity ........................... 911,775 22,403 (20,630) (48,402) 153 865,299
Fixed Income ..................... 425,930 (5,152) (113) 55,463 2,988 479,116
Sub-total Non-ETF Index ....... 1,337,705 17,251 (20,743) 7,061 3,141 1,344,415
Long-term ....................... 3,131,116 67,349 (28,251) (29,089) (3,179) 3,137,946
Cash management .................... 279,175 (22,899) — 128 (1,739) 254,665
Sub-total ............................ 3,410,291 44,450 (28,251) (28,961) (4,918) 3,392,611
Advisory
(5)
........................... 150,677 (29,903) — 1,448 (2,152) 120,070
Total ................................ $3,560,968 $ 14,547 $(28,251) $(27,513) $(7,070) $3,512,681
(1)
Amounts include planned distributions representing return of capital and return on investment to investors.
(2)
Amounts include outflows due to manager concentration considerations prior to third quarter 2011 and outflows from scientific active equity performance prior
to second quarter 2011 of $28.3 billion. As a result of client investment manager concentration limits and the scientific active equity performance, outflows were
expected to occur for a period of time subsequent to the close of the transaction.
(3)
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(4)
Amounts include commodity iShares.
(5)
Advisory AUM represents long-term portfolio liquidation assignments.
44
AUM decreased approximately $48.3 billion, or 1%, to
$3.513 trillion at December 31, 2011 from $3.561 trillion at
December 31, 2010. The decline in AUM was primarily
attributable to $34.6 billion in net market and foreign
exchange valuation declines, $29.9 billion of advisory
distributions and $22.9 billion of cash management net
outflows, partially offset by $67.3 billion of long-term net
new business, before giving effect to the final BGI merger-
related outflows of $28.3 billion recorded in the first half
of 2011.
Net market depreciation of $27.5 billion included $128.1
billion of depreciation in equity products resulting from
the decline in global equity, partially offset by
appreciation in fixed income products of $100.7 billion.
The $7.1 billion net decrease in AUM from converting non-
U.S. dollar denominated AUM into U.S. dollars was
primarily due to the strengthening of the U.S. dollar
against the euro, pound sterling and Canadian dollar,
partially offset by weakening of the U.S. dollar against the
Japanese yen.
Discussion of Financial Results
Introduction
BlackRock derives a substantial portion of its revenue
from investment advisory and administration fees, which
are recognized as the services are performed. Such fees
are primarily based on pre-determined percentages of the
market value of AUM or percentages of committed capital
during investment periods of certain alternative products
and are affected by changes in AUM, including market
appreciation or depreciation, foreign exchange translation
and net subscriptions or redemptions. Net subscriptions
or redemptions represent the sum of new client assets,
additional fundings from existing clients (including
dividend reinvestment), withdrawals of assets from, and
termination of, client accounts and distributions to
investors representing return of capital and return on
investments to investors. Market appreciation or
depreciation includes current income earned on, and
changes in the fair value of, securities held in client
accounts. Foreign exchange translation reflects the
impact of converting non-U.S. dollar denominated AUM
into U.S. dollars for reporting purposes.
BlackRock also earns revenue by lending securities on
behalf of clients, primarily to brokerage institutions. The
securities loaned are secured by collateral in the form of
cash or securities, with minimum collateral generally
ranging from approximately 102% to 112% of the value of
the loaned securities. The revenue earned is shared
between BlackRock and the funds or other third-party
accounts managed by the Company from which the
securities are borrowed. Historically, securities lending
revenue in the second quarter exceeds the other quarters
during the year.
Investment advisory agreements for certain separate
accounts and investment funds provide for performance
fees, based upon relative and/or absolute investment
performance, in addition to base fees based on AUM.
Investment advisory performance fees generally are
earned after a given period of time and when investment
performance exceeds a contractual threshold. As such,
the timing of recognition of performance fees may
increase the volatility of BlackRock’s revenue and
earnings. Historically, the magnitude of performance fees
in the third and fourth quarters generally exceeds the first
two calendar quarters in a year due to the greater number
of products with performance measurement periods that
end on either September 30 or December 31.
BlackRock provides a variety of risk management,
investment analytic and investment system and advisory
services to financial institutions, pension funds, asset
managers, foundations, consultants, mutual fund
sponsors, real estate investment trusts and government
agencies. These services are provided under the brand
name BlackRock Solutions and include a wide array of risk
management services, valuation services related to
illiquid securities, disposition and workout assignments
(including long-term portfolio liquidation assignments),
strategic planning and execution, and enterprise
investment system outsourcing to clients. Approximately
$14 trillion of positions are processed on the Company’s
Aladdin
®
operating platform, which serves as the
investment/risk solutions system for BlackRock and other
institutional investors. Fees earned for BlackRock
Solutions and advisory services are determined using
some, or all, of the following methods: (i) percentages of
various attributes of advisory AUM or value of positions on
the Aladdin platform, (ii) fixed fees and (iii) performance
fees if contractual thresholds are met.
BlackRock builds upon its leadership position to meet the
growing need for investment and risk management
solutions. Through its scale and diversity of products, it is
able to provide its clients with customized solutions
including fiduciary outsourcing for liability-driven
investments and overlay strategies for pension plan
sponsors, balance sheet management and related
services for insurance companies and target date and
target return funds, as well as asset allocation portfolios,
for retail investors. BlackRock is also able to service these
clients via its Aladdin platform to provide risk
management and other outsourcing services for
institutional investors and custom and tailored solutions
to address complex risk exposures.
45
The Company earns fees for transition management
services comprised of commissions from acting as an
introducing broker-dealer in buying and selling securities
on behalf of its customers. Commissions related to
transition management services are recorded on a trade-
date basis as securities transactions occur.
The Company also earns revenue related to operating
advisory company investments accounted for as equity
method investments.
Operating expenses reflect employee compensation and
benefits, distribution and servicing costs, amortization of
deferred sales commissions, direct fund expenses,
general and administration expenses and amortization of
finite-lived intangible assets.
• Employee compensation and benefits expense
includes salaries, commissions, temporary help,
deferred and incentive compensation, employer
payroll taxes, severance and related benefit
costs.
• Distribution and servicing costs, which are
primarily AUM driven, include payments made to
Merrill Lynch-affiliated entities under a global
distribution agreement, to PNC and Barclays, as
well as other third parties, primarily associated
with obtaining and retaining client investments in
certain BlackRock products.
• Direct fund expenses primarily consist of third-
party non-advisory expenses incurred by
BlackRock related to certain funds for the use of
index trademarks, reference data for indices,
custodial services, fund administration, fund
accounting, transfer agent services, shareholder
reporting services, legal expenses, audit and tax
services as well as other fund-related expenses
directly attributable to the non-advisory
operations of the fund. These expenses may vary
over time with fluctuations in AUM, number of
shareholder accounts, or other attributes directly
related to volume of business.
• General and administration expenses include
marketing and promotional, occupancy and
office-related costs, portfolio services (including
clearing expenses related to transition
management services), technology, professional
services, communications, closed-end fund
launch costs and other general and
administration expenses, including the impact of
foreign currency remeasurement.
Non-operating income (expense) includes the effect of
changes in the valuations on investments (excluding
available-for-sale investments) and earnings on equity
method investments, as well as interest and dividend
income and interest expense. Other comprehensive
income includes changes in valuations related to
available-for-sale investments. BlackRock primarily holds
seed and co-investments in sponsored investment
products that invest in a variety of asset classes,
including private equity, distressed credit/mortgage debt
securities, hedge funds and real estate. Investments
generally are made for co-investment purposes, to
establish a performance track record, to hedge exposure
to certain deferred compensation plans or for regulatory
purposes, including Federal Reserve Bank stock.
BlackRock does not engage in proprietary trading
activities that could conflict with the interests of its
clients.
In addition, non-operating income (expense) includes the
impact of changes in the valuations of consolidated
sponsored investment funds and consolidated
collateralized loan obligations (“CLOs”). The portion of
non-operating income (expense) not attributable to
BlackRock is allocated to NCI on the consolidated
statements of income.
46
Revenue
Variance
(Dollar amounts in millions) 2012 2011 2010
2012 vs.
2011
2011 vs.
2010
Investment advisory, administration fees and securities lending revenue:
Equity:
Active .................................................... $1,753 $1,967 $1,848 $(214) $ 119
iShares ................................................... 1,941 1,847 1,660 94 187
Fixed income:
Active .................................................... 1,182 1,104 1,047 78 57
iShares ................................................... 441 317 263 124 54
Multi-asset class .............................................. 957 894 740 63 154
Alternatives:
Core ..................................................... 525 557 522 (32) 35
Currency and commodities .................................. 131 136 110 (5) 26
Sub-total ............................................. 6,930 6,822 6,190 108 632
Non-ETF Index: ................................................
Equity .................................................... 552 488 424 64 64
Fixed income .............................................. 229 203 166 26 37
Sub-total Non-ETF Index .................................... 781 691 590 90 101
Long-term ............................................. 7,711 7,513 6,780 198 733
Cash management ......................................... 361 383 510 (22) (127)
Total base fees .................................................... 8,072 7,896 7,290 176 606
Investment advisory performance fees:
Equity ........................................................ 88 145 123 (57) 22
Fixed income .................................................. 48 35 55 13 (20)
Multi-asset class .............................................. 15 20 33 (5) (13)
Alternatives ................................................... 312 171 329 141 (158)
Total ............................................................ 463 371 540 92 (169)
BlackRock Solutions and advisory ........................................ 518 510 460 8 50
Distribution fees ...................................................... 71 100 116 (29) (16)
Other revenue ........................................................ 213 204 206 9 (2)
Total revenue ......................................................... $9,337 $9,081 $8,612 $ 256 $ 469
The table below lists the asset type mix of investment advisory, administration fees and securities lending revenue
(collectively “base fees”) and mix of average AUM by asset class:
Mix of Base Fees Mix of Average AUM by Asset Class
(1)
2012 2011 2010 2012 2011 2010
Equity:
Active ............................................... 22% 25% 25% 8% 9% 10%
iShares .............................................. 23% 23% 23% 13% 13% 12%
Fixed income:
Active ............................................... 15% 14% 14% 18% 18% 19%
iShares .............................................. 5% 4% 4% 5% 4% 4%
Multi-asset class ......................................... 12% 11% 10% 7% 6% 5%
Alternatives:
Core ................................................. 7% 7% 7% 2% 2% 2%
Currency and commodities .............................. 2% 2% 2% 1% 1% 1%
Sub-total ......................................... 86% 86% 85% 54% 53% 53%
Non-ETF Index:
Equity ............................................... 7% 6% 6% 27% 26% 26%
Fixed income ......................................... 3% 3% 2% 12% 13% 12%
Sub-total Non-ETF Index: ........................... 10% 9% 8% 39% 39% 38%
Long-term ........................................... 96% 95% 93% 93% 92% 91%
Cash management ........................................ 4% 5% 7% 7% 8% 9%
Total excluding Advisory AUM ............................... 100% 100% 100% 100% 100% 100%
(1)
Average AUM represents a five point average of quarter-end spot AUM.
47
In 2012, non-ETF Index equity and fixed income were 10%
of total base fees; however, AUM associated with these
base fees represented 39% of total average AUM. In 2011,
non-ETF Index equity and fixed income were 9% of total
base fees; however, AUM associated with these base fees
represented 39% of total average AUM.
2012 Compared with 2011.
Revenues increased $256 million, or 3%, in 2012 reflecting
market growth, positive flows, improvements in securities
lending revenue and strength in performance fees.
Investment Advisory, Administration Fees and Securities
Lending Revenue. Investment advisory, administration
fees and securities lending revenue totaled $8,072 million
in 2012 compared with $7,896 million in 2011. The current
year reflected an improvement in securities lending
revenue and higher advisory fees reflecting higher long-
term average AUM. Securities lending fees were $510
million in 2012 compared with $397 million in 2011,
reflecting higher lending rates and an increase in average
balances of securities on loan.
Performance Fees. Investment advisory performance fees
were $463 million in 2012 compared with $371 million in
2011, primarily reflecting higher performance fees from
alternative products, including fees from a disposition-
related opportunistic fund, which were partially offset by
lower fees from equity products.
BlackRock Solutions and Advisory. BlackRock Solutions
and advisory revenue in 2012 increased $8 million, or 2%,
from 2011, primarily due to higher revenue from Aladdin
mandates partially offset by the run off of revenues
associated with a lower level of advisory assets and lower
one-term revenue from advisory assignments.
Distribution Fees. Distribution fees of $71 million in 2012
decreased $29 million, or 29%, from $100 million in 2011,
primarily due to lower AUM in certain share classes of
BlackRock Funds.
Other Revenue. Other revenue increased $9 million, largely
reflecting higher earnings from certain operating advisory
company investments, partially offset by lower sales
commissions and marketing fees earned for services to
distribute iPath
®
products.
2011 Compared with 2010.
Revenues increased $469 million, or 5%, in 2011 largely
reflecting a $606 million increase in total investment
advisory, administration fees and securities lending
revenue, partially offset by lower performance fees of
$169 million.
Investment Advisory, Administration Fees and Securities
Lending Revenue. Investment advisory, administration
fees and securities lending revenue totaled $7,896 million
in 2011 compared with $7,290 million in 2010. 2011
reflected an improvement in base fees primarily due to
growth in long-term average AUM, which included the
benefit of net new business, partially offset by a decline in
fees from cash management products due to lower
average AUM and higher fee waivers. Securities lending
fees were $397 million in 2011 compared with $325 million
in 2010, reflecting an increase in average balances of
securities on loan and higher lending rates.
Performance Fees. Investment advisory performance fees
were $371 million in 2011 compared with $540 million in
2010, primarily reflecting lower performance fees from
alternative strategies, including multi-strategy and single-
strategy equity and fixed income hedge funds and
opportunistic funds. The decrease was partially offset by
higher performance fees due to strong relative
performance from regional/country and global equity
strategies.
BlackRock Solutions and Advisory. BlackRock Solutions
and advisory revenue in 2011 increased $50 million, or
11%, from 2010, largely driven by on-going and additional
Aladdin mandates and advisory assignments.
Distribution Fees. Distribution fees of $100 million in 2011
decreased $16 million, or 14%, from $116 million in 2010,
primarily due to lower AUM in certain share classes of
BlackRock Funds.
48
Expenses
Variance
(Dollar amounts in millions) 2012 2011 2010
2012 Vs.
2011
2011 Vs.
2010
Expenses, GAAP:
Employee compensation and benefits ................................ $3,287 $3,199 $3,097 $ 88 $102
Distribution and servicing costs ..................................... 364 386 408 (22) (22)
Amortization of deferred sales commissions .......................... 55 81 102 (26) (21)
Direct fund expenses .............................................. 591 563 493 28 70
General and administration:
Marketing and promotional ..................................... 384 315 328 69 (13)
Occupancy and office related ................................... 248 373 317 (125) 56
Portfolio services ............................................. 196 189 177 7 12
Technology ................................................... 150 146 152 4 (6)
Professional services .......................................... 114 139 115 (25) 24
Communications .............................................. 39 40 49 (1) (9)
Regulatory, filing and license fees ............................... 17 16 34 1 (18)
Charitable contributions ....................................... 6 7 26 (1) (19)
Closed-end fund launch costs ................................... 22 26 15 (4) 11
Other general and administration ................................ 183 164 141 19 23
Total general and administration expenses .................... 1,359 1,415 1,354 (56) 61
Restructuring charges ............................................. — 32 — (32) 32
Amortization of intangible assets .................................... 157 156 160 1 (4)
Total expenses, GAAP ................................................. $5,813 $5,832 $5,614 $ (19) $218
Less non-GAAP expense adjustments:
Employee compensation and benefits:
BGI integration costs .......................................... — — 25 — (25)
PNC LTIP funding obligation .................................... 22 44 58 (22) (14)
Merrill Lynch compensation contribution ......................... — 7 10 (7) (3)
Compensation expense related to appreciation (depreciation) on
deferred compensation plans ................................. 6 (3) 11 9 (14)
Sub-total ................................................ 28 48 104 (20) (56)
General and administration: ........................................
BGI integration costs .......................................... — — 65 — (65)
U.K. lease exit costs ........................................... (8) 63 — (71) 63
Contribution to STIFs .......................................... 30 — — 30 —
Sub-total ................................................ 22 63 65 (41) (2)
Restructuring charges ............................................. — 32 — (32) 32
Total non-GAAP expense adjustments ................................... 50 143 169 (93) (26)
Expenses, as adjusted:
Employee compensation and benefits ................................ 3,259 3,151 2,993 108 158
Distribution and servicing costs ..................................... 364 386 408 (22) (22)
Amortization of deferred sales commissions .......................... 55 81 102 (26) (21)
Direct fund expenses .............................................. 591 563 493 28 70
General and administration ......................................... 1,337 1,352 1,289 (15) 63
Amortization of intangible assets .................................... 157 156 160 1 (4)
Total expenses, as adjusted ............................................ $5,763 $5,689 $5,445 $ 74 $244
49
2012 Compared with 2011.
Total GAAP expenses decreased $19 million to $5,813
million in 2012 from $5,832 million in 2011. Excluding
certain items deemed non-recurring by management or
transactions that ultimately will not affect the Company’s
book value, total expenses, as adjusted, increased $74
million. The increase in total expenses, as adjusted, is
primarily attributable to increases in employee
compensation and benefits and direct fund expenses,
partially offset by a reduction in amortization of deferred
sales commissions, distribution and servicing costs and
general and administration expenses.
Employee Compensation and Benefits.
GAAP. Employee compensation and benefits expense
increased $88 million, or 3%, to $3,287 million in 2012
from $3,199 million in 2011. Employees at December 31,
2012 totaled approximately 10,500 compared with
approximately 10,100 at December 31, 2011.
As Adjusted. Employee compensation and benefits, as
adjusted, increased by $108 million, reflecting a $104
million increase in incentive compensation driven by
higher operating income, including higher performance
fees.
Distribution and Servicing Costs. Distribution and servicing
costs decreased $22 million, or 6%, to $364 million in 2012
from $386 million in 2011. The $22 million decrease
related to lower service fees from variable annuities and
lower cash management-related distribution costs. These
costs included payments to Bank of America/Merrill Lynch
under the global distribution agreement, PNC and
Barclays, as well as other third parties, primarily
associated with the distribution and servicing of client
investments in certain BlackRock products.
Distribution and servicing costs for 2012 and 2011
included $195 million and $207 million, respectively, of
costs attributable to Bank of America and affiliates.
Amortization of Deferred Sales Commissions. Amortization
of deferred sales commissions decreased $26 million, or
32%, to $55 million in 2012 from $81 million in 2011,
primarily related to lower sales in certain share classes of
U.S. open-end mutual funds.
Direct Fund Expenses. In 2012, direct fund expenses
increased $28 million from 2011 million, primarily
reflecting growth in average AUM for the funds
(predominantly iShares) where BlackRock pays certain
non-advisory expenses of the funds.
General and Administration Expenses.
GAAP. General and administration expenses decreased
$56 million, or 4%, to $1,359 million in 2012 from $1,415
million in 2011. Lower occupancy and office-related
expenses, primarily due to $63 million of U.K. lease exit
costs incurred in the third quarter 2011, and lower
professional services costs contributed to the overall net
decrease in general and administration expenses. The
decrease in general and administration expenses was
partially offset by higher marketing and promotional
expenses in connection with the brand campaign and a
one-time contribution to STIFs (see Liquidity and Capital
Resources for more information).
Non-GAAP Adjustments. In 2012, general and
administration expenses included the previously
mentioned contribution to STIFs. In 2011, general and
administration expenses included $63 million of U.K. lease
exit costs related to the Company’s exit from two London
locations. The adjustment for U.K. lease exit costs in 2012
represents an adjustment to the estimated costs initially
recorded in 2011. These amounts were excluded from as
adjusted general and administrative expenses.
As Adjusted. General and administration expenses, as
adjusted, of $1,337 million decreased $15 million in 2012
from $1,352 million in 2011. Lower occupancy and office-
related expenses, professional fees and consulting
expenses contributed to the overall decrease in as
adjusted general and administration expenses. The
decrease in as adjusted general and administration
expenses was partially offset by higher marketing and
promotional expenses in connection with the brand
campaign.
2011 Compared with 2010.
Total GAAP expenses increased $218 million, or 4%, to
$5,832 million in 2011 from $5,614 million in 2010.
Excluding certain items deemed non-recurring by
management or transactions that ultimately will not
affect the Company’s book value, total expenses, as
adjusted, increased $244 million, or 4%. The increase in
total expenses, as adjusted, is primarily attributable to
increases in employee compensation and benefits, direct
fund expenses and general and administration expenses,
partially offset by a reduction in distribution and servicing
costs and amortization of deferred sales commissions.
Employee Compensation and Benefits.
GAAP. Employee compensation and benefits expense
increased $102 million, or 3%, to $3,199 million in 2011
from $3,097 million in 2010. Employees at December 31,
2011 totaled approximately 10,100 compared with
approximately 9,100 at December 31, 2010.
50
As Adjusted. Employee compensation and benefits, as
adjusted, increased by $158 million, reflecting a $164
million increase in base salaries due to an increase in the
number of employees and salary levels, and a $41 million
increase in other compensation, including payroll
taxes, benefits, and commissions. These increases were
partially offset by a $47 million decrease in incentive
compensation.
Distribution and Servicing Costs. Distribution and servicing
costs decreased $22 million, or 5%, to $386 million in 2011
from $408 million in 2010. The $22 million decrease
related to lower cash management-related costs of $45
million, reflecting lower average AUM and higher yield-
support waivers resulting in lower levels of distribution
costs, partially offset by higher costs due to increases in
average AUM for open-end and closed-end funds,
separate accounts and variable annuities.
Distribution and servicing costs in 2011 included $207
million of costs attributable to Bank of America/Merrill
Lynch and affiliates, and $3 million of costs attributable to
PNC and affiliates compared with $246 million and $10
million, respectively, in 2010. Distribution and servicing
costs related to other third parties, including Barclays,
increased $24 million to $176 million in 2011 from $152
million in 2010 due to an expansion of distribution
platforms and higher long-term AUM.
Amortization of Deferred Sales Commissions. Amortization
of deferred sales commissions decreased $21 million, or
21%, to $81 million in 2011 from $102 million in 2010.
Lower sales in certain share classes of U.S. open-end
mutual funds contributed to the decline.
Direct Fund Expenses. Direct fund expenses increased $70
million reflecting growth in average AUM for the funds
(predominantly iShares) where BlackRock pays certain
non-advisory expenses of the funds.
General and Administration Expenses.
GAAP. General and administration expenses increased $61
million, or 5%, to $1,415 million in 2011 from $1,354
million in 2010. Higher occupancy and office-related
expenses (including $63 million of U.K. lease exit costs),
higher professional services costs and other general and
administration expenses contributed to the overall net
increase in general and administration expenses. The $23
million increase in other general and administration
expenses reflected higher VAT expense and recruiting
costs in 2011 offset by the non-recurrence of other
general and administration provisions recorded in 2010
related to an outstanding loan to Anthracite Capital Inc.
The increase in general and administration expenses was
partially offset by a decrease in charitable contributions
as well as a decrease in regulatory, filing and licenses
fees, primarily due to a $20 million 2010 U.K. industry
regulatory assessment.
Non-GAAP Adjustments. In 2011 general and
administration expenses included the previously
mentioned $63 million of U.K. lease exit costs. In 2010,
general and administration expenses included $65 million
of BGI integration costs primarily consisting of $33 million
of marketing and promotional costs, $12 million of
professional services and $12 million of occupancy costs.
These amounts were excluded from as adjusted general
and administrative expenses.
As Adjusted. General and administration expenses, as
adjusted, of $1,352 million increased $63 million, or 5%, in
2011 from $1,289 million in 2010. The increase was
primarily due to higher VAT expense, an increase in
professional services costs, and higher marketing and
promotional costs, partially offset by the non-recurrence
of costs recorded in 2010 related to an outstanding loan to
Anthracite Capital, Inc.
In addition, general and administration expenses, as
adjusted, reflected higher marketing and promotional
costs in 2011.
Restructuring Charges. In 2011, BlackRock recorded pre-
tax restructuring charges of $32 million, primarily related
to severance, accelerated amortization of certain
previously granted stock awards, and legal and
outplacement costs, associated with a reduction in work
force and reengineering efforts.
51
Non-operating Results
Non-operating income (expense), less net income (loss) attributable to NCI for 2012, 2011 and 2010 was as follows:
Variance
(Dollar amounts in millions) 2012 2011 2010
2012 vs.
2011
2011 vs.
2010
Non-operating income (expense), GAAP basis .................................. $(54) $(114) $ 23 $ 60 $(137)
Less: Net income (loss) attributable to NCI
(1)
................................... (18) 2 (13) (20) 15
Non-operating income (expense)
(2)
........................................... (36) (116) 36 80 (152)
Compensation expense related to (appreciation) depreciation on deferred
compensation plans ..................................................... (6) 3 (11) (9) 14
Non-operating income (expense), as adjusted
(2)
................................ $(42) $(113) $ 25 $ 71 $(138)
(1)
Amounts included losses of $38 million, $18 million and $35 million attributable to consolidated variable interest entities for 2012, 2011 and 2010, respectively.
(2)
Net of net income (loss) attributable to NCI.
The components of non-operating income (expense), less net income (loss) attributable to NCI for 2012, 2011 and 2010 were
as follows:
Variance
(Dollar amounts in millions) 2012 2011 2010
2012 vs.
2011
2011 vs.
2010
Net gain (loss) on investments
(1)
Private equity ........................................................ $ 36 $ 36 $ 31 $— $ 5
Real estate .......................................................... 14 10 17 4 (7)
Distressed credit/mortgage funds ....................................... 69 (13) 66 82 (79)
Hedge funds/funds of hedge funds ...................................... 20 (5) 18 25 (23)
Other investments
(2)
................................................... (2) 1 14 (3) (13)
Sub-total ............................................................... 137 29 146 108 (117)
Investments related to deferred compensation plans ....................... 6 (3) 11 9 (14)
Total net gain (loss) on investments .................................. 143 26 157 117 (131)
Interest and dividend income ............................................... 36 34 29 2 5
Interest expense ......................................................... (215) (176) (150) (39) (26)
Net interest expense ...................................................... (179) (142) (121) (37) (21)
Total non-operating income (expense)
(1)
...................................... (36) (116) 36 80 (152)
Compensation expense related to (appreciation) depreciation on deferred
compensation plans .................................................... (6) 3 (11) (9) 14
Non-operating income (expense), as adjusted
(1)
............................... $ (42) $(113) $ 25 $ 71 $(138)
(1)
Net of net income (loss) attributable to NCI.
(2)
Amount included net gains (losses) related to equity and fixed income investments and BlackRock’s seed capital hedging program.
2012 Compared with 2011.
Net gains on investments increased $117 million from
2011 due to higher net positive marks in 2012 compared
with 2011.
Net interest expense increased from 2011, primarily due
to long-term debt issuances in May 2011 and May 2012.
For further information on the Company’s long-term debt,
see Liquidity and Capital Resources herein.
2011 Compared with 2010.
Net gains on investments decreased $131 million during
2011 due to lower net positive marks in 2011 compared
with 2010.
Net interest expense increased $21 million, or 17%, from
2010 primarily due to long-term debt issuances in May
2011, partially offset by higher interest and dividend
income.
52
Income Tax Expense
GAAP As adjusted
(Dollar amounts in millions) 2012 2011 2010 2012 2011 2010
Income before income taxes
(1)
..................................... $3,488 $3,133 $3,034 $3,532 $3,279 $3,192
Income tax expense .............................................. $1,030 $ 796 $ 971 $1,094 $1,040 $1,053
Effective tax rate ................................................ 29.5% 25.4% 32.0% 31.0% 31.7% 33.0%
(1)
Net of net income (loss) attributable to NCI.
The Company’s tax rate is affected by tax rates in foreign
jurisdictions and the relative amount of income earned in
those jurisdictions, which the Company expects to be
fairly consistent in the near term. The significant foreign
jurisdictions, which have lower statutory tax rates than
the U.S. federal statutory rate of 35%, include the United
Kingdom, Luxembourg, Canada and the Netherlands. U.S.
income taxes were not provided for certain undistributed
foreign earnings intended to be indefinitely reinvested
outside the United States.
2012. The GAAP effective tax rate of 29.5% for 2012
included a $21 million benefit related to the resolution of
certain outstanding tax positions and a $50 million net
non-cash benefit related to the revaluation of certain
deferred income tax liabilities including tax legislation
enacted in the United Kingdom and the state and local
income tax effect resulting from changes in the
Company’s organizational structure.
The as adjusted effective tax rate of 31.0% for 2012
excluded the $50 million net non-cash tax benefit
mentioned above.
2011. The GAAP effective tax rate of 25.4% for 2011
included a $24 million benefit related to the resolution of
certain outstanding tax positions and $198 million of net
non-cash tax benefits due to a state tax election and
enacted U.K., Japan, U.S. state and local tax legislation.
The 2011 as adjusted effective tax rate of 31.7% included
the $24 million benefit related to the revaluation of certain
deferred income tax liabilities and excluded the $198
million net non-cash benefit.
2010. The GAAP effective tax rate of 32.0% for 2010
included a $30 million non-cash tax benefit related to the
revaluation of certain net deferred income tax liabilities
primarily related to acquired intangible assets due to
enacted U.K. tax legislation. In addition, 2010 included the
effect of favorable tax rulings and the resolution of certain
outstanding tax positions.
The as adjusted effective tax rate of 33.0% for 2010
excluded the $30 million non-cash tax benefit mentioned
above.
Balance Sheet Overview
As Adjusted Balance Sheet
The following table presents a reconciliation of the
Company’s consolidated statement of financial condition
presented on a GAAP basis to the Company’s consolidated
statement of financial condition excluding the impact of
separate account assets and collateral held under
securities lending agreements (directly related to lending
securities held by separate account assets) and separate
account liabilities and collateral liabilities under
securities lending agreements, consolidated variable
interest entities (“VIEs”) and consolidated sponsored
investment funds.
The Company presents the as adjusted balance sheet as
additional information to enable investors to eliminate
gross presentation of certain assets that have equal and
offsetting liabilities or non-controlling interests and
ultimately do not have an impact on stockholders’ equity
(excluding appropriated retained earnings related to
consolidated collateralized loan obligations) or cash
flows. Management reviews the Company’s as adjusted
balance sheet, a non-GAAP financial measure, as an
economic presentation of its total assets and liabilities;
however, it 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.
Separate Account Assets and Liabilities and Collateral
Held under Securities Lending Agreements
The separate account assets are maintained by a wholly
owned subsidiary of the Company, which is a registered
life insurance company in the United Kingdom, and
represent segregated assets held for purposes of funding
individual and group pension contracts. In accordance
with GAAP, the Company records equal and offsetting
separate account liabilities. The separate account assets
are not available to creditors of the Company and the
holders of the pension contracts have no recourse to the
Company’s assets. The net investment income
attributable to separate account assets accrues directly
to the contract owners and is not reported on the
Company’s consolidated statements of income. While
53
BlackRock has no economic interest in these assets or
liabilities, BlackRock earns an investment advisory fee for
the service of managing these assets on behalf of the
clients.
In addition, the Company records on its consolidated
statements of financial condition the collateral received
under securities lending arrangements as its own asset in
addition to an equal and offsetting collateral liability for
the obligation to return the collateral.
Consolidated VIEs
At December 31, 2012, BlackRock’s consolidated VIEs
included CLOs and one investment fund. The assets of
these VIEs are not available to creditors of the Company
and the Company has no obligation to settle the liabilities
of the VIEs. While BlackRock has no material economic
interest in these assets or liabilities, BlackRock earns an
investment advisory fee, as well as a potential
performance fee, for the service of managing these assets
on behalf of clients.
December 31, 2012
Segregated client assets
generating advisory fees in
which BlackRock has no
economic interest or
liability
(Dollar amounts in millions)
GAAP
Basis
Separate
Account
Assets/
Collateral
Consolidated
VIEs
Consolidated
Sponsored
Investment
Funds
As
Adjusted
Assets
Cash and cash equivalents ......................... $ 4,606 $ — $ — $133 $ 4,473
Accounts receivable ............................... 2,250 — — — 2,250
Investments ...................................... 1,750 — — 94 1,656
Assets of consolidated VIEs ......................... 2,561 — 2,561 — —
Separate account assets and collateral held under
securities lending agreements ..................... 157,789 157,789 — — —
Other assets
(1)
.................................... 1,183 — — 25 1,158
Sub-total .................................... 170,139 157,789 2,561 252 9,537
Goodwill and intangible assets, net .................. 30,312 — — — 30,312
Total assets .................................. $200,451 $157,789 $2,561 $252 $39,849
Liabilities
Accrued compensation and benefits ................. $ 1,547 $ — $ — $— $ 1,547
Accounts payable and accrued liabilities .............. 1,055 — — — 1,055
Borrowings
(2)
..................................... 5,787 — — — 5,787
Liabilities of consolidated VIEs ...................... 2,505 — 2,505 — —
Separate account liabilities and collateral liabilities
under securities lending agreements ............... 157,789 157,789 — — —
Deferred income tax liabilities ....................... 5,293 — — — 5,293
Other liabilities
(3)
.................................. 858 — — 65 793
Total liabilities ................................ 174,834 157,789 2,505 65 14,475
Equity
Total stockholders’ equity
(4)
......................... 25,403 — 29 — 25,374
Non-controlling interests ........................... 214 — 27 187 —
Total equity .................................. 25,617 — 56 187 25,374
Total liabilities and equity ...................... $200,451 $157,789 $2,561 $252 $39,849
(1)
Amounts include due from related parties, deferred sales commissions, property and equipment and other assets.
(2)
Amounts include short-term borrowings and long-term borrowings.
(3)
Amounts include due to related parties and other liabilities.
(4)
GAAP amount includes $29 million of appropriated retained earnings.
54
The following table presents selected significant components of BlackRock’s GAAP consolidated statements of financial
condition at December 31, 2012 and December 31, 2011:
December 31,
2012
December 31,
2011
Variance
(Dollar amounts in millions) Amount % Change
Assets:
Cash and cash equivalents ......................... $ 4,606 $ 3,506 $1,100 31%
Accounts receivable ............................... 2,250 1,960 290 15%
Investments ...................................... 1,750 1,631 119 7%
Goodwill and intangible assets, net .................. 30,312 30,148 164 1%
Other assets
(1)
.................................... 1,183 1,169 14 1%
Liabilities:
Accrued compensation and benefits ................. 1,547 1,383 164 12%
Accounts payable and accrued liabilities .............. 1,055 923 132 14%
Borrowings
(2)
..................................... 5,787 4,790 997 21%
Deferred income tax liabilities ....................... 5,293 5,323 (30) (1%)
Other liabilities
(3)
.................................. 858 743 115 15%
Stockholders’ equity ............................... 25,403 25,048 355 1%
(1)
Amounts include due from related parties, deferred sales commissions, property and equipment and other assets.
(2)
Amounts include short-term and long-term borrowings.
(3)
Amounts include due to related parties and other liabilities.
The following discussion summarizes the significant
changes in assets and liabilities. The discussion does not
include changes related to assets and liabilities that are
equal and offsetting and have no impact on BlackRock’s
stockholders’ equity.
Cash and Cash Equivalents. Cash and cash equivalents at
December 31, 2012 and December 31, 2011 included $133
million and $196 million of cash held by consolidated
sponsored investment funds, respectively. See Liquidity
and Capital Resources for details on the change in cash
and cash equivalents during 2012.
Accounts Receivable. Accounts receivable at
December 31, 2012 increased $290 million from
December 31, 2011, primarily reflecting higher receivables
resulting from an increase in base fees related to AUM
growth and higher performance fees, and an increase in
unit trust receivables, substantially offset by an increase
in unit trust payables recorded within accounts payable
and accrued liabilities.
Investments. BlackRock reports its investments on a GAAP
basis, which includes investments that are held by
sponsored investment funds deemed to be controlled by
BlackRock in accordance with GAAP. As a result,
management reviews BlackRock’s investments on an
“economic” basis, which eliminates the portion of
investments that do not impact BlackRock’s book value.
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.
The Company presents total investments, as adjusted, to
enable investors to understand the portion of its
investments that are owned by the Company, net of NCI,
as a gauge to measure the impact of changes in net non-
operating gain (loss) on investments to net income (loss)
attributable to BlackRock.
55
The Company further presents total net “economic”
investment exposure, net of deferred compensation
investments and hedged investments, to reflect another
gauge for investors as the economic impact of
investments held pursuant to deferred compensation
arrangements is substantially offset by a change in
compensation expense and the impact of hedged
investments is substantially mitigated by total return
swap hedges. Carried interest capital allocations are
excluded as there is no impact to BlackRock’s
stockholders’ equity until such amounts are realized as
performance fees. Finally, the Company’s regulatory
investment in Federal Reserve Bank stock, which is not
subject to market or interest rate risk, is excluded from
the Company’s net economic investment exposure.
(Dollar amounts in millions)
December 31,
2012
December 31,
2011
Total investments, GAAP ..... $1,750 $1,631
Investments held by
consolidated sponsored
investment funds
(1)
........ (524) (587)
Net exposure to consolidated
investment funds ......... 430 475
Total investments, as
adjusted ............. 1,656 1,519
Federal Reserve Bank
stock
(2)
.............. (89) (328)
Carried interest ......... (85) (21)
Deferred compensation
investments .......... (62) (65)
Hedged investments ..... (209) (43)
Total “economic”
investment exposure . . . $1,211 $1,062
(1)
At December 31, 2012 and December 31, 2011, approximately $524
million and $587 million, respectively, of BlackRock’s total GAAP
investments were maintained in sponsored investment funds that were
deemed to be controlled by BlackRock in accordance with GAAP, and,
therefore, are consolidated even though BlackRock may not economically
own a majority of such funds.
(2)
The decrease of $239 million related to a lower holding requirement of
Federal Reserve Bank stock held by BlackRock Institutional Trust
Company, N.A. (“BTC”).
Total investments, as adjusted, at December 31, 2012
increased $137 million from December 31, 2011, resulting
from $765 million of purchases/capital contributions,
$185 million from positive market valuations and earnings
from equity method investments, and $64 million from net
additional carried interest capital allocations, partially
offset by $742 million of sales/maturities and $135 million
of distributions representing return of capital and return
on investments.
56
The following table represents the carrying value of investments, by asset type, at December 31, 2012 and December 31,
2011:
(Dollar amounts in millions)
December 31,
2012
December 31,
2011
Variance
Amount % Change
Private equity ...................................... $ 298 $ 306 $ (8) (3%)
Real estate ........................................ 122 108 14 13%
Distressed credit/mortgage funds ..................... 214 217 (3) (1%)
Hedge funds/funds of hedge funds .................... 159 167 (8) (5%)
Other investments
(1)
................................ 418 264 154 58%
Total “economic” investment exposure .................... $1,211 $1,062 $149 14%
(1)
Other investments primarily include seed investments in fixed income, commodities and equity funds/strategies as well as U.K. government securities held for
regulatory purposes. The increase in other investments reflected higher seed investments in fourth quarter 2012.
The following table represents investments, as adjusted at December 31, 2012:
(Dollar amounts in millions)
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Other
Investments Not
Held at Fair
Value
(1)
Investments at
December 31,
2012
Total investments, as adjusted
(2)
........... $541 $196 $548 $371 $1,656
(1)
Amount includes investments held at cost, amortized cost, carried interest and equity method investments, which include investment companies, which in
accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their
financial assets and financial liabilities under fair value measures, therefore, the Company’s investment in such equity method investees may not represent fair
value.
(2)
Amounts include BlackRock’s portion of cash and cash equivalents, other assets and liabilities that are consolidated from non-VIE sponsored investment funds.
See Note 5, Fair Value Disclosures, to the Company’s consolidated financial statements contained in Part II, Item 8 of this filing, for total GAAP investments.
Goodwill and Intangible Assets. Goodwill and intangible
assets at December 31, 2012 increased $164 million from
December 31, 2011, primarily due to the SRPEP and
Claymore Transactions, partially offset by $157 million of
amortization expense.
Other Assets. Other assets at December 31, 2012 increased
$14 million from December 31, 2011, primarily related to
higher earnings from certain operating advisory company
investments and an increase in property and equipment,
partially offset by a decline in receivables from related
parties and lower current income taxes receivable.
Accrued Compensation and Benefits. Accrued
compensation and benefits at December 31, 2012
increased $164 million from December 31, 2011, primarily
related to higher 2012 incentive compensation accruals.
Accounts Payable and Accrued Liabilities. Accounts
payable and accrued liabilities at December 31, 2012
increased $132 million from December 31, 2011, due to
higher unit trust payables (substantially offset by an
increase in unit trust receivables recorded within
accounts receivable), increased accruals, including direct
fund expenses and marketing and higher current income
taxes payable.
Borrowings. Borrowings at December 31, 2012 increased
$997 million from December 31, 2011 primarily resulting
from $1.5 billion of net proceeds from new issuances of
long-term borrowings, partially offset by repayments of
$500 million.
Deferred Income Tax Liabilities. Net deferred income tax
liabilities at December 31, 2012 decreased $30 million,
primarily as a result of the effects of temporary
differences associated with deferred stock compensation
and investment income offset by the Claymore
Transaction. In addition, the decrease related to the
revaluation of certain deferred income tax liabilities due
to tax legislation enacted in the United Kingdom and the
state and local income tax effect resulting from changes
in the Company’s organizational structure.
Other Liabilities. Other liabilities at December 31, 2012
increased $115 million from December 31, 2011, primarily
resulting from an increase in deferred carried interest,
liabilities of consolidated funds and other operating
liabilities.
57
Stockholders’ Equity. Total stockholders’ equity at
December 31, 2012 increased $355 million from
December 31, 2011, resulting from $2.5 billion of net
income attributable to BlackRock, $451 million of stock-
based compensation expense, $64 million excess tax
benefits from vested stock-based compensation, $53
million of foreign currency translation adjustments and
$56 million of issuances of common shares related to
employee stock transactions. The increase in
stockholders’ equity was partially offset by $1.7 billion of
share repurchases and $1.1 billion of cash dividend
payments.
Liquidity and Capital Resources
BlackRock Cash Flows Excluding the Impact of
Consolidated Sponsored Investment Funds and VIEs
In accordance with GAAP, BlackRock consolidates certain
BlackRock sponsored investment funds and CLOs,
notwithstanding the fact BlackRock may only have a
minority interest, if any, in these funds or CLOs. As a
result, BlackRock’s consolidated statements of cash
flows include the cash flows of consolidated sponsored
investment funds and CLOs. The Company uses an
adjusted cash flow statement, which excludes the impact
of consolidated sponsored investment funds and CLOs, as
a supplemental non-GAAP measure to assess liquidity and
capital requirements. The Company believes that its cash
flows, excluding the impact of the consolidated sponsored
investment funds and CLOs, provide investors with useful
information on the cash flows of BlackRock relating to its
ability to fund additional operating, investing and
financing activities. BlackRock’s management does not
advocate that investors consider such non-GAAP
measures in isolation from, or as a substitute for, its cash
flows presented in accordance with GAAP.
The following table presents a reconciliation of the consolidated statements of cash flows presented on a GAAP basis to the
consolidated statements of cash flows, excluding the impact of the cash flows of consolidated sponsored investment funds
and consolidated VIEs:
(Dollar amounts in millions)
GAAP
Basis
Impact on
Cash Flows
of Consolidated
Sponsored
Investment
Funds
Impact on
Cash Flows
of
Consolidated
VIEs
Cash Flows
Excluding
Impact of
Consolidated
Sponsored
Investment
Funds and VIEs
Cash and cash equivalents, December 31, 2010 ................ $ 3,367 $ 65 $ — $ 3,302
Cash flows from operating activities .......................... 2,826 42 136 2,648
Cash flows from investing activities .......................... (204) 24 — (228)
Cash flows from financing activities .......................... (2,485) 65 (136) (2,414)
Effect of exchange rate changes on cash and cash equivalents . . . 2 — — 2
Net change in cash and cash equivalents ...................... 139 131 — 8
Cash and cash equivalents, December 31, 2011 ................ $ 3,506 $ 196 $ — $ 3,310
Cash flows from operating activities .......................... 2,240 (256) (227) 2,723
Cash flows from investing activities .......................... (266) (211) — (55)
Cash flows from financing activities .......................... (944) 404 227 (1,575)
Effect of exchange rate changes on cash and cash equivalents . . . 70 — — 70
Net change in cash and cash equivalents ...................... 1,100 (63) — 1,163
Cash and cash equivalents, December 31, 2012 ................ $ 4,606 $ 133 $ — $ 4,473
Sources of BlackRock’s operating cash primarily include
investment advisory, administration fees and securities
lending revenue, performance fees, revenue from
BlackRock Solutions and advisory products and services,
other revenue and distribution fees.
BlackRock uses its cash to pay compensation and
benefits, distribution and servicing costs, direct fund
expenses, general and administration expenses, interest
and principal on the Company’s borrowings, income taxes,
dividends on BlackRock’s capital stock, repurchases of
the Company’s stock, capital expenditures and purchases
of co-investments and seed investments.
58
Cash flows from operating activities, excluding the impact
of consolidated sponsored investment funds and VIEs,
primarily include the receipt of investment advisory and
administration fees, securities lending revenue and other
revenue offset by the payment of operating expenses
incurred in the normal course of business, including the
effect of cash payments related to year-end incentive
compensation.
Cash outflows from investing activities, excluding the
impact of consolidated sponsored investment funds and
VIEs, for the year ended December 31, 2012 were $55
million and primarily included $435 million of purchases of
investments, $267 million related to the Claymore and
SRPEP Transactions and $150 million of purchases of
property and equipment, partially offset by $724 million of
net proceeds from sales and maturities of investments
and $73 million of return of capital from equity method
investees.
Cash outflows from financing activities, excluding the
impact of consolidated sponsored investment funds and
VIEs, for the year ended December 31, 2012 were $1.6
billion, including $1.7 billion of share repurchases,
including $1.0 billion from Barclays, $500 million in open
market transactions, and $0.2 billion of employee tax
withholdings related to employee stock transactions, $1.1
billion of payments for cash dividends and a $0.5 billion
repayment of long-term debt. Cash outflows from
financing activities were partially offset by cash inflows
related to $1.5 billion of net proceeds from long-term
borrowings, $74 million of excess tax benefits from stock-
based compensation and $47 million of proceeds from
stock options exercised.
Capital Resources
The Company manages its financial condition and funding to maintain appropriate liquidity for the business. Capital
resources at December 31, 2012 and 2011 were as follows:
(Dollar amounts in millions)
December 31,
2012
December 31,
2011
Variance
Amount % Change
Cash and cash equivalents ......................... $4,606 $3,506 $1,100 31%
Cash and cash equivalents held by consolidated
sponsored investment funds
(1)
..................... (133) (196) 63 32%
Subtotal ......................................... 4,473 3,310 1,163 35%
Credit facility – undrawn ........................... 3,685 3,400 285 8%
Total liquidity ................................. $8,158 $6,710 $1,448 22%
(1)
The Company may not be able to access such cash to use in its operating activities.
Total liquidity increased $1.4 billion during 2012, primarily
reflecting positive operating cash flows, proceeds from
long-term debt issuances in May 2012 and the increased
aggregate commitment of the 2012 credit facility from
$3.5 billion to $3.785 billion, partially offset by share
repurchases, including $1.0 billion from Barclays and $500
million in open market transactions, and the long-term
debt repayments of $500 million. A portion of liquidity may
be utilized to pay down the current portion of long-term
debt maturing in 2013.
Share Repurchase Approvals. In January 2013, the Board
of Directors (the “Board”) approved an increase in the
availability under the Company’s existing share
repurchase program to allow for the repurchase of up to
10.2 million shares of BlackRock common stock.
In February 2012, the Board approved an increase in the
availability under the Company’s then existing share
repurchase program to allow for the repurchase of up to
5.0 million shares. The Company repurchased 2,726,600
shares in open market transactions for approximately
$500 million during 2012. As of December 31, 2012, there
were 2,725,400 shares still authorized to be repurchased,
which are included in the total January 2013 Board
authorization of 10.2 million shares.
Net Capital Requirements. The Company is required to
maintain net capital in certain regulated subsidiaries
within a number of jurisdictions, which is partially
maintained by retaining cash and cash equivalents in
those jurisdictions. As a result, such subsidiaries of the
Company may be restricted in their ability to transfer cash
between different jurisdictions and to their parents.
Additionally, transfers of cash between international
jurisdictions, including repatriation to the United States,
may have adverse tax consequences that could
discourage such transfers.
59
BTC is chartered as a national bank that does not accept
client deposits and whose powers are limited to trust
activities. BTC provides investment management services,
including investment advisory and securities lending
agency services to institutional investors and other
clients. BTC is subject to various regulatory capital and
liquid asset requirements administered by Federal
banking agencies.
At December 31, 2012, the Company was required to
maintain approximately $1,209 million, compared with
$1,196 million at December 31, 2011, in net capital in
certain regulated subsidiaries, including BTC, entities
regulated by the Financial Services Authority in the United
Kingdom and the Company’s broker-dealers, and was in
compliance with all applicable regulatory minimum net
capital requirements.
Undistributed Earnings of Foreign Subsidiaries. As of
December 31, 2012, the Company has not provided for
U.S. federal and state income taxes on approximately
$2,125 million of undistributed earnings of its foreign
subsidiaries. Such earnings are considered indefinitely
reinvested outside the United States. The Company’s
current plans do not demonstrate a need to repatriate
these funds.
Contractual Obligations, Commitments and Contingencies
The following table sets forth contractual obligations, commitments and contingencies by year of payment at December 31,
2012:
(Dollar amounts in millions) 2013 2014 2015 2016 2017 Thereafter Total
Contractual obligations and commitments:
Short-term borrowings:
Principal ........................................... $ 100 $ — $ — $— $— $ — $ 100
Long-term borrowings
(1)
:
Principal ........................................... 750 1,000 750 — 700 2,500 5,700
Interest
(2)
.......................................... 200 196 156 151 151 342 1,196
Operating leases ........................................ 134 122 113 104 105 784 1,362
Purchase obligations .................................... 78 70 34 23 8 — 213
Investment commitments ................................ 235 — — — — — 235
Total contractual obligations and commitments ............. 1,497 1,388 1,053 278 964 3,626 8,806
Contingent obligations:
Contingent distribution obligations ........................ 179 — — — — — 179
Total contractual obligations, commitments and contingent
obligations
(3)
......................................... $1,676 $1,388 $1,053 $278 $964 $3,626 $8,985
(1)
Long-term borrowings exclude the borrowings of consolidated CLOs. The Company has no obligation to settle the liabilities of these CLOs.
(2)
Interest payable on the 2013 floating rate notes was calculated using a fixed rate of 1.03% as a result of the interest rate swap entered into in conjunction with
the obligation.
(3)
As of December 31, 2012, the Company had $313 million of net unrecognized tax benefits. Due to the uncertainty of timing and amounts that will ultimatelybe
paid, this amount has been excluded from the table above.
Short-term Borrowings.
The following describes the Company’s short-term
borrowing arrangements that the Company has access to
utilize.
2012 Revolving Credit Facility. In March 2012, the 2011
credit facility was amended to extend the maturity date by
one year to March 2017 and in April 2012 the amount of
the aggregate commitment was increased to $3.785 billion
(the “2012 credit facility”). The 2012 credit facility permits
the Company to request an additional $1.0 billion of
borrowing capacity, subject to lender credit approval,
increasing the overall size of the 2012 credit facility to an
aggregate principal amount not to exceed $4.785 billion.
Interest on borrowings outstanding accrues at a rate
based on the applicable London Interbank Offered Rate
plus a spread. The 2012 credit facility requires the
Company not to exceed a maximum leverage ratio (ratio of
net debt to earnings before interest, taxes, depreciation
and amortization, where net debt equals total debt less
unrestricted cash) of 3 to 1, which was satisfied with a
ratio of less than 1 to 1 at December 31, 2012.
The 2012 credit facility provides back-up liquidity, funds
ongoing working capital for general corporate purposes
and funds various investment opportunities. At
December 31, 2012, the Company had $100 million
60
outstanding under this facility with an interest rate of
1.085% and a maturity during January 2013. During
January 2013, the Company rolled over the $100 million in
borrowings at an interest rate of 1.085% and a maturity
during February 2013. During February 2013, the Company
rolled over the $100 million in borrowings at an interest
rate of 1.075% and a maturity during March 2013.
Commercial Paper Program. On October 14, 2009,
BlackRock established a commercial paper program (the
“CP Program”) under which the Company could issue
unsecured commercial paper notes (the “CP Notes”) on a
private placement basis up to a maximum aggregate
amount outstanding at any time of $3.0 billion. On May 13,
2011, BlackRock increased the maximum aggregate
amount that may be borrowed under the CP Program to
$3.5 billion. On May 17, 2012, BlackRock increased the
maximum aggregate amount to $3.785 billion. The CP
Program is currently supported by the 2012 credit facility.
As of December 31, 2012 and December 31, 2011,
BlackRock had no CP Notes outstanding.
Long-term Borrowings. At December 31, 2012, the
principal amount of long-term borrowings, including
current portion, was $5.7 billion.
2017 Notes. In September 2007, the Company issued $700
million in aggregate principal amount of 6.25% senior
unsecured and unsubordinated notes maturing on
September 15, 2017 (the “2017 Notes”). A portion of the
net proceeds of the 2017 Notes was used to fund the
initial cash payment for the acquisition of the fund of
funds business of Quellos and the remainder was used for
general corporate purposes. Interest is payable semi-
annually in arrears on March 15 and September 15 of each
year, or approximately $44 million per year. The 2017
Notes may be redeemed prior to maturity at any time in
whole or in part at the option of the Company at a “make-
whole” redemption price.
2012, 2014 and 2019 Notes. In December 2009, the
Company issued $2.5 billion in aggregate principal amount
of unsecured and unsubordinated obligations. These
notes were issued as three separate series of senior debt
securities including $0.5 billion of 2.25% notes, which
were repaid in December 2012, and $1.0 billion of 3.50%
notes and $1.0 billion of 5.0% notes maturing in December
2014 and 2019, respectively. Net proceeds of this offering
were used to repay borrowings under the CP program,
which was used to finance a portion of the BGI
Transaction, and for general corporate purposes. These
notes may be redeemed prior to maturity at any time in
whole or in part at the option of the Company at a “make-
whole” redemption price. Interest on the 2014 Notes and
2019 Notes of approximately $35 million and $50 million
per year, respectively, is payable semi-annually in arrears
on June 10 and December 10 of each year. In 2012,
approximately $96 million of interest was paid related to
the 2012, 2014 and 2019 Notes.
2013 and 2021 Notes. In May 2011, the Company issued
$1.5 billion in aggregate principal amount of unsecured
unsubordinated obligations. These notes were issued as
two separate series of senior debt securities including
$750 million of 4.25% notes and $750 million of floating
rate notes maturing in May 2021 and 2013, respectively.
Net proceeds of this offering were used to fund the
repurchase of BlackRock’s Series B Preferred from
affiliates of Merrill Lynch. Interest on the 4.25% notes due
in 2021 (“2021 Notes”) is payable semi-annually on May 24
and November 24 of each year, which commenced
November 24, 2011, and is approximately $32 million per
year. Interest on the floating rate notes due in 2013 (“2013
Floating Rate Notes”) is payable quarterly on
February 24, May 24, August 24 and November 24 of each
year. The 2021 Notes may be redeemed prior to maturity at
any time in whole or in part at the option of the Company
at a “make-whole” redemption price. The 2013 Floating
Rate Notes may not be redeemed at the Company’s option
before maturity.
In May 2011, in conjunction with the issuance of the 2013
Floating Rate Notes, the Company entered into a $750
million notional interest rate swap maturing in 2013 to
hedge the future cash flows of its obligation at a fixed rate
of 1.03% payable semi-annually on May 24 and
November 24 of each year, which commenced
November 24, 2011. The interest rate swap effectively
converts the 2013 Floating Rate Notes to a fixed rate
obligation.
2015 and 2022 Notes. In May 2012, the Company issued
$1.5 billion in aggregate principal amount of unsecured
unsubordinated obligations. These notes were issued as
two separate series of senior debt securities, including
$750 million of 1.375% notes maturing in June 2015 (the
“2015 Notes”) and $750 million of 3.375% notes maturing
in June 2022 (the “2022 Notes”). Net proceeds were used
to fund the repurchase of BlackRock’s common stock and
Series B Preferred from Barclays and affiliates and for
general corporate purposes. Interest on the 2015 Notes
and 2022 Notes of approximately $10 million and $25
million per year, respectively, is payable semi-annually on
June 1 and December 1 of each year, which commenced
December 1, 2012. The 2015 Notes and 2022 Notes may be
redeemed prior to maturity at any time in whole or in part
at the option of the Company at a “make-whole”
redemption price. The “make-whole” redemption price
represents a price, subject to the specific terms of the
2015 and 2022 Notes and related indenture, that is the
greater of (a) par value and (b) the present value of future
61
payments that will not be paid because of an early
redemption, which is discounted at a fixed spread over a
comparable Treasury security.
Operating Leases. The Company leases its primary office
locations under agreements that expire on varying dates
through 2035. In connection with certain lease
agreements, the Company is responsible for escalation
payments. The contractual obligations table above
includes only guaranteed minimum lease payments for
such leases and does not project potential escalation or
other lease-related payments. These leases are classified
as operating leases and, as such, are not recorded as
liabilities on the consolidated statements of financial
condition.
Purchase Obligations. In the ordinary course of business,
BlackRock enters into contracts or purchase obligations
with third parties whereby the third parties provide
services to or on behalf of BlackRock. Purchase
obligations included in the contractual obligations table
above represent executory contracts, which are either
non-cancelable or cancelable with a penalty. At
December 31, 2012, the Company’s obligations primarily
reflected standard service contracts for portfolio, market
data, office-related services and third-party marketing
and promotional services. Purchase obligations are
recorded on the Company’s financial statements when
services are provided and, as such, obligations for
services not received are not included in the consolidated
statement of financial condition at December 31, 2012.
Investment Commitments. At December 31, 2012, the
Company had $235 million of various capital commitments
to fund sponsored investment funds, including funds of
private equity funds, real estate funds and distressed
credit funds. This amount excludes additional
commitments made by consolidated funds of funds to
underlying third-party funds as third-party non-
controlling interest holders have the legal obligation to
fund the respective commitments of such funds of funds.
Generally, the timing of the funding of these commitments
is unknown and the commitments are callable on demand
at any time prior to the expiration of the commitment.
These unfunded commitments are not recorded on the
consolidated statements of financial condition. These
commitments do not include potential future
commitments approved by the Company, but which are
not yet legally binding. The Company intends to make
additional capital commitments from time to time to fund
additional investment products for, and with, its clients.
Carried Interest Claw-back. As a general partner in certain
investment funds, including private equity partnerships
and certain hedge funds, the Company may receive carried
interest cash distributions from the partnerships in
accordance with distribution provisions of the partnership
agreements. The Company may, from time to time, be
required to return all or a portion of such distributions to
the limited partners in the event the limited partners do
not achieve a return as specified in the various
partnership agreements. Therefore, BlackRock records
carried interest subject to such claw-back provisions in
investments, or cash to the extent that it is distributed, as
a deferred carried interest liability on its consolidated
statements of financial condition. Carried interest is
realized and recorded as performance fees on its
consolidated statements of income upon the earlier of the
termination of the investment fund or when the likelihood
of claw-back is mathematically improbable.
Indemnifications. In many of the Company’s contracts,
including the BGI, MLIM and Quellos Transaction
agreements, BlackRock agrees to indemnify third parties
under certain circumstances. The terms of the
indemnities vary from contract to contract and the
amount of indemnification liability, if any, cannot be
determined and has not been included in the table above
or recorded in the consolidated statement of financial
condition at December 31, 2012. See further discussion in
Note 12, Commitments and Contingencies, to the
consolidated financial statements beginning on page F-1
of this Form 10-K.
On behalf of certain clients the Company lends securities
to highly rated banks and broker-dealers. In these
securities lending transactions, the borrower is required
to provide and maintain collateral at or above regulatory
minimums. Securities on loan are marked to market daily
to determine if the borrower is required to pledge
additional collateral. BlackRock has issued certain
indemnifications to certain securities lending clients
against potential losses resulting from a borrower’s failure
to fulfill its obligations should the value of the collateral
pledged by the borrower at the time of default be
insufficient to cover the borrower’s obligations under the
securities lending agreement. The amount of securities on
loan as of December 31, 2012 and subject to
indemnification was $99.5 billion. The Company held, as
agent, cash and securities totaling $104.8 billion as
collateral for indemnified securities on loan at
December 31, 2012. As part of the Barclays Global
Investors (“BGI”) acquisition, Barclays was contractually
obligated to continue providing counterparty default
indemnification to certain BlackRock securities lending
clients through December 1, 2012. BlackRock assumed
these indemnification obligations prior to or upon the
expiration of Barclays’ indemnification obligation. The
amount of client balances indemnified increased in the
fourth quarter 2012 due to the Company’s assumption of
Barclays’ indemnification obligations on December 1,
2012. The fair value of these indemnifications was not
62
material at December 31, 2012. The Company currently
expects indemnified balances to continue to increase over
time.
While the collateral pledged by a borrower is intended to
be sufficient to offset the borrower’s obligations to return
securities borrowed and any other amounts owing to the
lender under the relevant securities lending agreement, in
the event of a borrower default, the Company can give no
assurance that the collateral pledged by the borrower will
be sufficient to fulfill such obligations. If the amount of
such pledged collateral is not sufficient to fulfill such
obligations to a client for whom the Company has provided
indemnification, BlackRock would be responsible for the
amount of the shortfall. These indemnifications cover only
the collateral shortfall described above, and do not in any
way, guarantee, assume or otherwise insure the
investment performance or return of any cash collateral
vehicle into which securities lending cash collateral is
invested.
Contingent Distribution Obligations. In November 2010,
BlackRock entered into a second amended and restated
global distribution agreement with Merrill Lynch, which
requires the Company to make payments to Merrill Lynch
contingent upon sales of products and level of AUM
maintained in certain BlackRock products. The economic
terms of the agreement will remain in effect until January
2014. After such term, the agreement will renew for one
automatic three-year extension if certain conditions are
satisfied. The obligation for 2014, 2015 and 2016 is not
included in the table above as the amounts are not
currently determinable.
The following items have not been included in the
contractual obligations, commitments and contingencies
table:
Compensation and Benefit Obligations. The Company has
various compensation and benefit obligations, including
bonuses, commissions and incentive payments payable,
defined contribution plan matching contribution
obligations, and deferred compensation arrangements,
that are excluded from the table contractual obligations
and commitments above. These arrangements are
discussed in more detail in Notes 13, Stock-Based
Compensation, and 14, Employee Benefit Plans, to the
consolidated financial statements beginning on page F-1
of this Form 10-K. Accrued compensation and benefits at
December 31, 2012 totaled $1,547 million and included
incentive compensation of $1,168 million, deferred
compensation of $137 million and other compensation
and benefits related obligations of $242 million.
Substantially all of the incentive compensation liability
was paid in the first quarter of 2013, while the deferred
compensation obligations are generally payable over
periods up to five years.
Separate Account Liabilities. At December 31, 2012, the
Company had $134.8 billion of separate account assets
and offsetting liabilities on the consolidated statement of
financial condition. The payment of these contractual
obligations is inherently uncertain and varies by customer.
As such, these liabilities have been excluded from the
contractual obligations table above.
Short-Term Investment Funds. Barclays has provided
capital support agreements to support certain cash
management funds acquired by BlackRock in the BGI
Transaction. Pursuant to the terms of the capital support
agreements, Barclays agreed to cover losses on covered
securities within the products in the aggregate of up to
$2.2 billion from December 1, 2009 through December 1,
2013 or until certain criteria were met. BlackRock and
Barclays have procedures in place to determine loss
events on covered securities within the products and to
ensure support payments from Barclays. On October 9,
2012, BlackRock, on behalf of two of these funds,
negotiated amendments to these capital support
agreements to release Barclays from coverage provided
for defaults on 51 covered securities (with an estimated
value of approximately $750 million) held in the funds in
exchange for a payment by Barclays to the funds of $70
million. The payment was in an amount in excess of the
payments that were expected under the Barclays capital
support agreements. The Barclays capital support
agreements continued in effect for the remaining covered
securities in these two funds, and after this transaction,
at October 10, 2012, Barclays’ remaining potential
obligation in the aggregate under the capital support
agreements was $1.6 billion. The support agreements for
these two funds had a termination date of December 1,
2013 subject to an early termination option in the event
that the applicable fund’s market value remained above a
certain net asset value per unit for 120 consecutive days.
Barclays exercised its termination option for these two
funds on December 7, 2012 and January 3, 2013. After
these terminations, at January 31, 2013, Barclays’
remaining maximum potential obligation in the aggregate
under the capital support agreements was not material.
As previously mentioned, the fourth quarter 2012 results
included a one-time $30 million charge related to a
contribution to certain of these STIFs. This contribution
resulted from actions taken to ensure compliance with
new regulations from the Office of the Comptroller of the
Currency (“OCC”) taking effect in July 2013 that further
limit a STIF’s weighted-average portfolio life
maturity. BlackRock chose to sell certain securities held
within STIFs and to make a one-time contribution to the
STIFs to maintain the value of the funds while ensuring
compliance with the new OCC rules. The securities sold
were held in funds managed by BGI prior to BlackRock’s
63
acquisition of BGI. Until adoption of the new STIF
regulations, BlackRock had been pursuing a strategy to
hold these securities as market values improved over
time. As a result of the fourth quarter security sales, these
STIFs are currently in compliance with the new OCC rules.
At December 31, 2012, BlackRock concluded that
although these funds were VIEs, it was not the primary
beneficiary (“PB”) of these funds.
Critical Accounting Policies
The preparation of consolidated financial statements in
conformity with GAAP requires manageme nt to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements and the reported
amounts of revenues and expenses during the reporting
periods. Actual results could differ significantly from those
estimates. Management considers the following critical
accounting policies important to understanding the
consolidated financial statements. For a summary of these
and additional accounting policies see Note 2, Significant
Accounting Policies, to the consolidated financial
statements beginning on page F-1 of this Form 10-K.
Consolidation of Sponsored Investment Funds and
Securitization Products. Consolidation of sponsored
investment funds and securitization products (collectively
“investment products”) is determined pursuant to ASC
810, Consolidation. The accounting method used by the
Company depends upon the influence the Company has
over its investee, the investment product. To the extent
that BlackRock can exert control over the financial and
operating policies of the investment product, which
generally exists if there is a 50% or greater voting interest
or if partners or members of certain products do not have
substantive rights, BlackRock consolidates the
investment product.
For investment products in which BlackRock’s voting
interest is less than 50%, an analysis is performed to
determine if the investment product is a VIE or a voting
rights entity. Upon the determination that the investment
product is a VIE, further analysis, as discussed below, is
performed to determine if BlackRock is the PB of the
investment product, which would require consolidation.
Consolidation of Variable Interest Entities. Certain
investment products for which the risks and rewards of
ownership are not directly linked to voting interests may
be deemed VIEs. BlackRock reviews factors, including the
rights of the equity holders and obligations of equity
holders to absorb losses or receive expected residual
returns, to determine if the investment product is a VIE.
BlackRock is required to consolidate a VIE when it is
deemed to be the PB, which is evaluated continuously as
facts and circumstances change.
Accounting Standards Update (“ASU”) 2010-10,
Amendments to Statement 167 for Certain Investment
Funds (“ASU 2010-10”) defers the application of Statement
of Financial Accounting Standards (“SFAS”) No. 167,
Amendments to FASB Interpretation No. 46(R), for certain
investment funds, including money market funds. The PB
of a VIE that meets the conditions of ASU 2010-10 is the
enterprise that has a variable interest (or combination of
variable interests, including those of related parties) that
absorbs the majority of the entity’s expected losses,
receives a majority of the entity’s expected residual
returns, or both. Effective January 1, 2010, the PB of a VIE
that does not meet the conditions for deferral in ASU 2010-
10 is the enterprise that has the power to direct activities
of the entity that most significantly impact the entity’s
economic performance and has the obligation to absorb
losses or the right to receive benefits that potentially could
be significant to the VIE.
Significant judgment is required in the determination of
whether the Company is the PB of a VIE. If the Company is
determined to be the PB of a VIE, BlackRock will
consolidate the entity. In order to determine whether the
Company is the PB of a VIE for entities that meet the
conditions of ASU 2010-10, management must make
significant estimates and assumptions of projected future
cash flows and assign probabilities to different cash flow
scenarios. Assumptions made in such analyses include,
but are not limited to, market prices of securities, market
interest rates, potential credit defaults on individual
securities or default rates on a portfolio of securities, gain
realization, liquidity or marketability of certain securities,
discount rates and the probability of certain other
outcomes.
In the normal course of business, the Company is the
manager of various types of sponsored investment
vehicles, including collateralized debt obligations
(“CDOs”) or CLOs that do not meet the conditions of ASU
2010-10 and sponsored investment funds, which may be
considered VIEs.
64
At December 31, 2012, the following balances related to consolidated VIEs including CLOs and an investment fund on the
consolidated statements of financial condition:
(Dollar amounts in millions) CLOs
Sponsored
Private
Equity Fund
Total
Consolidated
VIEs
Assets of consolidated VIEs:
Cash and cash equivalents ............................. $ 294 $ 3 $ 297
Bank loans, bonds and other investments ................. 2,240 24 2,264
Liabilities of consolidated VIEs:
Borrowings ........................................... (2,402) — (2,402)
Other liabilities ....................................... (103) — (103)
Appropriated retained earnings ............................. (29) — (29)
Non-controlling interests of consolidated VIEs ................ — (27) (27)
Total BlackRock net interests in consolidated VIEs ............. $ — $— $ —
At December 31, 2012, BlackRock was the manager of over
20 CLOs/CDOs and other securitization entities. In
accordance with consolidation accounting guidance for
VIEs, BlackRock was determined to be the PB for certain
of these CLOs, which required BlackRock to consolidate
these VIEs. BlackRock was deemed to be the PB because
it has the power to direct the activities of the CLO that
most significantly impact the entity’s economic
performance and has the right to receive benefits that
potentially could be significant to the VIE. At
December 31, 2012, the Company had $2,534 million and
$2,505 million in assets and liabilities, respectively, on its
consolidated statement of financial condition related to
these consolidated CLOs. In addition, the Company
recorded appropriated retained earnings for the
difference between the assets and liabilities, as the CLO
noteholders, not BlackRock, ultimately will receive the
benefits or absorb the losses associated with the CLO’s
assets and liabilities. The changes in the fair value of the
assets and liabilities of these CLOs have no impact on net
income attributable to BlackRock or its cash flows.
Excluding outstanding management fee receivables, the
Company has no risk of loss with its involvement with
these VIEs.
At December 31, 2012, BlackRock was determined to be
the PB of one sponsored private equity investment fund of
funds in which it had a non-substantive investment and
was deemed to absorb the majority of the variability due
to its de-facto third-party relationships with other
partners in the fund, which limits the ability of the
partners to transfer or sell their interests without
BlackRock’s consent as the general partner of the fund. At
December 31, 2012, the Company had recorded $3 million,
$24 million and $27 million in cash and cash equivalents,
private equity investments and nonredeemable non-
controlling interests of consolidated VIEs, respectively, on
the consolidated statement of financial condition related
to this VIE. The changes in the fair value of the assets and
liabilities of this VIE have no impact on net income
attributable to BlackRock. Excluding outstanding
management fee receivables, the Company has no risk of
loss with its involvement with this VIE.
Consolidation of Voting Rights Entities. To the extent that
BlackRock can exert control over the financial and
operating policies of the investee, which generally exists if
there is a 50% or greater voting interest or if partners or
members of certain products do not have substantive
rights, BlackRock consolidates the investee.
The Company, as general partner or managing member of
certain sponsored investment funds, generally is
presumed to control funds that are limited partnerships or
limited liability companies. Pursuant to ASC 810-20,
Control of Partnerships and Similar Entities (“ASC 810-
20”), the Company reviews such investment vehicles to
determine if such a presumption can be overcome by
determining whether other non-affiliated partners or
members of the limited partnership or limited liability
company have the substantive ability to dissolve
(liquidate) the investment vehicle, or otherwise to remove
BlackRock as the general partner or managing member
without cause based on a simple unaffiliated majority
vote, or have other substantive participating rights. If the
investment vehicle is not a VIE and the presumption of
control is not overcome, BlackRock will consolidate the
investment vehicle.
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At December 31, 2012 and 2011, as a result of
consolidation of various investment products deemed to
be voting rights entities, including products where
BlackRock owns 50% of greater of the voting rights of the
product, under the consolidation policies described
above, the Company had the following balances on its
consolidated statements of financial condition:
(Dollar amounts in millions)
December 31,
2012
December 31,
2011
Cash and cash equivalents .... $133 $196
Investments:
Trading
investments ....... 123 214
Other investments . . . 401 373
Other assets ................ 25 5
Other liabilities ............. (65) (37)
Non-controlling interests ..... (187) (276)
BlackRock’s net interests
in consolidated
investment funds ...... $430 $475
The Company retained the specialized accounting of these
investment funds pursuant to ASC 810-10. VIEs, including
a consolidated sponsored investment fund and CLOs,
were excluded from the balances above as these balances
are reported separately on the consolidated statements of
financial condition.
Investments
Equity Method Investments. For equity investments where
BlackRock does not control the investee, and where it is
not the PB of a VIE, but can exert significant influence over
the financial and operating policies of the investee, the
Company follows the equity method of accounting. The
evaluation of whether the Company exerts control or
significant influence over the financial and operational
policies of its investees requires significant judgment
based on the facts and circumstances surrounding each
individual investment. Factors considered in these
evaluations may include the type of investment, the legal
structure of the investee, the terms and structure of the
investment agreement, including investor voting or other
rights, the terms of BlackRock’s advisory agreement or
other agreements with the investee, any influence
BlackRock may have on the governing board of the
investee, the legal rights of other investors in the entity
pursuant to the fund’s operating documents and the
relationship between BlackRock and other investors in the
entity.
Substantially all of BlackRock’s equity method investees
are investment companies that record their underlying
investments at fair value. Therefore, under the equity
method of accounting, BlackRock’s share of the investee’s
underlying net income predominantly represents fair value
adjustments in the investments held by the equity method
investees. BlackRock’s share of the investee’s underlying
net income or loss is based upon the most currently
available information and is recorded as non-operating
income (expense) for investments in investment
companies, or as other revenue for operating advisory
company investments, which are recorded in other assets,
since such investees are considered to be an extension of
BlackRock’s core business.
At December 31, 2012, the Company had $604 million and
$124 million of equity method investments, including
equity method investments held for deferred
compensation, reflected within investments and other
assets, respectively, and at December 31, 2011, the
Company had $476 million and $80 million of equity
method investees reflected in investments and other
assets, respectively.
Impairment of Investments. The Company’s management
periodically assesses its equity method, available-for-
sale, held-to-maturity and cost investments for
impairment. If circumstances indicate that impairment
may exist, investments are evaluated using market values,
where available, or the expected future cash flows of the
investment. If the undiscounted expected future cash
flows are lower than the Company’s carrying value of the
investment, an impairment charge is recorded in the
consolidated statement of income.
When the fair value of available-for-sale securities is
lower than cost, the Company evaluates the security to
determine whether the impairment is considered to be
“other-than-temporary”.
In making this determination for equity securities, the
Company considers, among other factors, the length of
time the security has been in a loss position, the extent to
which the security’s market value is less than cost, the
financial condition and near-term prospects of the
security’s issuer and the Company’s ability and intent to
hold the security for a length of time sufficient to allow for
recovery of such unrealized losses. If the impairment is
considered other-than-temporary, an impairment charge
is recorded in non-operating income (expense) on the
consolidated statement of income.
In making this determination for debt securities, the
Company considers whether: (1) it has the intent to sell
the security, (2) it is more likely than not that it will be
required to sell the security before recovery or (3) it
expects to recover the entire amortized cost basis of the
security. If the Company does not intend to sell a security
and it is not more likely than not that it will be required to
sell the security, but the security has suffered a credit
loss, the credit loss will be bifurcated from the total
66
impairment and recorded in earnings with the remaining
portion recorded in accumulated other comprehensive
income.
Evaluation of securities impairments involves significant
assumptions and management judgments, which could
differ from actual results, and these differences could
have a material impact on the consolidated statements of
income.
Fair Value Measurements
Hierarchy of Fair Value Inputs. The provisions of ASC 820-
10 establish a hierarchy that prioritizes inputs to valuation
techniques used to measure fair value and require
companies to disclose the fair value of their financial
instruments according to the fair value hierarchy (i.e.,
Level 1, 2 and 3 inputs, as defined). The fair value
hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs.
Assets and liabilities measured and reported at fair value
are classified and disclosed in one of the following
categories:
Level 1 Inputs:
Quoted prices (unadjusted) in active markets for
identical assets or liabilities at the reporting date.
• Level 1 assets may include listed mutual funds
(including those accounted for under the equity
method of accounting as these mutual funds are
investment companies that have publicly
available net asset values (“NAVs”), which in
accordance with GAAP, are calculated under fair
value measures and the changes are equal to the
earnings of such funds), ETFs, listed equities and
certain exchange-traded derivatives.
Level 2 Inputs:
Quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets
or liabilities that are not active; quotes from pricing
services or brokers for which the Company can
determine that orderly transactions took place at the
quoted price or that the inputs used to arrive at the
price were observable; and inputs other than quoted
prices that are observable, such as models or other
valuation methodologies. As a practical expedient,
the Company relies on the NAV (or its equivalent) of
certain investments as their fair value.
• Level 2 assets may include debt securities, bank
loans, short-term floating rate notes and asset-
backed securities, securities held within
consolidated hedge funds, certain equity method
limited partnership interests in hedge funds
valued based on NAV (or its equivalent) where the
Company has the ability to redeem at the
measurement date or within the near term
without redemption restrictions, restricted public
securities valued at a discount, as well as over–
the-counter derivatives, including interest and
inflation rate swaps and foreign exchange
currency contracts that have inputs to the
valuations that generally can be corroborated by
observable market data.
Level 3 Inputs:
Unobservable inputs for the valuation of the asset or
liability, which may include non-binding broker
quotes. Level 3 assets include investments for which
there is little, if any, market activity. These inputs
require significant management judgment or
estimation. Certain investments that are valued using
NAV (or its equivalent) and are subject to current
redemption restrictions that will not be lifted in the
near term are included in Level 3.
• Level 3 assets may include general and limited
partnership interests in private equity funds,
funds of private equity funds, real estate funds,
hedge funds, funds of hedge funds, direct private
equity investments held within consolidated
funds, bonds and bank loans.
• Level 3 liabilities include borrowings of
consolidated CLOs valued based upon non-
binding single-broker quotes.
• Level 3 inputs include BlackRock capital
accounts for its partnership interests in various
alternative investments, including distressed
credit hedge funds, real estate and private equity
funds, which may be adjusted by using the
returns of certain market indices. BlackRock’s
$679 million of Level 3 investments or 39% of
total GAAP investments at December 31, 2012
primarily included the above mentioned co-
investments.
Significance of Inputs. The Company’s assessment of the
significance of a particular input to the fair value
measurement in its entirety requires judgment and
considers factors specific to the financial instrument.
Valuation Techniques. The fair values of certain Level 3
assets and liabilities were determined using various
methodologies as appropriate, including NAVs of
underlying investments, third-party pricing vendors,
broker quotes and market and income approaches. Such
quotes and modeled prices are evaluated for
reasonableness through various procedures, including due
diligence reviews of third-party pricing vendors, variance
analyses, consideration of current market environment
and other analytical procedures.
67
As a practical expedient, the Company relies on NAV as
the fair value for certain investments. The inputs to value
these investments may include BlackRock capital
accounts for its partnership interests in various
alternative investments, including distressed credit hedge
funds, real estate and private equity funds, which may be
adjusted by using the returns of certain market indices.
The various partnerships are investment companies,
which record their underlying investments at fair value
based on fair value policies established by management of
the underlying fund. Fair value policies at the underlying
fund generally require the fund to utilize pricing/valuation
information, including independent appraisals, from third-
party sources. However, in some instances, current
valuation information for illiquid securities or securities in
markets that are not active may not be available from any
third-party source or fund management may conclude
that the valuations that are available from third-party
sources are not reliable. In these instances, fund
management may perform model-based analytical
valuations that may be used as an input to value these
investments.
A significant amount of inputs used to value equity, debt
securities and bank loans is sourced from well-recognized
third-party pricing vendors. Generally, prices obtained
from pricing vendors are categorized as Level 1 inputs for
identical securities traded in active markets and as Level
2 for other similar securities if the vendor uses observable
inputs in determining the price. Annually, BlackRock’s
internal valuation committee or other designated groups
review both the valuation methodology, including the
general assumptions and methods used to value various
asset classes, and operational process with these
vendors. In addition, on a quarterly basis, meetings are
held with the vendors to identify any significant changes
to the vendors’ processes.
In addition, quotes obtained from brokers generally are
non-binding and categorized as Level 3 inputs. However, if
the Company is able to determine that market
participants have transacted for the asset in an orderly
manner near the quoted price or if the Company can
determine that the inputs used by the broker are
observable, the quote is classified as a Level 2 input.
Changes in Valuation. Changes in value on $1,275 million
of investments will impact the Company’s non-operating
income (expense), $158 million will impact accumulated
other comprehensive income, $232 million are held at cost
or amortized cost and the remaining $85 million relates to
carried interest which will not impact non-operating
income (expense). As of December 31, 2012, changes in
fair value of approximately $524 million of such
investments within consolidated sponsored investment
funds will impact BlackRock’s net income (loss)
attributable to non-controlling interests expense on the
consolidated statements of income. BlackRock’s net
exposure to changes in fair value of such consolidated
sponsored investment funds was $430 million.
Goodwill and Intangible Assets
The value of advisory contracts acquired in business
acquisitions to manage AUM in proprietary open- and
closed-end investment funds as well as collective trust
funds without a specified termination date are classified
as indefinite-lived intangible assets. The assignment of
indefinite lives to such investment fund contracts is based
upon the assumption that there is no foreseeable limit on
the contract period to manage these funds due to the
likelihood of continued renewal at little or no cost. In
addition, trade names/trademarks are considered
indefinite-lived intangibles as they are expected to
generate cash flows indefinitely. Goodwill represents the
cost of a business acquisition in excess of the fair value of
the net assets acquired. In accordance with the applicable
provisions of ASC 350, Intangibles – Goodwill and Other
(“ASC 350”), indefinite-lived intangible assets and
goodwill are not amortized. Finite-lived management
contracts, which relate to acquired separate accounts and
funds with a specified termination date, are amortized
over their remaining expected useful lives, which, at
December 31, 2012, ranged from 1 to 12 years with a
weighted-average remaining estimated useful life of 4.9
years.
Goodwill. The Company assesses its goodwill for
impairment at least annually, considering such factors as
the book value and the market capitalization of the
Company. The impairment test performed as of July 31,
2012 indicated that no impairment charge was required.
The Company continuously monitors its book value per
share as compared with closing prices of its common
stock for potential indicators of impairment. At
December 31, 2012, the Company’s common stock closed
at $206.71, which exceeded its book value per share of
approximately $148.20 after excluding appropriated
retained earnings.
Indefinite-lived and finite-lived intangibles. The Company
performs assessments to determine if any intangible
assets are potentially impaired and whether the
indefinite-life and finite-life classifications are still
appropriate. In evaluating whether it is more likely than
not that the fair value of indefinite-lived intangibles is less
than its carrying value, BlackRock assesses various
significant factors including AUM, revenue basis points,
projected AUM growth rates, operating margins, tax rates
and discount rates. In addition, the Company considers
other factors including: (i) macroeconomic conditions
such as a deterioration in general economic conditions,
limitations on accessing capital, fluctuations in foreign
68
exchange rates, or other developments in equity and
credit markets; (ii) industry and market considerations
such as a deterioration in the environment in which an
entity operates, an increased competitive environment, a
decline in market-dependent multiples or metrics, a
change in the market for an entity’s services, or
regulatory, legal or political developments; and (iii) entity-
specific events, such as a change in management or key
personnel, overall financial performance and litigation
that could affect significant inputs.
If potential impairment circumstances are considered to
exist, the Company will perform an impairment test, using
an undiscounted cash flow analysis. Actual results could
differ from these cash flow estimates, which could
materially impact the impairment conclusion. If the asset
is determined to be impaired, the difference between the
book value of the asset and its current fair value would be
recognized as an expense in the period in which the
impairment occurs.
In addition, management judgment is required to estimate
the period over which finite-lived intangible assets will
contribute to the Company’s cash flows and the pattern in
which these assets will be consumed. A change in the
remaining useful life of any of these assets, or the
reclassification of an indefinite-lived intangible asset to a
finite-lived intangible asset, could have a significant
impact on the Company’s amortization expense, which
was $157 million, $156 million and $160 million for 2012,
2011 and 2010, respectively.
In 2012, 2011 and 2010, the Company performed
impairment tests that indicated no impairment charges
were required, the classification of indefinite-lived versus
finite-lived intangibles was still appropriate and no
changes to the expected lives of the finite-lived
intangibles were required. The Company continuously
monitors various factors, including AUM, for potential
indicators of impairment.
Income Taxes. The Company accounts for income taxes
under the asset and liability method prescribed by ASC
740, Income Taxes (“ASC 740”). Deferred income tax
assets and liabilities are recognized for future tax
consequences attributable to temporary differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases using currently enacted tax rates in effect for the
year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that
includes the enactment date.
Significant management judgment is required in
estimating the ranges of possible outcomes and
determining the probability of favorable or unfavorable tax
outcomes and potential interest and penalties related to
such unfavorable outcomes, that require significant
management judgment. Actual future tax consequences
relating to uncertain tax positions may be materially
different than the Company’s current estimates. At
December 31, 2012, BlackRock had $404 million of gross
unrecognized tax benefits, of which $250 million, if
recognized, would affect the effective tax rate.
In accordance with ASC 740, management is required to
estimate the timing of the recognition of deferred tax
assets and liabilities, make assumptions about the future
deductibility of deferred income tax assets and assess
deferred income tax liabilities based on enacted tax rates
for the appropriate tax jurisdictions to determine the
amount of such deferred income tax assets and liabilities.
At December 31, 2012, the Company had deferred tax
assets of $4 million and deferred tax liabilities of
approximately $5,293 million on the consolidated
statement of financial condition. Changes in the
calculated deferred tax assets and liabilities may occur in
certain circumstances, including statutory income tax rate
changes, statutory tax law changes, changes in the
anticipated timing of recognition of deferred tax assets
and liabilities or changes in the structure or tax status of
the Company. ASC 740 requires the Company to assess
whether a valuation allowance should be established
against its deferred income tax assets based on
consideration of all available evidence, both positive and
negative, using a more likely than not standard. This
assessment considers, among other matters, the nature,
frequency and severity of recent losses, forecast of future
profitability, the duration of statutory carry back and carry
forward periods, the Company’s experience with tax
attributes expiring unused, and tax planning alternatives.
At December 31, 2012, the Company had recorded a
deferred tax asset of $71 million for unrealized investment
losses; however, no valuation allowance has been
established because the Company expects to hold certain
equity method investments which invest in fixed income
securities over a period sufficient for them to recover their
unrealized losses, and generate future capital gains
sufficient to offset the unrealized capital losses. Based on
the weight of available evidence, it is more likely than not
that the deferred tax asset will be realized. However,
changes in circumstance could cause the Company to
revalue its deferred tax balances with the resulting
change impacting the consolidated statements of income
in the period of the change. Such changes may be material
to the Company’s consolidated financial statements. See
Note 19, Income Taxes, to the consolidated financial
statements beginning on page F-1 of this Form 10-K for
further details.
69
The Company records income taxes based upon its
estimated income tax liability or benefit. The Company’s
actual tax liability or benefit may differ from the estimated
income tax liability or benefit. The Company had current
income taxes receivables of approximately $102 million
and current income taxes payables of $121 million at
December 31, 2012.
Revenue Recognition. Investment advisory and
administration fees are recognized as the services are
performed. Such fees are primarily based on pre-
determined percentages of the market value of AUM or, in
the case of certain real estate clients, net operating
income generated by the underlying properties.
Investment advisory and administration fees are affected
by changes in AUM, including market appreciation or
depreciation, foreign exchange translation and net
subscriptions or redemptions. Investment advisory and
administration fees for investment funds are shown net of
fees waived pursuant to contractual expense limitations
of the funds or voluntary waivers.
The Company contracts with third parties and related
parties for various fund distribution and shareholder
servicing to be performed on behalf of certain funds the
Company manages. Such arrangements generally are
priced as a portion of the management fee paid by the
fund. In certain cases, the fund takes on the primary
responsibility for payment for services such that the
Company bears no credit risk to the third party. The
Company accounts for such retrocession arrangements in
accordance with ASC 605-45, Revenue Recognition –
Principle Agent Considerations (“ASC 605-45”), and
records its management fees net of retrocessions.
Retrocessions for 2012, 2011 and 2010 were $793 million,
$928 million and $831 million, respectively. The Company
has additional contracts for similar services with third
parties, which due to the terms of the contracts, are
recorded as distribution and servicing costs and thus not
netted on the consolidated statements of income.
The Company earns revenue by lending securities on
behalf of clients, primarily to brokerage institutions. Such
revenues are accounted for on an accrual basis. The
securities loaned are secured by collateral, generally
ranging from 102% to 112% of the value of the loaned
securities. The revenue earned is shared between the
Company and the funds or other third-party accounts
managed by the Company from which the securities are
borrowed. For 2012, 2011 and 2010, securities lending
revenue totaled $510 million, $397 million and $325
million, respectively, and is recorded in investment
advisory, administration fees and securities lending
revenue on the consolidated statements of income.
Investment advisory, administration fees and securities
lending revenue are reported together as the fees for
these services often are agreed upon with clients as a
bundled fee.
The Company receives investment advisory performance
fees or incentive allocation from certain actively managed
investment funds and certain separately managed
accounts. These performance fees are earned upon
exceeding specified relative and/or absolute investment
return thresholds. Such fees are recorded upon
completion of the measurement period, which varies by
product or account, and could be monthly, quarterly,
annually or longer. For the years ended December 31,
2012, 2011 and 2010, performance fee revenue totaled
$463 million, $371 million and $540 million, respectively.
In addition, the Company receives carried interest from
certain alternative investments upon exceeding
performance thresholds. BlackRock may be required to
return all, or part, of such carried interest depending upon
future performance of these funds. Therefore, BlackRock
records carried interest subject to such claw-back
provisions in investments or cash to the extent that it is
distributed, on its consolidated statements of financial
condition. Carried interest is realized and recorded as
performance fee revenue upon the earlier of the
termination of the investment fund or when the likelihood
of claw-back is mathematically improbable. The Company
records realized carried interest as performance fees on
its consolidated statements of income. The Company
records a deferred carried interest liability to the extent it
receives cash or capital allocations related to carried
interest prior to meeting the revenue recognition criteria.
At December 31, 2012 and 2011, the Company had $97
million and $33 million, respectively, of deferred carried
interest recorded in other liabilities on the consolidated
statements of financial condition. The ultimate
recognition of performance fee revenue, if any, for these
products is unknown.
Fees earned for BlackRock Solutions, which include
advisory services, are recorded as services are performed
and are determined using some, or all, of the following
methods: (i) percentages of various attributes of advisory
AUM or value of positions on the Aladdin platform, (ii) fixed
fees and (iii) performance fees if contractual thresholds
are met. Revenue earned on advisory assignments was
comprised of one-time advisory and portfolio structuring
fees and ongoing fees based on AUM of the respective
portfolio assignment. For 2012, 2011 and 2010, BlackRock
Solutions and advisory revenue totaled $518 million, $510
million and $460 million, respectively.
Adjustments to revenue arising from initial estimates
historically have been immaterial since the majority of
BlackRock’s investment advisory and administration
revenue is calculated based on the fair value of AUM and
since the Company does not record performance revenues
until performance thresholds have been exceeded and the
likelihood of claw-back is mathematically improbable.
70
Accounting Developments
For accounting pronouncements the Company adopted
during 2012 and for recent accounting pronouncements
not yet adopted, see Note 2 to the consolidated financial
statements.
Recent Developments
BlackRock holds an approximately one-third equity
interest in Private National Mortgage Acceptance
Company, LLC (“PennyMac”), accounted for as an equity
method investment. PennyMac Financial Services, Inc.,
which is proposed to become a holding company of
PennyMac, recently filed a Form S-1 with the SEC to
effectively take PennyMac public. A successful offering by
PennyMac may require BlackRock to adjust its investment
in PennyMac at the time of the offering. Given the
uncertain nature of the registration and offering process
for PennyMac, the amount and timing of any such
potential gains or changes in carrying values is uncertain.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AUM Market Price Risk. BlackRock’s investment advisory
and administration fees are primarily comprised of fees
based on a percentage of the value of AUM and, in some
cases, performance fees expressed as a percentage of the
returns realized on AUM. At December 31, 2012, the majority
of the Company’s investment advisory and administration
fees were based on average or period end AUM of the
applicable investment funds or separate accounts.
Movements in equity market prices, interest rates/credit
spreads, foreign exchange rates or all three could cause the
value of AUM to decline, which would result in lower
investment advisory and administration fees.
Corporate Investments Portfolio Risks. As a leading
investment management firm, BlackRock devotes
significant resources across all of its operations to
identifying, measuring, monitoring, managing and
analyzing market and operating risks, including the
management and oversight of its own investment
portfolio. The Board of Directors of the Company has
adopted guidelines for the review of investments to be
made by the Company, requiring, among other things, that
investments be reviewed by certain senior officers of the
Company, and that certain investments may be referred to
the Audit Committee or the Board of Directors, depending
on the circumstances, for approval.
In the normal course of its business, BlackRock is exposed
to equity market price risk, interest rate/credit spread risk
and foreign exchange rate risk associated with its
corporate investments.
BlackRock has investments primarily in sponsored
investment products that invest in a variety of asset
classes, including real estate, private equity and hedge
funds. Investments generally are made for co-investment
purposes, to establish a performance track record, to
hedge exposure to certain deferred compensation plans or
for regulatory purposes. Currently, the Company has a
seed capital hedging program in which it enters into total
return swaps to hedge market exposure to certain
investments. At December 31, 2012, the outstanding total
return swaps had an aggregate notional value of
approximately $206 million.
At December 31, 2012, approximately $524 million of BlackRock’s total investments were maintained in sponsored
investment funds deemed to be controlled by BlackRock in accordance with GAAP and, therefore, are consolidated even
though BlackRock may not own a majority of such funds. Excluding the impact of the Federal Reserve Bank stock, carried
interest, investments made to hedge exposure to certain deferred compensation plans and certain investments that are
hedged via the seed capital hedging program, the Company’s economic exposure to its investment portfolio is as follows:
December 31,
2012
December 31,
2011
Variance
(Dollar amounts in millions) Amount % Change
Total investments, GAAP ................................ $1,750 $1,631 $ 119 7%
Investments held by consolidated sponsored investment
funds .............................................. (524) (587) 63 11%
Net exposure to consolidated investment funds ............. 430 475 (45) (10%)
Total investments, as adjusted ....................... 1,656 1,519 137 9%
Federal Reserve Bank stock ............................. (89) (328) 239 73%
Carried interest ........................................ (85) (21) (64) (305%)
Deferred compensation investments ...................... (62) (65) 3 5%
Hedged investments .................................... (209) (43) (166) (386%)
Total “economic” investment exposure ................ $1,211 $1,062 $ 149 14%
71
The “economic” investment exposure of the portfolio is
presented in either the equity market price or the interest
rate/credit spread risk disclosures below:
Equity Market Price Risk. At December 31, 2012, the
Company’s net exposure to market price risk in its
investment portfolio was approximately $609 million of
the Company’s total economic investment exposure.
Investments subject to market price risk include private
equity and real estate investments, hedge funds and
funds of funds as well as mutual funds. The Company
estimates that a hypothetical 10% adverse change in
market prices would result in a decrease of approximately
$60.9 million in the carrying value of such investments.
Interest Rate/Credit Spread Risk. At December 31, 2012,
the Company was exposed to interest-rate risk and credit
spread risk as a result of approximately $602 million of
investments in debt securities and sponsored investment
products that invest primarily in debt securities.
Management considered a hypothetical 100 basis point
fluctuation in interest rates or credit spreads and
estimates that the impact of such a fluctuation on these
investments, in the aggregate, would result in a decrease,
or increase, of approximately $8.0 million in the carrying
value of such investments.
Foreign Exchange Rate Risk. As discussed above, the
Company invests in sponsored investment products that
invest in a variety of asset classes. The carrying value of
the total economic investment exposure denominated in
foreign currencies, primarily the pound sterling and euro
was $156 million at December 31, 2012. A 10% adverse
change in the applicable foreign exchange rates would
result in approximately a $15.6 million decline in the
carrying value of such investments.
Other Market Risks. By using derivative financial
instruments, the Company exposes itself to market risk.
Market risk from forward foreign currency exchange
contracts is the effect on the value of a financial
instrument that results from a change in currency
exchange rates. The Company manages exposure to
market risk associated with foreign currency exchange
contracts by establishing and monitoring parameters that
limit the types and degrees of market risk that may be
undertaken. At December 31, 2012, the Company had
outstanding forward foreign currency exchange contracts
with an aggregate notional value of approximately $79
million.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL
DATA
The report of the independent registered public
accounting firm and financial statements listed in the
accompanying index are included in Item 15 of this report.
See Index to the consolidated financial statements on
page F-1 of this Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements on accounting and
financial disclosure matters. BlackRock has not changed
accountants in the two most recent fiscal years.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Under the direction
of BlackRock’s Chief Executive Officer and Chief Financial
Officer, BlackRock evaluated the effectiveness of its
disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this
annual report on Form 10-K. Based on this evaluation,
BlackRock’s Chief Executive Officer and Chief Financial
Officer have concluded that BlackRock’s disclosure
controls and procedures were effective.
Internal Control and Financial Reporting. There have been
no changes in internal control over financial reporting
during the latest fiscal quarter that have materially
affected or are reasonably likely to materially affect such
internal control over financial reporting.
72
Management’s Report on Internal Control Over Financial
Reporting
Management of BlackRock, Inc. (the “Company”) is
responsible for establishing and maintaining effective
internal control over financial reporting. Internal control
over financial reporting is defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as
amended, as a process designed by, or under the
supervision of, the Company’s principal executive and
principal financial officers, or persons performing similar
functions, and affected by the Company’s board of
directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with accounting
principles generally accepted in the United States of
America and includes those policies and procedures that:
• pertain to the maintenance of records that, in
reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the
Company;
• provide reasonable assurance that transactions are
recorded as necessary to permit preparation of
financial statements in accordance with accounting
principles generally accepted in the United States
of America, and that receipts and expenditures of
the Company are being made only in accordance
with the authorizations of management and
directors of the Company; and
• provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use
or disposition of the Company’s assets that could
have a material effect on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material
misstatements due to error or fraud may not be prevented
or detected on a timely basis. Also, projections of any
evaluation of effectiveness of the internal control over
financial reporting to future periods are subject to the
risks that controls may become inadequate because of
changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2012 based on the criteria established in
Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management
concluded that, as of December 31, 2012, the Company’s
internal control over financial reporting is effective.
The Company’s independent registered public accounting
firm has issued an attestation report on the effectiveness
of the Company’s internal control over financial reporting.
February 28, 2013
73
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of BlackRock,
Inc.:
We have audited the internal control over financial reporting
of BlackRock, Inc. and subsidiaries (the “Company”) as of
December 31, 2012, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and
effected by the company’s board of directors, management,
and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in
accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material
misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation
of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2012, based on the criteria established in
Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States), the consolidated statement of financial condition as
of December 31, 2012 and the related consolidated
statements of income, comprehensive income, changes in
equity and cash flows for the year then ended of the
Company and our report dated February 28, 2013 expressed
an unqualified opinion on those consolidated financial
statements.
/s/ Deloitte & Touche LLP
New York, New York
February 28, 2013
74
Item 9B. OTHER INFORMATION
The Company is furnishing no other information in this
Form 10-K.
Part III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
The information regarding directors and executive officers
set forth under the captions “Item 1: Election of Directors
– Information Concerning the Nominees and Directors”
and “Item 1: Election of Directors – Other Executive
Officers” of the Proxy Statement is incorporated herein by
reference.
The information regarding compliance with Section 16(a)
of the Exchange Act set forth under the caption “Item 1:
Section 16(a) Beneficial Ownership Reporting Compliance”
of the Proxy Statement is incorporated herein by
reference.
The information regarding BlackRock’s Code of Ethics for
Chief Executive and Senior Financial Officers under the
caption “Item 1: Corporate Governance Guidelines and
Code of Business Conduct and Ethics” of the Proxy
Statement is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information contained in the sections captioned “Item
1: Compensation of Executive Officers” and “Item 1: 2012
Director Compensation” of the Proxy Statement is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information contained in the sections captioned
“Item 1: Ownership of BlackRock Common and Preferred
Stock” and “Equity Compensation Plan Information” of the
Proxy Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information contained in the sections captioned
“Item 1: Certain Relationships and Related Transactions”
and “Item 1: Director Independence” of the Proxy
Statement is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information regarding BlackRock’s independent
auditor fees and services in the section captioned “Item 4:
Ratification of Appointment of Independent Registered
Public Accounting Firm” of the Proxy Statement is
incorporated herein by reference.
Part IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
1. Financial Statements
The Company’s consolidated financial statements are
included beginning on pages F-1.
2. Financial Statement Schedules
Ratio of Earnings to Fixed Charges has been included as
Exhibit 12.1. All other schedules have been omitted
because they are not applicable, not required or the
information required is included in the Company’s
consolidated financial statements or notes thereto.
3. Exhibit Index
As used in this exhibit list, “BlackRock” refers to
BlackRock, Inc. (formerly named New BlackRock, Inc. and
previously, New Boise, Inc.) (Commission File No. 001-
33099) and “Old BlackRock” refers to BlackRock Holdco 2,
Inc. (formerly named BlackRock, Inc.) (Commission File
No. 001-15305), which is the predecessor of BlackRock.
The following exhibits are filed as part of this Annual
Report on Form 10-K:
Please note that the agreements included as exhibits to
this Form 10-K are included to provide information
regarding their terms and are not intended to provide any
other factual or disclosure information about BlackRock or
the other parties to the agreements. The agreements
contain representations and warranties by each of the
parties to the applicable agreement that have been made
solely for the benefit of the other parties to the applicable
agreement and may not describe the actual state of
affairs as of the date they were made or at any other time.
75
Exhibit No. Description
3.1(1) Amended and Restated Certificate of Incorporation of BlackRock.
3.2(2) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of BlackRock, Inc.
3.3 Amended and Restated Bylaws of BlackRock.
3.4(1) Certificate of Designations of Series A Convertible Participating Preferred Stock of BlackRock.
3.5(3) Certificate of Designations of Series B Convertible Participating Preferred Stock of BlackRock.
3.6(3) Certificate of Designations of Series C Convertible Participating Preferred Stock of BlackRock.
3.7(4) Certificate of Designations of Series D Convertible Participating Preferred Stock of BlackRock.
4.1(5) Specimen of Common Stock Certificate.
4.2(6) Indenture, dated September 17, 2007, between BlackRock and The Bank of New York, as trustee,
relating to senior debt securities.
4.3(7) Form of 6.25% Notes due 2017.
4.4(8) Form of 3.50% Notes due 2014.
4.5(8) Form of 5.00% Notes due 2019.
4.6(9) Form of Floating Rate Notes due 2013.
4.7(9) Form of 4.25% Notes due 2021.
4.8(10) Form of 1.375% Notes due 2015.
4.9(10) Form of 3.375% Notes due 2022.
10.1(11) BlackRock, Inc. Amended and Restated 1999 Stock Award and Incentive Plan. +
10.2(12) Amended and Restated BlackRock, Inc. 1999 Annual Incentive Performance Plan. +
10.3(13) Amendment No. 1 to the BlackRock, Inc. Amended and Restated 1999 Annual Incentive Performance
Plan.+
10.4(5) BlackRock, Inc. Voluntary Deferred Compensation Plan, as amended and restated as of January 1,
2005.+
10.5(1) Form of Stock Option Agreement expected to be used in connection with future grants of Stock Options
under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.6(1) Form of Restricted Stock Agreement expected to be used in connection with future grants of Restricted
Stock under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.7(14) Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of
Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.8(14) Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of
Restricted Stock Units for long-term incentive awards under the BlackRock, Inc. 1999 Stock Award and
Incentive Plan.+
10.9(1) Form of Directors’ Restricted Stock Unit Agreement expected to be used in connection with future
grants of Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.10(5) Registration Rights Agreement, dated as of September 29, 2006, among BlackRock, Merrill Lynch & Co.,
Inc. and the PNC Financial Service Group, Inc.
10.11(15) Share Surrender Agreement, dated October 10, 2002 (the “Share Surrender Agreement”), among Old
BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc.+
10.12(16) First Amendment, dated as of February 15, 2006, to the Share Surrender Agreement.+
10.13(17) Second Amendment, dated as of June 11, 2007, to the Share Surrender Agreement.+
10.14(3) Third Amendment, dated as of February 27, 2009, to the Share Surrender Agreement.+
10.15(18) Fourth Amendment, dated as of August 7, 2012, to the Share Surrender Agreement.+
10.16(19) Five-Year Revolving Credit Agreement, dated as of March 10, 2011, by and among BlackRock, Inc.,
certain of its subsidiaries, Wells Fargo Bank, National Association, as administrative agent, swingline
lender, issuing lender and L/C agent, Sumitomo Mitsui Banking Corporation, as Japanese Yen lender, a
group of lenders, Wells Fargo Securities, LLC, Citigroup Global Markets Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Barclays Capital, J.P. Morgan Securities LLC and Morgan Stanley Senior
Funding, Inc., as joint lead arrangers and joint bookrunners, Citibank, N.A., as syndication agent and
Bank of America, N.A., Barclays Bank PLC, JPMorgan Chase Bank, N.A. and Morgan Stanley Senior
Funding, Inc., as documentation agents.
10.17(20) Amendment No. 1, dated as of March 30, 2012, by and among BlackRock, Inc., certain of its subsidiaries,
Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C
agent and a lender, and the banks and other financial institutions referred to therein.
76
Exhibit No. Description
10.18(21)† Second Amended and Restated Global Distribution Agreement, dated as of November 15, 2010, among
BlackRock and Merrill Lynch & Co., Inc.
10.19(3) Amended and Restated Implementation and Stockholder Agreement, dated as of February 27, 2009,
between The PNC Financial Services Group, Inc. and BlackRock.
10.20(22) Amendment No. 1, dated as of June 11, 2009, to the Amended and Restated Implementation and
Stockholder Agreement between The PNC Financial Services Group, Inc. and BlackRock.
10.21(23) Third Amended and Restated Stockholder Agreement, dated as of November 15, 2010, among
BlackRock, Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc.
10.22(24) Commercial Paper Dealer Agreement between BlackRock and Barclays Capital Inc., dated as of
October 14, 2009.
10.23(25) Lease Agreement, dated as of February 17, 2010, among BlackRock Investment Management (UK) Limited
and Mourant & Co Trustees Limited and Mourant Property Trustees Limited as Trustees of the Drapers
Gardens Unit Trust for the lease of Drapers Gardens, 12 Throgmorton Avenue, London, EC2, United Kingdom.
10.24(26) Stock Repurchase Agreement, dated as of May 21, 2012, between Barclays Bank PLC and BlackRock.
10.25(26) Exchange Agreement, dated as of May 21, 2012, between Barclays Bank PLC and BlackRock.
10.26(26) Exchange Agreement, dated as of May 21, 2012, among PNC Bancorp, Inc., The PNC Financial Services
Group, Inc. and BlackRock.
10.27(27) Letter Agreement, dated November 20, 2012, between Susan L. Wagner and BlackRock. +
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of Registrant.
23.1 Deloitte & Touche LLP Consent.
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
(1) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on October 5, 2006.
(2) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 25, 2012.
(3) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on February 27, 2009.
(4) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on December 3, 2009.
(5) Incorporated by reference to BlackRock’s Registration Statement on Form S-8 (Registration No. 333-137708) filed on September 29, 2006.
(6) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2007.
(7) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on September 17, 2007.
(8) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on December 10, 2009.
(9) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 25, 2011.
(10) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 31, 2012.
(11) Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.
(12) Incorporated by reference to Old BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2002.
(13) Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on May 24, 2006.
(14) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2008.
(15) Incorporated by reference to Old BlackRock’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
(16) Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on February 22, 2006.
(17) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 15, 2007.
(18) Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
(19) Incorporated by reference to BlackRock’s Current Report on Form 8-K/A filed on August 24, 2012.
(20) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 4, 2012.
(21) Incorporated by reference to BlackRock’s Current Report on Form 8-K/A filed on August 24, 2012.
(22) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 17, 2009.
(23) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on November 17, 2010.
(24) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on October 20, 2009.
(25) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2009.
(26) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 23, 2012.
(27) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on November 27, 2012.
+ Denotes compensatory plans or arrangements
† Confidential treatment has been granted for certain portions of this exhibit, which portions have been omitted and filed separately with the Securities and
Exchange Commission.
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BLACKROCK, INC.
By: /s/ L
AURENCE
D. F
INK
Laurence D. Fink
Chairman, Chief Executive Officer and Director
February 28, 2013
Each of the officers and directors of BlackRock, Inc. whose signature appears below, in so signing, also makes, constitutes
and appoints Laurence D. Fink, Ann Marie Petach, Matthew Mallow, Daniel R. Waltcher and Harris Oliner, his or her true and
lawful attorneys-in-fact, with full power and substitution, for him or her in any and all capacities, to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments to the Annual Report on Form 10-K, with
exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order to file
such documents, and hereby ratifies and confirms all that said attorney-in-fact or his or her substitute or substitutes may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ LAURENCE D. FINK
Laurence D. Fink
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
February 28, 2013
/S/ ANN MARIE PETACH
Ann Marie Petach
Senior Managing Director and Chief Financial
Officer (Principal Financial Officer)
February 28, 2013
/S/ JOSEPH FELICIANI, JR.
Joseph Feliciani, Jr.
Managing Director and Chief Accounting Officer
(Principal Accounting Officer)
February 28, 2013
/S/ ABDLATIF Y. AL-HAMAD Director February 28, 2013
Abdlatif Y. Al-Hamad
/S/ MATHIS CABIALLAVETTA Director February 28, 2013
Mathis Cabiallavetta
/S/ DENNIS D. DAMMERMAN Director February 28, 2013
Dennis D. Dammerman
/S/ WILLIAM S. DEMCHAK Director February 28, 2013
William S. Demchak
/S/ JESSICA EINHORN Director February 28, 2013
Jessica Einhorn
/S/ FABRIZIO FREDA Director February 28, 2013
Fabrizio Freda
78
Signature Title Date
/S/ MURRY S. GERBER Director February 28, 2013
Murry S. Gerber
/S/ JAMES GROSFELD Director February 28, 2013
James Grosfeld
/S/ ROBERT S. KAPITO Director February 28, 2013
Robert S. Kapito
/S/ DAVID H. KOMANSKY Director February 28, 2013
David H. Komansky
/S/ SIR DERYCK MAUGHAN Director February 28, 2013
Sir Deryck Maughan
/S/ THOMAS K. MONTAG Director February 28, 2013
Thomas K. Montag
/S/ THOMAS H. O’BRIEN Director February 28, 2013
Thomas H. O’Brien
/S/ JAMES E. ROHR Director February 28, 2013
James E. Rohr
/S/ IVAN G. SEIDENBERG Director February 28, 2013
Ivan G. Seidenberg
/S/ MARCO ANTONIO SLIM DOMIT Director February 28, 2013
Marco Antonio Slim Domit
/S/ JOHN S. VARLEY Director February 28, 2013
John S. Varley
/S/ SUSAN L. WAGNER Director February 28, 2013
Susan L. Wagner
79
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ........................................................ F-2
Consolidated Statements of Financial Condition ................................................................. F-3
Consolidated Statements of Income ........................................................................... F-4
Consolidated Statements of Comprehensive Income ............................................................. F-5
Consolidated Statements of Changes in Equity .................................................................. F-6
Consolidated Statements of Cash Flows ....................................................................... F-9
Notes to the Consolidated Financial Statements ................................................................. F-11
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of BlackRock,
Inc.:
We have audited the accompanying consolidated
statements of financial condition of BlackRock, Inc. and
subsidiaries (the “Company”) as of December 31, 2012 and
2011, and the related consolidated statements of income,
comprehensive income, changes in equity, and cash flows
for each of the three years in the period ended
December 31, 2012. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of BlackRock, Inc. and subsidiaries at
December 31, 2012 and 2011, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2012, in conformity with
accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial
reporting as of December 31, 2012, based on criteria
established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated
February 28, 2013 expressed an unqualified opinion on the
Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
New York, New York
February 28, 2013
F-2
BlackRock, Inc.
Consolidated Statements of Financial Condition
(Dollar amounts in millions, except per share data)
December 31,
2012
December 31,
2011
Assets
Cash and cash equivalents .......................................................... $ 4,606 $ 3,506
Accounts receivable ............................................................... 2,250 1,960
Due from related parties ............................................................ 77 142
Investments ...................................................................... 1,750 1,631
Assets of consolidated variable interest entities:
Cash and cash equivalents ...................................................... 297 54
Bank loans and other investments ................................................ 2,264 1,639
Separate account assets ........................................................... 134,768 118,871
Collateral held under securities lending agreements .................................... 23,021 20,918
Deferred sales commissions, net ..................................................... 24 38
Property and equipment (net of accumulated depreciation of $572 and $483 at December 31,
2012 and 2011, respectively) ...................................................... 557 537
Intangible assets (net of accumulated amortization of $899 and $751 at December 31, 2012
and 2011, respectively) ........................................................... 17,402 17,356
Goodwill ......................................................................... 12,910 12,792
Other assets ...................................................................... 525 452
Total assets .......................................................................... $200,451 $179,896
Liabilities
Accrued compensation and benefits .................................................. $ 1,547 $ 1,383
Accounts payable and accrued liabilities .............................................. 1,055 923
Due to related parties .............................................................. 14 22
Short-term borrowings ............................................................. 100 100
Liabilities of consolidated variable interest entities:
Borrowings ................................................................... 2,402 1,574
Other liabilities ................................................................ 103 9
Long-term borrowings .............................................................. 5,687 4,690
Separate account liabilities ......................................................... 134,768 118,871
Collateral liabilities under securities lending agreements ................................ 23,021 20,918
Deferred income tax liabilities ....................................................... 5,293 5,323
Other liabilities ................................................................... 844 721
Total liabilities ........................................................................ 174,834 154,534
Commitments and contingencies (Note 12)
Temporary equity
Redeemable non-controlling interests ................................................ 32 92
Permanent Equity
BlackRock, Inc. stockholders’ equity
Common stock, $ 0.01 par value; ..................................................... 2 1
Shares authorized: 500,000,000 at December 31, 2012 and 2011; Shares issued:
171,252,185 and 139,880,380 at December 31, 2012 and 2011, respectively; Shares
outstanding: 168,875,304 and 138,463,135 at December 31, 2012 and 2011,
respectively; ................................................................
Series B non-voting participating preferred stock, $0.01 par value; ........................ — —
Shares authorized: 150,000,000 at December 31, 2012 and 2011; Shares issued and
outstanding: 823,188 and 38,328,737 at December 31, 2012 and 2011, respectively; ....
Series C non-voting participating preferred stock, $0.01 par value; ........................ — —
Shares authorized: 6,000,000 at December 31, 2012 and 2011; Shares issued and
outstanding: 1,517,237 at December 31, 2012 and 2011, respectively .................
Additional paid-in capital ........................................................... 19,419 20,275
Retained earnings ................................................................. 6,444 5,046
Appropriated retained earnings ...................................................... 29 72
Accumulated other comprehensive loss ............................................... (59) (127)
Escrow shares, common, at cost (3,603 shares held at December 31, 2011) ................. — (1)
Treasury stock, common, at cost (2,376,881 and 1,413,642 shares held at December 31, 2012
and 2011, respectively) ........................................................... (432) (218)
Total BlackRock, Inc. stockholders’ equity ................................................ 25,403 25,048
Nonredeemable non-controlling interests ................................................. 155 184
Nonredeemable non-controlling interests of consolidated variable interest entities .............. 27 38
Total permanent equity ................................................................ 25,585 25,270
Total liabilities, temporary equity and permanent equity ..................................... $200,451 $179,896
See accompanying notes to consolidated financial statements.
F-3
BlackRock, Inc.
Consolidated Statements of Income
(Dollar amounts in millions, except per share data)
Year ended
December 31,
2012 2011 2010
Revenue
Investment advisory, administration fees and securities lending revenue
Related parties ................................................... $ 5,292 $ 5,303 $ 4,893
Other third parties ................................................ 2,780 2,593 2,397
Total investment advisory, administration fees and securities lending
revenue ........................................................... 8,072 7,896 7,290
Investment advisory performance fees ................................... 463 371 540
BlackRock Solutions and advisory ....................................... 518 510 460
Distribution fees ..................................................... 71 100 116
Other revenue ........................................................ 213 204 206
Total revenue ............................................................ 9,337 9,081 8,612
Expenses
Employee compensation and benefits ................................... 3,287 3,199 3,097
Distribution and servicing costs
Related parties ................................................... 4 5 226
Other third parties ................................................ 360 381 182
Amortization of deferred sales commissions .............................. 55 81 102
Direct fund expenses ................................................. 591 563 493
General and administration ............................................ 1,359 1,415 1,354
Restructuring charges ................................................. — 32 —
Amortization of intangible assets ....................................... 157 156 160
Total expenses .......................................................... 5,813 5,832 5,614
Operating income ........................................................ 3,524 3,249 2,998
Non-operating income (expense)
Net gain (loss) on investments .......................................... 163 46 179
Net gain (loss) on consolidated variable interest entities .................... (38) (18) (35)
Interest and dividend income ........................................... 36 34 29
Interest expense ..................................................... (215) (176) (150)
Total non-operating income (expense) ....................................... (54) (114) 23
Income before income taxes ............................................... 3,470 3,135 3,021
Income tax expense ................................................... 1,030 796 971
Net income .............................................................. 2,440 2,339 2,050
Less:
Net income (loss) attributable to redeemable non-controlling interests .... 9 — 3
Net income (loss) attributable to nonredeemable non-controlling
interests ...................................................... (27) 2 (16)
Net income attributable to BlackRock, Inc. ................................... $ 2,458 $ 2,337 $ 2,063
Earnings per share attributable to BlackRock, Inc. common stockholders:
Basic ............................................................... $ 14.03 $ 12.56 $ 10.67
Diluted ............................................................. $ 13.79 $ 12.37 $ 10.55
Cash dividends declared and paid per share .................................. $ 6.00 $ 5.50 $ 4.00
Weighted-average common shares outstanding:
Basic ............................................................... 174,961,018 184,265,367 190,554,510
Diluted ............................................................. 178,017,679 187,116,410 192,692,047
See accompanying notes to consolidated financial statements.
F-4
BlackRock, Inc.
Consolidated Statements of Comprehensive Income
(Dollar amounts in millions)
Year ended
December 31,
2012 2011 2010
Net income .............................................................................. $2,440 $2,339 $2,050
Other comprehensive income:
Change in net unrealized gains (losses) from available-for-sale investments, net of tax:
Unrealized holding gains (losses), net of tax ....................................... 26 (3) 3
Less: reclassification adjustment included in net income ............................ 6 1 1
Net change from available-for-sale investments, net of tax
(1)
............................ 20 (4) 2
Benefit plans, net ................................................................. (5) — (1)
Foreign currency translation adjustments ............................................. 53 (27) (1)
Other comprehensive income (loss) ......................................................... 68 (31) —
Comprehensive income .................................................................... 2,508 2,308 2,050
Less: Comprehensive income (loss) attributable to non-controlling interests ....................... (18) 2 (13)
Comprehensive income attributable to BlackRock, Inc. ......................................... $2,526 $2,306 $2,063
(1)
The tax benefit (expense) on unrealized holding gains (losses) was $(8) million, $3 million and $(2) million in 2012, 2011 and 2010, respectively.
See accompanying notes to consolidated financial statements.
F-5
BlackRock, Inc.
Consolidated Statements of Changes in Equity
(Dollar amounts in millions)
Additional
Paid-in
Capital
(1)
Retained
Earnings
Appropriated
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Shares
Held in
Escrow
Treasury
Stock
Common
Total
Stockholders’
Equity
Nonredeemable
Non-controlling
Interests
Nonredeemable
Non-controlling
Interests of
Consolidated
VIEs
Total
Permanent
Equity
Redeemable
Non-
controlling
Interests /
Temporary
Equity
December 31, 2009 ................... $22,129 $2,436 $— $ (96) $(137) $ (3) $24,329 $224 $— $24,553 $ 49
January 1, 2010 initial recognition of
ASU 2009-17 ................... — — 114 — — — 114 (49) 49 114 —
Net income ...................... — 2,063 — — — — 2,063 19 (35) 2,047 3
Allocation of losses of consolidated
collateralized loan obligations .... — — (39) — — — (39) — 39 — —
Dividends paid, net of dividend
expense for unvested RSUs ...... — (776) — — — — (776) — — (776) —
Release of common stock from
escrow agent in connection with
Quellos Transaction ............. — — — — 136 — 136 — — 136 —
Stock-based compensation ........ 444 — — — — 1 445 — — 445 —
PNC preferred stock capital
contribution ................... 5 — — — — — 5 — — 5 —
Merrill Lynch cash capital
contribution ................... 10 — — — — — 10 — — 10 —
Exchange of common stock for
preferred shares series B ........ 128 — — — — (128) — — — — —
Issuance of common shares related
to employee stock transactions . . . (202) — — — — 217 15 — — 15 —
Employee tax benefit withholdings
related to employee stock
transactions ................... — — — — — (124) (124) — — (124) —
Shares repurchased .............. — — — — — (140) (140) — — (140) —
Convertible debt conversions, net of
tax ........................... (54) — — — — 66 12 — — 12 —
Net tax benefit (shortfall) from stock-
based compensation ............ 44 — — — — — 44 — — 44 —
Subscriptions/(redemptions/
distributions) – non-controlling
interest holders ................ — — — — — — — (6) (8) (14) 124
Net consolidations
(deconsolidations) of sponsored
investment funds ............... — — — — — — — — — — (170)
Other changes in non-controlling
interests ...................... — — — — — — — 1 — 1 —
December 31, 2010 ................... $22,504 $3,723 $ 75 $ (96) $ (1) $(111) $26,094 $189 $ 45 $26,328 $ 6
(1)
Amount includes $1 million of common stock at par value and $1 million of preferred stock at par value at both December 31, 2010 and 2009.
See accompanying notes to consolidated financial statements.
F-6
BlackRock, Inc.
Consolidated Statements of Changes in Equity
(Dollar amounts in millions)
Additional
Paid-in
Capital
(1)
Retained
Earnings
Appropriated
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Shares
Held in
Escrow
Treasury
Stock
Common
Total
Stockholders’
Equity
Nonredeemable
Non-controlling
Interests
Nonredeemable
Non-controlling
Interests of
Consolidated
VIEs
Total
Permanent
Equity
Redeemable
Non-
controlling
Interests /
Temporary
Equity
December 31, 2010 .................... $22,504 $ 3,723 $ 75 $ (96) $ (1) $(111) $26,094 $189 $ 45 $26,328 $ 6
Net income ...................... — 2,337 — — — — 2,337 20 (18) 2,339 —
Consolidation of a collateralized loan
obligation ...................... — — 19 — — — 19 — — 19 —
Allocation of losses of consolidated
collateralized loan obligations ..... — — (22) — — — (22) — 22 — —
Dividends paid, net of dividend
expense for unvested RSUs ....... — (1,014) — — — — (1,014) — — (1,014) —
Stock-based compensation ......... 494 — — — — 3 497 — — 497 —
PNC preferred stock capital
contribution .................... 200 — — — — — 200 — — 200 —
Retirement of preferred stock ....... (200) — — — — — (200) — — (200) —
Merrill Lynch cash capital
contribution .................... 8 — — — — — 8 — — 8 —
Issuance of common shares related to
employee stock transactions ...... (208) — — — — 228 20 — — 20 —
Employee tax benefit withholdings
related to employee stock
transactions .................... — — — — — (239) (239) — — (239) —
Shares repurchased ............... (2,545) — — — — (100) (2,645) — — (2,645) —
Convertible debt conversions ....... 4 — — — — 1 5 — — 5 —
Net tax benefit (shortfall) from stock-
based compensation ............. 12 — — — — — 12 — — 12 —
Subscriptions/(redemptions/
distributions) – non-controlling
interest holders ................. — — — — — — — (25) (11) (36) 90
Net consolidations (deconsolidations)
of sponsored investment funds .... — — — — — — — — — — (4)
Foreign currency translation
adjustments .................... 7 — — — — — 7 — — 7 —
Other comprehensive income (loss) . . — — — (31) — — (31) — — (31) —
December 31, 2011 .................... $20,276 $ 5,046 $ 72 $(127) $ (1) $(218) $25,048 $184 $ 38 $25,270 $ 92
(1)
Amount includes $1 million of common stock at par value at both December 31, 2011 and 2010 and $1 million of preferred stock at par value at December 31, 2010.
See accompanying notes to consolidated financial statements.
F-7
BlackRock, Inc.
Consolidated Statements of Changes in Equity
(Dollar amounts in millions)
Additional
Paid-in
Capital
(1)
Retained
Earnings
Appropriated
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common
Shares
Held in
Escrow
Treasury
Stock
Common
Total
Stockholders’
Equity
Nonredeemable
Non-controlling
Interests
Nonredeemable
Non-controlling
Interests of
Consolidated
VIEs
Total
Permanent
Equity
Redeemable
Non-
controlling
Interests /
Temporary
Equity
(2)
December 31, 2011 ............ $20,276 $ 5,046 $ 72 $(127) $ (1) $(218) $25,048 $184 $ 38 $25,270 $ 92
Net income .............. — 2,458 — — — — 2,458 11 (38) 2,431 9
Allocation of losses of
consolidated
collateralized loan
obligations ............. — — (43) — — — (43) — 43 — —
Release of common stock
from escrow ............ (1) — — — 1 — — — — — —
Dividends paid ............ — (1,060) — — — — (1,060) — — (1,060) —
Stock-based
compensation .......... 451 — — — — — 451 — — 451 —
Merrill Lynch cash capital
contribution ............ 7 — — — — — 7 — — 7 —
Issuance of common shares
related to employee stock
transactions ............ (376) — — — — 432 56 — — 56 —
Employee tax benefit
withholdings related to
employee stock
transactions ............ — — — — — (146) (146) — — (146) —
Shares repurchased ....... (1,000) — — — — (500) (1,500) — — (1,500) —
Net tax benefit (shortfall)
from stock-based
compensation .......... 64 — — — — — 64 — — 64 —
Subscriptions/
(redemptions/
distributions) – non-
controlling interest
holders ................ — — — — — — — (33) (10) (43) 343
Net consolidations
(deconsolidations) of
sponsored investment
funds .................. — — — — — — — (7) (6) (13) (412)
Other comprehensive
income (loss) ........... — — — 68 — — 68 — — 68 —
December 31, 2012 ............ $19,421 $ 6,444 $ 29 $ (59) $— $(432) $25,403 $155 $ 27 $25,585 $ 32
(1)
Amount includes $2 million and $1 million of common stock at par value at December 31, 2012 and 2011, respectively.
(2)
Amounts include $89 million of redemptions and $89 million of net consolidations related to consolidated variable interest entities (“VIEs”).
See accompanying notes to consolidated financial statements.
F-8
BlackRock, Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in millions)
Year ended
December 31,
2012 2011 2010
Cash flows from operating activities
Net income ........................................................................ $2,440 $ 2,339 $ 2,050
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization .................................................... 295 299 310
Amortization of deferred sales commissions ......................................... 55 81 102
Stock-based compensation ....................................................... 451 497 445
Deferred income tax expense (benefit) .............................................. (61) (137) 3
Net (gains) losses on non-trading investments ....................................... (43) (40) (62)
Purchases of investments within consolidated sponsored investment funds .............. (108) (41) (26)
Proceeds from sales and maturities of investments within consolidated sponsored
investment funds 96 50 54
Assets and liabilities of consolidated VIEs:
Change in cash and cash equivalents ........................................... (24) 54 (45)
Net losses within consolidated VIEs ............................................ 38 18 35
Net (purchases) proceeds within consolidated VIEs ............................... (203) 82 44
(Earnings) losses from equity method investees ...................................... (175) (23) (141)
Distributions of earnings from equity method investees ............................... 42 30 14
Other adjustments .............................................................. (4) — (1)
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (292) 124 (364)
Due from related parties ...................................................... (4) (6) 45
Deferred sales commissions .................................................. (41) (53) (65)
Investments, trading ......................................................... (664) (116) (118)
Other assets ................................................................ 35 (122) 236
Accrued compensation and benefits ............................................ 138 (140) 52
Accounts payable and accrued liabilities ........................................ 114 (152) 164
Due to related parties ........................................................ (8) (35) (356)
Other liabilities .............................................................. 163 117 112
Cash flows from operating activities ....................................................... 2,240 2,826 2,488
Cash flows from investing activities
Purchases of investments ............................................................ (402) (204) (656)
Proceeds from sales and maturities of investments ...................................... 695 213 181
Distributions of capital from equity method investees ..................................... 73 34 53
Net consolidations (deconsolidations) of sponsored investment funds ....................... (215) — (52)
Acquisitions, net of cash acquired, and contingent payments .............................. (267) — (23)
Purchases of property and equipment .................................................. (150) (247) (131)
Other ............................................................................. — — 1
Cash flows from investing activities ....................................................... (266) (204) (627)
Cash flows from financing activities
Repayments of short-term borrowings ................................................. — (600) (2,134)
Proceeds from short-term borrowings .................................................. — 600 —
Repayments of convertible debt ....................................................... — (67) (176)
Repayments of long-term borrowings .................................................. (500) — —
Proceeds from long-term borrowings ................................................... 1,495 1,496 —
Cash dividends paid ................................................................. (1,060) (1,014) (776)
Proceeds from stock options exercised ................................................. 47 16 10
Proceeds from issuance of common stock .............................................. 7 5 6
Repurchases of common stock ........................................................ (1,645) (2,885) (264)
Merrill Lynch cash capital contribution ................................................. 7 8 10
Net proceeds from (repayments of) borrowings by consolidated VIEs ........................ 331 (125) —
Net (redemptions/distributions paid)/subscriptions received from non-controlling interest
holders .......................................................................... 300 54 110
Excess tax benefit from stock-based compensation ...................................... 74 27 44
Cash flows from financing activities ....................................................... (944) (2,485) (3,170)
Effect of exchange rate changes on cash and cash equivalents ............................. 70 2 (32)
Net increase (decrease) in cash and cash equivalents ........................................ 1,100 139 (1,341)
Cash and cash equivalents, beginning of year ............................................... 3,506 3,367 4,708
Cash and cash equivalents, end of year ..................................................... $4,606 $ 3,506 $ 3,367
F-9
Year ended
December 31,
2012 2011 2010
Supplemental disclosure of cash flow information:
Cash paid for:
Interest ................................................................................... $201 $167 $ 146
Interest on borrowings of consolidated VIEs ..................................................... $ 75 $ 60 $ 53
Income taxes (net of refunds) ................................................................. $976 $962 $ 583
Supplemental schedule of non-cash investing and financing transactions:
Issuance of common stock ................................................................... $378 $213 $ 266
PNC preferred stock capital contribution ....................................................... $ — $200 $ —
Increase (decrease) in non-controlling interests due to net consolidation (deconsolidation)
of sponsored investment funds ............................................................. $(425) $ (4) $ (170)
Increase (decrease) in borrowings due to consolidation of VIEs ..................................... $406 $412 $1,157
Common stock released from escrow .......................................................... $ 1 $— $ 136
See accompanying notes to consolidated financial statements.
F-10
BlackRock, Inc.
Notes to the Consolidated Financial Statements
1. Introduction and Basis of Presentation
Business. BlackRock, Inc. (together, with its subsidiaries,
unless the context otherwise indicates, “BlackRock” or
the “Company”) provides diversified investment
management services to institutional clients, intermediary
and individual investors through various investment
vehicles. Investment management services primarily
consist of the management of equity, fixed income, multi-
asset class, alternative investment and cash management
products. BlackRock offers its investment products in a
variety of vehicles, including open-end and closed-end
mutual funds, iShares
®
exchange-traded funds (“ETFs”),
collective investment trusts and separate accounts. In
addition, BlackRock provides market risk management,
financial markets advisory and enterprise investment
system services to a broad base of clients. Financial
markets advisory services include valuation services
relating to illiquid securities, dispositions and workout
assignments (including long-term portfolio liquidation
assignments), risk management and strategic planning
and execution.
On May 29, 2012, BlackRock completed a secondary
offering of 26,211,335 shares of common stock held by
Barclays Bank PLC (“Barclays”) at a price of $160.00 per
share, which included 23,211,335 shares of common stock
issued upon the conversion of Series B Convertible
Participating Preferred Stock (“Series B Preferred”) by a
subsidiary of Barclays. Upon completion of this offering,
BlackRock repurchased 6,377,552 shares directly from
Barclays at a price of $156.80 per share (consisting of
6,346,036 shares of Series B Preferred and 31,516 shares
of common stock). The total transactions, including the
full exercise of the underwriters’ option to purchase
2,621,134 additional shares in the secondary offering,
amounted to 35,210,021 shares, resulting in Barclays
exiting its entire ownership position in BlackRock.
On December 31, 2012, The PNC Financial Services Group,
Inc. (“PNC”) held 20.8% of the Company’s voting common
stock and 21.9% of the Company’s capital stock, which
includes outstanding common and non-voting preferred
stock.
See Note 17, Capital Stock, for more information on the
equity ownership of BlackRock.
Basis of Presentation. These consolidated financial
statements have been prepared in accordance with
accounting principles generally accepted in the United
States (“GAAP”) and include the accounts of the Company
and its controlled subsidiaries. Non-controlling interests
on the consolidated statements of financial condition
include the portion of consolidated sponsored investment
funds in which the Company does not have direct equity
ownership. Significant accounts and transactions
between consolidated entities have been eliminated.
The preparation of financial statements in conformity with
GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
Certain items previously reported have been reclassified
to conform to the current year presentation.
2. Significant Accounting Policies
Cash and Cash Equivalents. Cash and cash equivalents
primarily consists of cash, money market funds and short-
term, highly liquid investments with original maturities of
three months or less in which the Company is exposed to
market and credit risk. Cash and cash equivalent balances
that are legally restricted from use by the Company are
recorded in other assets on the consolidated statements
of financial condition. Cash balances maintained by
consolidated sponsored investment funds are not
considered legally restricted and are included in cash and
cash equivalents on the consolidated statements of
financial condition. Cash balances maintained by
consolidated VIEs are included in assets of consolidated
variable interest entities on the consolidated statements
of financial condition.
Investments
Investments in Debt and Marketable Equity Securities.
BlackRock holds debt and marketable equity investments,
which pursuant to Accounting Standards Codification
(“ASC”) 320-10, Investments – Debt and Equity Securities,
are classified as trading, available-for-sale, or held-to-
maturity based on the Company’s intent to sell the
security or, for a debt security, the Company’s intent and
ability to hold the debt security to maturity.
Trading securities are those investments that are
purchased principally for the purpose of selling them in
the near term. Trading securities are carried at fair value
on the consolidated statements of financial condition with
changes in fair value recorded in non-operating income
(expense) on the consolidated statements of income in the
period of the change.
F-11
2. Significant Accounting Policies (continued)
Held-to-maturity debt securities are purchased with the
positive intent and ability to be held to maturity and are
recorded at amortized cost on the consolidated
statements of financial condition.
Available-for-sale securities are those securities that are
not classified as trading or held-to-maturity. Available-
for-sale securities are carried at fair value on the
consolidated statements of financial condition with
changes in fair value recorded in the accumulated other
comprehensive income (loss) component of stockholders’
equity in the period of the change. Upon the disposition of
an available-for-sale security, the Company reclassifies
the gain or loss on the security from accumulated other
comprehensive income (loss) to non-operating income
(expense) on the consolidated statements of income.
Equity Method. For equity investments where BlackRock
does not control the investee, and where it is not the
primary beneficiary (“PB”) of a VIE, but can exert
significant influence over the financial and operating
policies of the investee, the Company follows the equity
method of accounting in accordance with ASC 323,
Investments-Equity Method and Joint Ventures. Under the
equity method of accounting, BlackRock’s share of the
investee’s underlying net income or loss is recorded as net
gain (loss) on investments within non-operating income
(expense) and as other revenue for operating advisory
company investments since such companies are
considered to be an extension of BlackRock’s core
business. BlackRock’s share of net income of the investee
is recorded based upon the most current information
available at the time, which may precede the date of the
consolidated statement of financial condition.
Distributions received from the investment reduce the
Company’s carrying value of the investee.
Cost Method. For non-marketable equity investments where
BlackRock neither controls nor has significant influence over
the investee, the investments are accounted for using the
cost method of accounting. Under the cost method,
dividends received from the investment are recorded as
dividend income within non-operating income (expense).
Impairments of Investments. The Company’s management
periodically assesses its equity method, available-for-sale,
held-to-maturity and cost investments for impairment. If
circumstances indicate that impairment may exist,
investments are evaluated using market values, where
available, or the expected future cash flows of the
investment. If the undiscounted expected future cash flows
are lower than the Company’s carrying value of the
investment, an impairment charge is recorded in the
consolidated statement of income.
When the fair value of available-for-sale securities is lower
than cost, the Company evaluates the securities to
determine whether the impairment is considered to be
“other-than-temporary.”
In making this determination for equity securities, the
Company considers, among other factors, the length of
time the security has been in a loss position, the extent to
which the security’s market value is less than cost, the
financial condition and near-term prospects of the
security’s issuer and the Company’s ability and intent to
hold the security for a length of time sufficient to allow for
recovery of such unrealized losses. If the impairment is
considered other-than-temporary, an impairment charge
is recorded in non-operating income (expense) on the
consolidated statements of income.
In making this determination for debt securities, the
Company considers whether: (1) it has the intent to sell
the security, (2) it is more likely than not that it will be
required to sell the security before recovery or (3) it
expects to recover the entire amortized cost basis of the
security. If the Company does not intend to sell a security
and it is not more likely than not that it will be required to
sell the security, but the security has suffered a credit
loss, the credit loss will be bifurcated from the total
impairment and recorded in earnings with the remaining
portion recorded in accumulated other comprehensive
income.
Consolidation
For investment products in which BlackRock’s voting
interest is less than 50%, an analysis is performed to
determine if the investment product is a VIE or a voting
rights entity. Upon the determination that the investment
product is a VIE, further analysis, as discussed below, is
performed to determine if BlackRock is the PB of the
investment product, which would require consolidation.
Consolidation of Variable Interest Entities. Pursuant to
ASC 810-10, Consolidation (“ASC 810-10”) certain
investment products for which the risks and rewards of
ownership are not directly linked to voting interests may
be deemed VIEs. BlackRock reviews factors, including the
rights of the equity holders and obligations of equity
holders to absorb losses or receive expected residual
returns, to determine if the investment product is a VIE.
BlackRock is required to consolidate a VIE when it is
deemed to be the PB, which is evaluated continuously as
facts and circumstances change.
Accounting Standards Update (“ASU”) 2010-10,
Amendments to Statement 167 for Certain Investment
Funds (“ASU 2010-10”) defers the application of
Statement of Financial Accounting Standards (“SFAS”)
F-12
2. Significant Accounting Policies (continued)
No. 167, Amendments to FASB Interpretation No. 46(R), for
certain investment funds, including money market funds.
The PB of a VIE that is not subject to ASU 2010-10 is the
enterprise that has the power to direct activities of the
entity that most significantly impact the entity’s economic
performance and has the obligation to absorb losses or
the right to receive benefits that potentially could be
significant to the VIE.
The PB of a VIE that meets the conditions of ASU 2010-10
is the enterprise that has a variable interest (or
combination of variable interests, including those of
related parties) that absorbs the majority of the entity’s
expected losses, receives a majority of the entity’s
expected residual returns, or both.
Consolidation of Voting Rights Entities. To the extent that
BlackRock can exert control over the financial and
operating policies of the investee, which generally exists if
there is a 50% or greater voting interest or if partners or
members of certain products do not have substantive
rights, BlackRock consolidates the investee.
The Company, as general partner or managing member of
certain sponsored investment funds, generally is presumed
to control funds that are limited partnerships or limited
liability companies. Pursuant to ASC 810-20, Control of
Partnerships and Similar Entities (“ASC 810-20”), the
Company reviews such investment vehicles to determine if
such a presumption can be overcome by determining
whether other non-affiliated partners or members of the
limited partnership or limited liability company have the
substantive ability to dissolve (liquidate) the investment
vehicle, or to otherwise remove BlackRock as the general
partner or managing member without cause based on a
simple unaffiliated majority vote, or have other substantive
participating rights. If the investment vehicle is not a VIE
and the presumption of control is not overcome, BlackRock
will consolidate the investment vehicle.
Retention of Specialized Accounting Principles. Upon
consolidation of certain sponsored investment funds, the
Company retains the specialized accounting principles of
the underlying funds pursuant to ASC 810-10. All of the
underlying investments held by such consolidated
sponsored investment funds are carried at fair value, with
corresponding changes in the investments’ fair values
reflected in non-operating income (expense) on the
consolidated statements of income. When the Company no
longer controls these funds due to reduced ownership
percentage or other reasons, the funds are deconsolidated
and accounted for under another accounting method if the
Company still maintains an investment.
Separate Account Assets and Liabilities. Separate account
assets are maintained by a wholly owned subsidiary of the
Company, which is a registered life insurance company in
the United Kingdom, and represent segregated assets held
for purposes of funding individual and group pension
contracts. The separate account assets are not subject to
general claims of the creditors of BlackRock. These separate
account assets and the related equal and offsetting
liabilities are recorded as separate account assets and
separate account liabilities on the consolidated statements
of financial condition in accordance with the ASC 944-80,
Financial Services – Separate Accounts.
The net investment income attributable to separate
account assets supporting individual and group pension
contracts accrue directly to the contract owner and are
not reported on the consolidated statements of income.
While BlackRock has no economic interest in these
separate account assets and liabilities, BlackRock earns
policy administration and management fees associated
with these products, which are included in investment
advisory, administration fees and securities lending
revenue on the consolidated statements of income.
Collateral Assets Held and Liabilities Under Securities
Lending Agreements. The Company facilitates securities
lending arrangements whereby securities held by separate
account assets maintained by BlackRock’s life insurance
company are lent to third parties. In exchange, the Company
receives collateral with minimums generally ranging from
approximately 102% to 112% of the value of the secur ities
lent in order to reduce counterparty risk. Under the
Company’s securities lending arrangements, the Company
can resell or re-pledge the collateral and the borrower can
resell or re-pledge the loaned securities. The securities
lending transactions entered into by the Company are
accompanied by an agreement that entitles the Company to
request the borrower to return the securities at any time;
therefore, these transactions are not reported as sales under
ASC 860, Transfers and Servicing.
As a result of the Company’s ability to resell or re-pledge
the collateral, the Company records on the consolidated
statements of financial condition the collateral received
under these arrangements (both cash and non-cash) as its
own asset in addition to an equal and offsetting collateral
liability for the obligation to return the collateral. At
December 31, 2012 and 2011, the fair value of loaned
securities held by separate account assets was
approximately $21.0 billion and $19.5 billion, respectively,
and the collateral held under these securities lending
agreements was approximately $23.0 billion and $20.9
billion, respectively. During 2012 and 2011, the Company
had not sold or re-pledged any of the collateral received
under these arrangements.
F-13
2. Significant Accounting Policies (continued)
Deferred Sales Commissions. The Company holds the
rights to receive certain cash flows from sponsored
mutual funds sold without a front-end sales charge
(“back-end load shares”). The carrying value of these
deferred mutual fund commissions is being amortized
over periods between one and six years. The Company
receives distribution fees from these funds and
contingent deferred sales commissions (“CDSCs”) upon
shareholder redemption of certain back-end load shares
that are recorded within distribution fees on the
consolidated statements of income. Upon receipt of
CDSCs, the Company records revenue and the remaining
unamortized deferred sales commission is expensed.
The Company periodically reviews the carrying value of
deferred commission assets to determine whether a
significant decline in the equity or bond markets or other
events or circumstances indicate that an impairment may
have occurred. If indicators of a potential impairment
exist, the Company compares the carrying value of the
asset to the estimated future net undiscounted cash flows
related to the asset. If such assessments indicate that the
estimated future net undiscounted cash flows will not be
sufficient to recover the recorded carrying value, the
assets are adjusted to their estimated fair value. No such
impairments were recorded for 2012, 2011 and 2010.
Property and Equipment. Property and equipment are
recorded at cost less accumulated depreciation.
Depreciation is generally determined by cost less any
estimated residual value using the straight-line method
over the estimated useful lives of the various classes of
property and equipment. Leasehold improvements are
amortized using the straight-line method over the shorter
of the estimated useful life or the remaining lease term.
BlackRock develops a variety of risk management,
investment analytic and investment system services for
internal use, utilizing proprietary software that is hosted
and maintained by BlackRock. In accordance with ASC
350-40, Internal-Use Software (“ASC 350-40”), the
Company capitalizes certain costs incurred in connection
with developing or obtaining software for internal use.
Capitalized software costs are included within property
and equipment on the consolidated statements of
financial condition and are amortized, beginning when the
software project is complete and put into production, over
the estimated useful life of the software of approximately
three years.
Goodwill and Intangible Assets. Goodwill represents the
excess cost of a business acquisition over the fair value of
the net assets acquired. In its assessment of goodwill for
impairment, the Company considers such factors as the
book value and market capitalization of the Company. On
a quarterly basis, the Company considers if triggering
events have occurred that may indicate a potential
goodwill impairment. If a triggering event has occurred,
the Company performs assessments, which include
reviews of all significant valuation assumptions, to
determine if goodwill may be impaired. The Company
performs an impairment assessment of its goodwill at
least annually, as of July 31st.
Intangible assets are comprised of indefinite-lived
intangible assets and finite-lived intangible assets
acquired in a business combination. The value of
contracts to manage assets in proprietary open-end
funds, closed-end funds and collective trust funds and
certain other commingled products without a specified
termination date is generally classified as indefinite-lived
intangible assets. The assignment of indefinite lives to
such contracts primarily is based upon the following:
(i) the assumption that there is no foreseeable limit on the
contract period to manage these products; (ii) the
Company expects to, and has the ability to, continue to
operate these products indefinitely; (iii) the products have
multiple investors and are not reliant on a single investor
or small group of investors for their continued operation;
(iv) current competitive factors and economic conditions
do not indicate a finite life; and (v) there is a high
likelihood of continued renewal based on historical
experience. In addition, trade names/trademarks are
considered indefinite-lived intangible assets when they
are expected to generate cash flows indefinitely.
In accordance with ASC 350, Intangibles – Goodwill and
Other (“ASC 350”), indefinite-lived intangible assets and
goodwill are not amortized. The value of contracts for
separately managed accounts and certain funds, which
have finite lives, are amortized over the expected lives of
the management contracts.
The Company performs assessments to determine if any
intangible assets are potentially impaired and whether the
indefinite-life and finite-life classifications are still
appropriate. The carrying value of finite-lived
management contracts and their remaining useful lives
are reviewed at least annually to determine if
circumstances exist which may indicate a potential
impairment. The Company performs such impairment
assessments of its intangible assets including indefinite-
lived management contracts and trade names/
trademarks, at least annually, as of July 31
st
. In evaluating
whether it is more likely than not that the fair value of
indefinite-lived intangibles is less than its carrying value,
BlackRock assesses various significant factors including
assets under management (“AUM”), revenue basis points,
F-14
2. Significant Accounting Policies (continued)
projected AUM growth rates, operating margins, tax rates
and discount rates. In addition, the Company considers
other factors including (i) macroeconomic conditions such
as a deterioration in general economic conditions,
limitations on accessing capital, fluctuations in foreign
exchange rates, or other developments in equity and
credit markets; (ii) industry and market considerations
such as a deterioration in the environment in which an
entity operates, an increased competitive environment, a
decline in market-dependent multiples or metrics, a
change in the market for an entity’s services, or
regulatory, legal or political developments; and (iii) entity-
specific events, such as a change in management or key
personnel, overall financial performance and litigation
that could affect significant inputs.
If potential impairment circumstances are considered to
exist, the Company will perform an impairment test, using
an undiscounted cash flow analysis. Actual results could
differ from these cash flow estimates, which could
materially impact the impairment conclusion. If the asset
is determined to be impaired, the difference between the
book value of the asset and its current fair value would be
recognized as an expense in the period in which the
impairment occurs.
Non-controlling Interests. According to the requirements
within ASC 810-10, the Company reports non-controlling
interests as equity, separate from the parent’s equity, on
the consolidated statements of financial condition. In
addition, the Company’s consolidated net income on the
consolidated statements of income includes the income
(loss) attributable to non-controlling interest holders of
the Company’s consolidated sponsored investment funds
and collateralized loan obligations (“CLOs”). Income (loss)
attributable to non-controlling interests is not adjusted
for income taxes for consolidated sponsored investment
funds and CLOs that are treated as pass-through entities
for tax purposes.
Classification and Measurement of Redeemable
Securities. The Company includes redeemable non-
controlling interests related to certain consolidated
sponsored investment funds in temporary equity on the
consolidated statements of financial condition.
Appropriated Retained Earnings. Upon adoption of ASU
2009-17, Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities (“ASU
2009-17”) on January 1, 2010, BlackRock consolidated
three CLOs and recorded a cumulative effect adjustment
to appropriated retained earnings on the consolidated
statement of financial condition equal to the difference
between the fair value of the CLOs’ assets and the fair
value of their liabilities. Such amounts are recorded as
appropriated retained earnings as the CLO noteholders,
not BlackRock, ultimately will receive the benefits or
absorb the losses associated with the CLOs’ assets and
liabilities. Subsequent to adoption of ASU 2009-17, the
net change in the fair value of the CLOs’ assets and
liabilities has been recorded as net income (loss)
attributable to nonredeemable non-controlling interests
and as an adjustment to appropriated retained earnings.
In addition, in 2011, BlackRock consolidated additional
CLOs, resulting in $19 million of additional appropriated
retained earnings upon the initial consolidation.
Treasury Stock. The Company records common stock
purchased for treasury at cost. At the date of subsequent
reissuance, the treasury stock account is reduced by the
cost of such stock using the average cost method.
Revenue Recognition
Investment Advisory, Administration Fees and Securities
Lending Revenue. Investment advisory and administration
fees are recognized as the services are performed. Such
fees are primarily based on pre-determined percentages
of the market value of AUM, committed capital, or, in the
case of certain real estate clients, net operating income
generated by the underlying properties. Investment
advisory and administration fees are affected by changes
in AUM, including market appreciation or depreciation,
foreign exchange translation and net subscriptions or
redemptions. Investment advisory and administration fees
for investment funds are shown net of fees waived
pursuant to contractual expense limitations of the funds
or voluntary waivers.
The Company contracts with third parties and related
parties for various mutual fund distribution and
shareholder servicing to be performed on behalf of certain
funds the Company manages. Such arrangements
generally are priced as a portion of the management fee
paid by the fund. In certain cases, the fund (primarily
international funds) takes on the primary responsibility for
payment for services such that the Company bears no
credit risk to the third party. The Company accounts for
such retrocession arrangements in accordance with ASC
605-45, Revenue Recognition – Principal Agent
Considerations, and has recorded its management fees
net of retrocessions. Retrocessions for 2012, 2011 and
2010 were $793 million, $928 million and $831 million,
respectively, and were reflected net in investment
advisory, administration fees and securities lending
revenue on the consolidated statements of income.
F-15
2. Significant Accounting Policies (continued)
The Company also earns revenue by lending securities as
an agent on behalf of clients, primarily to brokerage
institutions. Such revenues are accounted for on an
accrual basis. The revenue earned is shared between the
Company and the funds or other third-party accounts
managed by the Company from which the securities are
borrowed.
Investment Advisory Performance Fees. The Company
receives investment advisory performance fees or an
incentive allocation from certain actively managed
investment funds and certain separately managed
accounts. These performance fees are earned upon
exceeding specified relative and/or absolute investment
return thresholds. Such fees are recorded upon
completion of the measurement period which varies by
product or account.
The Company may receive carried interest from certain
alternative investments upon exceeding performance
thresholds. BlackRock may be required to return all, or
part, of such carried interest depending upon future
performance of these investments. BlackRock records
carried interest subject to such claw-back provisions in
investments, or cash on the consolidated statements of
financial condition to the extent that it is distributed.
Carried interest is realized and recorded as performance
fee revenue upon the earlier of the termination of the
investment fund or when the likelihood of claw-back is
mathematically improbable. The Company records a
deferred carried interest liability to the extent it receives
cash or capital allocations related to carried interest prior
to meeting the revenue recognition criteria. At
December 31, 2012 and 2011, the Company had $97
million and $33 million, respectively, of deferred carried
interest recorded in other liabilities on the consolidated
statements of financial condition.
BlackRock Solutions and Advisory. BlackRock provides a
variety of risk management, investment analytic,
enterprise investment system and financial markets
advisory services to financial institutions, pension funds,
asset managers, foundations, consultants, mutual fund
sponsors, real estate investment trusts and government
agencies. These services are provided under the brand
name BlackRock Solutions
®
and include a wide array of
risk management services, valuation of illiquid securities,
disposition and workout assignments (including long-term
portfolio liquidation assignments), strategic planning and
execution, and enterprise investment system outsourcing
to clients. Fees earned for BlackRock Solutions and
advisory services are recorded as services are performed
and are determined using some, or all, of the following
methods: (i) percentages of various attributes of advisory
AUM or value of positions on the Aladdin
®
platform,
(ii) fixed fees and (iii) performance fees if contractual
thresholds are met. The fees earned for BlackRock Solutions
and advisory services are recorded in BlackRock Solutions
and advisory on the consolidated statements of income.
Other Revenue. The Company earns fees for transition
management services comprised of commissions from
acting as an introducing broker-dealer in buying and
selling securities on behalf of the Company’s customers.
Commissions related to transition management services
are recorded on a trade-date basis as securities
transactions occur and are reflected in other revenue on
the consolidated statements of income.
The Company earns commissions revenue upon the sale of
unit trusts and Class A mutual funds. Revenue is recorded
at the time of the sale of the product.
Other revenue also includes equity method investment
earnings related to operating advisory company
investments and marketing fees earned for services to
distribute iPath
®
products, which are exchange-traded
notes issued by Barclays.
Stock-based Compensation. The Company applies ASC
718-10, Compensation – Stock Compensation (“ASC 718-
10”), which establishes standards for the accounting of
transactions in which an entity obtains employee services
in share-based payment transactions. Entities are
required to measure the cost of employee services
received in exchange for an award of equity instruments
based on the grant-date fair value of the award. The
compensation cost is recognized over the period during
which an employee is required to provide service (usually
the vesting period) in exchange for the stock-based award.
The Company measures the grant-date fair value of
restricted stock units (“RSUs”) using the Company’s share
price on the date of grant. For employee share options and
instruments with market conditions, the Company uses
pricing models. If an equity award is modified after the
grant date, incremental compensation cost is recognized
for an amount equal to the excess of the fair value of the
modified award over the fair value of the original award
immediately before the modification. Awards under the
Company’s stock-based compensation plans vest over
various periods. Compensation cost is recorded by the
Company on a straight-line basis over the requisite service
period for each separate vesting portion of the award as if
the award is, in-substance, multiple awards.
Compensation cost is reduced by the number of awards
expected to be forfeited prior to vesting. Forfeiture
estimates generally are derived using historical forfeiture
information, where available, and are reviewed for
reasonableness at least quarterly.
F-16
2. Significant Accounting Policies (continued)
The Company amortizes the grant-date fair value of stock-
based compensation awards made to retirement-eligible
employees over the requisite service period. Upon
notification of retirement, the Company accelerates the
unamortized portion of the award over the contractually
required retirement notification period, if applicable.
Distribution and Servicing Costs. Distribution and
servicing costs include payments to third parties and
related parties, including Bank of America/Merrill Lynch &
Co., Inc. (“Merrill Lynch”), PNC and Barclays, primarily
associated with distribution and servicing of client
investments in certain BlackRock products. Distribution
and servicing costs are expensed when incurred.
Direct Fund Expenses. Direct fund expenses, which are
expensed as incurred, primarily consist of third-party non-
advisory expenses incurred by BlackRock related to
certain funds for the use of certain index trademarks,
reference data for certain indices, custodial services, fund
administration, fund accounting, transfer agent services,
shareholder reporting services, audit and tax services as
well as other fund-related expenses directly attributable
to the non-advisory operations of the fund.
Leases. The Company accounts for its operating leases,
which may include escalation clauses, in accordance with
ASC 840-10, Leases. The Company expenses the lease
payments associated with operating leases evenly during
the lease term (including rent-free periods) commencing
when the Company obtains control over the leased
property.
Foreign Exchange. Monetary assets and liabilities of
foreign subsidiaries having non-U.S. dollar functional
currencies are translated at exchange rates at the date of
the consolidated statements of financial condition. Non-
monetary assets and liabilities of foreign subsidiaries
having non-U.S. dollar functional currencies are
translated at historical exchange rates. Revenue and
expenses are translated at average exchange rates during
the period. Gains or losses resulting from translating
foreign currency financial statements into U.S. dollars are
included in accumulated other comprehensive income, a
separate component of stockholders’ equity, on the
consolidated statements of financial condition. Gains or
losses resulting from foreign currency transactions are
included in general and administration expense on the
consolidated statements of income. For 2012, 2011 and
2010, the Company recorded gains (losses) from foreign
currency transactions of $(8) million, $(1) million and $6
million, respectively.
Income Taxes. The Company accounts for income taxes
under the asset and liability method prescribed by ASC
740-10, Income Taxes (“ASC 740-10”). Deferred income tax
assets and liabilities are recognized for the future tax
consequences attributable to temporary differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases using currently enacted tax rates in effect for the
year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred income tax
assets and liabilities is recognized in income in the period
that includes the enactment date.
Management periodically assesses the recoverability of
its deferred income tax assets based upon expected
future earnings, taxable income in prior carryback years,
future deductibility of the asset, changes in applicable tax
laws and other factors. If management determines that it
is not more likely than not that the deferred tax asset will
be fully recoverable in the future, a valuation allowance
will be established for the difference between the asset
balance and the amount expected to be recoverable in the
future. This allowance will result in additional income tax
expense. Further, the Company records its income taxes
receivable and payable based upon its estimated income
tax position.
Excess tax benefits related to stock-based compensation
are recognized as additional paid-in capital and are
reflected as financing cash flows on the consolidated
statements of cash flows. If the Company does not have
additional paid-in capital credits (cumulative tax benefits
recorded to additional paid-in capital), the Company will
record an expense for any deficit, or shortfall, between the
recorded tax benefit and tax return benefit. At
December 31, 2012 and 2011, BlackRock had excess
additional paid-in capital credits to absorb potential
future deficits between recorded tax benefits and tax
return benefits.
Earnings per Share (“EPS”). EPS is calculated pursuant to
the two-class method as defined in ASC 260-10, Earnings
per Share (“ASC 260-10”), which specifies that all
outstanding unvested share-based payment awards that
contain rights to non-forfeitable dividends or dividend
equivalents are considered participating securities and
should be included in the computation of EPS pursuant to
the two-class method. The dilutive effect of outstanding
unvested share-based payment awards that are
considered non-participating securities are calculated
under the treasury stock method.
The Company presents both basic and diluted EPS
amounts. Basic EPS is calculated by dividing net
distributed and undistributed earnings allocated to
shareholders, excluding participating securities, by the
F-17
2. Significant Accounting Policies (continued)
weighted-average number of shares outstanding. The
Company’s participating securities consist of its unvested
share-based payment awards that contain rights to non-
forfeitable dividends or dividend equivalents. Diluted EPS
includes the determinants of basic EPS and, in addition,
reflects the impact of other potentially dilutive shares
outstanding during the period. The dilutive effect of
participating securities is calculated under the more
dilutive of either the treasury stock method or the two-
class method. As of December 31, 2012, there were
approximately 0.2 million of participating securities. The
majority of these participating securities vested on
January 31, 2013.
Due to the similarities in terms among each series of
BlackRock’s non-voting participating preferred stock and
the Company’s common stock, the Company considers
each series of its non-voting participating preferred stock
to be common stock equivalents for purposes of EPS
calculations.
Business Segments. The Company’s management directs
BlackRock’s operations as one business, the asset
management business. As such, the Company operates in
one business segment as defined in ASC 280-10, Segment
Reporting (“ASC 280-10”).
Business Combinations. The Company accounts for
business combinations in accordance with the
requirements of ASC 805, Business Combinations (“ASC
805”). The fundamental requirement of ASC 805 is that the
acquisition method of accounting (the purchase method)
be used for all business combinations and for an acquirer
to be identified for each business combination. The
provisions of ASC 805 define the acquirer, establish the
acquisition date and define transactions that qualify as
business combinations.
Additionally, the requirements of ASC 805 provide
guidance for measuring the fair value of assets acquired,
liabilities assumed and any non-controlling interest in the
acquiree, provide guidance for the measurement of fair
value in a step acquisition, provide guidance for
recognizing assets acquired and liabilities assumed
subject to contingencies, provide guidance on recognition
and measurement of contingent consideration and require
that acquisition-related costs of the acquirer generally be
expensed as incurred. Reversal of valuation allowances
related to acquired deferred tax assets and changes to
liabilities for unrecognized tax benefits related to tax
positions assumed in business combinations subsequent
to the adoption of the requirements of ASC 805, will affect
the income tax provision in the period of reversal or
change.
Fair Value Measurements.
Hierarchy of Fair Value Inputs. The provisions of ASC 820-
10, Fair Value Measurements and Disclosures (“ASC 820-
10”), establish a hierarchy that prioritizes inputs to
valuation techniques used to measure fair value and
require companies to disclose the fair value of their
financial instruments according to the fair value hierarchy
(i.e., Level 1, 2 and 3 inputs, as defined). The fair value
hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs.
Assets and liabilities measured and reported at fair value
are classified and disclosed in one of the following
categories:
Level 1 Inputs:
Quoted prices (unadjusted) in active markets for identical
assets or liabilities at the reporting date.
• Level 1 assets may include listed mutual funds
(including those accounted for under the equity
method of accounting as these mutual funds are
investment companies that have publicly available
net asset values (“NAVs”), which in accordance with
GAAP, are calculated under fair value measures and
the changes are equal to the earnings of such
funds), ETFs, listed equities and certain exchange-
traded derivatives.
Level 2 Inputs:
Quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or
liabilities that are not active; quotes from pricing services
or brokers for which the Company can determine that
orderly transactions took place at the quoted price or that
the inputs used to arrive at the price are observable; and
inputs other than quoted prices that are observable, such
as models or other valuation methodologies. As a practical
expedient, the Company relies on the NAV (or its
equivalent) of certain investments as their fair value.
• Level 2 assets may include debt securities, bank
loans, short-term floating rate notes and asset-
backed securities, securities held within
consolidated hedge funds, certain equity method
limited partnership interests in hedge funds valued
based on NAV (or its equivalent) where the Company
has the ability to redeem at the measurement date
or within the near term without redemption
restrictions, restricted public securities valued at a
discount, as well as over-the-counter derivatives,
including interest and inflation rate swaps and
F-18
2. Significant Accounting Policies (continued)
foreign currency exchange contracts that have
inputs to the valuations that generally can be
corroborated by observable market data.
Level 3 Inputs:
Unobservable inputs for the valuation of the asset or
liability, which may include non-binding broker quotes.
Level 3 assets include investments for which there is
little, if any, market activity. These inputs require
significant management judgment or estimation. Certain
investments that are valued using a NAV (or its equivalent)
and are subject to current redemption restrictions that
will not be lifted in the near term are included in Level 3.
• Level 3 assets may include general and limited
partnership interests in private equity funds, funds
of private equity funds, real estate funds, hedge
funds, and funds of hedge funds, direct private
equity investments held within consolidated funds,
bank loans and bonds.
• Level 3 liabilities include borrowings of
consolidated CLOs valued based upon non-binding
single-broker quotes.
• Level 3 inputs include BlackRock capital accounts
for its partnership interests in various alternative
investments, including distressed credit hedge
funds, real estate and private equity funds, which
may be adjusted by using the returns of certain
market indices.
Significance of Inputs. The Company’s assessment of the
significance of a particular input to the fair value
measurement in its entirety requires judgment and
considers factors specific to the financial instrument.
Valuation Techniques. The fair values of certain Level 3
assets and liabilities were determined using various
methodologies as appropriate, including NAVs of
underlying investments, third-party pricing vendors,
broker quotes and market and income approaches. Such
quotes and modeled prices are evaluated for
reasonableness through various procedures, including due
diligence reviews of third-party pricing vendors, variance
analyses, consideration of current market environment
and other analytical procedures.
As a practical expedient, the Company relies on NAV as
the fair value for certain investments. The inputs to value
these investments may include BlackRock capital
accounts for its partnership interests in various
alternative investments, including distressed credit hedge
funds, real estate and private equity funds, which may be
adjusted by using the returns of certain market indices.
The various partnerships are investment companies,
which record their underlying investments at fair value
based on fair value policies established by management of
the underlying fund. Fair value policies at the underlying
fund generally require the fund to utilize pricing/valuation
information, including independent appraisals, from third-
party sources. However, in some instances, current
valuation information for illiquid securities or securities in
markets that are not active may not be available from any
third-party source or fund management may conclude
that the valuations that are available from third-party
sources are not reliable. In these instances, fund
management may perform model-based analytical
valuations that may be used as an input to value these
investments.
A significant amount of inputs used to value equity, debt
securities and bank loans is sourced from well-recognized
third-party pricing vendors. Generally, prices obtained
from pricing vendors are categorized as Level 1 inputs for
identical securities traded in active markets and as Level
2 for other similar securities if the vendor uses observable
inputs in determining the price. Annually, BlackRock’s
internal valuation committee or other designated groups
review both the valuation methodology, including the
general assumptions and methods used to value various
asset classes, and operational process with these
vendors. In addition, on a quarterly basis, meetings are
held with the vendors to identify any significant changes
to the vendors’ processes.
In addition, quotes obtained from brokers generally are
non-binding and categorized as Level 3 inputs. However, if
the Company is able to determine that market
participants have transacted for the asset in an orderly
manner near the quoted price or if the Company can
determine that the inputs used by the broker are
observable, the quote is classified as a Level 2 input.
Fair Value Option. ASC 825-10, Financial Instruments
(“ASC 825-10”), provides a fair value option election that
allows companies an irrevocable election to use fair value
as the initial and subsequent accounting measurement
attribute for certain financial assets and liabilities. ASC
825-10 permits entities to elect to measure eligible
financial assets and liabilities at fair value on an ongoing
basis. Unrealized gains and losses on items for which the
fair value option has been elected are reported in
earnings. The decision to elect the fair value option is
determined on an instrument-by-instrument basis, must
be applied to an entire instrument and is irrevocable once
elected. Assets and liabilities measured at fair value
pursuant to ASC 825-10 are required to be reported
F-19
2. Significant Accounting Policies (continued)
separately from those instruments measured using
another accounting method.
Derivative Instruments and Hedging Activities. ASC 815-10,
Derivatives and Hedging (“ASC 815-10”), establishes
accounting and reporting standards for derivative
instruments, including certain derivatives embedded in
other contracts and for hedging activities. ASC 815-10
generally requires an entity to recognize all derivatives as
either assets or liabilities on the consolidated statements
of financial condition and to measure those investments
at fair value.
The Company does not use derivative financial
instruments for trading or speculative purposes. The
Company uses derivative financial instruments primarily
for purposes of hedging: (i) exposures to fluctuations in
foreign currency exchange rates of certain assets and
liabilities, (ii) market exposures for certain seed
investments and (iii) future cash flows on floating rate
notes. The Company may also use derivatives within
separate account assets, which are segregated funds held
for purposes of funding individual and group pension
contracts. In addition, certain consolidated sponsored
investment funds may also invest in derivatives as a part
of their investment strategy.
Changes in the fair value of the Company’s derivative
financial instruments are generally recognized in current
earnings and, where applicable, are offset by the
corresponding gain or loss on the related foreign-
denominated assets or liabilities or hedged investments,
on the consolidated statements of income.
Accounting Pronouncements Adopted in 2012
Amendments to Fair Value Measurements and
Disclosures. On January 1, 2012, the Company adopted
the applicable provisions of ASU 2011-04, Fair Value
Measurement: Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP
and IFRSs (“ASU 2011-04”). Among other things, ASU
2011-04 clarified existing fair value measurement
guidance and required enhanced disclosures about fair
value measurements. The adoption of ASU 2011-04 did not
materially impact the consolidated financial statements.
Amendments on Testing Indefinite-lived Intangible Assets
for Impairment. On July 27, 2012, the Financial Accounting
Standards Board (“FASB”) issued ASU 2012-02, Testing
Indefinite-Lived Intangible Assets for Impairment (“ASU
2012-02”), which amends the guidance in ASC 350-30 on
testing indefinite-lived intangible assets, other than
goodwill, for impairment. Under ASU 2012-02, an entity
testing an indefinite-lived intangible asset for impairment
has the option of performing a qualitative assessment
before calculating the fair value of the asset. If the entity
determines, on the basis of qualitative factors, that the
fair value of the indefinite-lived intangible asset is not
more likely than not (i.e., a likelihood of more than 50
percent) impaired, the entity would not need to calculate
the fair value of the asset. The Company’s adoption of ASU
2012-02 during 2012 did not impact its consolidated
financial statements.
Recent Accounting Pronouncements Not Yet Adopted
Disclosures About Offsetting Assets and Liabilities. On
December 16, 2011, the FASB issued ASU 2011-11,
Disclosures About Offsetting Assets and Liabilities
(“ASU 2011-11”), which creates new disclosure
requirements about the nature of an entity’s rights of
setoff and related arrangements associated with its
financial instruments and derivative instruments. The
provisions of ASU 2011-11 are effective for the Company
for reporting periods beginning January 1, 2013 with
retrospective application required. On January 31, 2013,
the FASB issued ASU 2013-01, Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities (“ASU
2013-01”) that provides clarification about which
instruments and transactions are subject to ASU 2011-11.
The adoption of ASU 2011-11 and ASU 2013-01 are not
expected to materially impact the consolidated financial
statements.
Comprehensive Income. On February 5, 2013, the FASB
issued ASU 2013-02, Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income (“ASU
2013-02”). ASU 2013-02 does not change the current
requirement for reporting net income or other
comprehensive income but requires additional disclosures
about significant amounts reclassified out of accumulated
other comprehensive income. ASU 2013-02 is effective
prospectively for the Company on January 1, 2013 and is
not expected to have a material impact on the
consolidated statements.
F-20
3. Investments
A summary of the carrying value of total investments is as
follows:
(Dollar amounts in millions) December 31,
2012
December 31,
2011
Available-for-sale
investments............... $ 158 $ 52
Held-to-maturity
investments .............. 112 105
Trading investments:
Consolidated sponsored
investment funds ...... 123 214
Other equity and debt
securities ............. 94 7
Deferred compensation
plan mutual funds ...... 53 46
Total trading investments ..... 270 267
Other investments:
Consolidated sponsored
investment funds ...... 401 373
Equity method
investments ........... 595 457
Deferred compensation
plan hedge fund equity
method investments .... 9 19
Cost method
investments
(1)
......... 120 337
Carried interest .......... 85 21
Total other investments ...... 1,210 1,207
Total investments ........... $1,750 $1,631
(1) Amounts primarily include Federal Reserve Bank Stock
At December 31, 2012, the Company consolidated $524
million of investments held by consolidated sponsored
investment funds (non-VIEs) of which $123 million and
$401 million were classified as trading investments and
other investments, respectively. At December 31, 2011,
the Company consolidated $587 million of investments
held by consolidated sponsored investment funds (non-
VIEs) of which $214 million and $373 million were
classified as trading investments and other investments,
respectively.
Available-for-Sale Investments
A summary of the cost and carrying value of investments
classified as available-for-sale is as follows:
(Dollar amounts in millions) Gross Unrealized
Carrying
ValueAt December 31, 2012 Cost Gains Losses
Equity securities:
Sponsored
investment
funds .......... $142 $ 14 $ (1) $155
Collateralized debt
obligations
(“CDOs”) ....... 1 — — 1
Debt securities:
Asset-backed
debt ........... 1 1 — 2
Total available-for-sale
investments ........... $144 $ 15 $ (1) $158
At December 31, 2011
Equity securities:
Sponsored
investment
funds .......... $ 52 $— $ (2) $ 50
CDOs ............ 1 — — 1
Debt securities:
Asset-backed
debt ........... 1 — — 1
Total available-for-sale
investments ........... $ 54 $— $ (2) $ 52
Available-for-sale investments included seed investments
in BlackRock sponsored investment funds.
A summary of sale activity in available-for-sale securities
during 2012, 2011 and 2010 is shown below.
Year ended
December 31,
(Dollar amounts in millions) 2012 2011 2010
Sales proceeds .................... $134 $44 $42
Net realized gain (loss):
Gross realized gains ............ $ 8 $ 3 $ 3
Grossrealizedlosses............ (1) (2) (1)
Net realized gain (loss) ............. $ 7 $ 1 $ 2
Held-to-Maturity Investments
The carrying value of held-to-maturity investments was
$112 million and $105 million at December 31, 2012 and
December 31, 2011, respectively. Held-to-maturity
investments included foreign government debt held for
regulatory purposes and the amortized cost (carrying
value) of these investments approximated fair value. At
F-21
3. Investments (continued)
December 31, 2012, $88 million of these investments
mature in one year or less, $10 million mature after one
year through five years, and $14 million mature after 10
years.
Trading Investments
A summary of the cost and carrying value of trading
investments is as follows:
December 31, 2012 December 31, 2011
(Dollar amounts in millions) Cost
Carrying
Value Cost
Carrying
Value
Trading investments:
Deferred compensation
plan mutual funds . . . $ 46 $ 53 $ 45 $ 46
Equity/Multi-asset class
mutual funds ........ 154 162 174 169
Debt securities:
Corporate debt .... 44 44 39 40
U.S. government
debt ........... 11 11 — —
Foreign debt ...... — — 12 12
Total trading investments . . . $255 $270 $270 $267
At December 31, 2012, trading investments included $73
million of equity securities and $50 million of debt
securities held by consolidated sponsored investment
funds, $53 million of certain deferred compensation plan
mutual fund investments and $94 million of equity and
debt securities held in separate investment accounts for
the purpose of establishing an investment history in
various investment strategies before being marketed to
investors.
Other Investments
A summary of the cost and carrying value of other
investments is as follows:
December 31, 2012 December 31, 2011
(Dollar amounts in millions) Cost
Carrying
Value Cost
Carrying
Value
Other investments:
Consolidated sponsored
investment funds ..... $ 378 $ 401 $ 345 $ 373
Equity method .......... 541 595 487 457
Deferred compensation
plan hedge fund equity
method investments . . . 15 9 17 19
Cost method investments:
Federal Reserve Bank
stock ............ 89 89 328 328
Other .............. 31 31 9 9
Total cost method
investments .......... 120 120 337 337
Carried interest ......... — 85 — 21
Total other investments ...... $1,054 $1,210 $1,186 $1,207
Consolidated sponsored investment funds include third-
party private equity funds, direct investments in private
companies and third-party hedge funds held by BlackRock
sponsored investment funds.
Equity method investments primarily include BlackRock’s
direct investment in certain BlackRock sponsored
investment funds.
Cost method investments include non-marketable
securities, including Federal Reserve Bank (“FRB”) stock,
which is held for regulatory purposes and is restricted
from sale. At December 31, 2012 and 2011, there were no
indicators of impairment on these investments. The
decrease in cost method investments from December 31,
2011 was primarily due to a lower holding requirement of
FRB stock held by a wholly owned subsidiary of the
Company.
Carried interest represents allocations to BlackRock
general partner capital accounts for certain funds. These
balances are subject to change upon cash distributions,
additional allocations, or reallocations back to limited
partners within the respective funds.
F-22
4. Consolidated Sponsored Investment Funds
The Company consolidates certain sponsored investment
funds primarily because it is deemed to control such
funds in accordance with GAAP. The investments owned
by these consolidated sponsored investment funds are
classified as trading or other investments. The following
table presents the balances related to these consolidated
funds that were included on the consolidated statements
of financial condition as well as BlackRock’s net interest
in these funds:
(Dollar amounts in millions)
December 31,
2012
December 31,
2011
Cash and cash equivalents . . . $ 133 $ 196
Investments:
Trading
investments ...... 123 214
Other investments . . . 401 373
Other assets ............... 25 5
Other liabilities ............. (65) (37)
Non-controlling interests ..... (187) (276)
BlackRock’s net interests
in consolidated
investment funds ...... $430 $475
BlackRock’s total exposure to consolidated sponsored
investment funds of $430 million and $475 million at
December 31, 2012 and 2011, respectively, represents the
value of the Company’s economic ownership interest in
these sponsored investment funds. Valuation changes
associated with these consolidated investment funds are
reflected in non-operating income (expense) and partially
offset in net income (loss) attributable to non-controlling
interests for the portion not attributable to BlackRock.
In addition, at December 31, 2012 and 2011, several
consolidated CLOs and one investment fund, which were
deemed to be VIEs, were excluded from the balances in
the table above as the balances for these investment
products are reported separately on the consolidated
statements of financial condition. See Note 6, Variable
Interest Entities, for further discussion on these
consolidated funds.
The Company may not be readily able to access cash and
cash equivalents held by consolidated sponsored
investment funds to use in its operating activities. In
addition, the Company may not be readily able to sell
investments held by consolidated sponsored investment
funds in order to obtain cash for use in the Company’s
operations.
F-23
5. Fair Value Disclosures
Fair Value Hierarchy
December 31, 2012
Assets measured at fair value on a recurring basis and other assets not held at fair value were as follows:
Assets measured at fair value on a
recurring basis
(Dollar amounts in millions)
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Other
Assets
Not Held at
Fair Value
(1)
December 31,
2012
Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs) ........................ $ 155 $ — $ 1 $ — $ 156
Debt securities ......................................... — 2 — — 2
Total available-for-sale .................................. 155 2 1 — 158
Held-to-maturity:
Debt securities ......................................... — — — 112 112
Trading:
Deferred compensation plan mutual funds .................. 53 — — — 53
Equity/Multi-asset class mutual funds ..................... 159 3 — — 162
Debt securities ......................................... 5 50 — — 55
Total trading ........................................... 217 53 — — 270
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds ........................... 3 39 73 — 115
Private / public equity
(2)
................................ 10 10 266 — 286
Total consolidated sponsored investment funds ......... 13 49 339 — 401
Equity method:
Hedge funds / Funds of hedge funds ....................... — 61 161 39 261
Private equity investments ............................... — — 90 — 90
Real estate funds ....................................... — 19 88 15 122
Fixed income mutual funds ............................... 46 — — — 46
Equity/Multi-asset class, alternative mutual funds ........... 76 — — — 76
Total equity method ................................. 122 80 339 54 595
Deferred compensation plan hedge fund equity method
investments ............................................. — 9 — — 9
Cost method investments .................................... — — — 120 120
Carried interest ............................................ — — — 85 85
Total investments ...................................... 507 193 679 371 1,750
Separate account assets:
Equity securities ....................................... 92,979 — 2 — 92,981
Debt securities ......................................... — 36,954 — — 36,954
Derivatives ............................................ — 95 — — 95
Money market funds .................................... 2,535 — — — 2,535
Other ................................................. — 1,343 — 860 2,203
Total separate account assets ............................ 95,514 38,392 2 860 134,768
Collateral held under securities lending agreements:
Equity securities ....................................... 21,273 — — — 21,273
Debt securities ......................................... — 1,748 — — 1,748
Total collateral held under securities lending agreements ..... 21,273 1,748 — — 23,021
Other assets
(3)
............................................. — 12 — — 12
Assets of consolidated VIEs:
Bank loans ............................................ — 2,004 106 — 2,110
Bonds ................................................ — 78 46 — 124
Private / public equity
(4)
.................................. 2 6 22 — 30
Total assets of consolidated VIEs ......................... 2 2,088 174 — 2,264
Total ..................................................... $117,296 $42,433 $855 $1,231 $161,815
(1)
Amounts comprised of investments held at cost, amortized cost, carried interest and certain equity method investments, which include investment companies and
other assets, which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not
account for both their financial assets and financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may
not represent fair value.
(2)
Amount within Level 3 included $212 million and $54 million of underlying third-party private equity funds and direct investments in private equity companies
held by private equity funds, respectively.
(3)
Amount includes company-owned and split-dollar life insurance policies.
(4)
Amounts within Level 3 included $20 million and $2 million of underlying third-party private equity funds and direct investments in private equity companies held
by private equity funds, respectively.
F-24
5. Fair Value Disclosures (continued)
Liabilities measured at fair value on a recurring basis at December 31, 2012 were as follows:
(Dollar amounts in millions)
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2012
Liabilities:
Borrowings of consolidated VIEs ............................ $ — $ — $2,402 $ 2,402
Collateral liabilities under securities lending agreements ........ 21,273 1,748 — 23,021
Other liabilities
(1)
.......................................... 15 5 — 20
Total liabilities measured at fair value ........................... $21,288 $1,753 $2,402 $25,443
(1)
Amount included credit default swap (see Note 7, Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored
investment funds recorded within other liabilities on the consolidated statements of financial condition.
December 31, 2011
Assets measured at fair value on a recurring basis and other assets not held at fair value were as follows:
Assets measured at fair value on a
recurring basis
(Dollar amounts in millions)
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Other
Assets
Not Held at
Fair Value
(1)
December 31,
2011
Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs) ..................... $ 50 $— $ 1 $— $ 51
Debt securities ..................................... — 1 — — 1
Total available-for-sale .............................. 50 1 1 — 52
Held-to-maturity:
Debt securities ..................................... — — — 105 105
Trading:
Deferred compensation plan mutual funds .............. 46 — — — 46
Equity securities .................................... 163 6 — — 169
Debt securities ..................................... — 52 — — 52
Total trading ....................................... 209 58 — — 267
Other investments:
Consolidated sponsored investment funds: .............
Hedge funds / Funds of funds ..................... — 20 22 — 42
Private / public equity ............................ 18 — 313 — 331
Total consolidated sponsored investment funds ...... 18 20 335 — 373
Equity method:
Hedge funds / Funds of hedge funds ................... — 33 193 14 240
Private equity investments ........................... — — 85 21 106
Real estate funds ................................... — — 88 20 108
Equity mutual funds ................................. 3 — — — 3
Total equity method ............................. 3 33 366 55 457
Deferred compensation plan hedge fund equity method
investments ......................................... — 19 — — 19
Cost method investments ................................ — — — 337 337
Carried interest ........................................ — — — 21 21
Total investments ................................... 280 131 702 518 1,631
F-25
5. Fair Value Disclosures (continued)
Assets measured at fair value on a
recurring basis
(Dollar amounts in millions)
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Other
Assets
Not Held at
Fair Value
(1)
December 31,
2011
Separate account assets:
Equity securities .................................... 74,088 — 3 — 74,091
Debt securities ..................................... — 38,596 7 — 38,603
Derivatives ......................................... 8 1,487 — — 1,495
Money market funds ................................. 2,845 — — — 2,845
Other ............................................. — 920 — 917 1,837
Total separate account assets ........................ 76,941 41,003 10 917 118,871
Collateral held under securities lending agreements:
Equity securities .................................... 14,092 — — — 14,092
Debt securities ..................................... — 6,826 — — 6,826
Total collateral held under securities lending
agreements ...................................... 14,092 6,826 — — 20,918
Other assets
(2)
.......................................... — 11 — — 11
Assets of consolidated VIEs:
Bank loans ......................................... — 1,376 83 — 1,459
Bonds ............................................. — 105 40 — 145
Private / public equity ............................... 4 4 27 — 35
Total assets of consolidated VIEs ...................... 4 1,485 150 — 1,639
Total ................................................. $91,317 $49,456 $862 $1,435 $143,070
(1)
Amounts comprised of investments held at cost, amortized cost, carried interest and certain equity method investments, which include investment companies
and other assets, which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees
do not account for both their financial assets and financial liabilities under fair value measures; therefore, the Company’s investment in such equity method
investees may not represent fair value.
(2)
Amount includes company-owned and split-dollar life insurance policies.
Liabilities measured at fair value on a recurring basis at December 31, 2011 were as follows:
(Dollar amounts in millions)
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2011
Liabilities:
Borrowings of consolidated VIEs .............................. $ — $ — $1,574 $ 1,574
Collateral liabilities under securities lending agreements ......... 14,092 6,826 — 20,918
Other liabilities
(1)
........................................... 15 11 — 26
Total liabilities measured at fair value ............................ $14,107 $6,837 $1,574 $22,518
(1)
Amount included credit default swap (see Note 7, Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored
investment funds recorded within other liabilities on the consolidated statements of financial condition.
F-26
5. Fair Value Disclosures (continued)
Level 3 Assets. Level 3 assets recorded within investments
of $679 million at December 31, 2012 primarily related to
equity method investments and consolidated sponsored
investment funds. Level 3 assets within investments,
except for direct investments in private equity companies
held by private equity funds described below, were
primarily valued based upon NAVs received from internal
as well as third-party fund managers.
Direct investments in private equity companies held by
private equity funds totaled $56 million at December 31,
2012. Direct investments in private equity companies may
be valued using the market approach or the income
approach, or a combination thereof, and were valued
based on an assessment of each underlying investment,
incorporating evaluation of additional significant third-
party financing, changes in valuations of comparable peer
companies, the business environment of the companies,
market indices, assumptions relating to appropriate risk
adjustments for nonperformance and legal restrictions on
disposition, among other factors. The fair value derived
from the methods used are evaluated and weighted, as
appropriate, considering the reasonableness of the range
of values indicated. Under the market approach, fair value
may be determined by reference to multiples of market-
comparable companies or transactions, including
earnings before interest, taxes, depreciation and
amortization (“EBITDA”) multiples. Under the income
approach, fair value may be determined by discounting
the cash flows to a single present amount using current
market expectations about those future amounts.
Unobservable inputs used in a discounted cash flow
model may include projections of operating performance
generally covering a five-year period and a terminal value
of the private equity direct investment. For securities
utilizing the discounted cash flow valuation technique, a
significant increase (decrease) in the discount rate, risk
premium or discount for lack of marketability in isolation
could result in a significantly lower (higher) fair value
measurement. For securities utilizing the market
comparable companies valuation technique, a significant
increase (decrease) in the EBITDA multiple in isolation
could result in a significantly higher (lower) fair value
measurement.
Level 3 assets recorded within separate account assets
include single-broker non-binding quotes for fixed income
securities and equity securities that have unobservable
inputs due to certain corporate actions.
Level 3 assets of consolidated VIEs include bank loans
and bonds valued based on single-broker non-binding
quotes and direct private equity investments and private
equity funds valued based upon valuations received from
internal as well as third-party fund managers, which may
be adjusted by using the returns of certain market indices.
Level 3 Liabilities. Level 3 liabilities recorded as
borrowings of consolidated VIEs include CLO borrowings
valued based upon single-broker non-binding quotes.
F-27
5. Fair Value Disclosures (continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2012
(Dollar amounts in millions)
December 31,
2011
Realized
and
unrealized
gains
(losses) in
earnings
and OCI Purchases
Sales and
maturities
Issuances
and other
settlements
(1)
Transfers
into
Level 3
Transfers
out of
Level 3
December 31,
2012
Total net
unrealized
gains
(losses)
included in
earnings
(2)
Assets:
Investments:
Available-for-sale:
Equity securities (CDOs) .......... $ 1 $— $— $— $— $— $ — $ 1 $—
Consolidated sponsored investment
funds:
Hedge funds / Funds of hedge
funds ........................ 22 — 37 (6) — 25 (5) 73 (1)
Private equity ................... 313 27 32 (85) (15) — (6) 266 24
Equity method:
Hedge funds / Funds of hedge
funds ........................ 193 38 — — (70) — — 161 32
Private equity investments ........ 85 6 11 — (12) — — 90 6
Real estate funds ............... 88 12 21 (7) (7) — (19) 88 12
Total Level 3 investments ................ 702 83 101 (98) (104) 25 (30) 679 73
Separate account assets:
Equity securities ................ 3 5 8 (53) — 48 (9) 2
Debt securities ................. 7 — 3 (9) — — (1) —
Total Level 3 separate account assets ...... 10 5 11 (62) — 48 (10) 2 n/a
(3)
Assets of consolidated VIEs:
Bank loans ......................... 83 4 68 (44) 7 101 (113) 106
Bonds ............................. 40 4 2 — — — — 46
Private equity ...................... 27 4 — (9) — — — 22
Total Level 3 assets of consolidated VIEs . . . 150 12 70 (53) 7 101 (113) 174 n/a
(4)
Total Level 3 assets ..................... $ 862 $100 $182 $(213) $ (97) $174 $(153) $ 855
Liabilities:
Borrowings of consolidated VIEs ....... $1,574 $ (93) $— $ — $ 735 $— $ — $2,402 n/a
(4)
n/a – not applicable
(1)
Amount primarily includes distributions from equity method investees, and proceeds from and repayments of borrowings of consolidated VIEs.
(2)
Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.
(3)
The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the consolidated statements of
income.
(4)
The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the consolidated statements of income.
F-28
5. Fair Value Disclosures (continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2011
(Dollar amounts in millions)
December 31,
2010
Realized
and
unrealized
gains
(losses) in
earnings
and OCI Purchases
Sales and
maturities
Issuances
and other
settlements
(1)
Transfers
into
Level 3
Transfers
out of
Level 3
December 31,
2011
Total net
unrealized
gains
(losses)
included in
earnings
(2)
Assets:
Investments:
Available-for-sale:
Equity securities (CDOs) .......... $ 2 $— $— $— $ (1) $— $ — $ 1 $—
Consolidated sponsored investment
funds:
Hedge funds / Funds of hedge
funds ........................ 19 (1) 6 (2) — — — 22 —
Private equity ................... 299 42 17 (47) — 2 — 313 35
Equity method:
Hedge funds / Funds of hedge
funds ........................ 226 (5) 5 (1) (32) — — 193 (5)
Private equity investments ........ 68 13 7 — (3) — — 85 13
Real estate funds ............... 36 9 38 — (3) 8 — 88 9
Total Level 3 investments ................ 650 58 73 (50) (39) 10 — 702 52
Separate account assets:
Equity securities ................ 4 (4) 16 (42) — 38 (9) 3
Debt securities ................. 170 (4) 96 (168) — — (87) 7
Total Level 3 separate account assets ...... 174 (8) 112 (210) — 38 (96) 10 n/a
(3)
Assets of consolidated VIEs:
Bank loans ......................... 32 (2) 32 (29) 16 85 (51) 83
Bonds ............................. — 1 — — — 39 — 40
Private equity ...................... 30 4 — (7) — — — 27
Total Level 3 assets of consolidated VIEs . . . 62 3 32 (36) 16 124 (51) 150 n/a
(4)
Total Level 3 assets ..................... $ 886 $ 53 $217 $(296) $ (23) $172 $(147) $ 862
Liabilities:
Borrowings of consolidated VIEs ....... $1,278 $ (9) $— $ — $287 $— $ — $1,574 n/a
(4)
n/a – not applicable
(1)
Amount includes distributions from equity method investees, repayments of borrowings of consolidated VIEs, and loans and borrowings related to the consolidation of
one additional CLO.
(2)
Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.
(3)
The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the consolidated statements of
income.
(4)
The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the consolidated statements of income.
F-29
5. Fair Value Disclosures (continued)
Realized and Unrealized Gains (Losses) for Level 3 Assets
and Liabilities. Realized and unrealized gains (losses)
recorded for Level 3 assets and liabilities are reported in
non-operating income (expense) on the consolidated
statements of income. A portion of net income (loss) for
consolidated investments and all of the net income (loss)
for consolidated VIEs are allocated to non-controlling
interests to reflect net income (loss) not attributable to
the Company.
Transfers in and/or out of Levels. Transfers in and/or out of
levels are reflected when significant inputs, including
market inputs or performance attributes, used for the fair
value measurement become observable / unobservable, or
when the Company determines it has the ability, or no
longer has the ability, to redeem, in the near term, certain
investments that the Company values using a NAV (or a
capital account), or when the book value of certain equity
method investments no longer represents fair value as
determined under fair value methodologies.
Separate Account Assets. In 2012, there were $48 million
of transfers of equity securities from Level 1 into Level 3.
These transfers into Level 3 were primarily due to market
inputs no longer being considered observable.
In 2012, there were $9 million of transfers out of Level 3 to
Level 1 related to equity securities held within separate
accounts. The transfers out of Level 3 were due to
availability of observable market inputs.
In 2011, there were $87 million of transfers out of Level 3
to Level 2 related to debt securities held within separate
account assets. In addition, there were $9 million of
transfers out of Level 3 to Level 1 related to equity
securities. The transfers in and out of levels were primarily
due to availability/ unavailability of market inputs,
including inputs from pricing vendors and brokers.
In 2011, there were $38 million of transfers of equity
securities into Level 3 from Level 1. The transfers into
Level 3 were primarily due to market inputs no longer
being considered observable.
Assets of Consolidated VIEs. In 2012, there were $113
million of transfers out of Level 3 to Level 2 related to
bank loans. In addition, in 2012, there were $101 million of
transfers into Level 3 from Level 2 related to bank loans.
The transfers in and out of levels were primarily due to
availability/ unavailability of observable market inputs,
including inputs from pricing vendors and brokers.
In 2011, there were $51 million of transfers out of Level 3
to Level 2 related to loans. In addition, in 2011, there were
$85 million and $39 million of transfers into Level 3 from
Level 2 related to loans and bonds, respectively. The
transfers in and out of levels were primarily due to
availability/ unavailability of observable market inputs,
including inputs from pricing vendors and brokers.
Significant Other Settlements. For 2012 and 2011, there
were $89 million and $38 million of distributions from
equity method investees categorized in Level 3,
respectively.
During 2012, other settlements included $1,011 million of
proceeds from borrowings of consolidated CLOs.
During 2011, other settlements included $412 million of
borrowings of consolidated VIEs related to the
consolidation of one additional CLO.
F-30
5. Fair Value Disclosures (continued)
Disclosures of Fair Value for Financial Instruments Not Held at Fair Value. At December 31, 2012 and December 31, 2011, the
fair value of the financial instruments not held at fair value are categorized in the table below:
December 31, 2012 December 31, 2011
(Dollars in millions)
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Fair Value
Hierarchy
Financial Assets:
Cash and cash equivalents ......................................... $4,606 $4,606 $3,506 $3,506 Level 1
(1)
Accounts receivable .............................................. 2,250 2,250 1,960 1,960 Level 1
(2)
Due from related parties ........................................... 77 77 142 142 Level 1
(2)
Cash and cash equivalents of consolidated VIEs ....................... 297 297 54 54 Level 1
(1)
Financial Liabilities:
Accounts payable and accrued liabilities ............................. 1,055 1,055 923 923 Level 1
(2)
Due to related parties ............................................. 14 14 22 22 Level 1
(2)
Short-term borrowings ............................................ 100 100 100 100 Level 1
(2)
Long-term borrowings ............................................ 5,687 6,275 4,690 5,057 Level 2
(3)
(1)
Cash and cash equivalents are carried at either cost or amortized cost that approximates fair value due to their short-term maturities. At December 31, 2012 and
December 31, 2011, approximately $133 million and $196 million, respectively, related to cash and cash equivalents held by consolidated sponsored investment
funds. Money market funds are valued through the use of quoted market prices, or $1.00, which generally is the NAV of the fund. At December 31, 2012 and
December 31, 2011, approximately $98 million and $123 million, respectively, of money market funds were recorded within cash and cash equivalents on the
consolidated statements of financial condition.
(2)
The carrying amounts of accounts receivable, due from related parties, accounts payable and accrued liabilities, due to related parties and short-term
borrowings approximate fair value due to their short-term nature.
(3)
Long-term borrowings are recorded at amortized cost. The fair value of the long-term borrowings, including the current portion of long-term borrowings, is
estimated using market prices at the end of December 2012 and December 2011, respectively. See Note 11, Borrowings, for the fair value of the Company’s long-
term borrowings.
Investments in Certain Entities that Calculate Net Asset
Value Per Share
As a practical expedient to value certain investments that
do not have a readily determinable fair value and have
attributes of an investment company, the Company relies
on NAV as the fair value for certain investments. The
following table lists information regarding all investments
that use a fair value measurement to account for both
their financial assets and financial liabilities in their
calculation of a NAV per share (or its equivalent).
F-31
5. Fair Value Disclosures (continued)
December 31, 2012
(Dollar amounts in millions) Ref
Fair
Value
Total
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Trading:
Equity ............................................... (a) $ 3 $ — Daily (100%) none
Consolidated sponsored investment funds:
Private equity funds of funds ............................ (b) 212 32 n/r n/r
Other funds of hedge funds ............................. (c) 98 — Monthly/Daily (22%)
Quarterly (11%)
n/r (67%)
1– 90 days
Equity method:
(1)
Hedge funds/funds of hedge funds ....................... (d) 222 42 Monthly (2%)
Quarterly (28%)
n/r (70%)
15 –90 days
Private equity funds ................................... (e) 90 135 n/r n/r
Real estate funds ..................................... (f) 107 15 Quarterly (18%)
n/r (82%)
60 days
Deferred compensation plan hedge fund investments ....... (g) 9 — Monthly (33%)
Quarterly (67%)
60 –90 days
Consolidated VIE:
Private equity funds ................................... (h) 20 1 n/r n/r
Total ................................................ $761 $225
n/r – not redeemable
(1)
Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for both their financial assets and
financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.
Investments in Certain Entities that Calculate Net Asset Value Per Share
December 31, 2011
(Dollar amounts in millions) Ref
Fair
Value
Total
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Trading:
Equity ............................................... (a) $ 2 $— Daily (100%) none
Consolidated sponsored investment funds:
Private equity funds of funds ............................ (b) 258 44 n/r n/r
Other funds of hedge funds ............................. (c) 24 — Monthly (25%)
Quarterly (54%)
n/r (21%)
30 – 90 days
Equity method:
(1)
Hedge funds/funds of hedge funds ....................... (d) 226 4 Monthly (2%)
Quarterly (15%)
n/r (83%)
15 – 90 days
Private equity funds ................................... (e) 85 48 n/r n/r
Real estate funds ..................................... (f) 88 17 n/r n/r
Deferred compensation plan hedge fund investments ....... (g) 19 — Monthly (16%)
Quarterly (84%)
60 – 90 days
Consolidated VIE:
Private equity funds ................................... (h) 27 2 n/r n/r
Total ................................................ $729 $115
n/r – not redeemable
(1)
Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for both their financial assets and
financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.
(a) This category includes consolidated offshore feeder funds that invest in master funds with multiple equity strategies to diversify risks. The fair values of the
investments in this category have been estimated using the NAV of master offshore funds held by the feeder funds. Investments in this category can be
redeemed at any time, as long as there are no restrictions in place by the underlying master funds.
F-32
5. Fair Value Disclosures (continued)
(b) This category includes the underlying third-party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The fair values of
the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the
portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds, the Company may sell or transfer its
interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its
investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these
funds will be liquidated over a weighted-average period of approximately seven and eight years at December 31, 2012 and December 31, 2011, respectively. The
total remaining unfunded commitments to other third-party funds were $32 million and $44 million at December 31, 2012 and December 31, 2011, respectively.
The Company was contractually obligated to fund $30 million and $33 million at December 31, 2012 and December 31, 2011 to the consolidated funds, while the
remaining unfunded balances in the tables above are required to be funded by capital contributions from non-controlling interest holders.
(c) This category includes consolidated funds of hedge funds that invest in multiple strategies to diversify risks. The fair values of the investments have been
estimated using the NAV of the fund’s ownership interest in partners’ capital of each fund in the portfolio. The majority of the underlying funds can be redeemed
as long as there are no restrictions in place. At December 31, 2012, the underlying funds that are currently restricted from redemptions within one year will be
redeemable in approximately 12 to 24 months. This category also includes a consolidated offshore feeder fund that invests in a master fund with multiple
alternative investment strategies. The fair value of this investment in this category has been estimated using the NAV of the master offshore fund held by the
feeder fund. The investment is currently subject to restrictions in place by the underlying master fund.
(d) This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit and mortgage
instruments and other third-party hedge funds. The fair values of the investments have been estimated using the NAV of the Company’s ownership interest in
partners’ capital. It was estimated that the investments in the funds that are not subject to redemption will be liquidated over a weighted-average period of
approximately five and six years at December 31, 2012 and December 31, 2011, respectively.
(e) This category includes several private equity funds that initially invest in non-marketable securities of private companies, which ultimately may become public
in the future. The fair values of these investments have been estimated using capital accounts representing the Company’s ownership interest in the funds as
well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally returned through distributions as a result
of the liquidation of the underlying assets of the private equity funds. It was estimated that the investments in these funds will be liquidated over a weighted-
average period of approximately five and six years at December 31, 2012 and December 31, 2011, respectively.
(f) This category includes several real estate funds that invest directly in real estate and real estate related assets. The fair values of the investments have been
estimated using capital accounts representing the Company’s ownership interest in the funds. The majority of the Company’s investments are not subject to
redemption or is not currently redeemable and is normally returned through distributions as a result of the liquidation of the underlying assets of the real estate
funds. It was estimated that the investments in these funds not subject to redemptions will be liquidated over a weighted-average period of approximately eight
and seven years at December 31, 2012 and December 31, 2011, respectively.
(g) This category includes investments in certain hedge funds that invest in energy and health science related equity securities. The fair values of the investments
have been estimated using capital accounts representing the Company’s ownership interest in partners’ capital as well as performance inputs. The investments
in these funds will be liquidated upon settlement of certain deferred compensation liabilities.
(h) This category includes the underlying third-party private equity funds within one consolidated BlackRock sponsored private equity fund of funds. The fair values
of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the
portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds the Company may sell or transfer its
interest, which may need approval by the general partner of the underlying third-party funds. Due to the nature of the investments in this category, the Company
reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets
of these funds will be liquidated over a weighted-average period of approximately three and four years at December 31, 2012 and December 31, 2011,
respectively. Total remaining unfunded commitments to other third-party funds were $1 million and $2 million at December 31, 2012 and December 31, 2011,
respectively, which commitments are required to be funded by capital contributions from non-controlling interest holders.
F-33
5. Fair Value Disclosures (continued)
Fair Value Option. Upon initial consolidation of CLOs, the
Company elects to adopt the fair value option provisions
for eligible assets and liabilities, including bank loans and
borrowings of the CLOs to mitigate accounting
mismatches between the carrying value of the assets and
liabilities and to achieve operational simplification. To the
extent there is a difference between the change in fair
value of the assets and liabilities, the difference will be
reflected as net income (loss) attributable to
nonredeemable non-controlling interests on the
consolidated statements of income and offset by a change
in appropriated retained earnings on the consolidated
statements of financial condition.
The following table summarizes information related to
those assets and liabilities selected for fair value
accounting as of December 31, 2012 and 2011:
(Dollar amounts in millions)
December 31,
2012
December 31,
2011
CLO Bank Loans:
Aggregate principal
amounts
outstanding ........ $2,124 $1,522
Fair value ............ $2,110 $1,459
Aggregate unpaid
principal balance in
excess of fair value . . $ 14 $ 63
Unpaid principal
balance of loans more
than 90 days past
due ............... $ 4 $ 4
Aggregate fair value of
loans more than 90
days past due ....... $ — $ —
Aggregate unpaid
principal balance in
excess of fair value
for loans more than
90 days past due .... $ 4 $ 4
CLO Borrowings:
Aggregate principal
amounts
outstanding ........ $2,535 $1,781
Fair value ............ $2,402 $1,574
At December 31, 2012, the principal amounts outstanding
of the borrowings issued by the CLOs mature between
2016 and 2025.
During 2012, 2011 and 2010, the change in fair value of the
bank loans and bonds held by the CLOs resulted in a $154
million gain, a $57 million gain and a $148 million gain,
respectively, which were offset by a $166 million loss, a
$68 million loss and a $175 million loss, respectively, from
the change in fair value of the CLO borrowings.
The net gains (losses) were recorded in net gain (loss) on
consolidated VIEs on the consolidated statements of
income.
The change in fair value of the assets and liabilities
included interest income and expense, respectively.
6. Variable Interest Entities
In the normal course of business, the Company is the
manager of various types of sponsored investment
vehicles, including CDOs/CLOs and sponsored investment
funds, which may be considered VIEs. The Company
receives advisory fees and/or other incentive-related fees
for its services and may from time to time own equity or
debt securities or enter into derivatives with the vehicles,
each of which are considered variable interests. The
Company enters into these variable interests principally to
address client needs through the launch of such
investment vehicles. The VIEs are primarily financed via
capital contributed by equity and debt holders. The
Company’s involvement in financing the operations of the
VIEs is generally limited to its equity interests.
In order to determine whether the Company is the PB of a
VIE, management must make significant estimates and
assumptions of projected future cash flows of the VIEs.
Assumptions made in such analyses may include, but are
not limited to, market prices of securities, market interest
rates, potential credit defaults on individual securities or
default rates on a portfolio of securities, pre-payments,
realization of gains, liquidity or marketability of certain
securities, discount rates and the probability of certain
other outcomes. See Note 2 for more information.
F-34
6. Variable Interest Entities (continued)
Consolidated VIEs. Consolidated VIEs included CLOs in
which BlackRock did not have an investment; however,
BlackRock, as the collateral manager, was deemed to
have both the power to control the activities of the CLOs
and the right to receive benefits that could potentially be
significant to the CLOs. In addition, BlackRock was the PB
of one investment fund, which absorbed the majority of
the variability due to its de-facto third-party relationships
with other partners in the fund. The assets of these VIEs
are not available to creditors of the Company. In addition,
the investors in these VIEs have no recourse to the credit
of the Company. At December 31, 2012 and 2011, the
following balances related to VIEs were consolidated on
the consolidated statements of financial condition:
(Dollar amounts in millions)
December 31,
2012
December 31,
2011
Assets of consolidated VIEs:
Cash and cash
equivalents ......... $ 297 $ 54
Bank loans ....... 2,110 1,459
Bonds ........... 124 145
Other
investments .... 30 35
Total bank loans, bonds
and other
investments ........ 2,264 1,639
Liabilities of consolidated
VIEs:
Borrowings ........... (2,402) (1,574)
Other liabilities ....... (103) (9)
Appropriated retained
earnings ............... (29) (72)
Non-controlling interests of
consolidated VIEs ....... (27) (38)
Total BlackRock net
interests in
consolidated VIEs . . . $ — $ —
During 2012, the Company recorded a $38 million non-
operating loss offset by a $38 million net loss attributable
to nonredeemable non-controlling interests on the
consolidated statements of income. During 2011, the
Company recorded an $18 million non-operating loss
offset by an $18 million net loss attributable to
nonredeemable non-controlling interests on the
consolidated statements of income. During 2010, the
Company recorded a $35 million non-operating loss offset
by a $35 million net loss attributable to nonredeemable
non-controlling interests on the consolidated statements
of income.
At December 31, 2012 and 2011, the weighted-average
maturity of the bank loans and bonds was approximately
4.5 years and 4.2 years, respectively.
F-35
6. Variable Interest Entities (continued)
Non-Consolidated VIEs. At December 31, 2012 and 2011, the Company’s carrying value of assets and liabilities and its
maximum risk of loss related to VIEs for which it is the sponsor or in which it holds a variable interest but for which it was
not the PB, were as follows:
(Dollar amounts in millions)
At December 31, 2012
Variable Interests on the Consolidated
Statement of Financial Condition
Investments
Advisory
Fee
Receivables
Other Net
Assets
(Liabilities)
Maximum
Risk of Loss
(1)
CDOs/CLOs .................................. $ 1 $ 1 $ (5) $ 19
Other sponsored investment funds:
Collective trusts ...................... — 248 — 248
Other ............................... 17 61 (3) 77
Total ................................... $ 18 $310 $ (8) $344
At December 31, 2011
CDOs/CLOs .................................. $ 1 $ 2 $ (3) $ 20
Other sponsored investment funds:
Collective trusts ...................... — 184 — 184
Other ............................... 18 54 (5) 72
Total ................................... $ 19 $240 $ (8) $276
(1)
At both December 31, 2012 and December 31, 2011, BlackRock’s maximum risk of loss associated with these VIEs primarily related to: (i) advisory fee
receivables; (ii) BlackRock’s investments; and (iii) $17 million of credit protection sold by BlackRock to a third party in a synthetic CDO transaction.
The net assets related to the above CDOs/CLOs and other
sponsored investment funds, including collective trusts,
that the Company does not consolidate were as follows:
CDOs/CLOs
(Dollar amounts in billions)
December 31,
2012
December 31,
2011
Assets at fair value ........ $4 $5
Liabilities
(1)
.............. 5 7
Net assets ............... $(1) $(2)
(1)
Amounts primarily comprised of unpaid principal debt obligations to
CDO/CLO debt holders.
Other sponsored investments funds. Net assets of other
sponsored investment funds that are non-consolidated
VIEs approximated $1.5 trillion to $1.6 trillion at
December 31, 2012 and $1.2 trillion to $1.3 trillion at
December 31, 2011. Net assets included $1.3 trillion and
$1.0 trillion of collective trusts at December 31, 2012 and
December 31, 2011, respectively. Each collective trust has
been aggregated separately and may include collective
trusts that invest in other collective trusts. The net assets
of these VIEs primarily are comprised of cash and cash
equivalents and investments offset by liabilities primarily
comprised of various accruals for the sponsored
investment vehicles.
7. Derivatives and Hedging
In May 2011, the Company entered into a designated cash
flow hedge consisting of a $750 million interest rate swap
maturing in 2013 to hedge future cash flows on the
Company’s floating rate notes due in 2013. Interest on this
swap is at a fixed rate of 1.03% payable semi-annually on
May 24 and November 24 of each year and commenced
November 24, 2011. See Note 11, Borrowings, for more
information. The fair value of the interest rate swap as of
December 31, 2012 and 2011 was not material.
The Company maintains a program to enter into total
return swaps to hedge against market price exposures
with respect to certain seed investments in sponsored
investment products. At December 31, 2012 and 2011, the
Company had 21 and six outstanding total return swaps,
respectively, with an aggregate notional value of
approximately $206 million and $43 million, respectively.
The fair value of the outstanding total return swaps as of
December 31, 2012 and 2011 was not material.
Market risk from forward foreign currency exchange
contracts is the effect on the value of a financial
instrument that results from a change in currency
exchange rates. The Company manages certain exposure
to market risk associated with foreign currency exchange
contracts by establishing and monitoring parameters that
limit the types and degrees of market risk that may be
undertaken. At December 31, 2012, the Company had
outstanding forward foreign currency exchange contracts
F-36
7. Derivatives and Hedging (continued)
with an aggregate notional value of approximately $79
million. The fair value of the forward foreign currency
exchange contracts as of December 31, 2012 was not
material. At December 31, 2011, the Company did not have
any outstanding forward foreign currency exchange
contracts.
The Company entered into a credit default swap, providing
credit protection to the counterparty of approximately $17
million, representing the Company’s maximum risk of loss
with respect to the provision of credit protection. The
Company carries the credit default swap at fair value
based on the expected future cash flows under the
arrangement.
On behalf of clients of the Company’s registered life
insurance company, which maintains separate accounts
representing segregated funds held for the purpose of
funding individual and group pension contracts, the
Company invests in various derivative instruments, which
may include futures, forward foreign currency exchange
contracts, interest rate swaps and inflation rate swaps.
Net realized and unrealized gains and losses attributable
to derivatives held by separate account assets accrue
directly to the contract owners and are not reported in the
consolidated statements of income.
The following table presents the carrying value as of December 31, 2012 and 2011 of derivative instruments not designated
as hedging instruments:
December 31, 2012 December 31, 2011
(Dollar amounts in millions) Assets Liabilities Assets Liabilities
Credit default swap
Other liabilities .......................................... $— $ 5 $ — $ 3
Separate account derivatives
Separate account assets .................................. 95 — 1,495 —
Separate account liabilities ............................... — 95 — 1,495
Total .................................................. $ 95 $100 $1,495 $1,498
The fair value of the derivatives held by separate account
assets is equal and offset by a separate account liability.
Gains (losses) on total return swaps are recorded in non-
operating income (expense) on the consolidated
statements of income and were $(23) million, $4 million
and $(2) million for 2012, 2011 and 2010, respectively.
Gains (losses) on the interest rate swap entered into in
2011 were not material for 2012 and 2011. Gains (losses)
on the forward foreign currency exchange contracts were
not material for 2012 and 2011, and were $5 million for
2010. Gains (losses) on the credit default swap were not
material for 2012, 2011 and 2010.
The Company consolidates certain sponsored investment
funds, which may utilize derivative instruments as a part
of the fund’s investment strategy. The fair value of such
derivatives at December 31, 2012 and 2011 was not
material. The change in fair value of such derivatives,
which is recorded in non-operating income (expense), was
not material for 2012, 2011 and 2010.
F-37
8. Property and Equipment
Property and equipment consists of the following:
(Dollar amounts in millions)
Estimated useful
life-in years
December 31,
2012 2011
Property and equipment:
Land ............................................... N/A $ 4 $ 4
Building ............................................ 39 17 17
Building improvements ............................... 15 13 13
Leasehold improvements .............................. 1-15 482 452
Equipment and computer software ..................... 3 465 443
Other transportation equipment ........................ 10 56 —
Furniture and fixtures ................................. 7 91 90
Construction in progress .............................. N/A 1 1
Total ................................................... 1,129 1,020
Less: accumulated depreciation and amortization ......... 572 483
Property and equipment, net .............................. $ 557 $ 537
N/A – Not Applicable
Qualifying software costs of approximately $36 million,
$37 million and $39 million have been capitalized within
equipment and computer software for 2012, 2011 and
2010, respectively, and are being amortized over an
estimated useful life of three years.
Depreciation and amortization expense was $129 million,
$138 million and $145 million for 2012, 2011 and 2010,
respectively.
9. Goodwill
Goodwill activity during 2012 and 2011 was as follows:
(Dollar amounts in millions)
2012 2011
Beginning of year balance ........................................................................ $12,792 $12,805
Claymore Investments, Inc.
(1)
................................................................. 106 —
Swiss Re Private Equity Partners
(2)
............................................................. 25 —
Goodwill adjustments related to Quellos
(3)
...................................................... (13) (13)
End of year balance ............................................................................. $12,910 $12,792
(1)
Amount represents goodwill resulting from the Company’s acquisition of the Canadian exchange-traded products (“ETP”) provider, Claymore Investments, Inc.
(the “Claymore Transaction”) on March 7, 2012 for approximately $212 million.
(2)
Amount represents goodwill resulting from the Company’s acquisition of the European private equity and infrastructure funds of funds of Swiss Re Private
Equity Partners (the “SRPEP Transaction”) on September 4, 2012.
(3)
The decrease in goodwill during 2012 and 2011 primarily resulted from a decline related to tax benefits realized from tax-deductible goodwill in excess of book
goodwill from the acquisition of the fund-of-funds business of Quellos Group, LLC (the “Quellos Transaction”). Goodwill related to the Quellos Transaction will
continue to be reduced in future periods by the amount of tax benefits realized from tax-deductible goodwill in excess of book goodwill from the Quellos
Transaction. The balance of the Quellos tax-deductible goodwill in excess of book goodwill was approximately $324 million and $355 million as of December 31,
2012 and 2011, respectively. In 2012, the decrease in Quellos goodwill was partially offset by a $10 million increase related to the release of the remaining
common shares held in escrow in connection with the Quellos Transaction.
The impairment tests performed for goodwill as of July 31,
2012, 2011 and 2010 indicated that no impairment
charges were required. The Company continuously
monitors its book value per share as compared with
closing prices of its common stock for potential indicators
of impairment. As of December 31, 2012 the Company’s
common stock closed at $206.71, which exceeded its book
value per share of approximately $148.20 after excluding
appropriated retained earnings.
F-38
10. Intangible Assets
Intangible assets at December 31, 2012 and 2011 consisted of the following:
Remaining
Weighted-Average
Estimated
Useful Life(Dollar amounts in millions)
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
At December 31, 2012
Indefinite-lived intangible assets:
Management contracts ........................... N/A $15,351 $— $15,351
Trade names / trademarks ........................ N/A 1,403 — 1,403
License ........................................ N/A 6 — 6
Total indefinite-lived intangible assets .................. 16,760 — 16,760
Finite-lived intangible assets:
Management contracts ........................... 4.9 1,535 896 639
Other
(1)
......................................... 5.6 6 3 3
Total finite-lived intangible assets ..................... 4.9 1,541 899 642
Total intangible assets ............................... $18,301 $899 $17,402
At December 31, 2011
Indefinite-lived intangible assets:
Management contracts ........................... N/A $15,188 $— $15,188
Trade names / trademarks ........................ N/A 1,403 — 1,403
License ........................................ N/A 6 — 6
Total indefinite-lived intangible assets .................. 16,597 — 16,597
Finite-lived intangible assets:
Management contracts ........................... 5.4 1,504 749 755
Other
(1)
......................................... 6.6 6 2 4
Total finite-lived intangible assets ..................... 5.4 1,510 751 759
Total intangible assets ............................... $18,107 $751 $17,356
N/A – Not Applicable
(1)
Other represents intellectual property.
The impairment tests performed for intangible assets as
of July 31, 2012, 2011 and 2010 indicated no impairment
charges were required.
Estimated amortization expense for finite-lived intangible
assets for each of the five succeeding years is as follows:
(Dollar amounts in millions)
Year Amount
2013 ....................................... $159
2014 ....................................... 152
2015 ....................................... 123
2016 ....................................... 87
2017 ....................................... 70
Indefinite-Lived Acquired Management Contracts
In March 2012, in connection with the Claymore
Transaction, the Company acquired $163 million of
indefinite-lived ETP management contracts.
Finite-Lived Acquired Management Contracts
In September 2012, in connection with the SRPEP
Transaction, the Company acquired $40 million of finite-
lived management contracts with a weighted-average
estimated useful life of approximately 10 years.
F-39
11. Borrowings
Short-Term Borrowings
The carrying value of short-term borrowings at
December 31, 2012 and 2011, included $100 million under
the 2012 revolving credit facility and $100 million under
the 2011 revolving credit facility, respectively.
2012 Revolving Credit Facility. In March 2011, the
Company entered into a five-year $3.5 billion unsecured
revolving credit facility (the “2011 credit facility”). In
March 2012, the 2011 credit facility was amended to
extend the maturity date by one year to March 2017 and in
April 2012 the amount of the aggregate commitment was
increased to $3.785 billion (the “2012 credit facility”). The
2012 credit facility permits the Company to request an
additional $1.0 billion of borrowing capacity, subject to
lender credit approval, increasing the overall size of the
2012 credit facility to an aggregate principal amount not
to exceed $4.785 billion. Interest on borrowings
outstanding accrues at a rate based on the applicable
London Interbank Offered Rate plus a spread. The 2012
credit facility requires the Company not to exceed a
maximum leverage ratio (ratio of net debt to EBITDA,
where net debt equals total debt less unrestricted cash) of
3 to 1, which was satisfied with a ratio of less than 1 to 1
at December 31, 2012.
The 2012 credit facility provides back-up liquidity, funds
ongoing working capital for general corporate purposes
and funds various investment opportunities. At
December 31, 2012, the Company had $100 million
outstanding under this facility with an interest rate of
1.085% and a maturity during January 2013. During
January 2013, the Company rolled over the $100 million in
borrowings at an interest rate of 1.085% and a maturity
during February 2013. During February 2013, the Company
rolled over the $100 million in borrowings at an interest
rate of 1.075% and a maturity during March 2013.
Commercial Paper Program. On October 14, 2009,
BlackRock established a commercial paper program (the
“CP Program”) under which the Company could issue
unsecured commercial paper notes (the “CP Notes”) on a
private placement basis up to a maximum aggregate
amount outstanding at any time of $3.0 billion. On May 13,
2011, BlackRock increased the maximum aggregate
amount that may be borrowed under the CP Program to
$3.5 billion. On May 17, 2012, BlackRock increased the
maximum aggregate amount to $3.785 billion. The CP
Program is currently supported by the 2012 credit facility.
As of December 31, 2012 and December 31, 2011,
BlackRock had no CP Notes outstanding.
Long-Term Borrowings
The carrying value and fair value of long-term borrowings estimated using market prices at December 31, 2012 included the
following:
(Dollar amounts in millions) Maturity Amount
Unamortized
Discount Carrying Value Fair Value
Floating Rate Notes due 2013 $ 750 $— $ 750 $ 750
3.50% Notes due 2014 1,000 — 1,000 1,058
1.375% Notes due 2015 750 — 750 762
6.25% Notes due 2017 700 (3) 697 853
5.00% Notes due 2019 1,000 (2) 998 1,195
4.25% Notes due 2021 750 (4) 746 856
3.375% Notes due 2022 750 (4) 746 801
Total Long-term Borrowings $5,700 $ (13) $5,687 $6,275
F-40
11. Borrowings (continued)
Long-term borrowings at December 31, 2011 had a
carrying value of $4,690 million and a fair value of $5,057
million. During 2012, $500 million of 2.25% Notes were
repaid.
2015 and 2022 Notes. In May 2012, the Company issued
$1.5 billion in aggregate principal amount of unsecured
unsubordinated obligations. These notes were issued as
two separate series of senior debt securities including
$750 million of 1.375% notes maturing in June 2015 (the
“2015 Notes”) and $750 million of 3.375% notes maturing
in June 2022 (the “2022 Notes”). Net proceeds were used
to fund the repurchase of BlackRock’s common stock and
Series B Preferred from Barclays and affiliates and for
general corporate purposes. Interest on the 2015 Notes
and the 2022 Notes of approximately $10 million and $25
million per year, respectively, is payable semi-annually on
June 1 and December 1 of each year, which commenced
December 1, 2012. The 2015 Notes and 2022 Notes may be
redeemed prior to maturity at any time in whole or in part
at the option of the Company at a “make-whole”
redemption price. The “make-whole” redemption price
represents a price, subject to the specific terms of the
2015 and 2022 Notes and related indenture, that is the
greater of (a) par value and (b) the present value of future
payments that will not be paid because of an early
redemption, which is discounted at a fixed spread over a
comparable Treasury security. The 2015 Notes and 2022
Notes were issued at a discount of $5 million that is being
amortized over the term of the notes. The Company
incurred approximately $7 million of debt issuance costs,
which are being amortized over the respective terms of
the 2015 Notes and 2022 Notes. As of December 31, 2012,
$6 million of unamortized debt issuance costs were
included in other assets on the consolidated statement of
financial condition.
2013 and 2021 Notes. In May 2011, the Company issued
$1.5 billion in aggregate principal amount of unsecured
unsubordinated obligations. These notes were issued as
two separate series of senior debt securities including
$750 million of 4.25% notes and $750 million of floating
rate notes maturing in May 2021 and 2013, respectively.
Net proceeds of this offering were used to fund the
repurchase of BlackRock’s Series B Preferred from
affiliates of Merrill Lynch. Interest on the 4.25% notes due
in 2021 (“2021 Notes”) is payable semi-annually on May 24
and November 24 of each year, which commenced
November 24, 2011, and is approximately $32 million per
year. Interest on the floating rate notes due in 2013 (“2013
Floating Rate Notes”) is payable quarterly on
February 24, May 24, August 24 and November 24 of each
year. The 2021 Notes may be redeemed prior to maturity at
any time in whole or in part at the option of the Company
at a “make-whole” redemption price. The 2013 Floating
Rate Notes may not be redeemed at the Company’s option
before maturity. The 2021 Notes were issued at a discount
of $4 million that is being amortized over the term of the
notes. The Company incurred approximately $7 million of
debt issuance costs for the $1.5 billion note issuances,
which are being amortized over the respective terms of
the notes. As of December 31, 2012, $4 million of
unamortized debt issuance costs were included in other
assets on the consolidated statement of financial
condition.
In May 2011, in conjunction with the issuance of the 2013
Floating Rate Notes, the Company entered into a $750
million notional interest rate swap maturing in 2013 to
hedge the future cash flows of its obligation at a fixed rate
of 1.03% payable semi-annually on May 24 and
November 24 of each year, which commenced on
November 24, 2011. The interest rate swap effectively
converts the 2013 Floating Rate Notes to a fixed rate
obligation.
2017 Notes. In September 2007, the Company issued $700
million in aggregate principal amount of 6.25% senior
unsecured and unsubordinated notes maturing on
September 15, 2017 (the “2017 Notes”). Interest is
payable semi-annually in arrears on March 15 and
September 15 of each year, or approximately $44 million
per year. The 2017 Notes may be redeemed prior to
maturity at any time in whole or in part at the option of the
Company at a “make-whole” redemption price. The 2017
Notes were issued at a discount of $6 million, which is
being amortized over their ten-year term. The Company
incurred approximately $4 million of debt issuance costs,
which are being amortized over ten years. As of
December 31, 2012, $2 million of unamortized debt
issuance costs were included in other assets on the
consolidated statement of financial condition.
2012, 2014 and 2019 Notes. In December 2009, the
Company issued $2.5 billion in aggregate principal amount
of unsecured and unsubordinated obligations. These
notes were issued as three separate series of senior debt
securities including $0.5 billion of 2.25% notes, which
were repaid in December 2012, and $1.0 billion of 3.50%
notes and $1.0 billion of 5.0% notes maturing in December
2014 and 2019, respectively. Net proceeds of this offering
were used to repay borrowings under the CP Program,
which was used to finance a portion of the acquisition of
Barclays Global Investors (“BGI”) from Barclays on
December 1, 2009 (the “BGI Transaction”), and for general
corporate purposes. In 2012, approximately $96 million of
interest was paid. Interest on the 2014 Notes and 2019
Notes of approximately $35 million and $50 million per
F-41
11. Borrowings (continued)
year, respectively, is payable semi-annually in arrears on
June 10 and December 10 of each year. These notes may
be redeemed prior to maturity at any time in whole or in
part at the option of the Company at a “make-whole”
redemption price. These notes were issued collectively at
a discount of $5 million, which is being amortized over the
respective terms of the notes. The Company incurred
approximately $13 million of debt issuance costs, which
are being amortized over the respective terms of these
notes. As of December 31, 2012, $6 million of unamortized
debt issuance costs were included in other assets on the
consolidated statement of financial condition.
12. Commitments and Contingencies
Operating Lease Commitments
The Company leases its primary office space under
agreements which expire through 2035. Future minimum
commitments under these operating leases are as follows:
(Dollar amounts in millions)
Year Amount
2013 ....................................... $ 134
2014 ....................................... 122
2015 ....................................... 113
2016 ....................................... 104
2017 ....................................... 105
Thereafter ................................... 784
$1,362
Rent expense and certain office equipment expense under
agreements amounted to $133 million, $154 million and
$158 million in 2012, 2011 and 2010, respectively.
Investment Commitments. At December 31, 2012, the
Company had $235 million of various capital commitments
to fund sponsored investment funds, including funds of
private equity funds, real estate funds and distressed
credit funds. This amount excludes additional
commitments made by consolidated funds of funds to
underlying third-party funds as third-party non-
controlling interest holders have the legal obligation to
fund the respective commitments of such funds of funds.
Generally, the timing of the funding of these commitments
is unknown and the commitments are callable on demand
at any time prior to the expiration of the commitment.
These unfunded commitments are not recorded on the
consolidated statements of financial condition. These
commitments do not include potential future
commitments approved by the Company, but which are
not yet legally binding. The Company intends to make
additional capital commitments from time to time to fund
additional investment products for, and with, its clients.
Contingencies
Contingent Payments. The Company acts as the portfolio
manager in a series of credit default swap transactions
and has a maximum potential exposure of $17 million
under a credit default swap between the Company and
counterparty. See Note 7, Derivatives and Hedging, for
further discussion of this transaction and the related
commitment.
Legal Proceedings. From time to time, BlackRock receives
subpoenas or other requests for information from various
U.S. federal, state governmental and domestic and
international regulatory authorities in connection with
certain industry-wide or other investigations or
proceedings. It is BlackRock’s policy to cooperate fully
with such inquiries. The Company and certain of its
subsidiaries have been named as defendants in various
legal actions, including arbitrations and other litigation
arising in connection with BlackRock’s activities.
Additionally, certain of the investment funds that the
Company manages are subject to lawsuits, any of which
potentially could harm the investment returns of the
applicable fund or result in the Company being liable to
the funds for any resulting damages.
Management, after consultation with legal counsel,
currently does not anticipate that the aggregate liability, if
any, arising out of regulatory matters or lawsuits will have
a material effect on BlackRock’s results of operations,
financial position, or cash flows. However, there is no
assurance as to whether any such pending or threatened
matters will have a material effect on BlackRock’s results
of operations, financial position or cash flows in any
future reporting period. Due to uncertainties surrounding
the outcome of these matters, management cannot
reasonably estimate the possible loss or range of loss that
may arise from these matters.
Indemnifications. In the ordinary course of business,
BlackRock enters into contracts pursuant to which it may
agree to indemnify third parties in certain circumstances.
The terms of these indemnities vary from contract to
contract and the amount of indemnification liability, if
any, cannot be determined.
In connection with securities lending transactions,
BlackRock has issued certain indemnifications to certain
securities lending clients against potential loss resulting
from a borrower’s failure to fulfill its obligations under the
securities lending agreement should the value of the
collateral pledged by the borrower at the time of default
be insufficient to cover the borrower’s obligation under
the securities lending agreement. As part of the BGI
F-42
12. Commitments and Contingencies (continued)
acquisition, Barclays was contractually obligated to
continue providing counterparty default indemnification
to several BlackRock securities lending clients through
December 1, 2012. BlackRock assumed these
indemnification obligations prior to or upon the expiration
of Barclays’ indemnification obligation. As of
December 31, 2012, the Company indemnified certain of
its clients for loan balances of approximately $99.5 billion.
The fair value of these indemnifications was not material
to the consolidated statements of financial condition as of
December 31, 2012. The Company expects indemnified
balances to continue to increase over time.
Under the transaction agreement in the BGI Transaction,
the Company agreed to indemnify Barclays for losses it
may incur arising from (1) breach by the Company of
certain representations, (2) breach by the Company of any
covenant in the agreement, (3) liabilities of the entities
acquired in the transaction other than liabilities assumed
by Barclays or for which it is providing indemnification,
and (4) certain taxes.
Management believes that the likelihood of any liability
arising under the BGI Transaction indemnification
provisions is remote. Management cannot estimate any
potential maximum exposure due both to the remoteness
of any potential claims and the fact that items that
would be included within any such calculated claim would
be beyond the control of BlackRock. Consequently, no
liability has been recorded on the consolidated
statements of financial condition.
13. Stock-Based Compensation
The components of stock-based compensation expense
are as follows:
(Dollar amounts in millions)
Year ended
December 31,
2012 2011 2010
Stock-based compensation:
Restricted stock and RSUs ...... $429 $444 $375
Market performance-based RSUs
to be funded by PNC .......... 15 — —
Long-term incentive plans to be
funded by PNC .............. 7 44 58
Stock options ................. — 9 12
Total stock-based compensation ..... $451 $497 $445
Stock Award and Incentive Plan. Pursuant to the
BlackRock, Inc. 1999 Stock Award and Incentive Plan (the
“Award Plan”), options to purchase shares of the
Company’s common stock at an exercise price not less
than the market value of BlackRock’s common stock on
the date of grant in the form of stock options, restricted
stock or RSUs may be granted to employees and non-
employee directors. A maximum of 27,000,000 shares of
common stock were authorized for issuance under the
Award Plan. Of this amount, 5,447,427 shares remain
available for future awards at December 31, 2012. Upon
exercise of employee stock options, the issuance of
restricted stock or the vesting of RSUs, the Company
issues shares out of treasury to the extent available.
Restricted Stock and RSUs. Pursuant to the Award Plan,
restricted stock grants and RSUs may be granted to
certain employees. Substantially all restricted stock and
RSUs vest over periods ranging from one to five years and
are expensed using the straight-line method over the
requisite service period for each separately vesting
portion of the award as if the award was, in-substance,
multiple awards. Prior to 2009, the Company awarded
restricted stock and RSUs with nonforfeitable dividend
equivalent rights. Restricted stock and RSUs awarded
beginning in 2009 are not considered participating
securities for purposes of calculating EPS as the dividend
equivalents are subject to forfeiture prior to vesting of the
award.
Restricted stock and RSU activity for 2012 is summarized
below:
Outstanding at
Restricted
Stock and
Units
Weighted
Average
Grant Date
Fair Value
December 31, 2011 .............. 5,528,781 $196.44
Granted .................... 1,895,118 $183.47
Converted .................. (1,681,241) $176.61
Forfeited ................... (121,823) $201.85
December 31, 2012
(1)
............. 5,620,835 $197.90
(1)
At December 31, 2012, approximately 4.9 million awards
are expected to vest and 0.6 million awards have vested
but have not been converted.
The Company values restricted stock and RSUs at their
grant-date fair value as measured by BlackRock’s
common stock price. The total fair market value of RSUs
granted to employees during 2010 and 2011 was $751
million and $477 million, respectively. The total fair
market value of RSUs converted to common stock during
2012, 2011 and 2010 was $297 million, $553 million and
$219 million, respectively.
At December 31, 2012, the intrinsic value of outstanding
RSUs was $1.2 billion.
F-43
13. Stock-Based Compensation (continued)
The awards granted under the Award Plan primarily
related to the following:
2010
• 846,884 RSUs to employees as part of annual
incentive compensation that vest ratably over three
years from the date of grant;
• 455,288 RSUs to employees that cliff vested on
January 31, 2012, the end of the service condition,
as BlackRock had actual GAAP EPS in excess of
$6.13 in 2010. The RSUs may not be sold before the
one-year anniversary of the vesting date;
• 1,497,222 RSUs to employees that vest 50% on both
January 31, 2013 and 2014, the end of the service
condition, as BlackRock had actual GAAP EPS in
excess of $6.13 in 2010; and
• 124,575 shares of restricted common stock to
employees that vested in tranches on January 31,
2010, 2011 and 2012. The restricted common stock
may not be sold before the one-year anniversary of
each vesting date.
2011
• 1,594,259 RSUs to employees as part of annual
incentive compensation that vest ratably over three
years from the date of grant; and
• 609,733 RSUs to employees that cliff vest 100% on
January 31, 2014.
2012
• 1,365,691 RSUs to employees as part of annual
incentive compensation that vest ratably over three
years from the date of grant; and
• 418,038 RSUs to employees that cliff vest 100% on
January 31, 2015.
At December 31, 2012, there was $291 million in total
unrecognized stock-based compensation expense related
to unvested RSUs. The unrecognized compensation cost is
expected to be recognized over the remaining weighted-
average period of 0.9 years.
2013
In January 2013, the Company granted the following
awards under the Award Plan:
• 1,172,381 RSUs to employees as part of annual
incentive compensation that vest ratably over three
years from the date of grant; and
• 370,812 RSUs to employees that cliff vest 100% on
January 31, 2016.
Market Performance-based RSUs. Pursuant to the Award
Plan, market performance-based RSUs may be granted to
certain employees. The market performance-based RSUs
require that separate 15%, 25% and 35% share price
appreciation targets be achieved during the six-year term
of the awards. The awards are split into three tranches
and each tranche may vest if the specified target increase
in share price is met. Eligible delivery dates for each
tranche are the fourth, fifth or sixth anniversaries of the
grant date and the awards are generally forfeited if the
employee leaves BlackRock before the vesting date. These
awards are amortized over a service period of four years,
which is the longer of the explicit service period or the
period in which the market target is expected to be met.
Market performance-based RSUs are not considered
participating securities as the dividend equivalents are
subject to forfeiture prior to vesting of the award. In 2012,
the Company granted 616,117 market performance-based
RSUs, which will primarily be funded by shares currently
held by PNC (see Long-Term Incentive Plans Funded by
PNC below).
Market performance-based RSU activity for 2012 is
summarized below:
Outstanding at
Market
Performance-
Based RSUs
Weighted
Average
Grant Date
Fair Value
December 31, 2011 .......... — $ —
Granted ................ 616,117 $115.03
Forfeited ............... (40,585) $115.03
December 31, 2012
(1)
........ 575,532 $115.03
(1)
At December 31, 2012, approximately 0.56 million awards are expected to
vest and no awards have vested and converted.
At December 31, 2012, there was $51 million in total
unrecognized stock-based compensation expense related
to unvested market performance-based awards. The
unrecognized compensation cost is expected to be
recognized over the remaining weighted-average period of
3.1 years.
The fair value of the market-performance-based awards
at the grant date was calculated using a Monte Carlo
simulation and the following assumptions:
Grant
Year
Risk-Free
Interest
Rate
Performance
Period
Expected
Stock
Volatility
Expected
Dividend
Yield
2012 1.21% 6 33.63% 2.99%
F-44
13. Stock-Based Compensation (continued)
The Company’s expected stock volatility assumption was
based upon an average of the historical stock price
fluctuations of BlackRock’s common stock and an implied
volatility at the grant date. The dividend yield assumption
was derived using estimated dividends over the expected
term and the stock price at the date of grant. The risk-free
interest rate is based on the U.S. Treasury yield at date of
grant.
In January 2013, the Company granted 556,581 market
performance-based RSUs under the Award Plan, which
will primarily be funded by shares currently held by PNC
(see Long-Term Incentive Plans Funded by PNC below).
Long-Term Incentive Plans Funded by PNC. Under a share
surrender agreement, PNC committed to provide up to
4 million shares of BlackRock stock, held by PNC, to fund
certain BlackRock long-term incentive plans (“LTIP”). The
current share surrender agreement commits PNC to
provide BlackRock series C non-voting participating
preferred stock to fund the remaining committed
shares. During 2007 through 2011, approximately
2.5 million shares were surrendered by PNC.
At December 31, 2012, the remaining shares committed by
PNC of approximately 1.5 million were available to fund
future long-term incentive awards, including
approximately 1.2 million RSU’s with market conditions
granted in January 2012 and January 2013.
In January 2013, approximately 0.2 million shares, which
were committed as of December 31, 2012, vested and
were funded by PNC.
Stock Options. Stock option grants were made to certain
employees pursuant to the Award Plan in 1999 through
2007. Options granted have a ten-year life, vested ratably
over periods ranging from two to five years and became
exercisable upon vesting. The Company has not granted
any stock options subsequent to the January 2007 grant,
which vested on September 29, 2011. Stock option activity
for 2012 is summarized below:
Outstanding at
Shares
under
option
Weighted
average
exercise
price
December 31, 2011 .............. 2,190,907 $105.33
Exercised ................... (1,090,998) $ 42.39
December 31, 2012
(1)
............. 1,099,909 $167.76
(1)
At December 31, 2012, all options were vested. The aggregate intrinsic
value of options exercised during the years ended December 31, 2012,
2011 and 2010 was $157 million, $13 million and $46 million, respectively.
Stock options outstanding and exercisable at
December 31, 2012 were as follows:
Options Outstanding and Exercisable
Exercise
Prices
Options
Outstanding
Weighted
Average
Remaining
Life
(years)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value of
Exercisable
Shares
(Dollar amounts
in millions)
$167.76 1,099,909 4.08 $167.76 $43
As of December 31, 2012, the Company had no remaining
unrecognized stock-based compensation expense related
to unvested stock options.
Employee Stock Purchase Plan (“ESPP”). The ESPP allows
eligible employees to purchase the Company’s common
stock at 95% of the fair market value on the last day of
each three-month offering period. In accordance with ASC
718-10, Compensation–Stock Compensation, the Company
does not record compensation expense related to
employees purchasing shares under the ESPP.
14. Employee Benefit Plans
Deferred Compensation Plans
Voluntary Deferred Compensation Plan. The Company
adopted a Voluntary Deferred Compensation Plan
(“VDCP”) that allows participants to elect to defer
between 1% and 100% of their annual cash incentive
compensation. The participants must specify a deferral
period of one, three, five or ten years. The Company funds
the obligation through the establishment of a rabbi trust
on behalf of the plan’s participants.
Rabbi Trust. The rabbi trust established for the VDCP, with
assets totaling $59 million as of both December 31, 2012
and 2011, is reflected in investments on the consolidated
statements of financial condition. Such investments are
classified as trading and other investments. The
corresponding liability balance of $60 million and $59
million as of December 31, 2012 and 2011, respectively, is
reflected on the consolidated statements of financial
condition as accrued compensation and benefits.
Earnings in the rabbi trust, including unrealized
appreciation or depreciation, are reflected as non-
operating income (expense) and changes in the
corresponding liability are reflected as employee
compensation and benefits expense on the consolidated
statements of income.
Other Deferred Compensation Plans. The Company has
additional compensation plans for the purpose of
F-45
14. Employee Benefit Plans (continued)
providing deferred compensation and retention incentives
to certain employees. For these plans, the final value of
the deferred amount to be distributed in cash upon
vesting is associated with investment returns of certain
investment funds. The liabilities for these plans were $77
million and $34 million as of December 31, 2012 and 2011,
respectively, and are reflected in the consolidated
statements of financial condition as accrued
compensation and benefits. In January 2013, the Company
granted approximately $66 million of additional deferred
compensation that will fluctuate with investment returns
and will vest ratably over three years from the date of
grant.
Defined Contribution Plans
BlackRock Retirement Savings Plan. Certain of the
Company’s employees participate in the BlackRock
Retirement Savings Plan (“BRSP”). Two predecessor plans
assumed in connection with the BGI Transaction were
merged with the BRSP on January 1, 2011.
Employee contributions of up to 8% of eligible
compensation, as defined by the plan and subject to
Internal Revenue Code (“IRC”) limitations, are matched by
the Company at 50%. In addition, the Company will
continue to make an annual retirement contribution to
eligible participants equal to 3-5% of eligible
compensation.
Prior to January 1, 2011, employee contributions of up to
6% of eligible compensation, as defined by the plan and
subject to IRC limitations, were matched by the Company
at 50%. As part of the BRSP, the Company also made an
annual retirement contribution on behalf of each eligible
participant equal to no less than 3% of eligible
compensation, plus an additional amount, determined at
the discretion of the Company, not to exceed 2% of eligible
compensation for a total contribution of no more than 5%
of eligible compensation. Contributions to the BRSP are
made in cash and no new investments in BlackRock stock
or matching contributions of stock are available in the
BRSP.
In 2012, 2011 and 2010, the Company’s expense related to
the BRSP was $59 million, $43 million and $35 million,
respectively. In addition, the Company’s expense related to
the two predecessor plans was $25 million in 2010.
BlackRock Group Personal Pension Plan. BlackRock
Investment Management (UK) Limited (“BIM”), a wholly
owned subsidiary of the Company, contributes to the
BlackRock Group Personal Pension Plan, a defined
contribution plan for all employees of BIM. BIM
contributes between 6% and 15% of each employee’s
eligible compensation. The expense for this plan was $27
million, $26 million and $22 million for 2012, 2011 and
2010, respectively.
Defined Benefit Plans. The Company has several defined
benefit pension plans in Japan and Germany. All accrued
benefits under these defined benefit plans are currently
frozen and the plans are closed to new participants. The
participant benefits under the plans will not change with
salary increases or additional years of service.
In conjunction with the BGI Transaction, the Company
assumed defined benefit pension plans in Japan and
Germany, which are closed to new participants. During
2010, these plans merged into the legacy BlackRock plans
in Japan (the “Japan Plan”) and Germany. At December 31,
2012 and 2011, the plan assets for these plans were
approximately $21 million for both periods and the
unfunded obligations were less than $3 million for both
periods, which were recorded in accrued compensation
and benefits on the consolidated statements of financial
condition. Benefit payments for the next five years and in
aggregate for the five years thereafter are not expected to
be material.
Defined benefit plan assets for the Japan Plan of
approximately $18 million are invested using a total return
investment approach whereby a mix of equity securities,
debt securities and other investments are used to
preserve asset values, diversify risk and achieve the target
investment return benchmark. Investment strategies and
asset allocations are based on consideration of plan
liabilities and the funded status of the plan. Investment
performance and asset allocation are measured and
monitored on an ongoing basis. The current target
allocations for the plan assets are 45-50% for U.S. and
international equity securities, 50-55% for U.S. and
international fixed income securities and 0-5% for cash
and cash equivalents.
F-46
14. Employee Benefit Plans (continued)
The table below provides the fair value of the defined
benefit Japan Plan assets at December 31, 2012 and 2011
by asset category. The table also identifies the level of
inputs used to determine the fair value of assets in each
category.
(Dollar amounts in
millions)
At December 31,
2012
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2) Total
Equity securities . . . $ 9 — $ 9
Fixed income
securities ....... — 9 9
Fair value of
plan
assets ...... $ 9 $ 9 $18
At December 31,
2011
Cash and cash
equivalents ...... $ 1 $ — $ 1
Equity securities . . . 9 — 9
Fixed income
securities ....... — 8 8
Fair value of
plan
assets ...... $ 10 $ 8 $18
Post-retirement Benefit Plans
The Company provides post-retirement medical benefits
to a closed population of employees in the United
Kingdom and the United States. The accumulated benefit
obligation for each of these unfunded plans was
immaterial at December 31, 2012 and 2011, respectively,
and was included in accrued compensation and benefits
on the consolidated statements of financial condition. For
2012, 2011 and 2010, expenses for these benefits were
not material.
15. Related Party Transactions
Determination of Related Parties
PNC. The Company considers PNC, along with its
affiliates, to be related parties based on the level of its
ownership of BlackRock capital stock. At December 31,
2012, PNC owned approximately 20.8% of the Company’s
voting common stock and held approximately 21.9% of the
total capital stock.
Registered Investment Companies and Equity Method
Investments. The Company considers the registered
investment companies that it manages, which include
mutual funds and exchanged-traded funds, to be related
parties as a result of the Company’s advisory relationship.
In addition, equity method investments are considered
related parties in accordance with ASC 850-10, Related
Party Disclosures (“ASC 850-10”), due to the Company’s
influence over the financial and operating policies of the
investee.
Barclays. The Company considered Barclays, along with
its affiliates, to be related parties in accordance with ASC
850-10, based on its level of capital stock ownership prior
to the secondary offering in May 2012 by Barclays of
shares of the Company’s stock. At December 31, 2012,
Barclays did not own any of the Company’s capital stock
and is no longer considered a related party.
Merrill Lynch / Bank of America. As a result of the MLIM
Transaction in 2006, the Company considered Merrill
Lynch (a subsidiary of Bank of America), along with its
affiliates, to be related parties based on its level of
ownership. Subsequent to the secondary offering in
November 2010 by Bank of America of shares of the
Company’s stock, Merrill Lynch and Bank of America were
no longer considered related parties. At December 31,
2012, Bank of America did not own any of the Company’s
capital stock.
F-47
15. Related Party Transactions (continued)
Revenue from Related Parties
Revenues for services provided by the Company to these
and other related parties are as follows:
(Dollar amounts in millions)
Year ended
December 31,
2012 2011 2010
Investment advisory,
administration fees and
securities lending revenue:
Bank of America and
affiliates ............... $ — $ — $ 37
PNC and affiliates ......... 4 4 4
Barclays and affiliates ..... 5 14 14
Registered investment
companies/equity method
investees .............. 5,283 5,282 4,833
Other .................... — 3 5
Total investment advisory and
administration fees .......... 5,292 5,303 4,893
Investment advisory
performance fees ........... 120 54 39
BlackRock Solutions and
advisory:
Bank of America and
affiliates ............... — — 1
PNC and affiliates ......... 7 6 9
Equity method investees . . . 13 15 17
Other .................... 3 — —
Total BlackRock Solutions and
advisory ................... 23 21 27
Other revenue:
Bank of America and
affiliates ............... — — 4
PNC and affiliates ......... 3 3 4
Barclays and affiliates ..... 11 35 35
Equity method investees . . . 52 15 22
Other .................... — — 1
Total other revenue ............ 66 53 66
Total revenue from related
parties .................... $5,501 $5,431 $5,025
The Company provides investment advisory and
administration services to its open- and closed-end funds
and other commingled or pooled funds and separate
accounts in which related parties invest. In addition,
the Company provides investment advisory and
administration services to Bank of America/Merrill Lynch,
Barclays and PNC and its affiliates for fees based on AUM.
Further, the Company provides risk management services
to PNC and Bank of America/Merrill Lynch. The Company
contracts with Bank of America/Merrill Lynch for various
mutual fund distribution and shareholder servicing to be
performed on behalf of certain non-U.S. funds managed
by the Company. The Company records its investment
advisory and administration fees net of retrocessions.
Such retrocession arrangements paid to Bank of America
and affiliates during 2010 (prior to the secondary offering)
was $88 million.
Aggregate Expenses for Transactions with Related Parties
Aggregate expenses included in the consolidated
statements of income for transactions with related parties
are as follows:
(Dollar amounts in millions)
Year ended
December 31,
2012 2011 2010
Expenses with related parties:
Distribution and servicing costs
Bank of America and
affiliates .............. $— $— $214
PNC and affiliates ........ 3 3 11
Barclays and affiliates .... 1 2 1
Total distribution and servicing
costs ........................ 4 5 226
Direct fund expenses
Bank of America and
affiliates .............. — — 10
Barclays and affiliates .... 4 8 6
Total direct fund expenses ........ 4 8 16
General and administration
expenses
Bank of America and
affiliates .............. — — 11
Barclays and affiliates .... 5 15 14
Anthracite Capital, Inc. .... — — 14
Other registered investment
companies ............ 49 42 33
Other
(1)
................. 33 3 —
Total general and administration
expenses ..................... 87 60 72
Total expenses with related
parties ....................... $ 95 $ 73 $314
(1)
Amount in 2012 included a one-time pre-tax charge of $30 million related
to a contribution to certain of the Company’s bank managed short-term
investment funds (“STIFs”)
Certain Agreements and Arrangements with Barclays
In connection with the completion of its acquisition of BGI,
BlackRock entered into a Stockholder Agreement, dated
as of December 1, 2009 (the “Barclays Stockholder
Agreement”), with Barclays and Barclays BR Holdings
S.à.r.l. (“BR Holdings”, and together with Barclays, the
“Barclays Parties”). Pursuant to the terms of the Barclays
Stockholder Agreement, the Barclays Parties agreed,
among other things, to certain transfer and voting
restrictions with respect to shares of BlackRock common
stock and preferred stock owned by them and their
affiliates, to limits on the ability of the Barclays Parties
F-48
15. Related Party Transactions (continued)
and their affiliates to acquire additional shares of
BlackRock common stock and preferred stock and to
certain other restrictions. The Barclays Stockholder
Agreement was terminated on May 29, 2012.
In addition, Barclays and certain of its affiliates have been
engaged by the Company to provide the use of certain
indices for certain BlackRock investment funds and for a
fee to provide indemnification to clients related to
potential losses in connection with lending of client
securities. For the five months ended May 31, 2012, and
the full years ended December 31, 2011 and 2010, fees
incurred for these agreements were $9 million, $18 million
and $14 million and were recorded within direct fund
expenses and general and administration expenses,
respectively.
Certain Agreements and Arrangements with PNC and
Merrill Lynch
PNC. On February 27, 2009, BlackRock entered into an
amended and restated implementation and stockholder
agreement with PNC, and a third amendment to the share
surrender agreement with PNC. See Note 17, Capital
Stock, for further discussion.
The changes contained in the amended and restated
stockholder agreement with PNC, in relation to the prior
agreement, among other things, (i) revised the definitions
of “Fair Market Value,” “Ownership Cap,” “Ownership
Percentage,” “Ownership Threshold” and “Significant
Stockholder”; and (ii) amended or supplemented certain
other provisions therein to incorporate series B preferred
stock and series C preferred stock, respectively.
The amendment to the share surrender agreement with
PNC provided for the substitution of series C preferred
stock for the shares of common stock subject to the share
surrender agreement.
In June 2009, in connection with the BGI Transaction,
certain additional amendments were made to the
amended and restated stockholder agreement with PNC.
The amended and restated stockholder agreement with
PNC was changed to, among other things, (i) revise the
definitions of “Ownership Cap” and “Ownership
Threshold,” (ii) amend or supplement certain other
definitions and provisions therein to incorporate series D
participating preferred stock, (iii) provide that none of the
transfer restriction provisions set forth in the amended
and restated stockholder agreement with PNC apply to the
shares purchased by PNC as part of the financing for the
BGI Transaction, (iv) amend the provision relating to the
composition of BlackRock’s Board of Directors and
(v) provide that the amended and restated stockholder
agreement with PNC shall terminate upon the later of
(A) the five year anniversary of the amended and restated
stockholder agreement with PNC and (B) the first date on
which PNC and its affiliates beneficially own less than 5%
of the outstanding BlackRock capital stock, subject to
certain other conditions specified therein.
Merrill Lynch. In November 2010, in connection with the
secondary offering by Bank of America of shares of
BlackRock’s common stock, the Company entered into an
amended and restated stockholder agreement and an
amended and restated global distribution agreement with
Merrill Lynch.
The changes to the stockholder agreement with Merrill
Lynch provide, among other things, for the following: (i) a
reduction in the number of directors Merrill Lynch is
entitled to designate upon its holding falling below 10%
and 5% thresholds, (ii) a reduction of the cap on total
ownership of BlackRock capital stock, (iii) restrictions on
Merrill Lynch transferring any shares until November 15,
2011 and (iv) the setting of a termination date of the
agreement to July 31, 2013.
The global distribution agreement provides a framework
under which Merrill Lynch provides distribution and
servicing of client investments in certain BlackRock
investment advisory products. The amendment to the
global distribution agreement clarifies certain economic
arrangements with respect to revenue neutrality across
BlackRock products distributed by Merrill Lynch.
During 2010, the total amount of related party
transactions expensed by BlackRock through November
2010 related to Merrill Lynch distribution and servicing of
products covered by the global distribution agreement,
including mutual funds, separate accounts, liquidity
funds, alternative investments and insurance products,
was approximately $210 million.
In addition, in connection with the MLIM Transaction,
Merrill Lynch agreed that it will provide reimbursement to
BlackRock for employee incentive awards issued to former
MLIM employees who became BlackRock employees
subsequent to the MLIM Transaction. Reimbursements
amounted to 50% of the total amount of awards to former
MLIM employees between $100 million and $200 million.
The Company invoiced Merrill Lynch following its
determination of the portion of awards entitled to
reimbursement for a given calendar year. Through January
2007, the Company had issued total eligible incentive
compensation to qualified employees in excess of
$200 million. In 2012, 2011 and 2010, Merrill Lynch
F-49
15. Related Party Transactions (continued)
reimbursed $7 million, $8 million and $10 million,
respectively, to BlackRock for employee incentive awards
issued to former MLIM employees who became BlackRock
employees subsequent to the MLIM Transaction. Upon
receipt, the reimbursements were recorded as capital
contributions.
Merrill Lynch and certain of its affiliates have been engaged
by the Company to provide recordkeeping, administration
and trustee services to the BRSP. The compensation to
Merrill Lynch and its affiliates for these services paid by the
Company was not material.
Receivables and Payables with Related Parties. Due from
related parties was $77 million and $142 million at
December 31, 2012 and 2011, respectively, and primarily
represented receivables for investment advisory and
administration services provided by BlackRock, and other
receivables from certain investment products managed by
BlackRock. Due from related parties at December 31, 2012
included $68 million due from certain funds. Due from
related parties at December 31, 2011 included $56 million
due from certain funds and $69 million of a tax
indemnification asset due from Barclays.
Accounts receivable at December 31, 2012 and 2011
included $629 million and $540 million, respectively,
related to receivables from BlackRock mutual funds,
including iShares, for investment advisory and
administration services.
Due to related parties was $14 million at December 31,
2012 and primarily represented payables to certain
investment products managed by BlackRock. Due to
related parties at December 31, 2011 included $13 million
and $9 million payable to certain investment products
managed by BlackRock and Barclays, respectively.
16. Net Capital Requirements
The Company is required to maintain net capital in certain
regulated subsidiaries within a number of jurisdictions,
which is partially maintained by retaining cash and cash
equivalent investments in those subsidiaries or
jurisdictions. As a result, such subsidiaries of the Company
may be restricted in their ability to transfer cash between
different jurisdictions and to their parents. Additionally,
transfers of cash between international jurisdictions,
including repatriation to the United States, may have
adverse tax consequences that could discourage such
transfers.
Banking Regulatory Requirements. BlackRock Institutional
Trust Company, N.A. (“BTC”), a wholly owned subsidiary of
the Company, is chartered as a national bank whose
powers are limited to trust activities. BTC is subject to
various regulatory capital requirements administered by
the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on
the consolidated financial statements. Under the capital
adequacy guidelines and the regulatory framework for
prompt corrective action, BTC must meet specific capital
guidelines that invoke quantitative measures of BTC’s
assets, liabilities, and certain off-balance sheet items as
calculated under the regulatory accounting practices.
BTC’s capital amounts and classification are also subject
to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulators to ensure
capital adequacy require BTC to maintain a minimum Tier
1 capital and Tier 1 leverage ratio, as well as Tier 1 and
total risk-based capital ratios. Based on BTC’s
calculations as of December 31, 2012 and 2011, it
exceeded the applicable capital adequacy requirements.
(Dollar amounts in millions) Actual
For Capital
Adequacy
Purposes
To Be Well
Capitalized
Under Prompt
Corrective
Action
Provisions
Amount Ratio Amount Ratio Amount Ratio
December 31, 2012
Total capital (to risk
weighted assets) . . $633 99.1% $51 8.0% $64 10.0%
Tier 1 capital (to risk
weighted assets) . . $633 99.1% $26 4.0% $38 6.0%
Tier 1 capital (to
average assets) . . . $633 49.7% $51 4.0% $64 5.0%
December 31, 2011
Total capital (to risk
weighted assets) . . $720 104.1% $55 8.0% $69 10.0%
Tier 1 capital (to risk
weighted assets) . . $720 104.1% $28 4.0% $42 6.0%
Tier 1 capital (to
average assets) . . . $720 45.1% $64 4.0% $80 5.0%
Broker-dealers. BlackRock Investments, LLC, BlackRock
Capital Markets, LLC and BlackRock Execution Services
are registered broker-dealers and wholly owned
subsidiaries of BlackRock that are subject to the Uniform
Net Capital requirements under the Securities Exchange
Act of 1934, which requires maintenance of certain
minimum net capital levels.
F-50
16. Net Capital Requirements (continued)
Capital Requirements. At December 31, 2012, the
Company was required to maintain approximately $1,209
million in net capital in certain regulated subsidiaries,
including BTC, entities regulated by the Financial Services
Authority (“FSA”) in the United Kingdom, and the broker-
dealers and was in compliance with all applicable
regulatory minimum net capital requirements.
17. Capital Stock
Capital Stock Authorized. BlackRock’s authorized
common stock, $0.01 par value, was 500,000,000 shares
at December 31, 2012 and 2011. At December 31, 2012
and 2011, BlackRock had 20,000,000 series A non-voting
participating preferred shares (“Series A Preferred”),
$0.01 par value, authorized. At December 31, 2012 and
2011, BlackRock had 150,000,000 series B non-voting
participating preferred shares (“Series B Preferred”),
$0.01 par value, authorized. At December 31, 2012 and
2011, BlackRock had 6,000,000 series C non-voting
participating preferred shares (“Series C Preferred”),
$0.01 par value, authorized. At December 31, 2012 and
2011, BlackRock had 20,000,000 series D non-voting
participating preferred shares (“Series D Preferred”),
$0.01 par value, authorized.
Common Shares Held in Escrow. On October 1, 2007, the
Company acquired the fund of funds business of
Quellos. The Company issued 1,191,785 shares of BlackRock
common stock that were placed into an escrow account. As
of December 31, 2011, 1,188,182 common shares had been
released to Quellos in accordance with the Quellos asset
purchase agreement, which resulted in an adjustment to the
recognized purchase price and had a dilutive effect
subsequent to the release. During 2012, the remaining 3,603
shares were released from the escrow account.
January 2010 Capital Exchange. In January 2010, 600,000
common shares were exchanged for Series B Preferred
and all 11,203,442 Series D Preferred outstanding at
December 31, 2009 were exchanged for Series B
Preferred.
November 2010 Capital Exchanges. On November 15, 2010,
the Company announced the closing of the secondary
offerings by Bank of America and PNC of 58,737,122 shares
of BlackRock’s common stock, which included 56,407,040
shares of common stock issued upon the conversion of
BlackRock’s Series B Preferred. Concurrently with the
secondary offerings, Bla ckRock issued 11,105,000 shares
of common stock to PNC in exchange for an equal number
of shares of Series B Preferred.
May 2011 Barclays Sale and Conversion. In May 2011,
2,356,750 shares of Series B Preferred owned by Barclays
were automatically converted to shares of common stock
upon their disposition.
June 2011 Bank of America Stock Repurchase Agreement.
On June 1, 2011, BlackRock completed its repurchase of
Bank of America’s remaining ownership interest of
13,562,878 Series B Preferred for $2.545 billion, or
$187.65 per share.
September 2011 Institutional Investor Capital Exchange.
In September 2011, an institutional investor exchanged
2,860,188 shares of Series B Preferred for common
shares.
September 2011 PNC Capital Contribution. In September
2011, PNC surrendered to BlackRock approximately
1.3 million shares of BlackRock Series C Preferred to fund
certain LTIP awards in accordance with the share
surrender agreement between PNC and BlackRock.
May 2012 Barclays Sale and Capital Exchange. BlackRock
completed the secondary offering of 26,211,335 shares of
common stock held by Barclays at a price of $160.00 per
share, which included 23,211,335 shares of common stock
issued upon the conversion of Series B Preferred by a
subsidiary of Barclays.
Upon completion of this offering, BlackRock repurchased
6,377,552 shares directly from Barclays outside the
publicly announced share repurchase program at a price
of $156.80 per share (consisting of 6,346,036 of Series B
Preferred and 31,516 shares of common stock). The total
transactions, including the full exercise of the
underwriters’ option to purchase 2,621,134 additional
shares in the secondary offering, amounted to 35,210,021
shares, resulting in Barclays exiting its entire ownership
position in BlackRock.
May 2012 PNC Capital Exchange. In May 2012, PNC
exchanged 2,000,000 shares of Series B Preferred for an
equal number of shares of common stock.
Other Changes. In September and October 2012, 593,786
and 2,594,070 shares of Series B Preferred, respectively,
converted into an equal number of shares of common
stock.
Cash Dividends for Common and Preferred Shares / RSUs.
During 2012, 2011 and 2010, the Company paid cash
dividends of $6.00 per share (or $1,060 million), $5.50 per
share (or $1,014 million) and $4.00 per share (or $776
million), respectively.
F-51
17. Capital Stock (continued)
The Company’s common and preferred shares issued and outstanding and related activity consist of the following:
Shares Issued Shares Outstanding
Common
Shares
Escrow
Common
Shares
Treasury
Common
Shares
Series B
Preferred
Series C
Preferred
Series D
Preferred
Common
Shares
Series B
Preferred
Series C
Preferred
Series D
Preferred
December 31, 2009 ................................... 62,776,777 (868,940) (11,601) 112,817,151 2,889,467 11,203,442 61,896,236 112,817,151 2,889,467 11,203,442
Release of common stock .............................. — 865,337 — — — — 865,337 — — —
Shares repurchased .................................. — — (896,102) (896,102)
Exchange of common stock for Series B Preferred ......... — (600,000) 600,000 — — (600,000) 600,000 — —
Net issuance of common shares related to employee stock
transactions and convertible debt conversions .......... 1,634,807 — 804,243 — — — 2,439,050 — — —
Exchange of Series D Preferred for Series B Preferred ...... — — — 11,203,442 — (11,203,442) — 11,203,442 — (11,203,442)
Exchange of Series B Preferred for common shares ........ 67,512,040 — — (67,512,040) — — 67,512,040 (67,512,040) — —
PNC LTIP capital contribution ........................... — — — (23,028) — — — (23,028) —
December 31, 2010 ...................................131,923,624 (3,603) (703,460) 57,108,553 2,866,439 — 131,216,561 57,108,553 2,866,439 —
Exchange of Series B Preferred for common shares ........ 5,216,938 — (5,216,938) — — 5,216,938 (5,216,938) — —
Shares repurchased .................................. — — (618,000) (13,562,878) — — (618,000) (13,562,878) — —
Net issuance of common shares related to employee stock
transactions and convertible debt conversions .......... 2,739,818 — (92,182) — — — 2,647,636 — — —
PNC LTIP capital contribution ........................... — — — — (1,349,202) — — — (1,349,202) —
December 31, 2011 ...................................139,880,380 (3,603)(1,413,642) 38,328,737 1,517,237 — 138,463,135 38,328,737 1,517,237 —
Exchange of Series B Preferred for common shares ........ 31,159,513 — — (31,159,513) — — 31,159,513 (31,159,513) — —
Shares repurchased .................................. (31,516) — (2,726,600) (6,346,036) — — (2,758,116) (6,346,036) — —
Net issuance of common shares related to employee stock
transactions ....................................... 247,411 — 1,763,361 — — — 2,010,772 — — —
Release of common shares from escrow .................. (3,603) 3,603 — — — — — — — —
December 31, 2012 ...................................171,252,185 — (2,376,881) 823,188 1,517,237 — 168,875,304 823,188 1,517,237 —
F-52
18. Restructuring Charges
During the fourth quarter of 2011, the Company reduced
its workforce globally by approximately 3.4%. This action
was the result of a cost cutting initiative designed to
streamline operations, enhance competitiveness and
better position the Company in the asset management
marketplace. The Company recorded a pre-tax
restructuring charge of approximately $32 million
($22 million after-tax) during 2011. This charge was
comprised of $24 million of severance and associated
outplacement costs and $8 million of expenses related to
the accelerated amortization of previously granted equity-
based compensation awards.
The following table presents a rollforward of the
Company’s restructuring liability, which is included within
other liabilities on the consolidated statements of
financial condition:
(Dollar amounts in millions)
Liability as of December 31, 2010
(1)
...... $ 2
Additions ........................ 32
Cash payments ................... (8)
Accelerated amortization of equity-
based awards .................. (8)
Liability as of December 31, 2011 ....... $18
Cash payments ................... (17)
Liability as of December 31, 2012 ....... $ 1
(1)
Liability amount as of December 31, 2010 related to a pre-tax
restructuring charge of $22 million recorded during 2009.
19. Income Taxes
The components of income tax expense for 2012, 2011 and
2010, are as follows:
(Dollar amounts in millions) 2012 2011 2010
Current income tax expense:
Federal ..................... $ 856 $693 $708
State and local .............. 49 54 60
Foreign ..................... 186 186 200
Total net current income tax
expense ...................... 1,091 933 968
Deferred income tax expense
(benefit):
Federal ..................... 4 52 28
State and local .............. 13 (112) 10
Foreign ..................... (78) (77) (35)
Total net deferred income tax
expense (benefit) .............. (61) (137) 3
Total income tax
expense .............. $1,030 $ 796 $971
Income tax expense has been based on the following
components of income before taxes, less net income (loss)
attributable to non-controlling interests:
(Dollar amounts in millions) 2012 2011 2010
Domestic .................... $2,690 $2,397 $2,258
Foreign ...................... 798 736 776
Total ........................ $3,488 $3,133 $3,034
The foreign income before taxes includes countries that
have statutory tax rates that are lower than the U.S.
federal statutory tax rate of 35%, such as the United
Kingdom, Luxembourg, Canada and the Netherlands.
F-53
19. Income Taxes (continued)
A reconciliation of income tax expense with expected federal income tax expense computed at the applicable federal
income tax rate of 35% is as follows:
(Dollar amounts in millions) 2012 % 2011 % 2010 %
Statutory income tax expense ........................................... $1,221 35% $1,097 35% $1,062 35%
Increase (decrease) in income taxes resulting from:
State and local taxes (net of federal benefit) ............................... 49 2 59 2 53 2
Impact of foreign, state, and local tax rate changes on deferred taxes .......... (50) (2) (188) (6) (27) (1)
Effect of foreign tax rates ............................................... (221) (5) (197) (6) (145) (4)
Other ................................................................ 31 — 25 — 28 —
Income tax expense .................................................... $1,030 30% $ 796 25% $ 971 32%
Deferred income taxes are provided for the effects of
temporary differences between the tax basis of an asset
or liability and its reported amount in the consolidated
financial statements. These temporary differences result
in taxable or deductible amounts in future years.
The components of deferred income tax assets and
liabilities are shown below:
December 31,
(Dollar amounts in millions) 2012 2011
Deferred income tax assets:
Compensation and benefits ........ $ 355 $ 304
Unrealized investment losses ...... 71 110
Loss carryforwards ............... 81 87
Other ........................... 222 229
Gross deferred tax assets .......... 729 730
Less: deferred tax valuation
allowances ........................ (95) (95)
Deferred tax assets net of valuation
allowances ........................ 634 635
Deferred income tax liabilities:
Goodwill and acquired indefinite-
lived intangibles ................ 5,656 5,675
Acquired finite-lived intangibles .... 158 208
Other ........................... 109 69
Gross deferred tax liabilities ....... 5,923 5,952
Net deferred tax (liabilities) ............ $(5,289) $(5,317)
Deferred income tax assets and liabilities are recorded net
when related to the same tax jurisdiction. At December 31,
2012, the Company recorded on the consolidated
statement of financial condition deferred income tax
assets, within other assets, and deferred income tax
liabilities of $4 million and $5,293 million, respectively. At
December 31, 2011, the Company recorded on the
consolidated statement of financial condition deferred
income tax assets, within other assets, and deferred
income tax liabilities of $6 million and $5,323 million,
respectively.
During 2012, tax legislation enacted in the United
Kingdom and the state and local income tax effect
resulting from changes in the Company’s organizational
structure primarily resulted in a $50 million net non-cash
benefit related to the revaluation of certain deferred
income tax liabilities.
In 2011, an enacted state tax law and a state tax election
went into effect, which resulted in a revaluation of certain
net deferred income tax liabilities primarily related to
acquired intangible assets, which resulted in a $52 million
and $91 million tax benefit, respectively. In addition, the
United Kingdom and Japan enacted legislation reducing
corporate income tax rates, which resulted in a
revaluation of certain net deferred income tax liabilities
primarily related to acquired intangible assets, which
resulted in a $60 million and $13 million tax benefit,
respectively.
The Company had a deferred income tax asset related to
unrealized investment losses of approximately $71 million
and $110 million as of December 31, 2012 and 2011,
respectively, reflecting the Company’s conclusion that
based on the weight of available evidence, it is more likely
than not that the deferred tax asset will be realized.
Realized capital losses may be carried back three years
and carried forward five years and offset against realized
capital gains for federal income tax purposes. The
Company expects to hold certain fixed income securities
over a period sufficient for them to recover their
unrealized losses, and to generate future capital gains
sufficient to offset the unrealized capital losses.
At December 31, 2012 and 2011, the Company had
available state net operating loss carryforwards of $842
million and $388 million, respectively, which will expire on
or before 2032. At December 31, 2012, the Company had
foreign net operating loss carryforwards of $152 million of
which $36 million expires on or before 2021 and the
balance will carry forward indefinitely. In addition, at
December 31, 2012 and 2011, the Company had U.S.
F-54
19. Income Taxes (continued)
capital loss carryforwards of $69 million and $90 million,
which were acquired in the BGI Transaction and will expire
on or before 2013.
At December 31, 2012 and 2011, the Company had $95
million and $95 million of valuation allowances for
deferred income tax assets, respectively, recorded on the
consolidated statements of financial condition. The year-
over-year increase in the valuation allowance primarily
related to certain foreign deferred income tax assets.
Goodwill recorded in connection with the Quellos
Transaction has been reduced during the period by the
amount of tax benefit realized from tax-deductible
goodwill. See Note 9, Goodwill, for further discussion.
Current income taxes are recorded net in the consolidated
statements of financial condition when related to the
same tax jurisdiction. As of December 31, 2012, the
Company had current income taxes receivable and
payable of $102 million and $121 million, respectively,
recorded in other assets and accounts payable and
accrued liabilities, respectively. As of December 31, 2011,
the Company had current income taxes receivable and
payable of $108 million and $102 million, respectively,
recorded in other assets and accounts payable and
accrued liabilities, respectively.
The Company does not provide deferred taxes on the
excess of the financial reporting over tax basis on its
investments in foreign subsidiaries that are essentially
permanent in duration. The excess totaled $2,125 million
and $1,516 million as of December 31, 2012 and 2011,
respectively. The determination of the additional deferred
income taxes on the excess has not been provided
because it is not practicable due to the complexities
associated with its hypothetical calculation.
The following tabular reconciliation presents the total
amounts of gross unrecognized tax benefits:
Year ended
December 31,
(Dollar amounts in millions) 2012 2011 2010
Balance at January 1 ............... $349 $307 $285
Additions for tax positions of prior
years .......................... 4 22 10
Reductions for tax positions of prior
years .......................... (1) (1) (17)
Additions based on tax positions
related to current year ............ 69 46 35
Lapse of statute of limitations ....... — — (8)
Settlements ...................... (29) (25) (2)
Positions assumed in acquisitions .... 12 — 4
Balance at December 31 ............ $404 $349 $307
Included in the balance of unrecognized tax benefits at
December 31, 2012, 2011 and 2010, respectively, are $250
million, $226 million and $194 million of tax benefits that,
if recognized, would affect the effective tax rate.
The Company recognizes interest and penalties related to
income tax matters as a component of income tax
expense. Related to the unrecognized tax benefits noted
above, the Company accrued interest and penalties of $3
million during 2012 and in total, as of December 31, 2012,
had recognized a liability for interest and penalties of $69
million. The Company accrued interest and penalties of
$10 million during 2011 and in total, as of December 31,
2011, had recognized a liability for interest and penalties
of $66 million. The Company accrued interest and
penalties of $8 million during 2010 and in total, as of
December 31, 2010, had recognized a liability for interest
and penalties of $56 million. Pursuant to the Amended and
Restated Stock Purchase Agreement, the Company has
been indemnified by Barclays for $73 million and
Guggenheim for $6 million of unrecognized tax benefits.
BlackRock is subject to U.S. federal income tax, state and
local income tax, and foreign income tax in multiple
jurisdictions. Tax years after 2007 remain open to U.S.
federal income tax examination, tax years after 2005
remain open to state and local income tax examination,
and tax years after 2006 remain open to income tax
examination in the United Kingdom. With few exceptions,
as of December 31, 2012, the Company is no longer
subject to U.S. federal, state, local or foreign
examinations by tax authorities for years before 2006.
The Internal Revenue Service (“IRS”) completed its
examination of BlackRock’s 2006 and 2007 tax years in
March 2011. In November 2011, the IRS commenced its
examination of BlackRock’s 2008 and 2009 tax years, and
while the impact on the consolidated financial statements
is undetermined, it is not expected to be material.
In July 2011, the IRS commenced its federal income tax
audit of the BGI group, which BlackRock acquired in
December 2009. The tax years under examination are 2007
through December 1, 2009, and while the impact on the
consolidated financial statements is undetermined, it is
not expected to be material.
The Company is currently under audit in several state and
local jurisdictions. The significant state and local income tax
examinations are in California for tax years 2004 through
2006, New York City for tax years 2007 through 2008, and
New Jersey for tax years 2003 through 2009. No state and
local income tax audits cover years earlier than 2007 except
for California, New Jersey and New York City. No state and
local income tax audits are expected to result in an
assessment material to the consolidated financial
statements.
F-55
19. Income Taxes (continued)
In December 2009, Her Majesty’s Revenue and Customs
(“HMRC”) commenced its United Kingdom income tax
audit of BlackRock’s 2007 through 2010 tax years. While
the impact on the consolidated financial statements is
undetermined, it is not expected to be material.
As of December 31, 2012, it is reasonably possible the total
amounts of unrecognized tax benefits will increase or
decrease within the next twelve months due to completion
of tax authorities’ exams or the expiration of statues of
limitations. Management estimates that the existing liability
for uncertain tax positions could decrease by approximately
$5 million to $15 million within the next twelve months. The
Company does not anticipate that any possible adjustments
resulting from these audits would result in a material change
to its consolidated financial statements.
20. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (“EPS”):
(Dollar amounts in millions, except per share data) 2012 2011 2010
Basic EPS:
Net income attributable to BlackRock ............................ $ 2,458 $ 2,337 $ 2,063
Less:
Dividends distributed to common shares ...................... 1,059 1,004 764
Dividends distributed to participating RSUs ................... 1 10 12
Undistributed net income attributable to BlackRock. ............... 1,398 1,323 1,287
Percentage of undistributed net income allocated to common
shares
(a)
................................................... 99.9% 99.1% 98.6%
Undistributed net income allocated to common shares ............. 1,396 1,311 1,269
Plus:
Common share dividends ................................... 1,059 1,004 764
Net income attributable to common shares ....................... $ 2,455 $ 2,315 $ 2,033
Weighted-average shares outstanding ........................... 174,961,018 184,265,367 190,554,510
Earnings per basic share attributable to BlackRock common
stockholders ............................................... $ 14.03 $ 12.56 $ 10.67
Diluted EPS:
Net income attributable to common shares ....................... $ 2,455 $ 2,315 $ 2,033
Weighted-average shares outstanding ........................... 174,961,018 184,265,367 190,554,510
Dilutive effect of:
Non-participating RSUs ........................................ 2,810,312 2,139,100 1,008,682
Stock options ................................................ 246,349 687,192 742,805
Convertible debt .............................................. — 24,751 386,050
Total diluted weighted-average shares outstanding ................ 178,017,679 187,116,410 192,692,047
Earnings per dilutive share attributable to BlackRock common
stockholders ............................................... $ 13.79 $ 12.37 $ 10.55
(a)
Allocation to common stockholders is based on the total of common and participating security stockholders (which represent unvested RSUs that contain
nonforfeitable rights to dividends). For 2012, 2011 and 2010, average outstanding participating securities were 0.2 million, 1.8 million and 2.8 million,
respectively.
Due to the similarities in terms between BlackRock non-
voting participating preferred stock and the Company’s
common stock, the Company considers participating
preferred stock to be a common stock equivalent for
purposes of EPS calculations. As such, the Company has
included the outstanding non-voting participating preferred
stock in the calculation of average basic and diluted shares
outstanding.
For 2012, 2011 and 2010, 449, 5,125 and 1,198,856 RSUs,
respectively, were excluded from the calculation of
diluted EPS because to include them would have an anti-
dilutive effect. In addition, there were no anti-dilutive
stock options for 2012, 2011 and 2010.
F-56
21. Segment Information
The following table illustrates investment advisory,
administration fees, securities lending revenue and
performance fees, BlackRock Solutions and advisory,
distribution fees and other revenue for 2012, 2011 and
2010.
(Dollar amounts in millions) 2012 2011 2010
Equity ....................... $4,334 $4,447 $4,055
Fixed income ................. 1,900 1,659 1,531
Multi-asset class ............. 972 914 773
Alternatives .................. 968 864 961
Cash management ............ 361 383 510
Total investment advisory,
administration fees,
securities lending revenue
and performance fees .... 8,535 8,267 7,830
BlackRock Solutions and
advisory ................... 518 510 460
Distribution fees .............. 71 100 116
Other revenue ................ 213 204 206
Total revenue ............. $9,337 $9,081 $8,612
The following table illustrates the Company’s total
revenue for 2012, 2011 and 2010 by geographic region.
These amounts are aggregated on a legal entity basis and
do not necessarily reflect where the customer resides.
(Dollar amounts in millions)
Revenue 2012 2011 2010
Americas .................... $6,429 $6,064 $5,824
Europe ...................... 2,460 2,517 2,300
Asia-Pacific .................. 448 500 488
Total revenue ............. $9,337 $9,081 $8,612
The following table illustrates the Company’s long-lived
assets, including goodwill and property and equipment at
December 31, 2012, 2011 and 2010 by geographic region.
These amounts are aggregated on a legal entity basis and
do not necessarily reflect where the asset is physically
located.
(Dollar amounts in millions)
Long-lived Assets 2012 2011 2010
Americas ................. $13,238 $13,133 $13,092
Europe ................... 166 123 42
Asia-Pacific ............... 63 73 99
Total long-lived assets . . $13,467 $13,329 $13,233
Americas primarily comprises the United States, Canada,
Brazil and Mexico, while Europe primarily comprises the
United Kingdom. Asia-Pacific primarily comprises Japan,
Australia and Hong Kong.
F-57
22. Selected Quarterly Financial Data (unaudited)
(Dollar amounts in millions, except per share data)
2012 1
st
Quarter 2
nd
Quarter 3
rd
Quarter
(1)
4
th
Quarter
(2)
Revenue ..................................................... $ 2,249 $ 2,229 $ 2,320 $ 2,539
Operating income .............................................. $ 815 $ 829 $ 875 $ 1,005
Net income ................................................... $ 575 $ 560 $ 655 $ 650
Net income attributable to BlackRock ............................. $ 572 $ 554 $ 642 $ 690
Earnings per share attributable to BlackRock, Inc. common
stockholders:
Basic .................................................... $ 3.19 $ 3.13 $ 3.72 $ 4.02
Diluted ................................................... $ 3.14 $ 3.08 $ 3.65 $ 3.93
Weighted-average common shares outstanding:
Basic .................................................... 179,022,840 177,010,239 172,359,141 171,518,278
Diluted ................................................... 181,917,864 179,590,702 175,450,532 175,176,037
Dividend declared per share ..................................... $ 1.50 $ 1.50 $ 1.50 $ 1.50
Common stock price per share:
High ..................................................... $ 205.60 $ 206.57 $ 183.00 $ 209.29
Low...................................................... $ 179.13 $ 163.37 $ 164.06 $ 177.17
Close .................................................... $ 204.90 $ 169.82 $ 178.30 $ 206.71
2011 1
st
Quarter 2
nd
Quarter
(3)
3
rd
Quarter 4
th
Quarter
(4)
Revenue ..................................................... $ 2,282 $ 2,347 $ 2,225 $ 2,227
Operating income .............................................. $ 798 $ 866 $ 777 $ 808
Net income ................................................... $ 564 $ 622 $ 570 $ 583
Net income attributable to BlackRock ............................. $ 568 $ 619 $ 595 $ 555
Earnings per share attributable to BlackRock, Inc. common
stockholders:
Basic .................................................... $ 2.92 $ 3.26 $ 3.28 $ 3.10
Diluted ................................................... $ 2.89 $ 3.21 $ 3.23 $ 3.05
Weighted-average common shares outstanding:
Basic .................................................... 191,797,365 187,870,001 179,034,837 178,562,187
Diluted ................................................... 194,296,504 190,579,963 181,825,329 181,987,669
Dividend declared per share ..................................... $ 1.375 $ 1.375 $ 1.375 $ 1.375
Common stock price per share:
High ..................................................... $ 209.77 $ 207.42 $ 199.10 $ 179.77
Low...................................................... $ 179.52 $ 183.51 $ 140.22 $ 137.00
Close .................................................... $ 201.01 $ 191.81 $ 148.01 $ 178.24
(1)
The third quarter 2012 included a $30 million net non-cash tax benefit
related to the revaluation of certain deferred income tax liabilities due to
tax legislation enacted in the United Kingdom and the state and local
income tax effect resulting from changes in the Company’s organizational
structure.
(2)
The fourth quarter 2012 included a one-time pre-tax $30 million charge
related to a contribution to certain of the Company’s STIFs and $20
million of non-cash tax benefits primarily associated with revaluation of
certain deferred tax liabilities.
(3)
The second quarter 2011 included a $52 million non-cash tax benefit due
to enacted state legislation.
(4)
The fourth quarter 2011 included $32 million of pre-tax restructuring
charges, while third quarter 2011 included $63 million of pre-tax U.K.
lease exit costs related to the Company’s exit from two London locations.
The fourth quarter 2011 included a $20 million non-cash tax benefit
primarily due to tax legislation enacted in Japan, while the third quarter
2011 included a $129 million non-cash tax benefit due to tax legislation
enacted in the United Kingdom and a state tax election.
F-58
23. Subsequent Events
Share Repurchase Approvals. In January 2013, the Board
of Directors (“the “Board”) approved an increase in the
availability under the Company’s existing share
repurchase program to allow for the repurchase of up to
10.2 million shares of BlackRock common stock.
Dividend Approval. On January 16, 2013, the Board
approved BlackRock’s quarterly dividend of $1.68 to be
paid on March 25, 2013 to stockholders of record on
March 7, 2013.
Acquisitions. In January 2013, BlackRock announced that
it agreed to acquire the Credit Suisse ETF franchise, the
European ETF platform with products domiciled in
Switzerland, Ireland and Luxembourg, subject to
customary closing conditions.
The Taxpayer Relief Act of 2012. The Taxpayer Relief Act
of 2012, signed into law on January 2, 2013, brought about
significant tax changes, including, but not limited to, the
retroactive extension of several temporary tax incentives
for businesses. The business tax incentives extended
through 2013 include research and development credit
and look-through treatment of payments between related
controlled foreign corporations. The effects of the change
in tax law will be recognized in the three months ended
March 31, 2013, the period that the law was enacted. The
Company does not expect the impact to be material to the
consolidated financial statements.
Additional Subsequent Event Review. In addition to the
subsequent events included in the notes to the
consolidated financial statements, the Company
conducted a review for additional subsequent events and
determined that no additional subsequent events had
occurred that would require accrual or additional
disclosures.
F-59
As used in this exhibit list, “BlackRock” refers to BlackRock, Inc. (formerly named New BlackRock, Inc. and previously, New
Boise, Inc.) (Commission File No. 001-33099) and “Old BlackRock” refers to BlackRock Holdco 2, Inc. (formerly named
BlackRock, Inc.) (Commission File No. 001-15305), which is the predecessor of BlackRock. The following exhibits are filed
as part of this Annual Report on Form 10-K:
EXHIBIT INDEX
Please note that the agreements included as exhibits to this Form 10-K are included to provide information regarding
their terms and are not intended to provide any other factual or disclosure information about BlackRock or the other parties
to the agreements. The agreements contain representations and warranties by each of the parties to the applicable
agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not
describe the actual state of affairs as of the date they were made or at any other time.
Exhibit No. Description
3.1(1) Amended and Restated Certificate of Incorporation of BlackRock.
3.2(2) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of BlackRock, Inc.
3.3 Amended and Restated Bylaws of BlackRock.
3.4(1) Certificate of Designations of Series A Convertible Participating Preferred Stock of BlackRock.
3.5(3) Certificate of Designations of Series B Convertible Participating Preferred Stock of BlackRock.
3.6(3) Certificate of Designations of Series C Convertible Participating Preferred Stock of BlackRock.
3.7(4) Certificate of Designations of Series D Convertible Participating Preferred Stock of BlackRock.
4.1(5) Specimen of Common Stock Certificate.
4.2(6) Indenture, dated September 17, 2007, between BlackRock and The Bank of New York, as trustee, relating to
senior debt securities.
4.3(7) Form of 6.25% Notes due 2017.
4.4(8) Form of 3.50% Notes due 2014.
4.5(8) Form of 5.00% Notes due 2019.
4.6(9) Form of Floating Rate Notes due 2013.
4.7(9) Form of 4.25% Notes due 2021.
4.8(10) Form of 1.375% Notes due 2015.
4.9(10) Form of 3.375% Notes due 2022.
10.1(11) BlackRock, Inc. Amended and Restated 1999 Stock Award and Incentive Plan. +
10.2(12) Amended and Restated BlackRock, Inc. 1999 Annual Incentive Performance Plan. +
10.3(13) Amendment No. 1 to the BlackRock, Inc. Amended and Restated 1999 Annual Incentive Performance Plan.+
10.4(5) BlackRock, Inc. Voluntary Deferred Compensation Plan, as amended and restated as of January 1, 2005.+
10.5(1) Form of Stock Option Agreement expected to be used in connection with future grants of Stock Options
under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.6(1) Form of Restricted Stock Agreement expected to be used in connection with future grants of Restricted
Stock under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.7(14) Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted
Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.8(14) Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted
Stock Units for long-term incentive awards under the BlackRock, Inc. 1999 Stock Award and Incentive
Plan.+
10.9(1) Form of Directors’ Restricted Stock Unit Agreement expected to be used in connection with future grants of
Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.10(5) Registration Rights Agreement, dated as of September 29, 2006, among BlackRock, Merrill Lynch & Co., Inc.
and the PNC Financial Service Group, Inc.
10.11(15) Share Surrender Agreement, dated October 10, 2002 (the “Share Surrender Agreement”), among Old
BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc.+
10.12(16) First Amendment, dated as of February 15, 2006, to the Share Surrender Agreement.+
10.13(17) Second Amendment, dated as of June 11, 2007, to the Share Surrender Agreement.+
10.14(3) Third Amendment, dated as of February 27, 2009, to the Share Surrender Agreement.+
10.15(18) Fourth Amendment, dated as of August 7, 2012, to the Share Surrender Agreement.+
Exhibit No. Description
10.16(19) Five-Year Revolving Credit Agreement, dated as of March 10, 2011, by and among BlackRock, Inc., certain of
its subsidiaries, Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing
lender and L/C agent, Sumitomo Mitsui Banking Corporation, as Japanese Yen lender, a group of lenders,
Wells Fargo Securities, LLC, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Barclays Capital, J.P. Morgan Securities LLC and Morgan Stanley Senior Funding, Inc., as joint
lead arrangers and joint bookrunners, Citibank, N.A., as syndication agent and Bank of America, N.A.,
Barclays Bank PLC, JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Funding, Inc., as documentation
agents.
10.17(20) Amendment No. 1, dated as of March 30, 2012, by and among BlackRock, Inc., certain of its subsidiaries,
Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent
and a lender, and the banks and other financial institutions referred to therein.
10.18(21)† Second Amended and Restated Global Distribution Agreement, dated as of November 15, 2010, among
BlackRock and Merrill Lynch & Co., Inc.
10.19(3) Amended and Restated Implementation and Stockholder Agreement, dated as of February 27, 2009,
between The PNC Financial Services Group, Inc. and BlackRock.
10.20(22) Amendment No. 1, dated as of June 11, 2009, to the Amended and Restated Implementation and
Stockholder Agreement between The PNC Financial Services Group, Inc. and BlackRock.
10.21(23) Third Amended and Restated Stockholder Agreement, dated as of November 15, 2010, among BlackRock,
Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc.
10.22(24) Commercial Paper Dealer Agreement between BlackRock and Barclays Capital Inc., dated as of October 14,
2009.
10.23(25) Lease Agreement, dated as of February 17, 2010, among BlackRock Investment Management (UK) Limited
and Mourant & Co Trustees Limited and Mourant Property Trustees Limited as Trustees of the Drapers
Gardens Unit Trust for the lease of Drapers Gardens, 12 Throgmorton Avenue, London, EC2, United
Kingdom.
10.24(26) Stock Repurchase Agreement, dated as of May 21, 2012, between Barclays Bank PLC and BlackRock.
10.25(26) Exchange Agreement, dated as of May 21, 2012, between Barclays Bank PLC and BlackRock.
10.26(26) Exchange Agreement, dated as of May 21, 2012, among PNC Bancorp, Inc., The PNC Financial Services
Group, Inc. and BlackRock.
10.27(27) Letter Agreement, dated November 20, 2012, between Susan L. Wagner and BlackRock. +
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of Registrant.
23.1 Deloitte & Touche LLP Consent.
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
(1) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on October 5, 2006.
(2) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 25, 2012.
(3) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on February 27, 2009.
(4) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on December 3, 2009.
(5) Incorporated by reference to BlackRock’s Registration Statement on Form S-8 (Registration No. 333-137708) filed on September 29, 2006.
(6) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2007.
(7) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on September 17, 2007.
(8) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on December 10, 2009.
(9
)
Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 25, 2011.
(10) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 31, 2012.
(11) Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.
(12) Incorporated by reference to Old BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2002.
(13) Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on May 24, 2006.
(14) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2008.
(15) Incorporated by reference to Old BlackRock’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
(16) Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on February 22, 2006.
(17) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 15, 2007.
(18) Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
(19) Incorporated by reference to BlackRock’s Current Report on Form 8-K/A filed on August 24, 2012.
(20) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 4, 2012.
(21) Incorporated by reference to BlackRock’s Current Report on Form 8-K/A filed on August 24, 2012.
(22) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 17, 2009.
(23) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on November 17, 2010.
(24) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on October 20, 2009.
(25) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2009.
(26) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 23, 2012.
(27) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on November 27, 2012.
+ Denotes compensatory plans or arrangements
† Confidential treatment has been granted for certain portions of this exhibit, which portions have been omitted and filed separately with the Securities and
Exchange Commission.
Exhibit 31.1
CEO CERTIFICATION
I, Laurence D. Fink, certify that:
1. I have reviewed this Annual Report on Form 10-K, for the fiscal year ended December 31, 2012 of BlackRock, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 28, 2013 By:
/s/ Laurence D. Fink
Laurence D. Fink
Chairman &
Chief Executive Officer
Exhibit 31.2
CFO CERTIFICATION
I, Ann Marie Petach, certify that:
1. I have reviewed this Annual Report on Form 10-K, for the fiscal year ended December 31, 2012 of BlackRock, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 28, 2013 By:
/s/ Ann Marie Petach
Ann Marie Petach
Senior Managing Director &
Chief Financial Officer
Exhibit 32.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of BlackRock, Inc. (the “Company”) for the annual period ending
December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Laurence D.
Fink, as Chief Executive Officer of the Company, and Ann Marie Petach, as Chief Financial Officer of the Company, each
hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Laurence D. Fink
Name: Laurence D. Fink
Title: Chairman & Chief Executive Officer
Date: February 28, 2013
/s/ Ann Marie Petach
Name: Ann Marie Petach
Title: Senior Managing Director & Chief Financial
Officer
Date: February 28, 2013
[THIS PAGE INTENTIONALLY LEFT BLANK]
COMMON STOCK INFORMATION
Common Stock Performance Graph
The following graph compares the cumulative total s
tockholder return on BlackRock’s common stock from December 31, 2007 through
December 31, 2012, as compared with the cumulative total return of the S&P 500 Index and the SNL US Asset Manager Index*. The
graph assumes the investment of $100 in BlackRock’s common stock and in each of the two indices on December 31, 2007 and the
reinvestment of all dividends, if any. The following information has been obtained from sources believed to be reliable, but neither its
accuracy nor its completeness is guaranteed. The performance graph is not necessarily indicative of future investment performance.
Period Ending
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
BlackRock, Inc. $100.00 $63.02 $111.35 $93.58 $90.20 $108.09
S&P 500 Index $100.00 $63.00 $ 79.68 $91.68 $93.61 $108.59
SNL US Asset Manager Index $100.00 $47.52 $ 77.90 $88.75 $76.76 $ 98.48
*As of December 31, 2012, the SNL US Asset Manager
Index included: Affiliated Managers Group, Inc.; AllianceBernstein Holding L.P.;
Apollo Global Management, LLC; Artio Global Investors Inc.; BlackRock, Inc.; The Blackstone Group L.P.; Calamos Asset Management,
Inc.; The Carlyle Group L.P.; Cohen & Steers, Inc.; Diamond Hill Investment Group, Inc.; Eaton Vance Corporation; Epoch Holding
Corporation; Federated Investors, Inc.; Financial Engines, Inc.; Fortress Investment Group LLC; Franklin Resources, Inc.; GAMCO
Investors, Inc.; Hennessy Advisors, Inc.; Invesco Ltd.; Janus Capital Group Inc.; Kohlberg Kravis Roberts & Co. L.P.; Legg Mason, Inc.;
Manning & Napier, Inc.; Oaktree Capital Group, LLC; Och-Ziff Capital Management Group LLC; Pzena Investment Management, Inc.;
Resource America, Inc.; SEI Investments Company; T. Rowe Price Group, Inc.; U.S. Global Investors, Inc.; Value Line, Inc.; Virtus
Investment Partners, Inc.; Waddell & Reed Financial, Inc.; Westwood Holdings Group, Inc. ; WisdomTree Investments, Inc.
$40
$60
$80
$100
$120
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
BlackRock, Inc.
S&P 500 Index
SNL US Asset Manager Index
Total Return Performance
BlackRock, Inc.
S&P 500 Index
SNL US Asset Manager Index
6
BLACKROCK OFFICES WORLDWIDE
BlackRock has offices in
30 countries and a major
presence in key global
markets, including the
Americas, Europe, the
Middle East and Africa,
and Asia-Pacific.
DECKER DESIGN, INC. NYC WWW.DECKERDESIGN.COM
CORPORATE INFORMATION
Corporate Headquarters
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
(212) 810-5300
Stock Listing
BlackRock, Inc.’s common stock is traded on the New York Stock
Exchange under the symbol BLK. At the close of business on March
22, 2013, there were 337 common stockholders of record.
Internet Information
Information on BlackRock’s financial results, and its products and
services, is available on the Internet at www.blackrock.com.
Financial Information
BlackRock makes available, free of charge, through its website
at www.blackrock.com, under the heading “Investor Relations,”
its Annual Report to Stockholders, Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, its
Proxy Statement and Form of Proxy, and all amendments to those
reports as soon as reasonably practicable after such material
is electronically filed with or furnished to the Securities and
Exchange Commission. The Company has included as Exhibit 31 to
its Annual Report on Form 10-K for fiscal year ended December 31,
2012 with the Securities and Exchange Commission, certificates
of the Chief Executive Officer and Chief Financial Officer of the
Company certifying the quality of the Company’s public disclosure,
and the Company has submitted to the New York Stock Exchange a
certificate of the Chief Executive Officer of the Company certifying
that he is not aware of any violation by the Company of New York
Stock Exchange corporate governance listing standards.
Inquiries
BlackRock will provide, free of charge to each stockholder
upon written request, a copy of BlackRock’s Annual Report to
Stockholders, Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, Proxy Statement and
Form of Proxy and all amendments to those reports. Requests for
copies should be addressed to Investor Relations, BlackRock, Inc.,
55 East 52nd Street, New York NY 10055. Requests may also be
directed to (212) 810-5300 or via e-mail to invrel@blackrock.com.
Copies may also be accessed electronically by means of the SEC’s
home page on the Internet at www.sec.gov. Stockholders and
analysts should contact Investor Relations at (212) 810-5300 or via
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Dividend Policy
The declaration of and payment of dividends by BlackRock are
subject to the discretion of our Board of Directors. On January
16, 2013, the Board of Directors approved a quarterly dividend of
$1.68, which was paid on March 25, 2013, to stockholders of record
on March 7, 2013.
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