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BlackRock Reports Second Quarter 2017 Diluted EPS of $5.22, or $5.24 as adjusted

17 Jul 2017
  • $104 billion of total net inflows in the second quarter driven by breadth of diversified business model and investments we have made to grow our platform over time
  • Record $94 billion of long-term net inflows, positive across client type, product type and investment style
  • 12% growth in technology and risk management revenue year-over-year reflects strength of globally integrated investment and technology platform
  • 10% increase in diluted EPS year-over-year
  • Consistent capital management with $275 million of quarterly share repurchases

NEW YORK--(BUSINESS WIRE)-- BlackRock, Inc. (NYSE: BLK):

FINANCIAL RESULTS

  Q2   Q2     Q1         Six Months Ended June 30,  
(in millions, except per share data)   2017     2016     Change     2017     Change         2017   2016     Change  
AUM $ 5,689,273 $ 4,890,121 16 % $ 5,420,477 5 % $ 5,689,273 $ 4,890,121 16 %
Total net flows $ 103,616 $ 6,504 $ 64,599 $ 168,215 $ 34,331

GAAP basis:

Revenue $ 2,965 $ 2,804 6 % $ 2,824 5 % $ 5,789 $ 5,428 7 %
Operating income $ 1,242 $ 1,173 6 % $ 1,147 8 % $ 2,389 $ 2,136 12 %
Operating margin 41.9 % 41.8 % 10 bps 40.6 % 130 bps 41.3 % 39.4 % 190 bps
Net income(1) $ 857 $ 789 9 % $ 862 (1 )% $ 1,719 $ 1,446 19 %
Diluted EPS $ 5.22 $ 4.73 10 % $ 5.23 - % $ 10.45 $ 8.66 21 %
Weighted average diluted shares 164.1 166.6 (1 )% 164.9 - % 164.5 167.0 (1 )%

As adjusted:

Operating income(2) $ 1,246 $ 1,179 6 % $ 1,151 8 % $ 2,397 $ 2,226 8 %
Operating margin(2) 43.9 % 43.9 % - bps 42.6 % 130 bps 43.3 % 42.8 % 50 bps
Net income(1) (2) $ 860 $ 797 8 % $ 865 (1 )% $ 1,725 $ 1,508 14 %
Diluted EPS(2)   $ 5.24     $ 4.78     10 %   $ 5.25     - %       $ 10.48   $ 9.03     16 %
 

(1)

  Net income represents net income attributable to BlackRock, Inc.

(2)

See notes (1) through (3) to the Condensed Consolidated Statements of Income and Supplemental Information for more information on as adjusted items and the reconciliation to GAAP.

BlackRock, Inc. (NYSE: BLK) today reported financial results for the three and six months ended June 30, 2017.

“BlackRock’s second quarter results reflect the trust our clients continue to place in our global investment and technology platform,” commented Laurence D. Fink, Chairman and CEO of BlackRock.

“While significant cash remains on the sidelines, investors have begun to put more of their assets to work. The strength and breadth of BlackRock’s platform generated a record $94 billion of long-term net inflows in the quarter, positive across all client and product types, and investment styles. The organic growth that BlackRock is experiencing is a direct result of the investments we’ve made over time to build our platform.

“The combination of BlackRock’s differentiated technology, scale and broad base of investment strategies, including market-cap weighted index products, a spectrum of active offerings from smart beta and factors to high conviction alpha strategies, as well as illiquid alternatives, positions us as the partner of choice to deliver outcomes for both institutional and retail clients.

“iShares® assets under management crossed $1.5 trillion as momentum continued in the second quarter, with a record $74 billion of net inflows. Growth was balanced among iShares Core funds, precision exposures and financial instruments, demonstrating that ETFs are no longer used only as passive allocations, but increasingly by active investors to generate alpha in their portfolios. We continue to focus investments in distribution, portfolio construction technology and ETF education as iShares growth opportunities migrate more rapidly to accelerating adoption and new uses of ETFs.

“Both institutional and retail clients continue to search for yield. BlackRock’s active strategies generated $8 billion of net inflows, led by multi-asset, fixed income and alternative offerings, contributing to strong organic base fee growth this quarter.

“We’ve seen strong fundraising momentum in illiquid alternatives, with $9 billion in flows and commitments year-to-date, as the investments we’ve made in our platform over time are resonating with clients.

“Going forward, technology-enabled scale will be critical for every aspect of an asset manager’s business: client service, alpha-generation and operational excellence. BlackRock’s technology and risk management revenue grew 12% year-over-year, driven by Aladdin®. In addition, our first three Aladdin Risk for Wealth Management clients are now live on the platform, benefitting from greater risk transparency and portfolio construction capabilities. We continued to expand our digital distribution offerings this quarter with the announced acquisition of Cachematrix and minority investment in Scalable Capital. Both transactions illustrate BlackRock’s use of technology to provide enhanced value and innovative solutions for clients.

“I have never seen more opportunity than I do today for BlackRock to help investors achieve their financial goals. As we look to provide increased value both for clients and shareholders, we will continue to strategically invest for enhanced growth going forward.”

RESULTS BY CLIENT TYPE  
                June 30, 2017   Q2 2017
Q2 2017 June 30, 2017 Q2 2017 AUM Base fees(1)
(in millions), (unaudited)   Net flows     AUM     Base fees(1)         % of Total   % of Total
Retail $ 6,510 $ 586,756 $ 819   10 %   31 %
iShares ETFs 73,755 1,528,236 998 27 % 37 %
Institutional:
Active 4,589 1,075,855 470 19 % 18 %
Index   8,662       2,093,193       251           37 %       9 %
Total institutional   13,251       3,169,048       721           56 %       27 %
Long-term 93,516 5,284,040 2,538 93 % 95 %
Cash management 10,178 402,575 137 7 % 5 %
Advisory   (78 )     2,658       -         -       -  
Total   $ 103,616     $ 5,689,273     $ 2,675           100 %       100 %
 
RESULTS BY PRODUCT TYPE  
June 30, 2017 Q2 2017
Q2 2017 June 30, 2017 Q2 2017 AUM Base fees(1)
(in millions), (unaudited)   Net flows     AUM     Base fees(1)         % of Total   % of Total
Equity $ 38,370 $ 3,014,696 $ 1,366 53 % 51 %
Fixed income 42,915 1,704,624 712 30 % 27 %
Multi-asset 9,524 436,736 282 8 % 11 %
Alternatives   2,707       127,984       178           2 %       6 %
Long-term 93,516 5,284,040 2,538 93 % 95 %
Cash management 10,178 402,575 137 7 % 5 %
Advisory   (78 )     2,658       -         -       -  
Total   $ 103,616     $ 5,689,273     $ 2,675           100 %       100 %
 
RESULTS BY INVESTMENT STYLE  
June 30, 2017 Q2 2017
Q2 2017 June 30, 2017 Q2 2017 AUM Base fees(1)
(in millions), (unaudited)   Net flows     AUM     Base fees(1)         % of Total   % of Total
Active $ 7,535 $ 1,598,591 $ 1,273 28 % 48 %
Index and iShares ETFs   85,981       3,685,449       1,265           65 %       47 %
Long-term 93,516 5,284,040 2,538 93 % 95 %
Cash management 10,178 402,575 137 7 % 5 %
Advisory   (78 )     2,658       -         -       -  
Total   $ 103,616     $ 5,689,273     $ 2,675           100 %       100 %
 

(1)

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

BUSINESS HIGHLIGHTS

Long-term net inflows of $96.2 billion and $6.2 billion from clients in the Americas and Asia-Pacific regions, respectively, were partially offset by net outflows of $8.9 billion from clients in EMEA. At June 30, 2017, BlackRock managed 64% of its long-term AUM for investors in the Americas and 36% for clients in EMEA and Asia-Pacific.

The Company’s net flows by client type for the second quarter of 2017 are presented below.

  • Retail long-term net inflows of $6.5 billion reflected net inflows of $3.5 billion internationally and $3.0 billion in the United States. Fixed income net inflows of $7.1 billion were diversified across our top-performing platform, led by net inflows into municipal, total return and unconstrained categories. Equity net outflows of $0.6 billion reflected outflows from European and US equities. Multi-asset net outflows of $0.1 billion were largely due to outflows from world allocation strategies.
  • iShares ETFs long-term net inflows of $73.8 billion reflected strength in precision exposure, financial instrument and iShares Core ETFs. Equity net inflows of $51.8 billion were driven by both US and international equity market exposures. Fixed income net inflows of $21.0 billion reflected inflows into investment grade corporate, emerging markets debt and treasury bond funds. Commodities iShares generated $0.7 billion of net inflows.
  • Institutional active long-term net inflows of $4.6 billion were led by multi-asset net inflows of $9.5 billion reflecting ongoing demand for the LifePath® target-date series. Alternatives net inflows of $1.7 billion were led by flows into infrastructure offerings. Equity net outflows of $4.4 billion were largely due to outflows from scientific active and fundamental US equities.
  • Institutional index long-term net inflows of $8.7 billion reflected fixed income net inflows of $17.1 billion, partially offset by equity net outflows of $8.5 billion.

Cash management AUM increased 4% to $402.6 billion, driven by $10.2 billion of net inflows.

INVESTMENT PERFORMANCE AT JUNE 30, 2017 (1)

    One-year period   Three-year period   Five-year period
Fixed income:            
Actively managed AUM above benchmark or peer median
Taxable 75% 77% 88%
Tax-exempt 53% 54% 68%
Index AUM within or above applicable tolerance     97%     94%     99%
Equity:
Actively managed AUM above benchmark or peer median
Fundamental 62% 78% 66%
Scientific 91% 92% 92%
Index AUM within or above applicable tolerance     95%     98%     96%
 

(1)

 

Past performance is not indicative of future results. The performance information shown is based on preliminary available data. Please refer to performance disclosure detail.

TELECONFERENCE, WEBCAST AND PRESENTATION INFORMATION

Chairman and Chief Executive Officer, Laurence D. Fink, and Chief Financial Officer, Gary S. Shedlin, will host a teleconference call for investors and analysts on Monday, July 17, 2017 at 8:30 a.m. (Eastern Time). Members of the public who are interested in participating in the teleconference should dial, from the United States, (800) 374-0176, or from outside the United States, (706) 679-8281, shortly before 8:30 a.m. and reference the BlackRock Conference Call (ID Number 47820770). A live, listen-only webcast will also be available via the investor relations section of www.blackrock.com.

Both the teleconference and webcast will be available for replay by 12:30 p.m. (Eastern Time) on Monday, July 17, 2017 and ending at midnight on Monday, July 31, 2017. To access the replay of the teleconference, callers from the United States should dial (855) 859-2056 and callers from outside the United States should dial (404) 537-3406 and enter the Conference ID Number 47820770. To access the webcast, please visit the investor relations section of www.blackrock.com.

About BlackRock

BlackRock is a global leader in investment management, risk management and advisory services for institutional and retail clients. At June 30, 2017, BlackRock’s AUM was $5.7 trillion. BlackRock helps clients around the world meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. As of June 30, 2017, the firm had approximately 13,000 employees in more than 30 countries and a major presence in global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company’s website at www.blackrock.com | Twitter: @blackrock_news | Blog: www.blackrockblog.com | LinkedIn: www.linkedin.com/company/blackrock

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION

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

      Three Months  
Three Months Ended Ended
June 30,   March 31,
  2017     2016     Change     2017     Change  
Revenue

Investment advisory, administration fees and securities lending revenue

$ 2,675 $ 2,489 $ 186 $ 2,530 $ 145
Investment advisory performance fees 48 74 (26 ) 70 (22 )
Technology and risk management revenue(a) 164 146 18 158 6
Distribution fees 5 11 (6 ) 7 (2 )
Advisory and other revenue(a)   73     84     (11 )   59     14  
Total revenue   2,965     2,804     161     2,824     141  
 
Expense
Employee compensation and benefits 999 977 22 1,021 (22 )
Distribution and servicing costs 121 109 12 117 4
Amortization of deferred sales commissions 4 9 (5 ) 5 (1 )
Direct fund expense 224 195 29 208 16
General and administration 350 316 34 301 49
Amortization of intangible assets   25     25     -     25     -  
Total expense   1,723     1,631     92     1,677     46  
 
Operating income 1,242 1,173 69 1,147 95
 
Nonoperating income (expense)
Net gain (loss) on investments 36 20 16 51 (15 )
Interest and dividend income 13 6 7 7 6
Interest expense   (48 )   (51 )   3     (65 )   17  
Total nonoperating income (expense)   1     (25 )   26     (7 )   8  
 
Income before income taxes 1,243 1,148 95 1,140 103
Income tax expense   376     353     23     269     107  
Net income   867     795     72     871     (4 )
Less:

Net income (loss) attributable to noncontrolling interests

  10     6     4     9     1  
Net income attributable to BlackRock, Inc. $ 857   $ 789   $ 68   $ 862   $ (5 )
 
Weighted-average common shares outstanding
Basic 162,502,465 164,758,612 (2,256,147 ) 163,016,599 (514,134 )
Diluted 164,149,861 166,639,290 (2,489,429 ) 164,856,183 (706,322 )

Earnings per share attributable to BlackRock, Inc. common stockholders (3)

Basic $ 5.27 $ 4.79 $ 0.48 $ 5.29 $ (0.02 )
Diluted $ 5.22 $ 4.73 $ 0.49 $ 5.23 $ (0.01 )
Cash dividends declared and paid per share $ 2.50 $ 2.29 $ 0.21 $ 2.50 $ -
 

Supplemental information:

 
AUM (end of period) $ 5,689,273 $ 4,890,121 $ 799,152 $ 5,420,477 $ 268,796
Shares outstanding (end of period) 162,207,216 164,463,297 (2,256,081 ) 162,868,647 (661,431 )
GAAP:
Operating margin 41.9 % 41.8 % 10

  bps

40.6 % 130

 bps

Effective tax rate 30.5 % 30.9 % (40

) bps

23.8 % 670

 bps

As adjusted:
Operating income (1) $ 1,246 $ 1,179 $ 67 $ 1,151 $ 95
Operating margin (1) 43.9 % 43.9 % -

  bps

42.6 % 130

 bps

Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests

$ (9 ) $ (31 ) $ 22 $ (16 ) $ 7
Net income attributable to BlackRock, Inc. (2) $ 860 $ 797 $ 63 $ 865 $ (5 )

Diluted earnings attributable to BlackRock, Inc. common stockholders per share (2) (3)

$ 5.24 $ 4.78 $ 0.46 $ 5.25 $ (0.01 )
Effective tax rate   30.5 %     30.6 %     (10

) bps

    23.8 %     670

 bps

 

See the reconciliation to GAAP and notes (1) through (3) for more information on as adjusted items.

    (a)  

Beginning with the first quarter of 2017, Aladdin revenue previously reported within “BlackRock Solutions® and advisory” has been presented within “Technology and risk management revenue” on the condensed consolidated statements of income. The remaining previously reported “BlackRock Solutions and advisory” revenue is currently reported as part of “Advisory and other revenue.” Under the historical presentation, BlackRock Solutions and advisory revenue would have totaled $189 million for the three months ended June 30, 2017. The prior period amount reported for BlackRock Solutions and advisory of $172 million for the three months ended June 30, 2016 has been reclassified to conform to the current presentation. See the Summary of Revenue for further information.

 
 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION

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

   
Six Months Ended
June 30,  
  2017     2016     Change  
Revenue

Investment advisory, administration fees and securities lending revenue

$ 5,205 $ 4,848 $ 357
Investment advisory performance fees 118 108 10
Technology and risk management revenue(a) 322 287 35
Distribution fees 12 22 (10 )
Advisory and other revenue(a)   132     163     (31 )
Total revenue   5,789     5,428     361  
 
Expense
Employee compensation and benefits 2,020 1,924 96
Distribution and servicing costs 238 206 32
Amortization of deferred sales commissions 9 19 (10 )
Direct fund expense 432 383 49
General and administration 651 634 17
Restructuring charge - 76 (76 )
Amortization of intangible assets   50     50     -  
Total expense   3,400     3,292     108  
 
Operating income 2,389 2,136 253
 
Nonoperating income (expense)
Net gain (loss) on investments 87 18 69
Interest and dividend income 20 11 9
Interest expense   (113 )   (102 )   (11 )
Total nonoperating income (expense)   (6 )   (73 )   67  
 
Income before income taxes 2,383 2,063 320
Income tax expense   645     621     24  
Net income   1,738     1,442     296  
Less:
Net income (loss) attributable to noncontrolling interests   19     (4 )   23  
Net income attributable to BlackRock, Inc. $ 1,719   $ 1,446   $ 273  
 
Weighted-average common shares outstanding
Basic 162,758,112 165,073,371 (2,315,259 )
Diluted 164,544,760 167,023,559 (2,478,799 )

Earnings per share attributable to BlackRock, Inc. common stockholders (3)

Basic $ 10.56 $ 8.76 $ 1.80
Diluted $ 10.45 $ 8.66 $ 1.79
Cash dividends declared and paid per share $ 5.00 $ 4.58 $ 0.42
 

Supplemental information:

 
AUM (end of period) $ 5,689,273 $ 4,890,121 $ 799,152
Shares outstanding (end of period) 162,207,216 164,463,297 (2,256,081 )
GAAP:
Operating margin 41.3 % 39.4 % 190

  bps

Effective tax rate 27.3 % 30.1 % (280

) bps

As adjusted:
Operating income (1) $ 2,397 $ 2,226 $ 171
Operating margin (1) 43.3 % 42.8 % 50

  bps

Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests

$ (25 ) $ (69 ) $ 44
Net income attributable to BlackRock, Inc. (2) $ 1,725 $ 1,508 $ 217

Diluted earnings attributable to BlackRock, Inc. common stockholders per share (2) (3)

$ 10.48 $ 9.03 $ 1.45
Effective tax rate   27.3 %     30.1 %     (280 ) bps
 

See the reconciliation to GAAP and notes (1) through (3) for more information on as adjusted items.

(a)  

Beginning with the first quarter of 2017, Aladdin revenue previously reported within “BlackRock Solutions and advisory” has been presented within “Technology and risk management revenue” on the condensed consolidated statements of income. The remaining previously reported “BlackRock Solutions and advisory” revenue is currently reported as part of “Advisory and other revenue.” Under the historical presentation, BlackRock Solutions and advisory revenue would have totaled $371 million for the six months ended June 30, 2017. The prior period amount reported for BlackRock Solutions and advisory of $343 million for the six months ended June 30, 2016 has been reclassified to conform to the current presentation. See the Summary of Revenue for further information.

 
 

ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

Current Quarter Component Changes by Client Type and Product Type
    Net                
March 31, inflows Market June 30,
2017   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Retail:
Equity $ 208,181 $ (553 ) $ - $ 5,524 $ 2,656 $ 215,808 $ 212,757
Fixed income 230,003 7,091 - 1,940 1,898 240,932 236,361
Multi-asset 110,702 (149 ) - 2,952 398 113,903 112,530
Alternatives   15,447     121     -     340     205     16,113     16,565
Retail subtotal 564,333 6,510 - 10,756 5,157 586,756 578,213
iShares ETFs:
Equity 1,052,409 51,834 - 29,006 6,601 1,139,850 1,098,998
Fixed income 337,904 20,950 - 2,090 4,047 364,991 351,251
Multi-asset 2,890 269 - 77 4 3,240 3,065
Alternatives   20,132     702     -     (772 )   93     20,155     20,296
iShares ETFs subtotal 1,413,335 73,755 - 30,401 10,745 1,528,236 1,473,610
Institutional:
Active:
Equity 124,817 (4,386 ) - 4,282 1,733 126,446 126,151
Fixed income 543,782 (2,217 ) - 8,088 3,999 553,652 549,297
Multi-asset 290,729 9,458 - 5,249 6,485 311,921 300,779
Alternatives   77,905     1,734     3,264     222     711     83,836     79,275
Active subtotal 1,037,233 4,589 3,264 17,841 12,928 1,075,855 1,055,502
Index:
Equity 1,480,108 (8,525 ) - 48,500 12,509 1,532,592 1,513,735
Fixed income 518,880 17,091 - (3,791 ) 12,869 545,049 536,685
Multi-asset 7,244 (54 ) - 457 25 7,672 7,551
Alternatives   7,673     150     -     (56 )   113     7,880     7,800
Index subtotal   2,013,905     8,662     -     45,110     25,516     2,093,193     2,065,771
Institutional subtotal   3,051,138     13,251     3,264     62,951     38,444     3,169,048     3,121,273
Long-term 5,028,806 93,516

3,264

104,108 54,346 5,284,040 5,173,096
Cash management 388,935 10,178 - 406 3,056 402,575 401,996
Advisory (4)   2,736     (78 )   -     (62 )   62     2,658     2,693
Total $ 5,420,477   $ 103,616   $ 3,264   $ 104,452   $ 57,464   $ 5,689,273   $ 5,577,785
                                                     
Current Quarter Component Changes by Investment Style and Product Type (Long-term)
Net
March 31, inflows Market June 30,
2017   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Active:
Equity $ 285,716 $ (7,641 ) $ - $ 8,546 $ 3,575 $ 290,196 $ 288,982
Fixed income 763,020 4,012 - 10,018 5,572 782,622 774,232
Multi-asset 401,431 9,309 - 8,201 6,883 425,824 413,309
Alternatives   93,352     1,855     3,264     562     916     99,949     95,840
Active subtotal 1,543,519 7,535 3,264 27,327 16,946 1,598,591 1,572,363
Index and iShares ETFs:
iShares ETFs:
Equity 1,052,409 51,834 - 29,006 6,601 1,139,850 1,098,998
Fixed income 337,904 20,950 - 2,090 4,047 364,991 351,251
Multi-asset 2,890 269 - 77 4 3,240 3,065
Alternatives   20,132     702     -     (772 )   93     20,155     20,296
iShares ETFs subtotal 1,413,335 73,755 - 30,401 10,745 1,528,236 1,473,610
Non-ETF Index:
Equity 1,527,390 (5,823 ) - 49,760 13,323 1,584,650 1,563,661
Fixed income 529,645 17,953 - (3,781 ) 13,194 557,011 548,111
Multi-asset 7,244 (54 ) - 457 25 7,672 7,551
Alternatives   7,673     150     -     (56 )   113     7,880     7,800
Non-ETF Index subtotal   2,071,952     12,226     -     46,380     26,655     2,157,213     2,127,123
Index & iShares ETFs subtotal   3,485,287     85,981     -     76,781     37,400     3,685,449     3,600,733
Long-term $ 5,028,806   $ 93,516   $ 3,264   $ 104,108   $ 54,346   $ 5,284,040   $ 5,173,096
                                                     
Current Quarter Component Changes by Product Type (Long-term)
Net
March 31, inflows Market June 30,
2017   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Equity $ 2,865,515 $ 38,370 $ - $ 87,312 $ 23,499 $ 3,014,696 $ 2,951,641
Fixed income 1,630,569 42,915 - 8,327 22,813 1,704,624 1,673,594
Multi-asset 411,565 9,524 - 8,735 6,912 436,736 423,925
Alternatives:
Core 90,914 1,852 3,264 589 932 97,551 93,411
Currency and commodities(5)   30,243     855     -     (855 )   190     30,433     30,525
Alternatives subtotal   121,157     2,707     3,264     (266 )   1,122     127,984     123,936
Long-term $ 5,028,806   $ 93,516   $ 3,264   $ 104,108   $ 54,346   $ 5,284,040   $ 5,173,096
 
(1)   Amount represents AUM acquired in the First Reserve Energy Infrastructure business transaction in June 2017.
(2) Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(3) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months.
(4) Advisory AUM represents long-term portfolio liquidation assignments.
(5)

Amounts include commodity iShares ETFs.

 
 

ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

Year-to-Date Component Changes by Client Type and Product Type
    Net                
December 31, inflows Market June 30,
2016   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Retail:
Equity $ 196,221 $ 1,276 $ - $ 14,782 $ 3,529 $ 215,808 $ 207,755
Fixed income 222,256 11,884 - 4,433 2,359 240,932 231,545
Multi-asset 107,997 (1,893 ) - 7,209 590 113,903 111,068
Alternatives   15,478     (133 )   -     502     266     16,113     16,078
Retail subtotal 541,952 11,134 - 26,926 6,744 586,756 566,446
iShares ETFs:
Equity 951,252 96,386 - 83,756 8,456 1,139,850 1,050,985
Fixed income 314,707 41,254 - 4,050 4,980 364,991 339,617
Multi-asset 3,149 (109 ) - 195 5 3,240 3,003
Alternatives   18,771     705     -     561     118     20,155     19,961
iShares ETFs subtotal 1,287,879 138,236 - 88,562 13,559 1,528,236 1,413,566
Institutional:
Active:
Equity 120,699 (9,062 ) - 12,157 2,652 126,446 124,758
Fixed income 536,727 (3,463 ) - 13,192 7,196 553,652 546,905
Multi-asset 276,933 13,217 - 13,703 8,068 311,921 292,484
Alternatives   75,615     2,888     3,264     860     1,209     83,836     78,086
Active subtotal 1,009,974 3,580 3,264 39,912 19,125 1,075,855 1,042,233
Index:
Equity 1,389,004 (6,172 ) - 128,583 21,177 1,532,592 1,474,598
Fixed income 498,675 26,613 - 1,548 18,213 545,049 522,641
Multi-asset 6,928 (142 ) - 709 177 7,672 7,365
Alternatives   7,074     607     -     38     161     7,880     7,584
Index subtotal   1,901,681     20,906     -     130,878     39,728     2,093,193     2,012,188
Institutional subtotal   2,911,655     24,486     3,264     170,790     58,853     3,169,048     3,054,421
Long-term 4,741,486 173,856

3,264

286,278 79,156 5,284,040 5,034,433
Cash management 403,584 (5,527 ) - 625 3,893 402,575 401,362
Advisory (4)   2,782     (114 )   -     (92 )   82     2,658     2,727
Total $ 5,147,852   $ 168,215   $ 3,264   $ 286,811   $ 83,131   $ 5,689,273   $ 5,438,522
                                                     
Year-to-Date Component Changes by Investment Style and Product Type (Long-term)
Net
December 31, inflows Market June 30,
2016   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Active:
Equity $ 275,033 $ (14,460 ) $ - $ 24,533 $ 5,090 $ 290,196 $ 285,283
Fixed income 749,996 6,073 - 17,423 9,130 782,622 767,774
Multi-asset 384,930 11,324 - 20,912 8,658 425,824 403,552
Alternatives   91,093     2,755     3,264     1,362     1,475     99,949     94,164
Active subtotal 1,501,052 5,692 3,264 64,230 24,353 1,598,591 1,550,773
Index and iShares ETFs:
iShares ETFs:
Equity 951,252 96,386 - 83,756 8,456 1,139,850 1,050,985
Fixed income 314,707 41,254 - 4,050 4,980 364,991 339,617
Multi-asset 3,149 (109 ) - 195 5 3,240 3,003
Alternatives   18,771     705     -     561     118     20,155     19,961
iShares ETFs subtotal 1,287,879 138,236 - 88,562 13,559 1,528,236 1,413,566
Non-ETF Index:
Equity 1,430,891 502 - 130,989 22,268 1,584,650 1,521,828
Fixed income 507,662 28,961 - 1,750 18,638 557,011 533,317
Multi-asset 6,928 (142 ) - 709 177 7,672 7,365
Alternatives   7,074     607     -     38     161     7,880     7,584
Non-ETF Index subtotal   1,952,555     29,928     -     133,486     41,244     2,157,213     2,070,094
Index & iShares ETFs subtotal   3,240,434     168,164     -     222,048     54,803     3,685,449     3,483,660
Long-term $ 4,741,486   $ 173,856   $

3,264

  $ 286,278   $ 79,156   $ 5,284,040   $ 5,034,433
                                                     
Year-to-Date Component Changes by Product Type (Long-term)
Net
December 31, inflows Market June 30,
2016   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Equity $ 2,657,176 $ 82,428 $ - $ 239,278 $ 35,814 $ 3,014,696 $ 2,858,096
Fixed income 1,572,365 76,288 - 23,223 32,748 1,704,624 1,640,708
Multi-asset 395,007 11,073 - 21,816 8,840 436,736 413,920
Alternatives:
Core 88,630 2,854 3,264 1,398 1,405 97,551 91,742
Currency and commodities(5)   28,308     1,213     -     563     349     30,433     29,967
Alternatives subtotal   116,938     4,067     3,264     1,961     1,754     127,984     121,709
Long-term $ 4,741,486   $ 173,856   $ 3,264   $ 286,278   $ 79,156   $ 5,284,040   $ 5,034,433
                                                     
(1)   Amount represents AUM acquired in the First Reserve Energy Infrastructure business transaction in June 2017.
(2) Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(3) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing seven months.
(4) Advisory AUM represents long-term portfolio liquidation assignments.
(5)

Amounts include commodity iShares ETFs.

 
 

ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

Year-over-Year Component Changes by Client Type and Product Type
    Net              
June 30, inflows Market June 30,
2016   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Retail:
Equity $ 191,980 $ (872 ) $ - $ 24,857 $ (157 ) $ 215,808 $ 201,420
Fixed income 223,710 15,854 - 863 505 240,932 229,597
Multi-asset 111,456 (7,043 ) - 9,529 (39 ) 113,903 110,946
Alternatives   17,281     (1,477 )   -     279     30     16,113     16,273
Retail subtotal 544,427 6,462 - 35,528 339 586,756 558,236
iShares ETFs:
Equity 826,768 172,556 - 138,104 2,422 1,139,850 971,426
Fixed income 304,896 63,658 - (4,688 ) 1,125 364,991 330,422
Multi-asset 2,328 709 - 202 1 3,240 2,770
Alternatives   20,130     1,870     -     (1,864 )   19     20,155     20,761
iShares ETFs subtotal 1,154,122 238,793 - 131,754 3,567 1,528,236 1,325,379
Institutional:
Active:
Equity 120,127 (15,224 ) - 22,264 (721 ) 126,446 123,258
Fixed income 549,686 2,864 - 5,194 (4,092 ) 553,652 549,815
Multi-asset 264,937 25,407 - 20,209 1,368 311,921 283,762
Alternatives   74,971     4,369     3,264     1,497     (265 )   83,836     76,581
Active subtotal 1,009,721 17,416 3,264 49,164 (3,710 ) 1,075,855 1,033,416
Index:
Equity 1,293,683 (2,717 ) - 249,560 (7,934 ) 1,532,592 1,412,424
Fixed income 488,364 56,200 - 7,214 (6,729 ) 545,049 509,285
Multi-asset 7,799 (106 ) - 304 (325 ) 7,672 7,628
Alternatives   6,808     756     -     419     (103 )   7,880     7,348
Index subtotal   1,796,654     54,133     -     257,497     (15,091 )   2,093,193     1,936,685
Institutional subtotal   2,806,375     71,549     3,264     306,661     (18,801 )   3,169,048     2,970,101
Long-term 4,504,924 316,804

3,264

473,943 (14,895 ) 5,284,040 4,853,716
Cash management 374,684 26,841 - 1,070 (20 ) 402,575 395,485
Advisory (4)   10,513     (7,570 )   -     (54 )   (231 )   2,658     6,132
Total $ 4,890,121   $ 336,075   $ 3,264   $ 474,959   $ (15,146 ) $ 5,689,273   $ 5,255,333
                                                     
Year-over-Year Component Changes by Investment Style and Product Type (Long-term)
Net
June 30, inflows Market June 30,
2016   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Active:
Equity $ 276,348 $ (26,841 ) $ - $ 41,321 $ (632 ) $ 290,196 $ 281,929
Fixed income 765,431 14,770 - 5,895 (3,474 ) 782,622 769,820
Multi-asset 376,393 18,364 - 29,738 1,329 425,824 394,709
Alternatives   92,251     2,892     3,264     1,777     (235 )   99,949     92,854
Active subtotal 1,510,423 9,185 3,264 78,731 (3,012 ) 1,598,591 1,539,312
Index and iShares ETFs:
iShares ETFs
Equity 826,768 172,556 - 138,104 2,422 1,139,850 971,426
Fixed income 304,896 63,658 - (4,688 ) 1,125 364,991 330,422
Multi-asset 2,328 709 - 202 1 3,240 2,770
Alternatives   20,130     1,870     -     (1,864 )   19     20,155     20,761
iShares ETFs subtotal 1,154,122 238,793 - 131,754 3,567 1,528,236 1,325,379
Non-ETF Index
Equity 1,329,442 8,028 - 255,360 (8,180 ) 1,584,650 1,455,173
Fixed income 496,329 60,148 - 7,376 (6,842 ) 557,011 518,877
Multi-asset 7,799 (106 ) - 304 (325 ) 7,672 7,627
Alternatives   6,809     756     -     418     (103 )   7,880     7,348
Non-ETF Index subtotal   1,840,379     68,826     -     263,458     (15,450 )   2,157,213     1,989,025
Index & iShares ETFs subtotal   2,994,501     307,619     -     395,212     (11,883 )   3,685,449     3,314,404
Long-term $ 4,504,924   $ 316,804   $ 3,264   $ 473,943   $ (14,895 ) $ 5,284,040   $ 4,853,716
                                                     
Year-over-Year Quarter Component Changes by Product Type (Long-term)        
Net
June 30, inflows Market June 30,
2016   (outflows)   Acquisition(1)   change   FX impact (2)   2017   Average AUM (3)
Equity $ 2,432,558 $ 153,743 $ - $ 434,785 $ (6,390 ) $ 3,014,696 $ 2,708,528
Fixed income 1,566,656 138,576 - 8,583 (9,191 ) 1,704,624 1,619,119
Multi-asset 386,520 18,967 - 30,244 1,005 436,736 405,106
Alternatives:
Core 89,912 2,663 3,264 1,789 (77 ) 97,551 90,484
Currency and commodities(5)   29,278     2,855     -     (1,458 )   (242 )   30,433     30,479
Alternatives subtotal   119,190     5,518     3,264     331     (319 )   127,984     120,963
Long-term $ 4,504,924   $ 316,804   $ 3,264   $ 473,943   $ (14,895 ) $ 5,284,040   $ 4,853,716
                                                     
(1)   Amount represents AUM acquired in the First Reserve Energy Infrastructure business transaction in June 2017.
(2) Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(3) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.
(4) Advisory AUM represents long-term portfolio liquidation assignments.
(5)

Amounts include commodity iShares ETFs.

 
               

SUMMARY OF REVENUE

                                       
Three Months
Three Months Ended Ended Six Months Ended
June 30,   March 31, June 30,  
(in millions), (unaudited) 2017     2016     Change     2017     Change     2017     2016     Change  

Investment advisory, administration fees and securities lending revenue:

       
Equity:
Active $ 412 $ 406 $ 6 $ 402 $ 10 $ 814 $ 792 $ 22
iShares ETFs 776 656 120 721 55 1,497 1,279 218
Non-ETF Index   178     174     4     161     17     339     338     1  
Equity subtotal 1,366 1,236 130 1,284 82 2,650 2,409 241
Fixed income:
Active 428 414 14 411 17 839 810 29
iShares ETFs 200 172 28 185 15 385 324 61
Non-ETF Index   84     69     15     85     (1 )   169     139     30  
Fixed income subtotal 712 655 57 681 31 1,393 1,273 120
Multi-asset 282 291 (9 ) 272 10 554 575 (21 )
Alternatives:
Core 156 168 (12 ) 144 12 300 332 (32 )
Currency and commodities   22     20     2     22     -     44     37     7  
Alternatives subtotal   178     188     (10 )   166     12     344     369     (25 )
Long-term 2,538 2,370 168 2,403 135 4,941 4,626 315
Cash management   137     119     18     127     10     264     222     42  
Total base fees 2,675 2,489 186 2,530 145 5,205 4,848 357
Investment advisory performance fees:
Equity 12 42 (30 ) 15 (3 ) 27 53 (26 )
Fixed income 1 2 (1 ) 10 (9 ) 11 7 4
Multi-asset 7 2 5 5 2 12 5 7
Alternatives   28     28     -     40     (12 )   68     43     25  
Total performance fees 48 74 (26 ) 70 (22 ) 118 108 10
Technology and risk management revenue(1) 164 146 18 158 6 322 287 35
Distribution fees 5 11 (6 ) 7 (2 ) 12 22 (10 )
Advisory and other revenue:
Advisory(1) 25 26 (1 ) 24 1 49 56 (7 )
Other   48     58     (10 )   35     13     83     107     (24 )
Advisory and other revenue   73     84     (11 )   59     14     132     163     (31 )
Total revenue $ 2,965   $ 2,804   $ 161   $ 2,824   $ 141   $ 5,789   $ 5,428   $ 361  
                                                               
(1)  

Beginning with the first quarter of 2017, Aladdin revenue previously reported within “BlackRock Solutions and advisory” has been presented within “Technology and risk management revenue” on the condensed consolidated statements of income. The remaining previously reported “BlackRock Solutions and advisory” revenue is currently reported as part of “Advisory and other revenue.” Under the historical presentation, BlackRock Solutions and advisory revenue would have totaled $189 million and $371 million for the three and six months ended June 30, 2017, respectively. The prior period amounts reported for BlackRock Solutions and advisory of $172 million and $343 million for the three and six months ended June 30, 2016, respectively, have been reclassified to conform to the current presentation.

 

Highlights

  • Investment advisory, administration fees and securities lending revenue increased $186 million from the second quarter of 2016, reflecting the impact of higher markets and organic growth on average AUM, partially offset by the impact of foreign exchange movements and previously announced pricing changes to select investment products. Securities lending revenue of $156 million in the current quarter compared with $151 million in the second quarter of 2016.

    Investment advisory, administration fees and securities lending revenue increased $145 million from the first quarter of 2017, driven by higher average AUM, the effect of one additional day in the current quarter and seasonally higher securities lending revenue.
  • Performance fees decreased $26 million from the second quarter of 2016, primarily reflecting lower revenue from equity products and decreased $22 million from the first quarter of 2017, primarily reflecting lower revenue from alternative and fixed income products.
  • Technology and risk management revenue increased $18 million from the second quarter of 2016 and $6 million from the first quarter of 2017, reflecting ongoing demand for Aladdin.
  • Advisory and other revenue decreased $11 million from the second quarter of 2016 and increased $14 million from the first quarter of 2017, primarily reflecting changes in earnings from strategic minority investments.
 

SUMMARY OF OPERATING EXPENSE

  Three       Three          
Months Ended Months Ended Six Months Ended
June 30,   March 31, June 30,  
(in millions), (unaudited)   2017     2016     Change     2017     Change     2017     2016     Change  
Operating expense        
Employee compensation and benefits $ 999 $ 977 $ 22 $ 1,021 $ (22 ) $ 2,020 $ 1,924 $ 96
Distribution and servicing costs 121 109 12 117 4 238 206 32
Amortization of deferred sales

commissions

4 9 (5 ) 5 (1 ) 9 19 (10 )
Direct fund expense 224 195 29 208 16 432 383 49
General and administration 350 316 34 301 49 651 634 17
Restructuring charge - - - - - - 76 (76 )
Amortization of intangible assets   25     25     -     25     -     50     50     -  
Total operating expense $ 1,723   $ 1,631   $ 92   $ 1,677   $ 46   $ 3,400   $ 3,292   $ 108  
                                                                 

Highlights

  • Employee compensation and benefits expense increased $22 million from the second quarter of 2016, primarily reflecting higher headcount.

    Employee compensation and benefits expense decreased $22 million from the first quarter of 2017, reflecting lower seasonal employer payroll taxes in the current quarter and approximately $20 million of expense associated with the repositioning of the active equity platform recorded in the first quarter of 2017.
  • Direct fund expense increased $29 million from the second quarter of 2016 and $16 million from the first quarter of 2017, reflecting higher average AUM.
  • General and administration expense increased $34 million from the second quarter of 2016, reflecting higher portfolio services, technology, and marketing and promotional expense, and $49 million from the first quarter of 2017, reflecting higher technology and marketing and promotional expense, and the impact of foreign exchange remeasurement expense.
                 

INCOME TAX EXPENSE

                                   
Three Three
Months Ended Months Ended Six Months Ended
June 30,   March 31, June 30,  
(in millions), (unaudited) 2017     2016     Change     2017   Change     2017     2016     Change
Income tax expense $ 376     $ 353     $ 23    

$

269

  $ 107     $ 645     $ 621     $ 24
       

Highlights

  • First quarter 2017 income tax expense included an $81 million discrete tax benefit reflecting the adoption of new accounting guidance related to stock-based compensation awards that vested in the first quarter of 2017.
 

SUMMARY AND RECONCILIATION OF U.S. GAAP NONOPERATING INCOME (EXPENSE) TO NONOPERATING INCOME (EXPENSE), AS ADJUSTED

  Three Months     Three Months      
Ended Ended Six Months Ended
June 30,   March 31, June 30,  
(in millions), (unaudited)   2017     2016     Change     2017     Change     2017     2016     Change  
Nonoperating income (expense), GAAP basis $ 1   $ (25 ) $ 26 $ (7 ) $ 8 $ (6 )   $ (73 ) $ 67

Less: Net income (loss) attributable to noncontrolling interests ("NCI")

 

  10     6     4     9     1     19     (4 )   23  
Nonoperating income (expense), as adjusted(1)(2) $ (9 ) $ (31 ) $ 22   $ (16 ) $ 7   $ (25 ) $ (69 ) $ 44  
 
Three Months Three Months
Ended Ended Six Months Ended
June 30,   March 31, June 30,  
(in millions), (unaudited)   2017     2016     Change     2017     Change     2017     2016     Change  
Net gain (loss) on investments(1)(2)
Private equity $ 8 $ 7 $ 1 $ 6 $ 2 $ 14 $ 9 $ 5
Real assets - 1 (1 ) 1 (1 ) 1 3 (2 )
Other alternatives(3) 9 4 5 14 (5 ) 23 4 19
Other investments(4)   4     2     2     21     (17 )   25     6     19  
Subtotal 21 14 7 42 (21 ) 63 22 41
Other gains   5     -     5     -     5     5     -     5  
Total net gain (loss) on investments(1)(2) 26 14 12 42 (16 ) 68 22 46
Interest and dividend income 13 6 7 7 6 20 11 9
Interest expense   (48 )   (51 )   3     (65 )   17     (113 )   (102 )   (11 )
Net interest expense   (35 )   (45 )   10     (58 )   23     (93 )   (91 )   (2 )
Nonoperating income (expense), as adjusted(1)(2) $ (9 ) $ (31 ) $ 22   $ (16 ) $ 7   $ (25 ) $ (69 ) $ 44  
                                                                 
(1)   Net of net income (loss) attributable to NCI.
(2)

Management believes nonoperating income (expense), as adjusted, is an effective measure for reviewing BlackRock’s nonoperating contribution to results. For more information on other as adjusted items and the reconciliation to GAAP see notes (1) through (3) to the Condensed Consolidated Statements of Income and Supplemental Information.

(3) Amounts primarily include net gains (losses) related to direct hedge fund strategies and hedge fund solutions.
(4) Amounts include net gains (losses) related to equity and fixed income investments.
 

Highlights

  • First quarter 2017 interest expense included a make-whole redemption premium of $14 million related to the refinancing of $700 million of 6.25% notes, which were called prior to their September 2017 maturity.

ECONOMIC TANGIBLE ASSETS

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

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

             
 

     June 30,     

  December 31,
(in billions), (unaudited)  

2017 (Est.)

    2016  
Total balance sheet assets $ 217 $ 220

Separate account assets and separate account collateral held under securities lending agreements

(173 ) (177 )
Consolidated sponsored investment funds - (1 )
Goodwill and intangible assets, net   (31 )   (30 )
Economic tangible assets $ 13   $ 12  
                 
 
 
RECONCILIATION OF U.S. GAAP OPERATING INCOME AND OPERATING MARGIN TO OPERATING INCOME AND OPERATING MARGIN, AS ADJUSTED
  Three Months Ended     Six Months Ended
June 30,     March 31, June 30,
(in millions), (unaudited)   2017     2016     2017     2017     2016  
Operating income, GAAP basis $ 1,242   $ 1,173 $ 1,147 $ 2,389   $ 2,136
Non-GAAP expense adjustments:
Restructuring charge - - - - 76
PNC LTIP funding obligation   4     6     4     8     14  
Operating income, as adjusted $ 1,246   $ 1,179   $ 1,151   $ 2,397   $ 2,226  
Revenue, GAAP basis $ 2,965 $ 2,804 $ 2,824 $ 5,789 $ 5,428
Non-GAAP adjustments:
Distribution and servicing costs (121 ) (109 ) (117 ) (238 ) (206 )
Amortization of deferred sales commissions   (4 )   (9 )   (5 )   (9 )   (19 )
Revenue used for operating margin measurement $ 2,840   $ 2,686   $ 2,702   $ 5,542   $ 5,203  
Operating margin, GAAP basis   41.9 %   41.8 %   40.6 %   41.3 %   39.4 %
Operating margin, as adjusted   43.9 %   43.9 %   42.6 %   43.3 %   42.8 %
                                         

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

 
RECONCILIATION OF U.S. GAAP NET INCOME ATTRIBUTABLE TO BLACKROCK TO NET INCOME ATTRIBUTABLE TO BLACKROCK, AS ADJUSTED
Three Months Ended   Six Months Ended
June 30,   March 31, June 30,
(in millions, except per share data), (unaudited)   2017     2016     2017     2017     2016  
Net income attributable to BlackRock, Inc., GAAP basis $ 857 $ 789 $ 862 $ 1,719 $ 1,446
Non-GAAP adjustments:
Restructuring charge (including $23 tax benefit) - - - - 53
PNC LTIP funding obligation, net of tax 3 4 3 6 9
Income tax matters   -     4     -     -     -  
Net income attributable to BlackRock, Inc., as adjusted $ 860   $ 797   $ 865   $ 1,725   $ 1,508  
Diluted weighted-average common shares outstanding(3) 164.1 166.6 164.9 164.5 167.0
Diluted earnings per common share, GAAP basis(3) $ 5.22 $ 4.73 $ 5.23 $ 10.45 $ 8.66
Diluted earnings per common share, as adjusted(3) $ 5.24 $ 4.78 $ 5.25 $ 10.48 $ 9.03
                                         

See notes (2) and (3) to the Condensed Consolidated Statements of Income and Supplemental Information for more information on as adjusted items and the reconciliation to GAAP.

 

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

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

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

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

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

  • Operating income, as adjusted, includes non-GAAP expense adjustments. The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by The PNC Financial Services Group, Inc. (“PNC”) has been excluded because it ultimately does not impact BlackRock’s book value. For the six months ended June 30, 2016, a restructuring charge comprised of severance and accelerated amortization expense of previously granted deferred compensation awards has been excluded to provide an analysis of BlackRock’s ongoing operations and to ensure comparability among periods presented.
  • Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes such costs represent a benchmark for the amount of revenue passed through to external parties who distribute the Company’s products. In addition, management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, substantially offset distribution fee revenue the Company earns. For each of these items, BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenue.

(2) Net income attributable to BlackRock, Inc., as adjusted: Management believes net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted, are useful measures of BlackRock’s profitability and financial performance. Net income attributable to BlackRock, Inc., as adjusted, equals net income attributable to BlackRock, Inc., GAAP basis, adjusted for significant nonrecurring items, charges that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.

See aforementioned discussion regarding operating income, as adjusted, and operating margin, as adjusted, for information on the PNC LTIP funding obligation and the restructuring charge.

For each period presented, the non-GAAP adjustment related to the restructuring charge and PNC LTIP funding obligation was tax effected at the respective blended rates applicable to the adjustments. Amounts for income tax matters represent net noncash (benefits) expense primarily associated with the revaluation of certain deferred tax liabilities related to intangible assets and goodwill. Amounts have been excluded from the as adjusted results as these items will not have a cash flow impact and to ensure comparability among periods presented.

Per share amounts reflect net income attributable to BlackRock, Inc., as adjusted divided by diluted weighted average common shares outstanding.

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

FORWARD-LOOKING STATEMENTS

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

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

In addition to risk factors previously disclosed in BlackRock’s Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this earnings release, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the introduction, withdrawal, success and timing of business initiatives and strategies; (2) changes and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (3) the relative and absolute investment performance of BlackRock’s investment products; (4) the impact of increased competition; (5) the impact of future acquisitions or divestitures; (6) the unfavorable resolution of legal proceedings; (7) the extent and timing of any share repurchases; (8) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (9) the potential for human error in connection with BlackRock’s operational systems; (10) the impact of legislative and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or PNC; (11) changes in law and policy and uncertainty pending any such changes; (12) 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; (13) the ability to attract and retain highly talented professionals; (14) fluctuations in the carrying value of BlackRock’s economic investments; (15) 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; (16) BlackRock’s success in negotiating distribution arrangements and maintaining distribution channels for its products; (17) the failure by a key vendor of BlackRock to fulfill its obligations to the Company; (18) any disruption to the operations of third parties whose functions are integral to BlackRock’s ETF platform; (19) 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 (20) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.

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

PERFORMANCE NOTES

Past performance is not indicative of future results. Except as specified, the performance information shown is as of June 30, 2017 and is based on preliminary data available at that time. The performance data shown reflects information for all actively and passively managed equity and fixed income accounts, including U.S. registered investment companies, European-domiciled retail funds and separate accounts for which performance data is available, including performance data for high net worth accounts available as of May 31, 2017. The performance data does not include accounts terminated prior to June 30, 2017 and accounts for which data has not yet been verified. If such accounts had been included, the performance data provided may have substantially differed from that shown.

Performance comparisons shown are gross-of-fees for institutional and high net worth separate accounts, and net-of-fees for retail funds. The performance tracking shown for index accounts is based on gross-of-fees performance and includes all institutional accounts and all iShares funds globally using an index strategy. AUM information is based on AUM available as of June 30, 2017 for each account or fund in the asset class shown without adjustment for overlapping management of the same account or fund. Fund performance reflects the reinvestment of dividends and distributions.

Performance shown is derived from applicable benchmarks or peer median information, as selected by BlackRock, Inc. Peer medians are based in part on data either from Lipper, Inc. or Morningstar, Inc. for each included product.

BlackRock, Inc.
Investor Relations:
Tom Wojcik, 212-810-8127
Media Relations:
Brian Beades, 212-810-5596

Source: BlackRock, Inc.

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