Edgar Filing: BlackRock Inc.

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to .

Commission file number 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)

(Zip Code)

(212) 810-5300

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 x 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 x No ¨

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of October 31, 2010, there were 63,645,496 shares of the registrant’s common stock outstanding.

BlackRock, Inc.

Index to Form 10-Q

PART I

FINANCIAL INFORMATION


		Page
Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Financial Condition		1
	Condensed Consolidated Statements of Income		3
	Condensed Consolidated Statements of Comprehensive Income		4
	Condensed Consolidated Statements of Changes in Equity		5
	Condensed Consolidated Statements of Cash Flows		7
	Notes to Condensed Consolidated Financial Statements		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		118

Item 4.	Controls and Procedures		120

	PART II

	OTHER INFORMATION

Item 1.	Legal Proceedings		121

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		121

Item 6.	Exhibits		122

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(Dollar amounts in millions, except per share data)

(unaudited)


	September 30, 2010		December 31, 2009
Assets
Cash and cash equivalents	$	2,636	$	4,708
Accounts receivable		2,052		1,718
Due from related parties		168		189
Investments		1,512		1,049
Separate account assets		116,667		119,629
Assets of consolidated variable interest entities
Cash and cash equivalents		91		—
Bank loans and other investments		1,293		—
Collateral held under securities lending agreements		18,981		19,335
Deferred sales commissions, net		75		103
Property and equipment (net of accumulated depreciation of $393 and $303 at September 30, 2010 and December 31, 2009, respectively)		429		443
Intangible assets (net of accumulated amortization of $575 and $466 at September 30, 2010 and December 31, 2009, respectively)		17,546		17,666
Goodwill		12,641		12,638
Other assets		413		588

Total assets	$	174,504	$	178,066


Liabilities
Accrued compensation and benefits	$	1,146	$	1,482
Accounts payable and accrued liabilities		1,234		850
Due to related parties		151		490
Short-term borrowings		100		2,234
Liabilities of consolidated variable interest entities
Borrowings		1,237		—
Other liabilities		7		—
Convertible debentures		67		243
Long-term borrowings		3,191		3,191
Separate account liabilities		116,667		119,629
Collateral liability under securities lending agreements		18,981		19,335
Deferred tax liabilities		5,548		5,518
Other liabilities		495		492

Total liabilities		148,824		153,464

Commitments and contingencies (Note 12)
Temporary equity
Redeemable non-controlling interests		54		49

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition (continued)

(Dollar amounts in millions, except per share data)

(unaudited)


	September 30, 2010			December 31, 2009
Permanent Equity
BlackRock, Inc. stockholders’ equity
Common stock, $0.01 par value;		1			1
Shares authorized: 500,000,000 at September 30, 2010 and December 31, 2009;
Shares issued: 64,411,584 and 62,776,777 at September 30, 2010 and December 31, 2009, respectively;
Shares outstanding: 62,759,519 and 61,896,236 at September 30, 2010 and December 31, 2009, respectively
Preferred stock (Note 16)		1			1
Additional paid-in capital		22,400			22,127
Retained earnings		3,260			2,436
Appropriated retained earnings		94			—
Accumulated other comprehensive loss		(95	)		(96	)
Escrow shares, common, at cost (868,940 shares held at September 30, 2010 and December 31, 2009)		(137	)		(137	)
Treasury stock, common, at cost (783,125 and 11,601 shares held at September 30, 2010 and December 31, 2009, respectively)		(124	)		(3	)

Total BlackRock, Inc. stockholders’ equity		25,400			24,329
Nonredeemable non-controlling interests		180			224
Nonredeemable non-controlling interests of consolidated variable interest entities		46			—

Total permanent equity		25,626			24,553

Total liabilities, temporary equity and permanent equity	$	174,504		$	178,066

See accompanying notes to condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Condensed Consolidated Statements of Income

(Dollar amounts in millions, except per share data)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenue
Investment advisory, administration fees and securities lending revenue
Related parties	$	1,217		$	625		$	3,529		$	1,763
Other third parties		577			290			1,810			809

Investment advisory, administration fees and securities lending revenue		1,794			915			5,339			2,572
Investment advisory performance fees		114			49			214			77
BlackRock Solutions and advisory		101			122			328			369
Distribution fees		29			25			89			73
Other revenue		54			29			149			65

Total revenue		2,092			1,140			6,119			3,156

Expenses
Employee compensation and benefits		774			444			2,256			1,185
Distribution and servicing costs
Related parties		67			92			194			291
Other third parties		38			27			108			80
Amortization of deferred sales commissions		26			23			79			76
Direct fund expenses		124			15			359			43
General and administration		316			146			945			462
Restructuring charges		—			—			—			22
Amortization of intangible assets		40			36			120			108

Total expenses		1,385			783			4,061			2,267

Operating income		707			357			2,058			889
Non-operating income (expense)
Net gain (loss) on investments		93			89			117			5
Net gain (loss) on consolidated variable interest entities		12			—			(16	)		—
Interest and dividend income		10			4			19			16
Interest expense		(37	)		(15	)		(115	)		(45	)

Total non-operating income (expense)		78			78			5			(24	)

Income before income taxes		785			435			2,063			865
Income tax expense		201			101			662			225

Net income		584			334			1,401			640
Less:
Net income (loss) attributable to redeemable non-controlling interests		—			1			2			2
Net income (loss) attributable to nonredeemable non-controlling interests		33			16			(7	)		19

Net income attributable to BlackRock, Inc.	$	551		$	317		$	1,406		$	619

Earnings per share attributable to BlackRock, Inc. common stockholders:
Basic	$	2.85		$	2.31		$	7.28		$	4.58
Diluted	$	2.83		$	2.27		$	7.21		$	4.50
Cash dividends declared and paid per share	$	1.00		$	0.78		$	3.00		$	2.34
Weighted-average common shares outstanding:
Basic		190,494,905			133,266,379			190,385,046			131,481,677
Diluted		192,326,841			135,902,241			192,280,679			134,001,799

See accompanying notes to condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Dollar amounts in millions)

(unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2010		2009			2010			2009
Net income	$	584	$	334		$	1,401		$	640
Other comprehensive income:
Change in net unrealized gains (losses) from available-for-sale investments, net of tax
Unrealized holding gains (losses), net of tax		1		3			4			4
Less: reclassification adjustment included in net income		—		2			2			(12	)

Net change from available-for-sale investments, net of tax⁽¹⁾		1		1			2			16
Minimum pension liability adjustment		1		—			—			1
Foreign currency translation adjustments		89		(8	)		(1	)		81

Comprehensive income		675		327			1,402			738
Less: Comprehensive income attributable to non-controlling interests		33		17			(5	)		21

Comprehensive income attributable to BlackRock, Inc.	$	642	$	310		$	1,407		$	717

⁽¹⁾	The tax benefit (expense) on unrealized holding gains (losses) was ($1) million and ($2) million during the three months ended September 30, 2010 and 2009, respectively, and ($2) million and ($7) million during the nine months ended September 30, 2010 and 2009, respectively.

See accompanying notes to condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(Dollar amounts in millions)

(unaudited)


	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		—			1,406			—			—			—			—			1,406			11			(18	)		1,399			2
Allocation of losses of consolidated collateralized loan obligations		—			—			(20	)		—			—			—			(20	)		—			20			—			—
Dividends paid, net of dividend expense for unvested RSUs		—			(582	)		—			—			—			—			(582	)		—			—			(582	)		—
Stock-based compensation		334			—			—			—			—			1			335			—			—			335			—
PNC LTIP capital contribution		5			—			—			—			—			—			5			—			—			5			—
Merrill Lynch capital contribution		10			—			—			—			—			—			10			—			—			10			—
Exchange of common stock for preferred shares series B		128			—			—			—			—			(128	)		—			—			—			—			—
Net issuance of common shares related to employee stock transactions		(194	)		—			—			—			—			(60	)		(254	)		—			—			(254	)		—
Convertible debt conversions, net of tax		(53	)		—			—			—			—			66			13			—			—			13			—
Net tax benefit (shortfall) from stock-based compensation		43			—			—			—			—			—			43			—			—			43			—
Subscriptions/(redemptions/distributions) - non-controlling interest holders		—			—			—			—			—			—			—			(4	)		(5	)		(9	)		97
Net consolidations (deconsolidations) of sponsored investment funds		—			—			—			—			—			—			—			—			—			—			(94	)
Other changes in non-controlling interests		—			—			—			—			—			—			—			(2	)		—			(2	)		—
Foreign currency translation adjustments		—			—			—			(1	)		—			—			(1	)		—			—			(1	)		—
Change in net unrealized gains (losses) from available-for-sale investments, net of tax		—			—			—			2			—			—			2			—			—			2			—

September 30, 2010	$	22,402		$	3,260		$	94		($	95	)	($	137	)	($	124	)	$	25,400		$	180		$	46		$	25,626		$	54

⁽¹⁾	Includes $1 million of common stock and $1 million of preferred stock at September 30, 2010 and December 31, 2009, respectively.

See accompanying notes to condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(Dollar amounts in millions)

(unaudited)


	Additional Paid-in Capital⁽¹⁾			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Common Shares Held in Escrow			Treasury Stock Common			Total Stockholders’ Equity			Nonredeemable Non-controlling Interests			Total Permanent Equity			Redeemable Non-controlling Interests/ Temporary Equity
December 31, 2008	$	10,474		$	1,982		($	186	)	($	143	)	($	58	)	$	12,069		$	225		$	12,294		$	266
Reclass to temporary equity - convertible debt		(1	)		—			—			—			—			(1	)		—			(1	)		1
Net income		—			619			—			—			—			619			19			638			2
Dividends paid, net of dividend expense for unvested RSUs		—			(315	)		—			—			—			(315	)		—			(315	)		—
Stock-based compensation		231			—			—			—			1			232			—			232			—
Issuance of shares to institutional investor		300			—			—			—			—			300			—			300			—
Issuance of common shares for contingent consideration		43			—			—			—			—			43			—			43			—
PNC LTIP capital contribution		6			—			—			—			—			6			—			6			—
Merrill Lynch capital contribution		25			—			—			—			—			25			—			25			—
Net issuance of common shares related to employee stock transactions		(79	)		—			—			—			57			(22	)		—			(22	)		—
Net tax benefit (shortfall) from stock-based compensation		6			—			—			—			—			6			—			6			—
Minimum pension liability adjustment		—			—			1			—			—			1			—			1			—
Subscriptions/(redemptions/distributions) - non-controlling interest holders		—			—			—			—			—			—			(1	)		(1	)		(251	)
Net consolidations (deconsolidations) of sponsored investment funds		—			—			—			—			—			—			(9	)		(9	)		(8	)
Other change in non-controlling interests		—			—			—			—			—			—			(3	)		(3	)		—
Foreign currency translation adjustments		—			—			81			—			—			81			—			81			—
Change in net unrealized gain (loss) from available-for-sale investments, net of tax		—			—			16			—			—			16			—			16			—

September 30, 2009	$	11,005		$	2,286		($	88	)	($	143	)	$	—		$	13,060		$	231		$	13,291		$	10

⁽¹⁾	Includes $1 million of preferred stock at September 30, 2009 and $1 million of common stock at September 30, 2009 and December 31, 2008, respectively.

See accompanying notes to condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollar amounts in millions)

(unaudited)


	Nine Months Ended September 30,
	2010			2009
Cash flows from operating activities
Net income	$	1,401		$	640
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization		231			175
Amortization of deferred sales commissions		79			76
Stock-based compensation		335			232
Deferred income tax expense (benefit)		42			(99	)
Net (gains) losses on non-trading investments		(34	)		18
Purchases of investments within consolidated funds		(13	)		(35	)
Proceeds from sales and maturities of investments within consolidated funds		23			265
Assets and liabilities of consolidated VIEs:
Change in cash and cash equivalents		(43	)		—
Net (gains) losses and net (purchases)/proceeds within consolidated VIEs		57			—
(Earnings) losses from equity method investees		(104	)		(32	)
Distributions of earnings from equity method investees		11			11
Other adjustments		—			2
Changes in operating assets and liabilities:
Accounts receivable		(334	)		(307	)
Due from related parties		13			178
Deferred sales commissions		(51	)		(47	)
Investments, trading		(139	)		(119	)
Other assets		162			(67	)
Accrued compensation and benefits		(329	)		(233	)
Accounts payable and accrued liabilities		391			163
Due to related parties		(339	)		4
Other liabilities		56			6

Cash flows from operating activities		1,415			831

Cash flows from investing activities
Purchases of investments		(522	)		(60	)
Proceeds from sales and maturities of investments		131			229
(Purchases)/proceeds of assets held for sale		1			(2	)
Distributions of capital from equity method investees		39			50
Net consolidations (deconsolidations) of sponsored investment funds		(17	)		4
Contingent/other acquisition payments		(16	)		(158	)
Purchases of property and equipment		(96	)		(52	)

Cash flows from investing activities		(480	)		11

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(Dollar amounts in millions)

(unaudited)


	Nine Months Ended September 30,
	2010			2009
Cash flows from financing activities
Repayments of short-term borrowings		(2,134	)		—
Repayments of convertible debt		(176	)		(1	)
Repayments of other borrowings		—			(1	)
Cash dividends paid		(582	)		(316	)
Proceeds from stock options exercised		7			15
Merrill Lynch capital contribution		10			25
Proceeds from issuance of common stock		4			304
Repurchases of common stock		(264	)		(41	)
Net (redemptions/distributions paid)/subscriptions received from non-controlling interests holders		88			(252	)
Excess tax benefit from stock-based compensation		43			26
Net borrowings/(repayments of borrowings) by consolidated sponsored investment funds		—			70

Cash flows from financing activities		(3,004	)		(171	)

Effect of exchange rate changes on cash and cash equivalents		(3	)		60

Net (decrease) increase in cash and cash equivalents		(2,072	)		731
Cash and cash equivalents, beginning of period		4,708			2,032

Cash and cash equivalents, end of period	$	2,636		$	2,763

Supplemental disclosure of cash flow information is as follows:
Cash paid for:
Interest	$	98		$	52
Interest on borrowings of consolidated VIEs	$	38		$	—
Income taxes	$	355		$	405
Supplemental schedule of non-cash investing and financing transactions is as follows:
Issuance of common stock	$	257		$	77
Contingent common stock payment related to Quellos transaction	$	—		$	43
Increase (decrease) in borrowings due to consolidation of VIEs	$	1,157		$	—

See accompanying notes to condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Business Overview

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) provides diversified investment management and securities lending 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 December 1, 2009, BlackRock completed its acquisition of Barclays Global Investors (“BGI”) from Barclays Bank PLC (“Barclays”) (the “BGI Transaction”). In exchange for BGI, BlackRock paid approximately $6.65 billion in cash and issued capital stock valued at $8.53 billion comprised of 3,031,516 shares of BlackRock common stock and 34,535,255 shares of BlackRock Series B and D non-voting participating preferred stock. See Note 3, Mergers and Acquisitions, for more details on this transaction.

On September 30, 2010, equity ownership of BlackRock was as follows:


	Voting Common Stock			Capital Stock⁽¹⁾
Bank of America/Merrill Lynch & Co., Inc.		3.7	%		33.9	%
The PNC Financial Services Group, Inc. (“PNC”)		34.7	%		24.3	%
Barclays		4.8	%		19.7	%
Other		56.8	%		22.1	%

		100.0	%		100.0	%

⁽¹⁾	Includes outstanding common and non-voting preferred stock only.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

2. Significant Accounting Policies

Basis of Presentation

These condensed 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 condensed 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 financial information that normally is included in annual financial statements, including certain financial statement footnotes, is not required for interim reporting purposes and has been condensed or omitted herein. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the Securities and Exchange Commission (“SEC”) on March 10, 2010.

The interim financial information at September 30, 2010 and for the three and nine months ended September 30, 2010 and 2009 is unaudited. However, in the opinion of management, the interim information includes all normal recurring adjustments necessary for the fair presentation of the Company’s results for the periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

Business Combinations

In accordance with the requirements of Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), certain line items on the condensed consolidated statement of financial condition, including goodwill, intangible assets, and deferred tax liabilities, have been retrospectively adjusted as of December 31, 2009 to reflect new information obtained about facts that existed as of December 1, 2009, the BGI acquisition date. See Note 3, Mergers and Acquisitions, for a summary of the changes in 2010 to the BGI purchase price allocation.

Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), requires among other things, disclosures about assets and liabilities that are measured and reported at fair value. The provisions of ASC 820-10 establish a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and requires 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. Additionally, companies are required to provide additional disclosure regarding instruments in the Level 3 category (which have inputs to the valuation techniques that are unobservable and require significant management judgment), including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

2. Significant Accounting Policies (continued)

Basis of Presentation (continued)

Fair Value Measurements (continued)

Financial instruments 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 include listed mutual funds and ETFs, equities and certain 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; and inputs other than quoted prices that are observable, such as models or other valuation methodologies. Assets that generally are included in this category may include debt securities, bank loans, short-term floating rate notes and asset-backed securities, certain equity method limited partnership interests in hedge funds and mutual funds in which the valuations for substantially all of the investments within the fund are based upon Level 1 or Level 2 inputs, restricted public securities valued at a discount, as well as over the counter derivatives, including interest and inflation rate swaps and foreign currency exchange contracts that have inputs to the valuations that can be generally corroborated by observable market data. These prices are generally determined by a third party valuation source.

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. Assets included in this category generally 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 and certain held for sale real estate disposal assets. Liabilities included in this category include borrowings of consolidated collateralized loan obligations.

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. 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 to value these investments.

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.

Fair Value Option

ASC 825-10, Financial Instruments (“ASC 825-10”), provides a fair value option election that allows companies to irrevocably elect 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 separately from those instruments measured using another accounting method.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

2. Significant Accounting Policies (continued)

Basis of Presentation (continued)

Acquired Management Contracts with Indefinite Useful Lives

The value of contracts to manage assets in proprietary open-end funds, closed-end funds and collective trusts without a specified termination date are generally classified as indefinite-lived intangible assets. The assignment of indefinite lives to such contracts is primarily based upon the following: a) the assumption that there is no foreseeable limit on the contract period to manage these funds; b) the Company expects to, and has the ability to continue to operate these products indefinitely; c) the products have multiple investors and are not reliant on a single investor or small group of investors for their continued operation; d) current competitive factors and economic conditions do not indicate a finite life; and e) there is a high likelihood of continued renewal based on historical experience.

Collateral Assets Held and Liabilities Under Securities Lending Agreements

The Company facilitates securities lending arrangements whereby securities held by separate account assets are lent to third parties. In exchange, the Company receives collateral, principally cash and securities, with minimums generally ranging from approximately 102% to 112% of the value of the securities 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 re-sell 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. These transactions are not reported as sales under ASC 860, Transfers and Servicing, because of the obligation of the Company to repurchase the securities.

As a result, the Company records the collateral received under these arrangements (both cash and non-cash), as its own asset in addition to a corresponding liability for the obligation to return the collateral. As with the securities lending collateral discussed above, the fair value of the asset received and related obligation to return the collateral are recorded by the Company. At September 30, 2010, the fair value of loaned securities held by separate account assets was approximately $17.5 billion and the collateral held under these securities lending agreements was approximately $19.0 billion. During the nine months ended September 30, 2010 and for the full year ended December 31, 2009, the Company had not sold or repledged any of the collateral received under these arrangements. The fair value of the collateral liability approximates the fair value of the collateral assets and is recorded in collateral liability under securities lending agreements on the Company’s condensed consolidated statements of financial condition.

Classification and Measurement of Redeemable Securities

The provisions of ASC 480-10, Distinguishing Liabilities from Equity, require temporary equity classification for instruments that are currently redeemable or convertible for cash or other assets at the option of the holder. At September 30, 2010 and December 31, 2009, the Company determined that $54 million and $49 million, respectively, of non-controlling interests related to certain consolidated sponsored investment funds were redeemable for cash or other assets at the option of the holder, resulting in temporary equity classification on the Company’s condensed consolidated statements of financial condition.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

2. Significant Accounting Policies (continued)

Basis of Presentation (continued)

Assets and Liabilities to be Disposed of by Sale

In the course of the business of establishing real estate and other alternative investment funds, the Company may purchase land, properties and other assets while incurring liabilities directly associated with the assets, together a disposal group, with the intention to sell the disposal group to sponsored investment funds upon their launch. In accordance with the provisions of ASC 360-10, Property, Plant, and Equipment, the Company treats these assets and liabilities as a “disposal group”, measured at the lower of the carrying amount or fair value. Losses are recognized for any initial or subsequent write-down to fair value and gains are recognized for any subsequent increase in fair value, but not in excess of the cumulative loss previously recognized.

At September 30, 2010, the Company held disposal group assets of $26 million and related liabilities of $26 million in other assets and other liabilities, respectively, on its condensed consolidated statement of financial condition. Disposal group liabilities include approximately $23 million of borrowings directly associated with the disposal group assets. During the nine months ended September 30, 2009, the Company recorded a net loss of $1 million, within non-operating income (expense) on its condensed consolidated statement of income related to the disposal group and did not record any adjustments in 2010.

Convertible Debt Instruments

In accordance with the provisions within ASC 470-20, Debt (“ASC 470-20”), issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in the statement of financial condition. The excess of the initial proceeds of the convertible debt instrument over the amount allocated to the liability component creates a debt discount, which should be amortized as interest expense over the expected life of the liability. At September 30, 2010, the Company had $67 million of principal convertible debentures outstanding, which were issued in February 2005, bear interest at a rate of 2.625%, and are due in 2035. The Company retrospectively adopted the requirements of ASC 470-20 on January 1, 2009 resulting in a total cumulative impact of a $9 million reduction to retained earnings at December 31, 2008. The effective borrowing rate for nonconvertible debt at the time of issuance was estimated to be 4.3%, which resulted in $18 million of the $250 million initial aggregate principal amount of the debentures issued, or $12 million after tax, being attributable to equity. As of March 31, 2010, the initial $18 million debt discount was fully amortized.

Comprehensive Income Attributable to BlackRock

Subsequent to the issuance of BlackRock’s second quarter 2010 Form 10-Q, the Company determined that pursuant to ASC 810, Consolidation, it should have presented the amount of comprehensive income attributable to non-controlling interests and comprehensive income attributable to BlackRock in its Consolidated Statements of Comprehensive Income and it mislabeled total comprehensive income as being attributable to BlackRock. The affected periods include each of the three years in the period ended December 31, 2009 and each of the interim periods in 2009 and 2010. The accompanying Consolidated Statements of Comprehensive Income for the interim period ended September 30, 2009 has been corrected to include the required information.

For the years ended December 31, 2009, 2008 and 2007, the corrected presentation of comprehensive income is $987 million, $372 million, and $1,383 million, respectively, and comprehensive income attributable to BlackRock is $965 million, $527 million, and $1,019 million, respectively. For the years ended December 31, 2009, 2008 and 2007, net income (loss) attributable to non-controlling interests was $22 million, ($155) million, and $364 million. The Company believes this correction is not material to the consolidated financial statements taken as a whole, therefore, the 2008 and 2009 presentation will be corrected prospectively in the 2010 Form 10-K.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

2. Significant Accounting Policies (continued)

Accounting Policies Adopted in the Nine Months Ended September 30, 2010

New Consolidation Guidance for Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”), which amended the consolidation guidance for variable interest entities. The amendments include: (1) the elimination of the exemption from consolidation for qualifying special purpose entities, (2) a new approach for determining the primary beneficiary of a variable interest entity (“VIE”), which requires that the primary beneficiary have both (i) the power to control the most significant activities of the VIE and (ii) either the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, and (3) the requirement to continually reassess the primary beneficiary of a VIE.

In February 2010, the FASB issued ASU 2010-10, Amendments to Statement 167 for Certain Investment Funds (“ASU 2010-10”). This ASU defers the application of Statement of Financial Accounting Standards (“SFAS”) No. 167, Amendments to FASB Interpretation No. 46(R), for a reporting enterprise’s interest in an entity if all of the following conditions are met:

(1) the entity either has all of the attributes of an investment company, as specified in ASC 946-10, Financial Services-Investment Companies (“ASC 946-10”) or it is industry practice to apply measurement principles for financial reporting that are consistent with those in ASC 946-10; (2) the entity is not a securitization entity, an asset-backed financing entity, or an entity formerly considered a qualifying special-purpose entity, and (3) the reporting enterprise does not have an explicit or implicit obligation to fund losses of the entity that could potentially be significant to the entity.

In addition, the deferral applies to a reporting entity’s interest in an entity that is required to comply or operate in accordance with the requirement of Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.

The amendments in ASU 2010-10 clarify that for entities that do not qualify for the deferral, related parties should be considered when evaluating each of the criteria for determining whether a decision maker or service provider fee represents a variable interest.

An entity that qualifies for the deferral will continue to be assessed for consolidation under the overall guidance on variable interest entities in ASC 810, Consolidation (“ASC 810”) (before its amendment by SFAS No. 167) or other applicable consolidation guidance, including guidance for the consolidation of partnerships in ASC 810. The amendment does not defer the disclosure requirements of ASU 2009-17.

On January 1, 2010, upon adoption of ASU 2009-17, the Company determined it was the primary beneficiary of three collateralized loan obligations (“CLOs”), which resulted in consolidation of these CLOs on the Company’s condensed consolidated financial statements. Upon consolidation, the Company elected the fair value option for eligible financial assets and liabilities, to mitigate accounting mismatches between the carrying value of the assets and liabilities and to achieve operational simplifications. Upon adoption of the provisions of ASU 2009-17, the Company recorded a cumulative effect adjustment to appropriated retained earnings of $114 million.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

2. Significant Accounting Policies (continued)

Accounting Policies Adopted in the Nine Months Ended September 30, 2010 (continued)

Appropriated Retained Earnings

Upon adoption of ASU 2009-17, BlackRock consolidated three CLOs and recorded a cumulative effect adjustment to appropriated retained earnings on the condensed 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 will be recorded as net income (loss) attributable to nonredeemable non-controlling interests and as an adjustment to appropriated retained earnings.

Improving Disclosures about Fair Value Measurements

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”). ASU 2010-06 amends ASC 820-10 to require new disclosures with regards to significant transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and other settlements within the Level 3 fair value rollforward. ASU 2010-06 also clarifies existing fair value disclosures about the appropriate level of disaggregation and about inputs and valuation techniques for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption on January 1, 2010 of the additional disclosure requirements of ASU 2010-06 did not materially impact BlackRock’s condensed consolidated financial statements. The adoption of the additional Level 3 rollforward disclosure requirements, which will be effective in 2011, are not expected to materially impact BlackRock’s financial statement disclosures.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

3. Mergers and Acquisitions

Barclays Global Investors

On December 1, 2009, BlackRock acquired from Barclays all of the outstanding equity interests of subsidiaries of Barclays conducting the investment management business of BGI in exchange for an aggregate of 37,566,771 shares of BlackRock common stock and participating preferred stock and $6.65 billion in cash. The fair value of the 37,566,771 shares at closing, on December 1, 2009, was $8.53 billion, at a price of $227.08 per share, the closing price of BlackRock’s common stock on November 30, 2009.

A summary of the initial and revised fair values of the assets acquired and liabilities and non-controlling interests assumed on December 1, 2009 in this acquisition is as follows:


(Dollar amounts in millions)	Initial Estimate of Fair Value			Purchase Price Adjustments			Revised Estimate of Fair Value
Accounts receivable	$	593		($	12	)	$	581
Investments		125			—			125
Separate account assets		116,301			—			116,301
Collateral held under securities lending agreements		23,498			—			23,498
Property and equipment		205			(2	)		203
Finite-lived intangible management contracts (intangible assets)		163			(7	)		156
Indefinite-lived intangible management contracts (intangible assets)		9,785			25			9,810
Trade names / trademarks (indefinite-lived intangible assets)		1,403			—			1,403
Goodwill		6,842			68			6,910
Other assets		366			—			366
Separate account liabilities		(116,301	)		—			(116,301	)
Collateral liability under securities lending agreements		(23,498	)		—			(23,498	)
Deferred tax liabilities		(3,799	)		8			(3,791	)
Accrued compensation and benefits		(885	)		—			(885	)
Other liabilities assumed		(660	)		(80	)		(740	)
Non-controlling interests assumed		(12	)		—			(12	)

Total consideration, net of cash acquired	$	14,126		$	—		$	14,126

Summary of consideration, net of cash acquired:
Cash paid	$	6,650		$	—		$	6,650
Cash acquired		(1,055	)		—			(1,055	)
Capital stock at fair value		8,531			—			8,531

Total cash and stock consideration	$	14,126		$	—		$	14,126

At this time, except for the items noted below, the Company does not expect additional material changes to the value of the assets acquired or liabilities assumed in conjunction with the transaction.

•

As management receives additional tax related information the following items are subject to change: deferred income tax assets and liabilities, goodwill, other assets, due from and to related parties and other liabilities.

Helix Financial Group LLC

In January 2010, the Company completed the acquisition of substantially all of the net assets of Helix Financial Group LLC, which provides advisory, valuation and analytics solutions to commercial real estate lenders and investors (the “Helix Transaction”). The assets acquired and liabilities assumed, as well as the total consideration paid for the acquisition, were not material to the Company’s condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

4. Investments

A summary of the carrying value of total investments is as follows:


	Carrying Value
(Dollar amounts in millions)	September 30, 2010		December 31, 2009
Available-for-sale investments	$	58	$	73
Held-to-maturity investments		48		29
Trading investments		201		167
Other investments:
Consolidated sponsored investment funds		334		360
Equity method investments		515		376
Deferred compensation plan hedge fund equity method investments		25		29
Cost method investments		331		15

Total other investments		1,205		780

Total investments	$	1,512	$	1,049

At September 30, 2010, the Company had $470 million of total investments held by consolidated sponsored investment funds (non-VIEs) of which $334 million and $136 million were classified as other investments and trading investments, respectively.

At December 31, 2009, the Company had $463 million of total investments held by consolidated sponsored investment funds of which $103 million and $360 million were classified as trading investments and other investments, respectively. Other investments at December 31, 2009 included $40 million related to a consolidated VIE, which has been reclassified as of January 1, 2010 to bank loans and other investments of consolidated VIEs on the condensed consolidated statement of financial condition.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

4. Investments (continued)

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 Value
September 30, 2010	Cost		Gains		Losses			Carrying Value
Available-for-sale investments:
Equity securities:
Sponsored investment funds	$	45	$	6	($	2	)	$	49
Collateralized debt obligations (“CDOs”)		2		—		—			2
Debt securities:
Mortgage debt		4		2		—			6
Asset-backed debt		1		—		—			1

Total available-for-sale investments	$	52	$	8	($	2	)	$	58


			Gross Unrealized					Carrying Value
December 31, 2009	Cost		Gains		Losses			Carrying Value
Available-for-sale investments:
Equity securities:
Sponsored investment funds	$	53	$	2	($	1	)	$	54
Collateralized debt obligations		2		—		—			2
Debt securities:
Mortgage debt		6		1		—			7
Asset-backed debt		10		—		—			10

Total available-for-sale investments	$	71	$	3	($	1	)	$	73

Available-for-sale investments include seed investments in BlackRock sponsored investment funds and debt securities received upon closure of an enhanced cash fund in lieu of the Company’s remaining investment in the fund and securities purchased from another enhanced cash fund.

During the nine months ended September 30, 2010 and 2009, the Company recorded other-than-temporary impairments of less than $1 million and $4 million, respectively, which were recorded in non-operating (expense) on the condensed consolidated statements of income. The $4 million of impairments during the nine months ended September 30, 2009 included $2 million of credit loss impairments on debt securities, which was determined by comparing the estimated discounted cash flows versus the amortized cost for each individual debt security.

The Company reviewed the gross unrealized losses of $2 million as of September 30, 2010 related to available-for-sale equity securities, of which approximately $1 million had been in a loss position for greater than twelve months, and determined that these unrealized losses were not other-than-temporary primarily because the Company has the ability and intent to hold the securities for a period of time sufficient to allow for recovery of such unrealized losses. As a result, the Company did not record impairments on such equity securities.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

4. Investments (continued)

Held-to-Maturity Investments

A summary of the carrying value of held-to-maturity investments is as follows:


	Carrying Value
(Dollar amounts in millions)	September 30, 2010		December 31, 2009
Held-to-maturity investments:
Foreign government debt	$	47	$	28
U.S. government debt		1		1

Total held-to-maturity investments:	$	48	$	29

Held-to-maturity investments include debt instruments held for regulatory purposes and the carrying value of these investments approximates fair value.

Trading and Other Investments

A summary of the cost and carrying value of trading and other investments is as follows:


	September 30, 2010				December 31, 2009
(Dollar amounts in millions)	Cost		Carrying Value		Cost		Carrying Value
Trading investments:
Deferred compensation plan mutual fund investments	$	42	$	46	$	49	$	42
Equity securities		47		53		112		97
Debt securities:
Municipal debt		10		11		10		11
Foreign government debt		—		—		15		15
Corporate debt		90		91		1		1
U.S. government/government agency debt		—		—		1		1

Total trading investments	$	189	$	201	$	188	$	167

Other investments:
Consolidated sponsored investment funds	$	331	$	334	$	380	$	360
Equity method investments		564		515		499		376
Deferred compensation plan hedge fund equity method investments		22		25		28		29
Cost method investments:
Federal Reserve Bank stock		325		325		10		10
Other		6		6		5		5

Total cost method investments		331		331		15		15

Total other investments	$	1,248	$	1,205	$	922	$	780

Trading Investments

Trading investments include $136 million of equity and debt securities within certain consolidated sponsored investment funds, $46 million of certain deferred compensation plan mutual fund investments and $19 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.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

4. Investments (continued)

Cost Method Investments

Cost method investments include non-marketable securities, including $325 million of Federal Reserve Bank stock at September 30, 2010, which is held for regulatory purposes and is restricted from sale.

As of September 30, 2010, there were no indicators of impairments on these investments.

Contractual Maturity of Debt Securities

The cost or amortized cost and fair value of debt securities classified as available-for-sale and held-to-maturity by maturity at September 30, 2010 is as follows:


(Dollar amounts in millions)	1 Year or less		After 1 Year through 5 Years		After 5 Years through 10 Years		After 10 Years		Total
Available-for-sale investments:
Mortgage debt	$	—	$	—	$	1	$	3	$	4
Asset-backed debt		—		—		—		1		1

Cost	$	—	$	—	$	1	$	4	$	5

Fair value	$	—	$	—	$	1	$	6	$	7

Held-to-maturity investments:
Foreign government debt	$	18	$	24	$	—	$	5	$	47
U.S. government debt		1		—		—		—		1

Amortized cost	$	19	$	24	$	—	$	5	$	48

Fair value	$	19	$	24	$	—	$	5	$	48

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

5. 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 that are owned by these consolidated sponsored investment funds are classified as other or trading investments. At September 30, 2010 and December 31, 2009, the following balances related to these funds were consolidated on the condensed consolidated statements of financial condition:


(Dollar amounts in millions)	September 30, 2010			December 31, 2009
Cash and cash equivalents	$	92		$	75
Investments		470			463
Other net assets (liabilities)		(11	)		(7	)
Non-controlling interests		(234	)		(273	)

Total net interests in consolidated investment funds	$	317		$	258

At December 31, 2009, the above balances included a consolidated sponsored investment fund that was also deemed a VIE. This VIE, as well as three consolidated CLOs, which are also VIEs, were excluded from the September 30, 2010 balances above. See Note 7, Variable Interest Entities, for further discussion on these consolidated products.

BlackRock’s total exposure to consolidated sponsored investment funds of $317 million and $258 million at September 30, 2010 and December 31, 2009, 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.

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 its operations.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures

Fair Value Hierarchy

Assets measured at fair value on a recurring basis at September 30, 2010 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)		Other Assets Not Held at Fair Value⁽¹⁾		September 30, 2010
Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs)	$	49	$	2	$	—	$	—	$	51
Debt securities		—		7		—		—		7

Total available-for-sale		49		9		—		—		58
Held-to-maturity:
Debt securities		—		—		—		48		48

Total held-to-maturity		—		—		—		48		48
Trading:
Equity securities		39		14		—		—		53
Debt securities		—		102		—		—		102
Deferred compensation plan mutual fund investments		46		—		—		—		46

Total trading		85		116		—		—		201
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		—		—		27		—		27
Private equity		17		—		290		—		307

Total consolidated sponsored investment funds		17		—		317		—		334
Equity method:
Hedge funds / Funds of hedge funds		—		—		270		34		304
Private equity investments		—		—		64		20		84
Real estate funds		—		—		59		11		70
Fixed income mutual fund		—		54		—		—		54
Equity / Multi-asset class mutual funds		—		3		—		—		3

Total equity method		—		57		393		65		515
Deferred compensation plan hedge fund equity method investments		—		8		17		—		25
Cost method investments		—		—		—		331		331

Total investments		151		190		727		444		1,512
Separate account assets:
Equity		74,375		189		80		—		74,644
Debt securities		—		36,602		1,423		—		38,025
Derivatives		—		1,709		—		—		1,709
Money market funds		1,515		—		—		—		1,515
Other		—		—		—		774		774

Total separate account assets		75,890		38,500		1,503		774		116,667
Collateral held under securities lending agreements
Equity		13,824		—		—		—		13,824
Debt securities		—		5,157		—		—		5,157

Total collateral held under securities lending agreements		13,824		5,157		—		—		18,981

Other assets⁽²⁾		—		11		26		—		37
Assets of consolidated VIEs:
Bank loans		—		1,154		—		—		1,154
Bonds		—		100		—		—		100
Private equity		3		—		35		—		38
Other		—		1		—		—		1

Total investments of consolidated VIEs		3		1,255		35		—		1,293

Total assets measured at fair value	$	89,868	$	45,113	$	2,291	$	1,218	$	138,490

⁽¹⁾

Comprised of cost method investments, equity method investments (including investment companies and other investments), as well as 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⁾	Includes disposal group assets and company-owned and split-dollar life insurance policies.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Liabilities measured at fair value on a recurring basis at September 30, 2010 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)		September 30, 2010
Liabilities:
Borrowings of consolidated VIEs	$	—	$	—	$	1,237	$	1,237
Collateral liability under securities lending agreements		13,824		5,157		—		18,981
Other liabilities⁽¹⁾		—		6		—		6

Total liabilities measured at fair value	$	13,824	$	5,163	$	1,237	$	20,224

⁽¹⁾	Includes credit default swap (Pillars) and foreign currency exchange contracts.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Assets and liabilities measured at fair value on a recurring basis at December 31, 2009 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)		Other Assets Not Held at Fair Value⁽¹⁾		December 31, 2009
Assets:
Investments:
Available-for-sale	$	53	$	20	$	—	$	—	$	73
Held-to-maturity		—		—		—		29		29
Trading		118		49		—		—		167
Other investments:
Consolidated sponsored investment funds		22		—		338		—		360
Equity method		—		1		334		41		376
Deferred compensation plan hedge fund equity method investments		—		14		15		—		29
Cost method investments		—		—		—		15		15

Total investments		193		84		687		85		1,049
Separate account assets		99,983		17,599		1,292		755		119,629
Collateral held under securities lending agreements		11,580		7,755		—		—		19,335
Other assets⁽²⁾		—		11		46		—		57

Total assets measured at fair value	$	111,756	$	25,449	$	2,025	$	840	$	140,070

Liabilities:
Collateral liability under securities lending agreements	$	11,580	$	7,755	$	—	$	—	$	19,335

⁽¹⁾

⁽²⁾	Includes disposal group assets and company-owned and split-dollar life insurance policies.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Separate Account Assets

BlackRock Pensions Limited and BlackRock Asset Management Pensions Limited, both wholly-owned subsidiaries of the Company, are registered life insurance companies that maintain separate account assets, representing segregated funds held for purposes of funding individual and group pension contracts, and equal and offsetting separate account non-financial liabilities. The changes in Level 3 assets in the three and nine months ended September 30, 2009, primarily related to purchases, sales and gains/(losses). The net investment income and net gains and losses attributable to separate account assets accrue directly to the contract owners and are not reported on the Company’s condensed consolidated statements of income.

Money Market Funds within Cash and Cash Equivalents

At September 30, 2010 and December 31, 2009, approximately $125 million and $1.4 billion, respectively, of money market funds were recorded within cash and cash equivalents on the Company’s condensed consolidated statements of financial condition. Money market funds are valued through the use of quoted market prices (a Level 1 input), or $1.00, which is generally the net asset value of the fund.

Level 3 Assets

Level 3 assets recorded within investments, which include equity method investments and consolidated investments of real estate funds, private equity funds and funds of private equity funds, are valued based upon valuations, including capital accounts, received from internal as well as third party fund managers. Fair valuations of the underlying funds are based on a combination of methods, which may include third-party independent appraisals and discounted cash flow techniques. Direct investments in private equity companies held by funds of private equity funds are 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 and market indices, among other factors.

Level 3 assets recorded within separate account assets may include single broker non-binding quotes for fixed income securities and equity securities, which have unobservable inputs due to certain corporate actions.

Level 3 investments of consolidated VIEs include direct private equity investments and private equity funds valued based upon valuations received from internal as well as third party fund managers.

Level 3 Liabilities

Level 3 liabilities recorded as borrowings of consolidated VIEs, include CLO borrowings valued based upon non-binding broker quotes.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2010


(Dollar amounts in millions)	June 30, 2010		Realized and unrealized gains / (losses), net			Purchases, sales, other settlements and issuances, net			Net transfers in and/or out of Level 3			September 30, 2010		Total net gains (losses) included in earnings⁽¹⁾
Assets:
Investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds	$	28	$	—		($	1	)	$	—		$	27	$	—
Private equity		259		38			(5	)		(2	)		290		38
Equity method:
Hedge funds / Funds of hedge funds		261		16			(7	)		—			270		18
Private equity investments		60		1			3			—			64		1
Real estate funds		48		10			1			—			59		10
Deferred compensation plan hedge funds		18		(1	)		—			—			17		—

Total investments		674		64			(9	)		(2	)		727		67
Separate account assets:
Equity		7		37			34			2			80
Debt securities		1,448		(4	)		(21	)		—			1,423

Total separate account assets		1,455		33			13			2			1,503		n/a	⁽²⁾
Other assets		24		2			—			—			26		2
Consolidated VIE:
Private equity investments		30		5			—			—			35		n/a	⁽³⁾

Total assets measured at fair value	$	2,183	$	104		$	4		$	—		$	2,291

Liabilities:
Borrowings of consolidated VIEs	$	1,215	($	22	)	$	—		$	—		$	1,237		n/a	⁽³⁾

n/a – not applicable

⁽¹⁾	Earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date.

⁽²⁾	The net investment income and net gains and losses attributable to separate account assets accrue directly to the contract owners and are not reported on the Company’s condensed consolidated statements of income.

⁽³⁾	The net investment income (expense) attributable to assets and borrowings of consolidated VIEs are allocated to non-controlling interests on the Company’s condensed consolidated statements of income.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2010


(Dollar amounts in millions)	December 31, 2009		Realized and unrealized gains / (losses), net			Purchases, sales, other settlements and issuances, net			Net transfers in and/ or out of Level 3			September 30, 2010		Total net gains (losses) included in earnings⁽¹⁾
Assets:
Investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds	$	26	($	1	)	$	2		$	—		$	27	($	1	)
Private equity		312		20			(39	)		(3	)		290		21
Equity method:
Hedge funds / Funds of hedge funds		247		30			(7	)		—			270		31
Private equity investments		51		3			10			—			64		3
Real estate funds		36		12			11			—			59		12
Deferred compensation plan hedge funds		15		2			—			—			17		2

Total investments		687		66			(23	)		(3	)		727		68
Separate account assets:
Equity		5		32			(20	)		63			80
Debt securities		1,287		36			324			(224	)		1,423

Total separate account assets		1,292		68			304			(161	)		1,503		n/a	⁽²⁾
Other assets		46		(8	)		(12	)		—			26		(8	)
Consolidated VIE:
Private equity investments		—		1			34			—			35		n/a	⁽³⁾

Total assets measured at fair value	$	2,025	$	127		$	303		($	164	)	$	2,291

Liabilities:
Borrowings of consolidated VIEs	$	—	($	80	)	$	1,157		$	—		$	1,237		n/a	⁽³⁾

n/a – not applicable

⁽¹⁾	Earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date.

⁽²⁾	The net investment income and net gains and losses attributable to separate account assets accrue directly to the contract owners and are not reported on the Company’s condensed consolidated statements of income.

⁽³⁾	The net investment income (expense) attributable to assets and borrowings of consolidated VIEs are allocated to non-controlling interests on the Company’s condensed consolidated statements of income.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2009


(Dollar amounts in millions)	June 30, 2009		Realized and unrealized gains / (losses), net			Purchases, sales, other settlements and issuances, net			Net transfers in and/or out of Level 3		September 30, 2009		Total net gains (losses) included in earnings⁽¹⁾
Investments	$	696	$	53		($	27	)	$	—	$	722	$	53
Other assets		50		(1	)		1			—		50		(1	)

Total investments and other assets measured at fair value	$	746	$	52		($	26	)	$	—	$	772	$	52

⁽¹⁾	Earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date.

Changes in Level 3 Investments and Other Assets Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2009


(Dollar amounts in millions)	December 31, 2008		Realized and unrealized gains / (losses), net			Purchases, sales, other settlements and issuances, net			Net transfers in and/or out of Level 3			September 30, 2009		Total net gains (losses) included in earnings⁽¹⁾
Investments	$	813	$	12		($	85	)	($	18	)	$	722	$	62
Other assets		64		(16	)		2			—			50		(16	)

Total investments and other assets measured at fair value	$	877	($	4	)	($	83	)	($	18	)	$	772	$	46

⁽¹⁾	Earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date.

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 Company’s condensed consolidated statements of income. A portion of net income (loss) for consolidated investments and all of the net income (loss) for consolidated VIEs is allocated to non-controlling interests to reflect net income (loss) not attributable to the Company.

Significant Transfers in and/or out of Levels

Transfers in and/or out of Levels are reflected as of the beginning of the period when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable 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 the nine months ended September 30, 2010 there were net transfers out of Level 3 to Level 2 related to debt securities held within separate account assets. The net transfers in Levels were primarily due to availability of additional observable market inputs, including additional broker quotes.

In the nine months ended September 30, 2010 there were $63 million of net transfers into Level 3 from Level 1 and Level 2 of equity securities held within separate account assets. The net transfers into Level 3 were primarily due to market inputs no longer being considered observable.

Significant Other Settlements in 2010

As of January 1, 2010, upon the adoption of ASU 2009-17 there was a $35 million reclassification of assets from Level 3 private equity investments to Level 3 private equity assets of consolidated VIEs as well as the consolidation of $1,157 million of borrowings within the consolidated CLOs.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share

As a practical expedient to value certain investments, the Company relies on net asset values 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 net asset value per share (or its equivalent) at September 30, 2010:

(Dollar amounts in millions)

Ref

Fair Value

Total
Unfunded
Commitments

Redemption Frequency

Redemption
Notice Period

Trading:

Equity

(a)

—

Daily (100%)

n/a

Consolidated sponsored investment funds:

Private equity fund of funds

(b)

248

n/a

Other fund of hedge funds

(c)

—

Monthly (39%),

Quarterly (61%)

30 – 120 days

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds

(d)

270

Monthly (8%),

Quarterly (16%),

n/a (76%)

15 – 90 days

Private equity funds

(e)

n/a

Real estate funds

(f)

n/a

Deferred compensation plan hedge fund investments

(g)

—

Monthly (12%),

Quarterly (88%)

30 – 60 days

Consolidated VIE:

Private equity funds

(h)

n/a

Total

720

240

n/a – not applicable

(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 several 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 net asset value of master offshore funds held by the feeder funds. Investments in this category can generally be redeemed at any time, as long as there are no restrictions in place by the underlying master funds.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share (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 the net asset value of the Company’s ownership interest in partners’ capital 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 9 years. Total remaining unfunded commitments to other third party funds is $65 million. The Company is contractually obligated to fund only $47 million to the consolidated funds, while the remaining unfunded balance in the table above would be funded by capital contributions from non-controlling interest holders.

(c)

This category includes several consolidated funds of hedge funds that invest in multiple strategies to diversify risks. The fair values of the investments in this category have been estimated using the net asset value of the fund’s ownership interest in partners’ capital of each fund in the portfolio. Investments in this category can generally be redeemed, as long as there are no restrictions in place by the underlying funds.

(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 in this category have been estimated using the net asset value of the Company’s ownership interest in partners’ capital. It is estimated that the investments in the funds that are not subject to redemptions will be liquidated over a weighted-average period of less than 7 years.

(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 the net asset value of the Company’s ownership interest in partners’ capital 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 is estimated that the investment in these funds will be liquidated over a weighted-average period of approximately 7 years.

(f)

This category includes several real estate funds that invest primarily to acquire, expand, renovate, finance, hold for investment, and ultimately sell income-producing apartment properties or to capitalize on the distress in the residential real estate market. The fair values of the investments in this category have been estimated using the net asset value of the Company’s ownership interest in partners’ capital. 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 real estate funds. It is estimated that the investments in these funds will be liquidated over a weighted-average period of approximately 4 years.

(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 in this category have been estimated using the net asset value of the Company’s ownership interest in partners’ capital as well as performance inputs.

(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 the net asset value of the Company’s ownership interest in partners’ capital 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 5 years. Total remaining unfunded commitments to other third party funds is $2 million, which will be funded by capital contributions from non-controlling interest holders.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

6. Fair Value Disclosures (continued)

Fair Value Option

Upon consolidation of three CLOs on January 1, 2010, the Company elected to adopt the fair value accounting provisions for eligible assets, including bank loans and borrowings of the CLOs. 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 condensed consolidated statements of income and offset by a change in appropriated retained earnings on the condensed consolidated statements of financial condition.

The following table presents, as of September 30, 2010, the fair value of those assets and liabilities selected for fair value accounting:


(Dollar amounts in millions)	September 30, 2010
CLO Bank Loans:
Aggregate principal amounts outstanding	$	1,268
Fair value	$	1,154
Aggregate unpaid principal balance in excess of fair value	$	114
Unpaid principal balance of loans more than 90 days past due	$	7
Aggregate fair value of loans more than 90 days past due	$	1
Aggregate unpaid principal balance in excess of fair value for loans more than 90 days past due	$	6
CLO Borrowings:
Aggregate principal amounts outstanding	$	1,434
Fair value	$	1,237

The principal amounts outstanding of the borrowings issued by the CLOs mature between 2016 and 2019.

During the nine months ended September 30, 2010, the change in fair value of the bank loans, along with the bonds held at fair value, resulted in a $108 million gain, which was offset by a $119 million loss in the fair value of the CLO borrowings. The net loss was recorded in non-operating income (expense) on the condensed consolidated statement of income. The change in fair value of the assets and liabilities includes interest income and expense, respectively.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

7. Variable Interest Entities

In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, including collateralized debt/loan obligations (“CDO” or “CLO”) 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 limited to its equity interests.

The primary beneficiary of a VIE that is an investment fund 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 will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns or both. Effective January 1, 2010, the primary beneficiary of a CDO/CLO that is a VIE that does not meet the conditions of 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 CDO/CLO.

In order to determine whether the Company is the primary beneficiary of a VIE, management must make significant estimates and assumptions of probable 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.

VIEs in which BlackRock is the Primary Beneficiary

At September 30, 2010

At September 30, 2010, BlackRock was the primary beneficiary of four VIEs, which included three CLOs in which it 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 VIE. In addition, BlackRock was the primary beneficiary of one sponsored private equity investment fund, in which it had a non-substantive investment, 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 September 30, 2010, the following balances related to these four VIEs, which were consolidated on the Company’s condensed consolidated statement of financial condition:


(Dollar amounts in millions)	September 30, 2010
Assets of consolidated VIEs:
Cash and cash equivalents	$	91
Bank loans, bonds and other investments		1,293
Liabilities of consolidated VIEs:
Borrowings		(1,237	)
Other liabilities		(7	)
Appropriated retained earnings		(94	)
Non-controlling interests of consolidated VIEs		(46	)

Total net interests in consolidated VIEs	$	—

For the nine months ended September 30, 2010, the Company recorded non-operating expense of $16 million offset by a $16 million net loss attributable to nonredeemable non-controlling interests on the Company’s condensed consolidated statements of income. For the nine months ended September 30, 2009, the Company recorded a non-operating expense of $2 million offset by a $2 million net loss attributable to nonredeemable non-controlling interests on its condensed consolidated statements of income.

At September 30, 2010, bank loans, bonds and other investments of consolidated VIEs were $1,154 million, $100 million, and $39 million, respectively. The weighted-average maturity of the bank loans and bonds was approximately 4.2 years.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

7. Variable Interest Entities (continued)

VIEs in which BlackRock is the Primary Beneficiary (continued)

As of December 31, 2009

As of December 31, 2009, BlackRock was the primary beneficiary of one VIE, a sponsored private equity investment fund in which it did not have a substantive investment, due to its de-facto third party relationships with other partners in the fund. Due to the consolidation of this VIE, at December 31, 2009, the Company recorded $54 million of net assets, primarily comprised of investments and cash and cash equivalents. These net assets were offset by $54 million of nonredeemable non-controlling interests, which reflect the equity ownership of third parties, on the Company’s condensed consolidated statements of financial condition.

VIEs in which the Company holds significant variable interests or is the sponsor that holds a variable interest but is not the Primary Beneficiary of the VIE

At September 30, 2010 and December 31, 2009, the Company’s carrying value of assets and liabilities and its maximum risk of loss related to VIEs in which it holds a significant variable interest or is the sponsor that holds a variable interest, but for which it was not the primary beneficiary, were as follows:

At September 30, 2010


	(Dollar amounts in millions)
	Variable Interests on the Condensed Consolidated Statement of Financial Condition
	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)			Maximum Risk of Loss
CDOs/CLOs	$	2	$	3	($	3	)	$	21
Other sponsored investment funds		22		203		—			225

Total	$	24	$	206	($	3	)	$	246

The size of the net assets of the VIEs that the Company does not consolidate related to CDOs/CLOs, collective trust funds and other sponsored investment funds were as follows:

•

CDOs/CLOs - approximately ($5) billion, comprised of approximately $8 billion of assets at fair value and $13 billion of liabilities, primarily comprised of unpaid principal debt obligations to CDO/CLO debt holders.

•

Other sponsored investments funds – approximately $1.5 trillion to $1.6 trillion

•

This amount includes approximately $1.2 trillion of collective trusts. Each collective trust has been aggregated separately and may include collective trusts that invest in other collective trusts.

•

The net assets of the VIEs are primarily comprised of cash and cash equivalents and investments offset by liabilities primarily comprised of various accruals for the sponsored investment vehicles.

At September 30, 2010, BlackRock’s maximum risk of loss associated with these VIEs primarily relates to: (i) BlackRock’s investments, (ii) advisory fee receivables and (iii) credit protection sold by BlackRock to a third party in a synthetic CDO transaction.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

7. Variable Interest Entities (continued)

VIEs in which BlackRock holds significant variable interests or is the sponsor that holds a variable interest but is not the Primary Beneficiary of the VIE (continued)

At December 31, 2009


	(Dollar amounts in millions)
	Variable Interests on the Condensed Consolidated Statement of Financial Condition
	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)			Maximum Risk of Loss
CDOs/CLOs	$	2	$	2	($	3	)	$	21
Other sponsored investment funds		14		254		(7	)		268

Total	$	16	$	256	($	10	)	$	289

The size of the net assets of the VIEs that the Company does not consolidate related to CDOs/CLOs, collective trust funds and other sponsored investment funds were as follows:

•

CDOs/CLOs - approximately ($8) billion, comprised of approximately $10 billion of assets at fair value and $18 billion of liabilities, primarily comprised of unpaid principal debt obligations to CDO/CLO debt holders.

•

Other sponsored investments funds – approximately $1.5 trillion to $1.6 trillion

•

This amount includes approximately $1.1 trillion of collective trusts. Each collective trust has been aggregated separately and may include collective trusts that invest in other collective trusts.

•

The net assets of the VIEs are primarily comprised of cash and cash equivalents and investments offset by liabilities primarily comprised of various accruals for the sponsored investment vehicles.

At December 31, 2009, BlackRock’s maximum risk of loss associated with these VIEs primarily relates to: (i) BlackRock’s investments, (ii) advisory fee receivables and (iii) credit protection sold by BlackRock to a third party in a synthetic CDO transaction.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

8. Derivatives and Hedging

For the nine months ended September 30, 2010 and the year ended December 31, 2009, the Company did not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging (“ASC 815-10”).

By using derivative financial instruments, the Company exposes itself to market and counterparty 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 September 30, 2010, the Company had two outstanding forward foreign currency exchange contracts with two counterparties with an aggregate notional value of $100 million.

During 2007, the Company commenced a program to enter into a series of total return swaps to economically hedge against market price exposures with respect to certain seed investments in sponsored investment products. At September 30, 2010, the Company had outstanding total return swaps with two counterparties with an aggregate notional value of approximately $24 million.

The Company acts as the portfolio manager for a synthetic CDO transaction, referred to as Pillars. In connection with the transaction, the Company entered into a credit default swap with Citibank, N.A. (“Citibank”), providing Citibank credit protection of approximately $17 million, representing the Company’s maximum risk of loss with respect to the provision of credit protection. Pursuant to ASC 815-10, the Company carries the Pillars credit default swap at fair value based on the expected future cash flows under the arrangement.

On behalf of clients that maintain 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 and forward foreign currency exchange contracts and interest rate and inflation rate swaps.

The Company consolidates certain sponsored investment funds, which may utilize derivative instruments as a part of the fund’s investment strategy. The change in fair value of such derivatives, which is recorded in non-operating income (expense), was not material to the Company’s condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

8. Derivatives and Hedging (continued)

The following table presents the fair value at September 30, 2010 of derivative instruments not designated as hedging instruments:


	Assets			Liabilities
(Dollar amounts in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign currency exchange contracts	Other assets	$	—	Other liabilities	$	3
Credit default swap (Pillars)	Other assets		—	Other liabilities		3
Separate account derivatives	Separate account assets		1,709	Separate account liabilities		1,709

Total		$	1,709		$	1,715

The following table presents the fair value at December 31, 2009 of derivative instruments not designated as hedging instruments:


	Assets			Liabilities
(Dollar amounts in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign currency exchange contracts	Other assets	$	—	Other liabilities	$	—
Credit default swap (Pillars)	Other assets		—	Other liabilities		3
Separate account derivatives	Separate account assets		1,501	Separate account liabilities		1,501

Total		$	1,501		$	1,504

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

8. Derivatives and Hedging (continued)

The following table presents gains (losses) recognized in income on derivative instruments for the three and nine months ended September 30, 2010:


		Three Months Ended			Nine Months Ended
(Dollar amounts in millions)	Income Statement Location	September 30, 2010
Foreign currency exchange contracts	General and administration expenses	($	3	)	($	3	)
Total return swaps	Non-operating income (expense)		(3	)		—
Credit default swap (Pillars)	Non-operating income (expense)		—			—

Total		($	6	)	($	3	)

Net realized and unrealized gains and losses attributable to derivatives held by separate account assets and liabilities accrue directly to the contract owners and are not reported in the Company’s condensed consolidated statements of income.

9. Goodwill

Goodwill at September 30, 2010 and changes during the nine months ended September 30, 2010 were as follows:


(Dollar amounts in millions)
December 31, 2009, as reported	$	12,570
BGI purchase price allocation adjustments		68

December 31, 2009, as adjusted		12,638
Impact of excess tax basis amortization		(13	)
Other net additions		16

September 30, 2010	$	12,641

In accordance with ASC 805, goodwill has been retrospectively adjusted to reflect new information obtained about facts that existed as of December 1, 2009, the BGI acquisition date. During the nine months ended September 30, 2010, goodwill increased by $71 million. The increase related to purchase price allocation adjustments related to the BGI Transaction, the purchase of substantially all of the net assets of Helix Financial Group LLC and other net additions, offset by a decline related to tax benefits realized from tax-deductible goodwill in excess of book goodwill.

At September 30, 2010, the balance of the Quellos tax-deductible goodwill in excess of book goodwill was approximately $330 million. 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.

PART I – FINANCIAL INFORMATION (continued)

Item 1.

Financial Statements (continued)

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

10. Intangible Assets

The carrying amounts of identifiable intangible assets are summarized as follows:


(Dollar amounts in millions)	Indefinite-lived intangible assets		Finite-lived intangible assets			Total
December 31, 2009, as reported	$	16,566	$	1,082		$	17,648
BGI purchase price allocation adjustments		25		(7	)		18

December 31, 2009, as adjusted		16,591		1,075			17,666
Amortization expense		—		(120	)		(120	)

September 30, 2010	$	16,591	$	955		$	17,546

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