Edgar Filing: BlackRock Inc.

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 March 31, 2013

¨	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. (Check one):


Large accelerated filer X	Accelerated filer	Non-accelerated filer
Smaller reporting company		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes		No		X

As of April 30, 2013, there were 168,703,604 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		2

	Condensed Consolidated Statements of Comprehensive Income		3

	Condensed Consolidated Statements of Changes in Equity		4

	Condensed Consolidated Statements of Cash Flows		6

	Notes to Condensed Consolidated Financial Statements		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		69

Item 4.	Controls and Procedures		72

PART II

OTHER INFORMATION



Item 1.	Legal Proceedings	73

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73

Item 6.	Exhibits	74

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(in millions, except share data)

(unaudited)


	March 31, 2013			December 31, 2012
Assets
Cash and cash equivalents		$ 3,942			$ 4,606
Accounts receivable		2,618			2,250
Investments		1,711			1,750
Assets of consolidated variable interest entities:
Cash and cash equivalents		290			297
Bank loans and other investments		2,514			2,264
Separate account assets		137,302			134,768
Separate account collateral held under securities lending agreements		20,939			23,021
Property and equipment (net of accumulated depreciation of $593 and $572 at March 31, 2013 and December 31, 2012, respectively)		529			557
Intangible assets (net of accumulated amortization of $939 and $899 at March 31, 2013 and December 31, 2012, respectively)		17,362			17,402
Goodwill		12,904			12,910
Other assets		627			626

Total assets		$200,738			$200,451

Liabilities
Accrued compensation and benefits		$ 602			$ 1,547
Accounts payable and accrued liabilities		1,657			1,055
Short-term borrowings		-			100
Liabilities of consolidated variable interest entities:
Borrowings		2,332			2,402
Other liabilities		275			103
Long-term borrowings		5,687			5,687
Separate account liabilities		137,302			134,768
Separate account collateral liabilities under securities lending agreements		20,939			23,021
Deferred income tax liabilities		5,379			5,293
Other liabilities		898			858

Total liabilities		175,071			174,834


Commitments and contingencies (Note 11)
Temporary equity
Redeemable non-controlling interests		36			32
Permanent Equity
BlackRock, Inc. stockholders’ equity
Common stock, $0.01 par value;		2			2
Shares authorized: 500,000,000 at March 31, 2013 and December 31, 2012;
Shares issued: 171,252,185 at March 31, 2013 and December 31, 2012;
Shares outstanding: 168,967,457 and 168,875,304 at March 31, 2013 and December 31, 2012, respectively
Preferred stock (Note 15)		-			-
Additional paid-in capital		19,210			19,419
Retained earnings		6,767			6,444
Appropriated retained earnings		55			29
Accumulated other comprehensive loss		(166	)		(59	)
Treasury stock, common, at cost (2,284,728 and 2,376,881 shares held at March 31, 2013 and December 31, 2012, respectively)		(523	)		(432	)

Total BlackRock, Inc. stockholders’ equity		25,345			25,403
Nonredeemable non-controlling interests		144			155
Nonredeemable non-controlling interests of consolidated variable interest entities		142			27

Total permanent equity		25,631			25,585

Total liabilities, temporary equity and permanent equity		$200,738			$200,451

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Income

(in millions, except per share data)

(unaudited)


	Three Months Ended March 31,
	2013		2012
Revenue
Investment advisory, administration fees and securities lending revenue
Related parties		$1,455		$1,314
Other third parties		674		663

Total investment advisory, administration fees and securities lending revenue		2,129		1,977
Investment advisory performance fees		108		80
BlackRock Solutions and advisory		126		123
Distribution fees		17		19
Other revenue		69		50

Total revenue		2,449		2,249
Expenses
Employee compensation and benefits		905		825
Distribution and servicing costs		91		95
Amortization of deferred sales commissions		12		16
Direct fund expenses		161		152
General and administration		331		307
Amortization of intangible assets		40		39

Total expenses		1,540		1,434

Operating income		909		815
Non-operating income (expense)
Net gain (loss) on investments		62		75
Net gain (loss) on consolidated variable interest entities		27		(12)
Interest and dividend income		6		9
Interest expense		(54)		(49)

Total non-operating income (expense)		41		23

Income before income taxes		950		838
Income tax expense		284		263

Net income		666		575
Less:
Net income (loss) attributable to redeemable non-controlling interests		-		1
Net income (loss) attributable to nonredeemable non-controlling interests		34		2

Net income attributable to BlackRock, Inc.		$632		$572

Earnings per share attributable to BlackRock, Inc. common stockholders:
Basic		$3.69		$3.19
Diluted		$3.62		$3.14
Cash dividends declared and paid per share		$1.68		$1.50
Weighted-average common shares outstanding:
Basic		171,301,800		179,022,840
Diluted		174,561,132		181,917,864

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(unaudited)


	Three Months Ended March 31,
	2013		2012
Net income		$666		$575
Other comprehensive income:
Change in net unrealized gains (losses) from available-for-sale investments, net of tax:
Unrealized holding gains (losses), net of tax		4		6
Less: reclassification adjustment included in net income		3		1

Net change from available-for-sale investments, net of tax⁽¹⁾		1		5
Benefit plans, net		-		(1)
Foreign currency translation adjustments		(108)		33

Other comprehensive income (loss)		(107)		37

Comprehensive income		559		612
Less: Comprehensive income (loss) attributable to non-controlling interests		34		3

Comprehensive income attributable to BlackRock, Inc.		$525		$609

⁽¹⁾

The tax benefit (expense) on unrealized holding gains (losses) was $1 million and ($3) million during the quarters ended March 31, 2013 and 2012, respectively.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(in millions)

(unaudited)


	Additional Paid-in Capital ⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock Common		Total BlackRock Stockholders’ Equity		Nonredeemable Non-controlling Interests		Nonredeemable Non-controlling Interests of Consolidated VIEs		Total Permanent Equity		Redeemable Non- controlling Interests / Temporary Equity

December 31, 2012		$19,421		$6,444		$29		($59)		($432)		$25,403		$155		$27		$25,585		$32
Net income		-		632		-		-		-		632		7		27		666		-
Allocation of gains (losses) of consolidated collateralized loan obligations		-		-		26		-		-		26		-		(26)		-		-
Dividends paid		-		(309)		-		-		-		(309)		-		-		(309)		-
Stock-based compensation		127		-		-		-		-		127		-		-		127		-
Issuance of common shares related to employee stock transactions		(364)		-		-		-		370		6		-		-		6		-
Employee tax benefit withholdings related to employee stock transactions		-		-		-		-		(211)		(211)		-		-		(211)		-
Shares repurchased		-		-		-		-		(250)		(250)		-		-		(250)		-
Net tax benefit (shortfall) from stock-based compensation		28		-		-		-		-		28		-		-		28		-
Subscriptions (redemptions/distributions)-non-controlling interest holders		-		-		-		-		-		-		(18)		114		96		11
Net consolidations (deconsolidations) of sponsored investment funds		-		-		-		-		-		-		-		-		-		(7)
Other comprehensive income (loss)		-		-		-		(107)		-		(107)		-		-		(107)		-

March 31, 2013		$19,212		$6,767		$55		($166)		($523)		$25,345		$144		$142		$25,631		$36

⁽¹⁾	Amounts include $2 million of common stock at both March 31, 2013 and December 31, 2012.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(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, 2011		$20,276		$5,046		$72		($127)		($1)		($218)		$25,048		$184		$38		$25,270		$92
Net income		-		572		-		-		-		-		572		14		(12)		574		1
Allocation of losses of consolidated collateralized loan obligations		-		-		(15)		-		-		-		(15)		-		15		-		-
Dividends paid		-		(285)		-		-		-		-		(285)		-		-		(285)		-
Stock-based compensation		114		-		-		-		-		-		114		-		-		114		-
Merrill Lynch cash capital contribution		7		-		-		-		-		-		7		-		-		7		-
Issuance of common shares related to employee stock transactions		(335)		-		-		-		-		376		41		-		-		41		-
Employee tax benefit withholdings related to employee stock transactions		-		-		-		-		-		(137)		(137)		-		-		(137)		-
Shares repurchased		-		-		-		-		-		(125)		(125)		-		-		(125)		-
Net tax benefit (shortfall) from stock-based compensation		46		-		-		-		-		-		46		-		-		46		-
Subscriptions(redemptions/distributions)-non-controlling interest holders		-		-		-		-		-		-		-		(12)		(5)		(17)		144
Net consolidations (deconsolidations) of sponsored investment funds		-		-		-		-		-		-		-		(1)		-		(1)		(158)
Other comprehensive income (loss)		-		-		-		37		-		-		37		-		-		37		-

March 31, 2012		$20,108		$5,333		$57		($90)		($1)		($104)		$25,303		$185		$36		$25,524		$79

⁽¹⁾	Amounts include $1 million of common stock at both March 31, 2012 and December 31, 2011.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)


	Three Months Ended March 31,
	2013		2012
Cash flows from operating activities
Net income		$666		$575
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		72		73
Amortization of deferred sales commissions		12		16
Stock-based compensation		127		114
Deferred income tax expense (benefit)		93		65
Net (gains) losses on non-trading investments		(21)		(39)
Purchases of investments within consolidated sponsored investment funds		(18)		(53)
Proceeds from sales and maturities of investments within consolidated sponsored investment funds		29		18
Assets and liabilities of consolidated VIEs:
Change in cash and cash equivalents		7		(41)
Net (gains) losses within consolidated VIEs		(27)		12
Net (purchases) proceeds within consolidated VIEs		(41)		122
(Earnings) losses from equity method investees		(50)		(45)
Distributions of earnings from equity method investees		17		8
Changes in operating assets and liabilities:
Accounts receivable		(376)		(344)
Deferred sales commissions		(13)		(12)
Investments, trading		51		(176)
Other assets		17		27
Accrued compensation and benefits		(947)		(853)
Accounts payable and accrued liabilities		597		320
Other liabilities		(5)		111

Cash flows from operating activities		190		(102)


Cash flows from investing activities
Purchases of investments		(90)		(175)
Proceeds from sales and maturities of investments		117		76
Distributions of capital from equity method investees		25		12
Net consolidations (deconsolidations) of sponsored investment funds		(3)		(149)
Acquisitions, net of cash acquired		-		(210)
Purchases of property and equipment		(18)		(41)

Cash flows from investing activities		31		(487)

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in millions)

(unaudited)


	Three Months Ended March 31,
	2013		2012
Cash flows from financing activities
Repayments of short-term borrowings		(100)		-
Cash dividends paid		(309)		(285)
Proceeds from stock options exercised		5		39
Proceeds from issuance of common stock		1		2
Repurchases of common stock		(461)		(262)
Merrill Lynch cash capital contribution		-		7
Net proceeds from (repayments of) borrowings by consolidated VIEs		(80)		(76)
Net (redemptions/distributions paid) subscriptions received from non-controlling interests holders		107		127
Excess tax benefit from stock-based compensation		32		55

Cash flows from financing activities		(805)		(393)

Effect of exchange rate changes on cash and cash equivalents		(80)		28

Net increase (decrease) in cash and cash equivalents		(664)		(954)
Cash and cash equivalents, beginning of period		4,606		3,506

Cash and cash equivalents, end of period		$3,942		$2,552


Supplemental disclosure of cash flow information:
Cash paid for:
Interest		$24		$25
Interest on borrowings of consolidated VIEs		$29		$18
Income taxes		$78		$91

Supplemental schedule of non-cash investing and financing transactions:
Issuance of common stock		$364		$335
Increase (decrease) in non-controlling interests due to net consolidation (deconsolidation) of sponsored investment funds		($7)		($159)

See accompanying notes to condensed consolidated financial statements.

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 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 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 March 31, 2013, The PNC Financial Services Group, Inc. (“PNC”) held 20.7% of the Company’s voting common stock and 21.7% of the Company’s capital stock, which includes outstanding common and non-voting preferred stock.

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 revenue 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 condensed consolidated 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, 2012, which was filed with the Securities and Exchange Commission (“SEC”) on March 1, 2013 (“2012 Form 10-K”).

The interim financial information at March 31, 2013 and for the three months ended March 31, 2013 and 2012 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.

2. Significant Accounting Policies (continued)

Fair Value Measurements.

Hierarchy of Fair Value Inputs. The provisions of Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), establish a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and require companies to disclose the fair value of their financial instruments according to the fair value hierarchy (i.e., Level 1, 2 and 3 inputs, as defined). The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 Inputs:

Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

•

Level 1 assets may include listed mutual funds (including those accounted for under the equity method of accounting as these mutual funds are investment companies that have publicly available net asset values (“NAVs”), which in accordance with GAAP, are calculated under fair value measures and the changes are equal to the earnings of such funds), ETFs, listed equities and certain exchange-traded derivatives.

Level 2 Inputs:

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies. As a practical expedient, the Company relies on the NAV (or its equivalent) of certain investments as their fair value.

•

Level 2 assets may include debt securities, bank loans, short-term floating rate notes and asset-backed securities, securities held within consolidated hedge funds, certain equity method limited partnership interests in hedge funds valued based on NAV (or its equivalent) where the Company has the ability to redeem at the measurement date or within the near term without redemption restrictions, restricted public securities valued at a discount, as well as over-the-counter derivatives, including interest and inflation rate swaps and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.

Level 3 Inputs:

Unobservable inputs for the valuation of the asset or liability, which may include non-binding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation. Certain investments that are valued using a NAV (or its equivalent) and are subject to current redemption restrictions that will not be lifted in the near term are included in Level 3.

•

Level 3 assets may include general and limited partnership interests in private equity funds, funds of private equity funds, real estate funds, hedge funds and funds of hedge funds, direct private equity investments held within consolidated funds, bank loans and bonds.

2. Significant Accounting Policies (continued)

Fair Value Measurements (continued)

•

Level 3 liabilities include borrowings of consolidated collateralized loan obligations (“CLOs”) valued based upon non-binding single-broker quotes.

•

Level 3 inputs include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices.

Significance of Inputs. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

Valuation Techniques. The fair values of certain Level 3 assets and liabilities were determined using various methodologies as appropriate, including NAVs of underlying investments, third-party pricing vendors, broker quotes and market and income approaches. Such quotes and modeled prices are evaluated for reasonableness through various procedures, including due diligence reviews of third-party pricing vendors, variance analyses, consideration of the current market environment and other analytical procedures.

As a practical expedient, the Company relies on NAV as the fair value for certain investments. The inputs to value these investments may include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices. The various partnerships are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the fund to utilize pricing/valuation information, including independent appraisals, from third-party sources. However, in some instances, current valuation information for illiquid securities or securities in markets that are not active may not be available from any third-party source or fund management may conclude that the valuations that are available from third-party sources are not reliable. In these instances, fund management may perform model-based analytical valuations that may be used as an input to value these investments.

A significant amount of inputs used to value equity, debt securities and bank loans is sourced from well-recognized third-party pricing vendors. Generally, prices obtained from pricing vendors are categorized as Level 1 inputs for identical securities traded in active markets and as Level 2 for other similar securities if the vendor uses observable inputs in determining the price. Annually, BlackRock’s internal valuation committee or other designated groups review both the valuation methodologies, including the general assumptions and methods used to value various asset classes, and operational processes with these vendors. In addition, on a quarterly basis, meetings are held with the vendors to identify any significant changes to the vendors’ processes.

In addition, quotes obtained from brokers generally are non-binding and categorized as Level 3 inputs. However, if the Company is able to determine that market participants have transacted for the asset in an orderly manner near the quoted price or if the Company can determine that the inputs used by the broker are observable, the quote is classified as a Level 2 input.

Fair Value Option. ASC 825-10, Financial Instruments (“ASC 825-10”), provides a fair value option election that allows companies an irrevocable election to use fair value as the initial and

2. Significant Accounting Policies (continued)

Fair Value Measurements (continued)

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.

Derivative Instruments and Hedging Activities. ASC 815-10, Derivatives and Hedging (“ASC 815-10”), establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts and for hedging activities. ASC 815-10 generally requires an entity to recognize all derivatives as either assets or liabilities on the condensed consolidated statements of financial condition and to measure those investments at fair value.

The Company does not use derivative financial instruments for trading or speculative purposes. The Company uses derivative financial instruments primarily for purposes of hedging: (i) exposures to fluctuations in foreign currency exchange rates of certain assets and liabilities, (ii) market exposures for certain seed investments and (iii) future cash flows on floating-rate notes. The Company may also use derivatives within its separate account assets, which are segregated funds held for purposes of funding individual and group pension contracts. In addition, certain consolidated sponsored investment funds may also invest in derivatives as a part of their investment strategy.

Changes in the fair value of the Company’s derivative financial instruments are generally recognized in earnings and, where applicable, are offset by the corresponding gain or loss on the related foreign-denominated assets or liabilities or hedged investments, on the condensed consolidated statements of income.

Separate Account Assets and Liabilities. Separate account assets are maintained by a wholly owned subsidiary of the Company, which is a registered life insurance company in the United Kingdom, and represent segregated assets held for purposes of funding individual and group pension contracts. The life insurance company does not underwrite any insurance contracts that involve any insurance risk transfer from the insured to the life insurance company. The separate accounts assets primarily include equity, debt securities, money market funds and derivatives. The separate account assets are not subject to general claims of the creditors of BlackRock. These separate account assets and the related equal and offsetting liabilities are recorded as separate account assets and separate account liabilities on the condensed consolidated statements of financial condition in accordance with the ASC 944-80, Financial Services – Separate Accounts.

The net investment income attributable to separate account assets supporting individual and group pension contracts accrues directly to the contract owner and is not reported on the condensed consolidated statements of income. While BlackRock has no economic interest in these separate account assets and liabilities, BlackRock earns policy administration and management fees associated with these products, which are included in investment advisory, administration fees and securities lending revenue on the condensed consolidated statements of income.

Separate Account Collateral Assets Held and Liabilities Under Securities Lending Agreements. The Company facilitates securities lending arrangements whereby securities held

2. Significant Accounting Policies (continued)

Fair Value Measurements (continued)

by separate account assets maintained by BlackRock’s registered life insurance company are lent to third parties under global master securities lending agreements. In exchange, the Company receives collateral with minimum values generally ranging from approximately 102% to 112% of the value of the securities lent in order to reduce counterparty risk. The required collateral value is calculated on a daily basis. The global master securities lending agreements provide the Company, in the event of customer default, the right to liquidate collateral or to request additional collateral. Under the Company’s securities lending arrangements, the Company can resell or re-pledge the collateral and the borrower can resell or re-pledge the loaned securities. The securities lending transactions entered into by the Company are accompanied by an agreement that entitles the Company to request the borrower to return the securities at any time; therefore, these transactions are not reported as sales under ASC 860, Transfers and Servicing.

As a result of the Company’s ability to resell or re-pledge the collateral, the Company records on the condensed consolidated statements of financial condition the collateral received under these arrangements (both cash and non-cash) as its own asset in addition to an equal and offsetting collateral liability for the obligation to return the collateral. At March 31, 2013 and December 31, 2012, the fair value of loaned securities held by separate account assets was approximately $19.1 billion and $21.0 billion, respectively, and the fair value of the collateral held under these securities lending agreements was approximately $20.9 billion and $23.0 billion, respectively. During the three months ended March 31, 2013 and 2012, the Company had not re-sold or re-pledged any of the collateral received under these arrangements.

Appropriated Retained Earnings. Upon the initial consolidation of CLOs, BlackRock 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. The net change in the fair value of the CLOs’ assets and liabilities is recorded as net income (loss) attributable to nonredeemable non-controlling interests and as an adjustment to appropriated retained earnings.

Accounting Pronouncements Adopted in the Three Months Ended March 31, 2013

Amendments to Accumulated Other Comprehensive Income Disclosures. On February 5, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which added new disclosure requirements for items reclassified out of accumulated other comprehensive income (“AOCI”). See Note 14 for new disclosure.

Recent Accounting Pronouncements Not Yet Adopted

Cumulative Translation Adjustment. In March 2013, the FASB issued ASU 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”). ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. ASU 2013-05 is effective for the Company on January 1, 2014 and is not expected to have a material impact on the condensed consolidated financial statements.

3. Investments

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


(in millions)	March 31, 2013		December 31, 2012
Available-for-sale investments		$178		$158
Held-to-maturity investments		53		112
Trading investments:
Consolidated sponsored investment funds		151		123
Other equity securities and debt securities		98		94
Deferred compensation plan mutual funds		56		53

Total trading investments		305		270
Other investments:
Consolidated sponsored investment funds		413		401
Equity method investments		505		595
Deferred compensation plan hedge fund equity method investments		10		9
Cost method investments⁽¹⁾		120		120
Carried interest		127		85

Total other investments		1,175		1,210

Total investments		$1,711		$1,750

⁽¹⁾

Amounts primarily include Federal Reserve Bank Stock

At March 31, 2013, the Company consolidated $564 million of investments held by consolidated sponsored investment funds (non-variable interest entities (“VIEs”)) of which $151 million and $413 million were classified as trading investments and other investments, respectively. At December 31, 2012, the Company consolidated $524 million of investments held by consolidated sponsored investment funds (non-VIEs) of which $123 million and $401 million were classified as trading investments and other investments, respectively.

Available-for-Sale Investments

A summary of the cost and carrying value of investments classified as available-for-sale investments is as follows:


(in millions)
			Gross Unrealized				Carrying Value
March 31, 2013	Cost		Gains		Losses		Carrying Value
Equity securities of sponsored investment funds		$162		$14		($1)		$175
Other securities		1		2		-		3

Total available-for-sale investments		$163		$16		($1)		$178


			Gross Unrealized				Carrying Value
December 31, 2012	Cost		Gains		Losses		Carrying Value
Equity securities of sponsored investment funds		$142		$14		($1)		$155
Other securities		2		1		-		3

Total available-for-sale investments		$144		$15		($1)		$158

Available-for-sale investments primarily included seed investments in BlackRock sponsored investment mutual funds.

3. Investments (continued)

Held-to-Maturity Investments

The carrying value of held-to-maturity investments was $53 million and $112 million at March 31, 2013 and December 31, 2012, respectively. Held-to-maturity investments included foreign government debt held for regulatory purposes and the amortized cost (carrying value) of these investments approximated fair value. At March 31, 2013, $40 million of these investments would mature in one year or less and $13 million mature after 10 years.

Trading Investments

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


(in millions)	March 31, 2013				December 31, 2012
	Cost		Carrying Value		Cost		Carrying Value

Trading investments:
Deferred compensation plan mutual funds		$ 51		$ 56		$ 46		$ 53
Equity/Multi-asset class mutual funds		130		142		154		162
Debt securities/fixed income mutual funds:
Corporate debt		48		49		44		44
U.S. government debt		60		58		11		11

Total trading investments		$289		$305		$255		$270

At March 31, 2013, trading investments included $80 million of equity securities and $71 million of debt securities held by consolidated sponsored investment funds, $56 million of certain deferred compensation plan mutual fund investments and $98 million of other equity and debt securities.

Other Investments

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


(in millions)	March 31, 2013				December 31, 2012
	Cost		Carrying Value		Cost		Carrying Value

Other investments:
Consolidated sponsored investment funds		$389		$413		$378		$401
Equity method		437		505		541		595
Deferred compensation plan hedge fund equity method investments		9		10		15		9
Cost method investments:
Federal Reserve Bank stock		90		90		89		89
Other		18		30		31		31

Total cost method investments		108		120		120		120
Carried interest		-		127		-		85

Total other investments		$943		$1,175		$1,054		$1,210

Consolidated sponsored investment funds include third-party private equity funds, direct investments in private companies and third-party hedge funds held by BlackRock sponsored investment funds.

3. Investments (continued)

Other Investments (continued)

Equity method investments primarily include BlackRock’s direct investment in certain BlackRock sponsored investment funds.

Cost method investments include non-marketable securities, including Federal Reserve Bank stock, which is held for regulatory purposes and is restricted from sale. At March 31, 2013 and December 31, 2012, there were no indicators of impairment on these investments.

Carried interest represents allocations to BlackRock’s general partner capital accounts from certain funds. These balances are subject to change upon cash distributions, additional allocations or reallocations back to limited partners within the respective funds.

4. Consolidated Sponsored Investment Funds

The Company consolidates certain sponsored investment funds primarily because it is deemed to control such funds in accordance with GAAP. The investments owned by these consolidated sponsored investment funds are classified as trading or other investments. The following table presents the balances related to these consolidated funds that were included on the condensed consolidated statements of financial condition as well as BlackRock’s net interest in these funds:


(in millions)	March 31, 2013			December 31, 2012
Cash and cash equivalents		$117			$133
Investments:
Trading investments		151			123
Other investments		413			401
Other assets		15			25
Other liabilities		(51	)		(65	)
Non-controlling interests		(180	)		(187	)

BlackRock’s net interests in consolidated sponsored investment funds		$465			$430

BlackRock’s total exposure to consolidated sponsored investment funds of $465 million and $430 million at March 31, 2013 and December 31, 2012, respectively, represents the value of the Company’s economic ownership interest in these sponsored investment funds. Valuation changes associated with these consolidated investment funds are reflected in non-operating income (expense) and partially offset in net income (loss) attributable to non-controlling interests for the portion not attributable to BlackRock.

In addition, at March 31, 2013 and December 31, 2012, several consolidated CLOs and investment funds, which were deemed to be VIEs, were excluded from the balances in the table above as the balances for these investment products are reported separately on the condensed consolidated statements of financial condition. See Note 6 for further discussion on these consolidated investment products.

The Company may not be readily able to access cash and cash equivalents held by consolidated sponsored investment funds to use in its operating activities. In addition, the Company may not be readily able to sell investments held by consolidated sponsored investment funds in order to obtain cash for use in the Company’s operations.

5. Fair Value Disclosures

Fair Value Hierarchy

March 31, 2013

Assets measured at fair value on a recurring basis and other assets not held at fair value were as follows:


	Assets measured at fair value on a recurring basis
(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⁾		March 31, 2013

Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs)		$175		$-		$1		$-		$176
Debt securities		-		2		-		-		2

Total available-for-sale		175		2		1		-		178
Held-to-maturity:
Debt securities		-		-		-		53		53
Trading:
Deferred compensation plan mutual funds		56		-		-		-		56
Equity/Multi-asset class mutual funds		139		3		-		-		142
Debt securities / fixed income mutual funds		37		70		-		-		107

Total trading		232		73		-		-		305
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		3		39		84		-		126
Private / public equity⁽²⁾		7		16		264		-		287

Total consolidated sponsored investment funds		10		55		348		-		413
Equity method:
Hedge funds / Funds of hedge funds		-		65		136		53		254
Private equity investments		-		-		99		-		99
Real estate funds		-		19		91		9		119
Equity/Multi-asset class, alternative mutual funds		33		-		-		-		33

Total equity method		33		84		326		62		505
Deferred compensation plan hedge fund equity method investments		-		10		-		-		10
Cost method investments		-		-		-		120		120
Carried interest		-		-		-		127		127

Total investments		450		224		675		362		1,711

Separate account assets		97,815		38,536		-		951		137,302
Separate account collateral held under securities lending agreements:
Equity securities		19,275		-		-		-		19,275
Debt securities		-		1,664		-		-		1,664

Total separate account collateral held under securities lending agreements		19,275		1,664		-		-		20,939
Other assets⁽³⁾		-		12		-		-		12
Assets of consolidated VIEs:
Bank loans		-		2,125		97		-		2,222
Bonds		-		90		49		-		139
Private / public equity⁽⁴⁾		-		7		20		-		27
Fund of hedge funds		10		-		116				126

Total assets of consolidated VIEs		10		2,222		282		-		2,514

Total		$117,550		$42,658		$957		$1,313		$162,478

⁽¹⁾

Amounts comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include investment companies and other assets, which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.

⁽²⁾

Amount within Level 3 included $214 million and $50 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.

⁽³⁾

Amount included company-owned and split-dollar life insurance policies.

⁽⁴⁾

Amount within Level 3 included $19 million and $1 million of underlying third-party private equity funds and direct investments in private equity companies held by a private equity fund.

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Liabilities measured at fair value on a recurring basis at March 31, 2013 were as follows:


(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		March 31, 2013
Liabilities:
Borrowings of consolidated VIEs		$-		$-		$2,332		$2,332
Separate account collateral liabilities under securities lending agreements		19,275		1,664		-		20,939
Other liabilities⁽¹⁾		15		5		-		20

Total liabilities measured at fair value		$19,290		$1,669		$2,332		$23,291

⁽¹⁾

Amounts included a credit default swap (see Note 7 for more information) and securities sold short within consolidated sponsored investment funds recorded within other liabilities on the condensed consolidated statement of financial condition.

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

December 31, 2012

Assets measured at fair value on a recurring basis and other assets not held at fair value were as follows:


	Assets measured at fair value on a recurring basis
(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held at Fair Value ⁽¹⁾		December 31, 2012
Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs)	$	155	$	-	$	1	$	-	$	156
Debt securities		-		2		-		-		2

Total available-for-sale		155		2		1		-		158
Held-to-maturity:
Debt securities		-		-		-		112		112
Trading:
Deferred compensation plan mutual funds		53		-		-		-		53
Equity/Multi-asset class mutual funds		159		3		-		-		162
Debt securities / fixed income mutual funds		5		50		-		-		55

Total trading		217		53		-		-		270
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		3		39		73		-		115
Private / public equity⁽²⁾		10		10		266		-		286

Total consolidated sponsored investment funds		13		49		339		-		401
Equity method:
Hedge funds / Funds of hedge funds		-		61		161		39		261
Private equity investments		-		-		90		-		90
Real estate funds		-		19		88		15		122
Fixed income mutual funds		46		-		-		-		46
Equity/Multi-asset class, alternative mutual funds		76		-		-		-		76

Total equity method		122		80		339		54		595
Deferred compensation plan hedge fund equity method investments		-		9		-		-		9
Cost method investments		-		-		-		120		120
Carried interest		-		-		-		85		85

Total investments		507		193		679		371		1,750

Separate account assets		95,514		38,392		2		860		134,768
Separate account collateral held under securities lending agreements:
Equity securities		21,273		-		-		-		21,273
Debt securities		-		1,748		-		-		1,748

Total separate account collateral held under securities lending agreements		21,273		1,748		-		-		23,021
Other assets⁽³⁾		-		12		-		-		12
Assets of consolidated VIEs:
Bank loans		-		2,004		106		-		2,110
Bonds		-		78		46		-		124
Private / public equity⁽⁴⁾		2		6		22		-		30

Total assets of consolidated VIEs		2		2,088		174		-		2,264

Total	$	117,296	$	42,433	$	855	$	1,231	$	161,815

⁽¹⁾

⁽²⁾

Amount within Level 3 included $212 million and $54 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.

⁽³⁾

Amount included company-owned and split-dollar life insurance policies.

⁽⁴⁾

Amount within Level 3 included $20 million and $2 million of underlying third-party private equity funds and direct investments in private equity companies held by a private equity fund.

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Liabilities measured at fair value on a recurring basis at December 31, 2012 were as follows:


(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		December 31, 2012
Liabilities:
Borrowings of consolidated VIEs		$-		$-		$2,402		$2,402
Separate account collateral liabilities under securities lending agreements		21,273		1,748		-		23,021
Other liabilities⁽¹⁾		15		5		-		20

Total liabilities measured at fair value		$21,288		$1,753		$2,402		$25,443

⁽¹⁾

Amounts include a credit default swap (see Note 7, for more information) and securities sold short within consolidated sponsored investment funds recorded within other liabilities on the condensed consolidated statement of financial condition.

Level 3 Assets. Level 3 assets recorded within investments of $675 million and $679 million at March 31, 2013 and December 31, 2012, respectively, primarily related to equity method investments and consolidated sponsored investment funds. Level 3 assets within investments, except for direct investments in private equity companies held by private equity funds described below, were primarily valued based upon NAVs received from internal as well as third-party fund managers.

Direct investments in private equity companies held by private equity funds totaled $51 million and $56 million at March 31, 2013 and December 31, 2012, respectively. Direct investments in private equity companies may be valued using the market approach or the income approach, or a combination thereof, and were valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third-party financing, changes in valuations of comparable peer companies, the business environment of the companies, market indices, assumptions relating to appropriate risk adjustments for nonperformance and legal restrictions on disposition, among other factors. The fair value derived from the methods used is evaluated and weighted, as appropriate, considering the reasonableness of the range of values indicated. Under the market approach, fair value may be determined by reference to multiples of market-comparable companies or transactions, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. Under the income approach, fair value may be determined by discounting the expected cash flows to a single present value amount using current expectations about those future amounts. Unobservable inputs used in a discounted cash flow model may include projections of operating performance generally covering a five-year period and a terminal value of the private equity direct investment. For securities utilizing the discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, risk premium or discount for lack of marketability in isolation could result in a significantly lower (higher) fair value measurement. For securities utilizing the market comparable companies valuation technique, a

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.

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

Level 3 assets of consolidated VIEs include bank loans and bonds valued based on single-broker non-binding quotes and direct private equity investments and private equity funds valued based upon valuations received from internal as well as third-party fund managers, which may be adjusted by using the returns of certain market indices.

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

5. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2013


(in millions)	December 31, 2012		Realized and unrealized gains (losses) in earnings and OCI		Purchases		Sales and maturities		Issuances and other settlements⁽¹⁾		Transfers into Level 3		Transfers out of Level 3		March 31, 2013		Total net unrealized gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)		$1		$-		$-		$-		$-		$-		$-		$1		$-
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		73		4		12		-		-		-		(5)		84		4
Private equity		266		23		7		(29)		-		-		(3)		264		20
Equity method:
Hedge funds / Funds of hedge funds		161		4		1		-		(30)		-		-		136		4
Private equity investments		90		6		5		-		(2)		-		-		99		6
Real estate funds		88		1		2		-		-		-		-		91		2

Total Level 3 investments		679		38		27		(29)		(32)		-		(8)		675		36

Separate account assets		2		-		-		(2)		-		-		-		-		n/a	⁽³⁾
Assets of consolidated VIEs:
Bank loans		106		-		24		(11)		-		15		(37)		97
Bonds		46		(1)		4		-		-		-		-		49
Private equity		22		1		-		(3)		-		-		-		20
Fund of hedge funds		-		-		116		-		-		-		-		116

Total Level 3 assets of consolidated VIEs		174		-		144		(14)		-		15		(37)		282		n/a	⁽⁴⁾

Total Level 3 assets		$855		$38		$171		($45)		($32)		$15		($45)		$957

Liabilities:
Borrowings of consolidated VIEs		$2,402		($10)		$-		$-		($80)		$-		$-		$2,332		n/a	⁽⁴⁾

n/a

– not applicable

⁽¹⁾Amount

primarily includes distributions from equity method investees and repayment of borrowings of consolidated VIEs.

⁽²⁾Earnings

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

⁽³⁾The

net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the condensed consolidated statements of income.

⁽⁴⁾The

net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the condensed consolidated statements of income.

5. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2012


(in millions)	December 31, 2011		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			March 31, 2012		Total net unrealized gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)		$1		$-			$-		$-			$-			$-		$-			$1		$-
Consolidated sponsored investment funds:
Hedge funds / Funds of hedge funds		22		1			27		-			-			3		-			53		1
Private equity		313		29			5		(18	)		-			-		-			329		27
Equity method:
Hedge funds / Funds of hedge funds		193		16			-		-			(12	)		-		-			197		16
Private equity investments		85		4			2		-			(2	)		-		-			89		4
Real estate funds		88		-			7		-			-			-		-			95		-

Total Level 3 investments		702		50			41		(18	)		(14	)		3		-			764		48

Separate account assets		10		1			1		(9	)		-			11		(1	)		13		n/a	⁽³⁾
Assets of consolidated VIEs:
Bank loans		83		-			7		(6	)		-			5		(42	)		47
Bonds		40		2			2		-			-			-		-			44
Private equity		27		3			-		(2	)		-			-		-			28

Total Level 3 assets of consolidated VIEs		150		5			9		(8	)		-			5		(42	)		119		n/a	⁽⁴⁾

Total Level 3 assets		$862		$56			$51		($35	)		($14	)		$19		($43	)		$896

Liabilities:
Borrowings of consolidated VIEs		$1,574		($49	)		$-		$-			($76	)		$-		$-			$1,547		n/a	⁽⁴⁾

n/a – not applicable

⁽¹⁾

Amount primarily includes distributions from equity method investees and repayments of borrowings of consolidated VIEs.

⁽²⁾Earnings

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

⁽³⁾The

net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the condensed consolidated statements of income.

⁽⁴⁾The

net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the condensed consolidated statements of income.

5. Fair Value Disclosures (continued)

Realized and Unrealized Gains (Losses) for Level 3 Assets and Liabilities. Realized and unrealized gains (losses) recorded for Level 3 assets and liabilities are reported in non-operating income (expense) on the condensed consolidated statements of income. A portion of net income (loss) for consolidated investments and all of the net income (loss) for consolidated VIEs are allocated to non-controlling interests to reflect net income (loss) not attributable to the Company.

Transfers in and/or out of Levels. Transfers in and/or out of levels are reflected when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable / unobservable, or when the Company determines it has the ability, or no longer has the ability, to redeem, in the near term, certain investments that the Company values using a NAV (or a capital account), or when the book value of certain equity method investments no longer represents fair value as determined under valuation methodologies.

Assets of Consolidated VIEs. During the three months ended March 31, 2013 and 2012, there were $37 million and $42 million, respectively, of transfers out of Level 3 to Level 2 related to bank loans. In addition, during the three months ended March 31, 2013 and 2012, there were $15 million and $5 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of Levels 2 and 3 were primarily due to availability/unavailability of observable market inputs, including inputs from pricing vendors and brokers.

Consolidated Sponsored Investment Funds. During the three months ended March 31, 2013, there were $12 million of transfers out of Level 1 to Level 2 related to consolidated private equity funds. This transfer was due to a direct investment in a public company held by a consolidated private equity fund valued at a discount due to restrictions on sale.

Significant Other Settlements. During the three months ended March 31, 2013 and 2012, there were $32 million and $14 million, respectively, of distributions from equity method investees categorized in Level 3.

Disclosures of Fair Value for Financial Instruments Not Held at Fair Value. At March 31, 2013 and December 31, 2012, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below:


	March 31, 2013				December 31, 2012
(in millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Fair Value Hierarchy
Financial Assets:
Cash and cash equivalents	$	3,942	$	3,942	$	4,606	$	4,606		Level 1	⁽¹⁾
Accounts receivable		2,618		2,618		2,250		2,250		Level 1	⁽²⁾
Due from related parties		73		73		77		77		Level 1	⁽²⁾
Cash and cash equivalents of consolidated VIEs		290		290		297		297		Level 1	⁽¹⁾
Financial Liabilities:
Accounts payable and accrued liabilities		1,657		1,657		1,055		1,055		Level 1	⁽²⁾
Due to related parties		13		13		14		14		Level 1	⁽²⁾
Short-term borrowings		-		-		100		100		Level 1	⁽²⁾
Long-term borrowings		5,687		6,234		5,687		6,275		Level 2	⁽³⁾

⁽¹⁾

Cash and cash equivalents are carried at either cost or amortized cost that approximates fair value due to their short-term maturities. At March 31, 2013 and December 31, 2012, approximately $117 million and $133 million, respectively, related to cash and cash equivalents held by consolidated sponsored investment funds. Money market

5. Fair Value Disclosures (continued)

funds are valued through the use of quoted market prices, or $1.00, which generally is the NAV of the fund. At March 31, 2013 and December 31, 2012, approximately $65 million and $98 million, respectively, of money market funds were recorded within cash and cash equivalents on the condensed consolidated statements of financial condition.

⁽²⁾

The carrying amounts of accounts receivable, due from related parties, accounts payable and accrued liabilities, due to related parties and short-term borrowings approximate fair value due to their short-term nature.

⁽³⁾

Long-term borrowings are recorded at amortized cost. The fair value of the long-term borrowings, including the current portion of long-term borrowings, is estimated using market prices at the end of March 2013 and December 2012, respectively. See Note 10 for further information on the March 31, 2013 fair value of the Company’s long-term borrowings.

Investments in Certain Entities that Calculate Net Asset Value Per Share.

As a practical expedient to value certain investments that do not have a readily determinable fair value and have attributes of an investment company, the Company relies on NAV as the fair value for certain investments. The following tables list information regarding all investments that use a fair value measurement to account for both their financial assets and financial liabilities in their calculation of a NAV per share (or its equivalent).

March 31, 2013

(in millions)

Ref

Fair Value

Total Unfunded
Commitments

Redemption
Frequency

Redemption
Notice Period

Trading:

Equity

(a)

Daily (100%)

None

Consolidated sponsored investment funds:

Private equity funds of funds

(b)

214

n/r

Other funds of hedge funds

(c)

110

Monthly (19%),

Quarterly (13%), n/r (68%)

2 – 90 days

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds

(d)

200

Monthly (3%), Quarterly (32%)

n/r (65%)

15 – 90 days

Private equity funds

(e)

n/r

Real estate funds

(f)

110

Quarterly (17%)

n/r (83%)

60 days

Deferred compensation plan hedge fund investments

(g)

Monthly (30%), Quarterly (70%)

60 – 90 days

Consolidated VIEs:

Private equity fund

(h)

n/r

Fund of hedge funds

(i)

116

Quarterly (100%)

90 days

Total

$881

$201

n/r

– not redeemable

⁽¹⁾

Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for their financial assets and most financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.

5. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)

December 31, 2012


(in millions)	Ref			Fair Value		Total Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Trading:
Equity		(a	)	$	3	$	-	Daily (100%)	None
Consolidated sponsored investment funds:
Private equity funds of funds		(b	)		212		32	n/r	n/r
Other funds of hedge funds		(c	)		98		-	Monthly (22%) Quarterly (11%) n/r (67%)	1 – 90 days
Equity method:⁽¹⁾
Hedge funds/funds of hedge funds		(d	)		222		42	Monthly (2%) Quarterly (28%) n/r (70%)	15 – 90 days

Private equity funds		(e	)		90		135	n/r	n/r
Real estate funds		(f	)		107		15	Quarterly (18%) n/r (82%)	60 days

Deferred compensation plan hedge fund investments		(g	)		9		-	Monthly (33%) Quarterly (67%)	60 – 90 days

Consolidated VIE:
Private equity funds		(h	)		20		1	n/r	n/r

Total				$	761	$	225

n/r

– not redeemable

⁽¹⁾

(a)

This category includes consolidated offshore feeder funds that invest in master funds with multiple equity strategies to diversify risks. The fair values of the investments in this category have been estimated using the NAV of master offshore funds held by the feeder funds. Investments in this category generally can be redeemed at any time, as long as there are no restrictions in place by the underlying master funds.

(b)

This category includes the underlying third-party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds, the Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately seven years at both March 31, 2013 and December 31, 2012. The total remaining unfunded commitments to other third-party funds were $28 million and $32 million at March 31, 2013 and December 31, 2012, respectively. The Company was contractually obligated to fund $30 million at both March 31, 2013 and December 31, 2012 to the consolidated funds.

5. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)

(c)

This category includes consolidated funds of hedge funds that invest in multiple strategies to diversify risks. The fair values of the investments have been estimated using the NAV of the fund’s ownership interest in partners’ capital of each fund in the portfolio. Certain of the underlying funds can be redeemed as long as there are no restrictions in place. At March 31, 2013 and December 31, 2012, the underlying funds that are currently restricted from redemptions within one year will be redeemable in approximately 12 to 24 months. This category also includes a consolidated offshore feeder fund that invests in a master fund with multiple alternative investment strategies. The fair value of this investment has been estimated using the NAV of the master offshore fund held by the feeder fund. The investment is currently subject to restrictions in place by the underlying master fund.

(d)

This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit and mortgage instruments and other third-party hedge funds. The fair values of the investments have been estimated using the NAV of the Company’s ownership interest in partners’ capital. It was estimated that the investments in the funds that are not subject to redemption will be liquidated over a weighted-average period of approximately five years at both March 31, 2013 and December 31, 2012.

(e)

This category includes several private equity funds that initially invest in non-marketable securities of private companies, which ultimately may become public in the future. The fair values of these investments have been estimated using capital accounts representing the Company’s ownership interest in the funds as well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying assets of the private equity funds. It was estimated that the investments in these funds will be liquidated over a weighted-average period of approximately five years at both March 31, 2013 and December 31, 2012.

(f)

This category includes several real estate funds that invest directly in real estate and real estate related assets. The fair values of the investments have been estimated using capital accounts representing the Company’s ownership interest in the funds. A majority of the Company’s investments are not subject to redemption or are not currently redeemable and is normally returned through distributions as a result of the liquidation of the underlying assets of the real estate funds. It is estimated that the investments in these funds not subject to redemptions will be liquidated over a weighted-average period of approximately seven years at March 31, 2013 and eight years at December 31, 2012.

(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 capital accounts representing the Company’s ownership interest in partners’ capital as well as performance inputs. The investments in these funds will be liquidated upon settlement of certain deferred compensation liabilities.

(h)

This category includes the underlying third-party private equity funds within one consolidated BlackRock sponsored private equity fund of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds the Company may sell or transfer its interest, which may need approval by the general partner of the underlying third-party funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately two years at March 31, 2013 and three years at December 31, 2012. Total remaining unfunded commitments to other third-party funds were $1 million at both March 31, 2013 and December 31, 2012, which commitments are required to be funded by capital contributions from non-controlling interest holders.

(i)

This category includes consolidated fund of hedge funds that invests in multiple strategies to diversify risks. The fair values of the investments have been estimated using the NAV of the fund’s ownership interest in partners’ capital of each fund in the portfolio. The majority of the underlying funds can be redeemed as long as there are no restrictions in place. At March 31, 2013, the underlying funds that are currently restricted from redemptions within one year will be redeemable in approximately 12 to 24 months.

Fair Value Option. Upon the initial consolidation of certain CLOs, the Company elected to adopt the fair value option provisions for eligible assets and liabilities, including bank loans and borrowings of the CLOs to mitigate accounting mismatches between the carrying value of the assets and liabilities and to achieve operational simplification. To the extent there is a difference between the change in fair value of the assets and liabilities, the difference will be reflected as net income (loss) attributable to nonredeemable non-controlling interests on the condensed consolidated statements of income and offset by a change in appropriated retained earnings on the condensed consolidated statements of financial condition.

5. Fair Value Disclosures (continued)

The following table summarizes information related to those assets and liabilities selected for fair value accounting as of March 31, 2013 and December 31, 2012:


(in millions)	March 31, 2013		December 31, 2012
CLO Bank Loans:
Aggregate principal amounts outstanding		$2,216		$2,124

Fair value		2,222		2,110

Aggregate unpaid principal balance in excess of/(less than) fair value		($6)		$14

Unpaid principal balance of loans more than 90 days past due		$5		$4
Aggregate fair value of loans more than 90 days past due		-		-

Aggregate unpaid principal balance in excess of fair value for loans more than 90 days past due		$5		$4


CLO Borrowings:
Aggregate principal amounts outstanding		$2,455		$2,535
Fair value		$2,332		$2,402

At March 31, 2013, the principal amounts outstanding of the borrowings issued by the CLOs mature between 2016 and 2025.

During the three months ended March 31, 2013 and 2012, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $72 million gain and a $56 million gain, respectively, which were offset by a $41 million loss and a $67 million loss, respectively, from the change in fair value of the CLO borrowings.

The net gains (losses) were recorded in net gain (loss) on consolidated VIEs on the condensed consolidated statements of income.

The change in fair value of the assets and liabilities included interest income and expense, respectively.

6. Variable Interest Entities

In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, including CDOs/CLOs and sponsored investment funds, which may be considered VIEs. The Company receives advisory fees and/or other incentive-related fees for its services and may from time to time own equity or debt securities or enter into derivatives with the vehicles, each of which are considered variable interests. The Company enters into these variable interests principally to address client needs through the launch of such investment vehicles. The VIEs are primarily financed via capital contributed by equity and debt holders. The Company’s involvement in financing the operations of the VIEs is generally limited to its equity interests.

The primary beneficiary (“PB”) of a VIE that is an investment fund that meets the conditions of ASU 2010-10, Amendments to Statement 167 for Certain Investment Funds (“ASU 2010-10”), is the

6. Variable Interest Entities (continued)

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. In order to determine whether the Company is the PB 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.

The PB of a CDO/CLO or other entity 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 entity.

Consolidated VIEs. Consolidated VIEs included CLOs in which BlackRock did not have an investment; however, BlackRock, as the collateral manager, was deemed to have both the power to control the activities of the CLOs and the right to receive benefits that could potentially be significant to the CLOs. In addition, BlackRock was the PB of several investment funds because it absorbed the majority of the variability due to its de facto third-party relationships with other partners in the funds. 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 March 31, 2013 and December 31, 2012, the following balances related to VIEs were consolidated on the condensed consolidated statements of financial condition:


(in millions)	March 31, 2013		December 31, 2012
Assets of consolidated VIEs:
Cash and cash equivalents		$290		$297
Bank loans		2,222		2,110
Bonds		139		124
Other investments		153		30

Total bank loans, bonds and other investments		2,514		2,264
Liabilities of consolidated VIEs:
Borrowings		(2,332)		(2,402)
Other liabilities		(275)		(103)
Appropriated retained earnings		(55)		(29)
Non-controlling interests of consolidated VIEs		(142)		(27)

Total BlackRock net interests in consolidated VIEs		$—		$—

For the three months ended March 31, 2013 and 2012, the Company recorded non-operating income of $27 million and a non-operating loss of $12 million, respectively, offset by $27 million net income attributable to nonredeemable non-controlling interests and a $12 million net loss attributable to nonredeemable non-controlling interests, respectively, on the condensed consolidated statements of income.

At March 31, 2013 and December 31, 2012, the weighted-average maturities of the bank loans and bonds were approximately 4.7 and 4.5 years, respectively.

6. Variable Interest Entities (continued)

Non-Consolidated VIEs. At March 31, 2013 and December 31, 2012, the Company’s carrying value of assets and liabilities and its maximum risk of loss related to VIEs for which it was the sponsor or in which it held a variable interest, but for which it was not the PB, were as follows:


(in millions)	Variable Interests on the Condensed Consolidated Statement of Financial Condition
*At March 31, 2013*	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)		Maximum Risk of Loss⁽¹⁾
CDOs/CLOs	$	1	$	2		($5)	$	20
Other sponsored investment funds:
Collective trusts		—		206		—		206
Other		18		78		—		96

Total	$	19	$	286		($5)	$	322

*At December 31, 2012*
CDOs/CLOs	$	1	$	1		($5)	$	19
Other sponsored investment funds:
Collective trusts		—		248		—		248
Other		17		61		(3)		77

Total	$	18	$	310		($8)	$	344

⁽¹⁾	At both March 31, 2013 and December 31, 2012, BlackRock’s maximum risk of loss associated with these VIEs primarily related to: (i) advisory fee receivables; (ii) BlackRock’s investments; and (iii) $17 million of credit protection sold by BlackRock to a third party in a synthetic CDO transaction.

The net assets related to the above CDOs/CLOs and other sponsored investment funds, including collective trusts, that the Company does not consolidate were as follows:

CDOs/CLOs


(in billions)	March 31, 2013		December 31, 2012
Assets at fair value		$4		$4
Liabilities⁽¹⁾		5		5

Net assets		($1)		($1)

⁽¹⁾	Amounts primarily comprised of unpaid principal debt obligations to CDO/CLO debt holders.

Other sponsored investments funds. Net assets of other sponsored investment funds that are non-consolidated VIEs approximated $1.5 trillion to $1.6 trillion at both March 31, 2013 and December 31, 2012. Net assets included $1.3 trillion of collective trusts at March 31, 2013 and December 31, 2012. Each collective trust has been aggregated separately and may include collective trusts that invest in other collective trusts. The net assets of these VIEs primarily are comprised of cash and cash equivalents and investments offset by liabilities primarily comprised of various accruals for the sponsored investment vehicles.

7. Derivatives and Hedging

In May 2011, the Company entered into a designated cash flow hedge consisting of a $750 million interest rate swap maturing in 2013 to hedge future cash flows on the Company’s floating rate notes due in 2013. Interest on this swap is at a fixed rate of 1.03%, payable semi-annually on May 24 and November 24 of each year. The fair value of the interest rate swap at March 31, 2013 and December 31, 2012 was not material.

The Company maintains a program to enter into total return swaps to hedge against market price exposures with respect to certain seed investments in sponsored investment products. At both March 31, 2013 and December 31, 2012, the Company had 21 outstanding total return swaps, respectively, with an aggregate notional value of approximately $127 million and $206 million, respectively. The fair value of the outstanding total return swaps at March 31, 2013 and December 31, 2012 was not material.

Market risk from forward foreign currency exchange contracts is the effect on the value of a financial instrument that results from a change in currency exchange rates. The Company manages certain exposure to market risk associated with foreign currency exchange contracts by establishing and monitoring parameters that limit the types and degrees of market risk that may be undertaken. At March 31, 2013 and December 31, 2012, the Company had outstanding forward foreign currency exchange contracts with an aggregate notional value of approximately $66 million and $79 million, respectively. The fair value of the forward foreign currency exchange contracts at March 31, 2013 and December 31, 2012 was not material.

The Company entered into a credit default swap, providing credit protection to the counterparty of approximately $17 million, representing the Company’s maximum risk of loss with respect to the provision of credit protection. The Company carries the credit default swap at fair value based on the expected future cash flows under the arrangement. The fair value of the credit default swap was $5 million at both March 31, 2013 and December 31, 2012 and was included in other liabilities on the condensed consolidated statements of financial condition.

Gains (losses) on total return swaps are recorded in non-operating income (expense) on the condensed consolidated statements of income and were ($7) million and ($12) million for the three months ended March 31, 2013 and 2012, respectively.

Gains (losses) on the interest rate swap, forward foreign currency exchange contracts and credit default swap were immaterial for the three months ended March 31, 2013 and 2012.

The Company consolidates certain sponsored investment funds, which may utilize derivative instruments as a part of the funds’ investment strategies. The fair value of such derivatives at March 31, 2013 and December 31, 2012 was not material. The change in fair value of such derivatives, which is recorded in non-operating income (expense), was not material for the three months ended March 31, 2013 and 2012.

8. Goodwill

Goodwill activity during the three months ended March 31, 2013 was as follows:


(in millions)
December 31, 2012			$12,910
Goodwill adjustment related to Quellos and other⁽¹⁾			(6)

March 31, 2013			$12,904

⁽¹⁾

The decrease in goodwill during the three months ended March 31, 2013 primarily resulted from a decline related to tax benefits realized from tax-deductible goodwill in excess of book goodwill from the acquisition of the fund-of-funds business of Quellos Group, LLC in October 2007 (the “Quellos Transaction”). Goodwill related to the Quellos Transaction will continue to be reduced in future periods by the amount of tax benefits realized from tax-deductible goodwill in excess of book goodwill from the Quellos Transaction. The balance of the Quellos tax-deductible goodwill in excess of book goodwill was approximately $316 million and $324 million at March 31, 2013 and December 31, 2012, respectively.

9. Intangible Assets

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


(in millions)	Indefinite-lived intangible assets		Finite-lived intangible assets		Total intangible assets
December 31, 2012		$16,760		$642		$17,402
Amortization expense		—		(40)		(40)

March 31, 2013		$16,760		$602		$17,362

10. Borrowings

Short-Term Borrowings

2013 Revolving Credit Facility. In March 2013, the Company’s credit facility was amended to extend the maturity date by one year to March 2018 and the amount of the aggregate commitment was increased to $3.990 billion (the “2013 credit facility”). The 2013 credit facility permits the Company to request an additional $1.0 billion of borrowing capacity, subject to lender credit approval, increasing the overall size of the 2013 credit facility to an aggregate principal amount not to exceed $4.990 billion. Interest on borrowings outstanding accrues at a rate based on the applicable London Interbank Offered Rate plus a spread. The 2013 credit facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to earnings before interest, taxes, depreciation and amortization, where net debt equals total debt less unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 1 to 1 at March 31, 2013. At March 31, 2013, the Company had no amount outstanding under the 2013 credit facility.

Commercial Paper Program. In April 2013, BlackRock increased the maximum aggregate amount for which the Company could issue unsecured commercial paper notes (the “CP Notes”) on a private-placement basis up to a maximum aggregate amount outstanding at any time of $3.990 billion. The commercial paper program is currently supported by the 2013 credit facility.

As of March 31, 2013 and December 31, 2012, BlackRock had no CP Notes outstanding.

10. Borrowings (continued)

Long-Term Borrowings

The carrying value and fair value of long-term borrowings determined using market prices at the end of March 2013 included the following:


(in millions)	Maturity Amount		Unamortized Discount		Carrying Value		Fair Value

Floating Rate Notes due 2013		$750		$ —		$750		$750
3.50% Notes due 2014		1,000		—		1,000		1,051
1.375% Notes due 2015		750		—		750		764
6.25% Notes due 2017		700		(3)		697		852
5.00% Notes due 2019		1,000		(2)		998		1,180
4.25% Notes due 2021		750		(4)		746		843
3.375% Notes due 2022		750		(4)		746		794

Total Long-term Borrowings		$ 5,700		($13)		$ 5,687		$ 6,234

Long-term borrowings at December 31, 2012 had a carrying value of $5.687 billion and a fair value of $6.275 billion determined using market prices at the end of December 2012.

See Note 11, Borrowings, in the 2012 Form 10-K for more information.

11. Commitments and Contingencies

Investment Commitments. At March 31, 2013, the Company had $217 million of various capital commitments to fund sponsored investment funds, including funds of private equity funds, real estate funds, infrastructure funds, opportunistic funds and distressed credit funds. This amount excludes additional commitments made by consolidated funds of funds to underlying third-party funds as third-party non-controlling interest holders have the legal obligation to fund the respective commitments of such funds of funds. Generally, the timing of the funding of these commitments is unknown and the commitments are callable on demand at any time prior to the expiration of the commitment. These unfunded commitments are not recorded on the condensed consolidated statements of financial condition. These commitments do not include potential future commitments approved by the Company, but which are not yet legally binding. The Company intends to make additional capital commitments from time to time to fund additional investment products for, and with, its clients.

Contingencies

Contingent Payments. The Company acts as the portfolio manager in a series of credit default swap transactions and has a maximum potential exposure of $17 million under a credit default swap between the Company and counterparty. See Note 7, Derivatives and Hedging, for further discussion.

Legal Proceedings. From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and domestic and international regulatory authorities in connection with certain industry-wide or other investigations or proceedings. It is BlackRock’s policy to cooperate fully with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations and other litigation arising in connection with BlackRock’s activities. Additionally, certain of the investment funds that the Company manages are subject to lawsuits, any of which potentially could harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages.

11. Commitments and Contingencies (continued)

Contingencies (continued)

Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability, if any, arising out of regulatory matters or lawsuits will have a material effect on BlackRock’s results of operations, financial position, or cash flows. However, there is no assurance as to whether any such pending or threatened matters will have a material effect on BlackRock’s results of operations, financial position or cash flows in any future reporting period. Due to uncertainties surrounding the outcome of these matters, management cannot reasonably estimate the possible loss or range of loss that may arise from these matters.

Indemnifications. In the ordinary course of business or in connection with certain acquisition agreements, BlackRock enters into contracts pursuant to which it may agree to indemnify third parties in certain circumstances. The terms of these indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined or is considered remote. Consequently, no liability has been recorded on the condensed consolidated statements of financial condition.

In connection with securities lending transactions, BlackRock has issued certain indemnifications to certain securities lending clients against potential loss resulting from a borrower’s failure to fulfill its obligations under the securities lending agreement should the value of the collateral pledged by the borrower at the time of default be insufficient to cover the borrower’s obligation under the securities lending agreement. At March 31, 2013, the Company indemnified certain of its clients for their securities lending loan balances of approximately $101.2 billion. The Company held as agent, cash and securities totaling $106.4 billion as collateral for indemnified securities on loan at March 31, 2013. The fair value of these indemnifications was not material at March 31, 2013.

12. Stock-Based Compensation

Restricted stock and restricted stock units (“RSUs”) activity for the three months ended March 31, 2013 is summarized below:


Outstanding at	Restricted Stock and RSUs		Weighted- Average Grant Date Fair Value
December 31, 2012		5,620,835		$197.90
Granted		1,559,324		$232.47
Converted		(2,313,218)		$205.19
Forfeited		(14,258)		$196.79

March 31, 2013⁽¹⁾		4,852,683		$205.53

⁽¹⁾	At March 31, 2013, approximately 4.5 million awards are expected to vest and 0.3 million awards have vested but have not been converted.

The Company values restricted stock and RSUs at their grant-date fair value as measured by BlackRock’s common stock price.

In January 2013, the Company granted 1,172,381 RSUs to employees as part of annual incentive compensation that vest ratably over three years from the date of grant and 370,812 RSUs to employees that cliff vest 100% on January 31, 2016.

At March 31, 2013, the intrinsic value of outstanding RSUs was $1.2 billion.

12. Stock-Based Compensation (continued)

At March 31, 2013, total unrecognized stock-based compensation expense related to unvested RSUs was $532 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.5 years.

Market Performance-based RSUs.

Market performance-based RSU activity for the three months ended March 31, 2013 is summarized below:


Outstanding at	Market Performance- Based RSUs		Weighted- Average Grant Date Fair Value
December 31, 2012		575,532	$	115.03
Granted		556,581	$	126.76

March 31, 2013⁽¹⁾		1,132,113	$	120.80

⁽¹⁾	At March 31, 2013, approximately 1.1 million awards are expected to vest and no awards have vested and have been converted.

The 556,581 market performance-based RSUs that the Company granted in January 2013 will be funded primarily by shares currently held by PNC (see Long-Term Incentive Plans Funded by PNC below).

At March 31, 2013, total unrecognized stock-based compensation expense related to unvested market performance-based awards was $114 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 3.3 years.

Long-Term Incentive Plans Funded by PNC. Under a share surrender agreement, PNC committed to provide up to 4 million shares of BlackRock stock, held by PNC, to fund certain BlackRock long-term incentive plans (“LTIP”). The current share surrender agreement commits PNC to provide BlackRock series C non-voting participating preferred stock to fund the remaining committed shares. During 2007 through 2011, approximately 2.5 million shares were surrendered by PNC and in January 2013, 0.2 million shares were surrendered.

At March 31, 2013, the remaining shares committed by PNC of approximately 1.3 million were available to fund future long-term incentive awards.

Stock Options. Stock option activity for the three months ended March 31, 2013 is summarized below:


Outstanding at	Shares Under Option		Weighted- Average Exercise Price
December 31, 2012		1,099,909	$	167.76
Exercised		(21,032)	$	167.76

March 31, 2013⁽¹⁾		1,078,877	$	167.76

⁽¹⁾	At March 31, 2013, all options were vested. The aggregate intrinsic value of options exercised during the three months ended March 31, 2013 was $1.5 million.

13. Net Capital Requirements

The Company is required to maintain net capital in certain regulated subsidiaries within a number of jurisdictions, which is partially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions. As a result, such subsidiaries of the Company may be restricted in their ability to transfer cash between different jurisdictions and to their parents. Additionally, transfers of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers.

Capital Requirements. At March 31, 2013, the Company was required to maintain approximately $1,179 million in net capital in certain regulated subsidiaries, including BlackRock Institutional Trust Company, N.A. (a chartered national bank whose powers are limited to trust activities and which is subject to regulatory capital requirements administered by the Office of the Comptroller of the Currency), entities regulated by the Financial Services Authority (Financial Conduct Authority and Prudential Regulation Authority as of April 1, 2013) in the United Kingdom and the Company’s broker-dealers and was in compliance with all applicable regulatory net capital requirements.

14. Accumulated Other Comprehensive Income (Loss)

The following table presents changes in AOCI by component for the three months ended March 31, 2013:


(in millions)	Unrealized gains and (losses) on available-for-sale investments			Benefit plans			Foreign currency translation adjustments			Total ⁽¹⁾
December 31, 2012		$16			($4	)		($71)			($59	)
Other comprehensive income (loss) before reclassifications		4			-			(108	)		(104	)
Amount reclassified from AOCI⁽²⁾		(3	)		-			-			(3	)

Net other comprehensive income (loss) for the three months ended March 31, 2013		1			-			(108	)		(107	)

March 31, 2013		$17			($4	)		($179	)		($166	)

⁽¹⁾	All amounts are net of tax.

⁽²⁾	Amount related to realized gains (losses) on available-for-sale investments, net of tax benefit (expense) of $1 million reclassified from AOCI to net gain (loss) on investments on the condensed consolidated statement of income during the three months ended March 31, 2013.

15. Capital Stock

Non-voting Participating Preferred Stock. The Company’s preferred shares authorized, issued and outstanding consisted of the following:


	March 31, 2013		December 31, 2012
Series A
Shares authorized, $0.01 par value		20,000,000		20,000,000
Shares issued and outstanding		-		-
Series B
Shares authorized, $0.01 par value		150,000,000		150,000,000
Shares issued and outstanding		823,188		823,188
Series C
Shares authorized, $0.01 par value		6,000,000		6,000,000
Shares issued and outstanding		1,311,887		1,517,237
Series D
Shares authorized, $0.01 par value		20,000,000		20,000,000
Shares issued and outstanding		-		-

Share Repurchase Approval. In January 2013, the Board of Directors approved an increase in the availability, under the Company’s existing share repurchase program, to allow for the repurchase of up to 10.2 million shares of BlackRock common stock. The Company repurchased 1.0 million common shares in open market transactions under the share repurchase program for approximately $250 million during the three months ended March 31, 2013. At March 31, 2013, there were 9.2 million shares still authorized to be repurchased.

16. Earnings Per Share

Prior to the quarter ended March 31, 2013, the Company calculated earnings per share (“EPS”) pursuant to the two-class method as defined in ASC 260-10, Earnings per Share (“ASC 260-10”), which specifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends or dividend equivalents are considered participating securities and should be included in the computation of EPS pursuant to the two-class method. The majority of the Company’s participating securities vested in January 2013 and, therefore, beginning in the quarter ended March 31, 2013, the Company calculates EPS under the treasury stock method.

Due to the similarities in terms between BlackRock non-voting participating preferred stock and the Company’s common stock, the Company considers its participating preferred stock to be a common stock equivalent for purposes of EPS calculations. As such, the Company has included the outstanding non-voting participating preferred stock in the calculation of average basic and diluted shares outstanding.

16. Earnings Per Share (continued)

The following table sets forth the computation of basic and diluted EPS for the quarter ended March 31, 2013 under the treasury stock method:


(in millions, except per share data)	Three Months Ended March 31, 2013
Net income attributable to BlackRock		$632

Basic weighted-average shares outstanding		171,301,800
Dilutive effect of:
Non-participating RSUs and stock options		3,259,332

Total diluted weighted-average shares outstanding		174,561,132


Basic earnings per share		$3.69
Diluted earnings per share		$3.62

The following table sets forth the computation of basic and diluted EPS for the quarter ended March 31, 2012 under the two-class method:


(in millions, except per share data)	Three Months Ended March 31, 2012
Net income attributable to BlackRock		$572
Less:
Dividends distributed to common shares		285

Undistributed net income attributable to BlackRock		287
Percentage of undistributed net income allocated to common shares⁽¹⁾		99.8%
Undistributed net income allocated to common shares		286
Plus:
Common share dividends		285

Net income attributable to common shares		$571

Basic weighted-average shares outstanding		179,022,840
Dilutive effect of:
Non-participating RSUs and stock options		2,895,024

Total diluted weighted-average shares outstanding		181,917,864

Earnings per basic share attributable to BlackRock common stockholders		$3.19
Earnings per dilutive share attributable to BlackRock common stockholders		$3.14

⁽¹⁾

Allocation to common stockholders was based on the total of common and participating security stockholders (which represent unvested RSUs that contain nonforfeitable rights to dividends). For the three months ended March 31, 2012, average outstanding participating securities were 0.2 million.

17. Segment Information

The Company’s management directs BlackRock’s operations as one business, the asset management business. As such, the Company operates in one business segment in accordance with ASC 280-10, Segment Reporting.

The following table illustrates investment advisory, administration fees, securities lending revenue and performance fees, BlackRock Solutions^® and advisory revenue, distribution fees and other revenue for the three months ended March 31, 2013 and 2012, respectively.


	Three Months Ended March 31,
(in millions)	2013		2012
Equity	$	1,161	$	1,068
Fixed income		486		433
Multi-asset class		255		246
Alternatives		249		221
Cash management		86		89

Total investment advisory, administration fees, securities lending revenue and performance fees		2,237		2,057
BlackRock Solutions and advisory		126		123
Distribution fees		17		19
Other revenue		69		50

Total revenue	$	2,449	$	2,249

The following table illustrates the Company’s total revenue for the three months ended March 31, 2013 and 2012, respectively, by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the customer resides.


(in millions)	Three Months Ended March 31,
Revenue	2013		2012
Americas	$	1,663	$	1,566
Europe		648		572
Asia-Pacific		138		111

Total revenue	$	2,449	$	2,249

17. Segment Information (continued)

The following table illustrates the Company’s long-lived assets that consist of goodwill and property and equipment at March 31, 2013 and December 31, 2012 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located.


(in millions)	March 31, 2013		December 31, 2012
Long-lived Assets	March 31, 2013		December 31, 2012
Americas	$	13,224	$	13,238
Europe		149		166
Asia-Pacific		60		63

Total long-lived assets	$	13,433	$	13,467

Americas primarily comprises the United States, Canada, Brazil and Mexico, while Europe primarily comprises the United Kingdom. Asia-Pacific primarily comprises Japan, Australia and Singapore.

18. Subsequent Events

At March 31, 2013, BlackRock held an approximately one-third economic equity interest in Private National Mortgage Acceptance Company, LLC (“PennyMac”), which is accounted for as an equity method investment.

On May 8, 2013, PennyMac Financial Services, Inc. became a holding company of PennyMac in an initial public offering (“PennyMac IPO”). As a result of the PennyMac IPO, BlackRock will adjust the carrying value of its equity method investment in PennyMac and record a non-cash, non-operating pre-tax gain of approximately $40 million in the second quarter of 2013.

In addition to the subsequent events included in the notes to the condensed consolidated financial statements, the Company conducted a review for additional subsequent events and determined that no additional subsequent events had occurred that would require accrual or disclosure.

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

Forward-looking Statements

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

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

In addition to risk factors previously disclosed in BlackRock’s Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this report, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the introduction, withdrawal, success and timing of business initiatives and strategies; (2) changes and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (3) the relative and absolute investment performance of BlackRock’s investment products; (4) the impact of increased competition; (5) the impact of future acquisitions or divestitures; (6) the unfavorable resolution of legal proceedings; (7) the extent and timing of any share repurchases; (8) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (9) the impact of legislative and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or The PNC Financial Services Group, Inc. (“PNC”); (10) terrorist activities, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (11) the ability to attract and retain highly talented professionals; (12) fluctuations in the carrying value of BlackRock’s economic investments; (13) the impact of changes to tax legislation, including income, payroll and transaction taxes, and taxation on products or transactions, which could affect the value proposition to clients and, generally, the tax position of the Company; (14) BlackRock’s success in maintaining the distribution of its products; (15) the impact of BlackRock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations; and (16) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.

Overview

BlackRock, Inc. (“BlackRock” or the “Company”) is the world’s largest publicly-traded investment management firm. BlackRock has portfolio managers located around the world, including the United States, the United Kingdom, the Netherlands, Japan, Hong Kong, Singapore, Australia and Germany. At March 31, 2013, the Company managed $3.936 trillion of assets under management (“AUM”) on behalf of institutional and individual investors worldwide. The Company provides a wide array of products, including passively and actively managed products in various equity, fixed income, multi-asset class, alternative investment and cash management products. BlackRock offers clients diversified access to global markets through separate accounts, collective investment trusts, open-end and closed-end mutual funds, exchange-traded products, hedge funds and funds of funds. BlackRock also provides global advisory services for private investment funds and retail products. The Company’s non-U.S. investment funds are based in a number of domiciles and cover a range of asset classes, including equities, fixed income, cash management and alternatives. In addition, BlackRock Solutions^® provides market risk management, financial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.

In the United States, retail offerings include various open-end and closed-end funds, including iShares^®, the global product leader in exchange-traded products for institutional, retail and high net worth (“HNW”) investors. iShares AUM totaled $802.8 billion at March 31, 2013. The BlackRock Global Funds, the Company’s primary retail fund group offered outside the United States, are authorized for distribution in 35 jurisdictions worldwide. Additional fund offerings include structured products, real estate funds, hedge funds, hedge funds of funds, private equity funds and funds of funds, and managed futures funds. These products are sold to both U.S. and non-U.S. HNW, retail and institutional investors in a wide variety of active and passive strategies covering equity, fixed income and alternative assets.

BlackRock’s client base consists of financial institutions and other corporate clients, pension plans, charities, official institutions, such as central banks, sovereign wealth funds, supranational authorities and other government entities, HNW individuals and retail investors around the world. BlackRock maintains a significant sales and marketing presence both inside and outside the United States that is focused on establishing and maintaining retail and institutional investment management relationships by marketing its services to investors directly and through financial professionals, pension consultants and establishing third-party distribution relationships, including the distribution of BlackRock products and services through Merrill Lynch under a global distribution agreement in effect until January 2014. After such term, the agreement will renew for one automatic three-year extension if certain conditions are met.

On March 31, 2013, PNC held 20.7% of the Company’s voting common stock and 21.7% of the Company’s capital stock, which includes outstanding common and non-voting preferred stock.

Executive Summary


	Three Months Ended March 31,
(in millions, except per share data)	2013		2012
GAAP basis:
Total revenue	$	2,449	$	2,249
Total expenses		1,540		1,434

Operating income	$	909	$	815
Operating margin		37.1%		36.2%
Non-operating income (expense), less net income (loss) attributable to non-controlling interests⁽¹⁾		7		20
Income tax expense		(284)		(263)

Net income attributable to BlackRock	$	632	$	572

Diluted EPS components:
Operating income	$	3.59	$	3.06
Non-operating income (expense), less net income (loss) attributable to non-controlling interests⁽¹⁾		0.03		0.08

Diluted earnings per common share	$	3.62	$	3.14
Effective tax rate		31.0%		31.5%
As adjusted⁽²⁾:
Total revenue	$	2,449	$	2,249
Total expenses		1,528		1,424

Operating income	$	921	$	825
Operating margin		40.0%		38.6%
Non-operating income (expense), less net income (loss) attributable to non-controlling interests⁽¹⁾		3		15
Income tax expense		(287)		(265)

Net income attributable to BlackRock	$	637	$	575

Diluted EPS components:
Operating income	$	3.64	$	3.10
Non-operating income (expense), less net income (loss) attributable to non-controlling interests⁽¹⁾		0.01		0.06

Diluted earnings per common share	$	3.65	$	3.16
Effective tax rate		31.0%		31.5%
Other:
Assets under management (end of period)	$	3,936,409	$	3,684,087
Diluted weighted-average common shares outstanding⁽³⁾		174,561,132		181,917,864
Shares outstanding (end of period)		171,102,532		179,406,494
Book value per share⁽⁴⁾	$	147.81	$	140.72
Cash dividends declared and paid per share	$	1.68	$	1.50

⁽¹⁾

Net of net income (loss) attributable to non-controlling interests (“NCI”) (redeemable and nonredeemable).

⁽²⁾

As adjusted items are described in more detail in Non-GAAP Financial Measures.

⁽³⁾

Non-voting participating preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations.

⁽⁴⁾

Total BlackRock stockholders’ equity, excluding appropriated retained earnings, divided by total common and preferred shares outstanding at March 31, 2013 and 2012, respectively.

Three Months Ended March 31, 2013 Compared with Three Months ended March 31, 2012.

GAAP. Operating income of $909 million and operating margin of 37.1% increased $94 million and 90 bps, respectively, from the prior year quarter reflecting revenue growth and expense discipline. The first quarter 2013 results included $33 million of compensation and severance costs associated with the alignment of staffing with the Company’s strategic priorities and growth opportunities. First quarter 2013 results also included $18 million of launch costs for the $700 million Multi-Sector Income Trust closed-end fund launched in February 2013. Non-operating income (expense), less net income (loss) attributable to NCI decreased $13 million due to higher interest expense resulting from long-term debt issuances in May 2012 and lower net positive marks on investments during the quarter ended March 31, 2013 compared with the quarter ended March 31, 2012. Earnings per diluted common share rose $0.48, or 15%, compared with the quarter ended March 31, 2012 due to higher net income and the benefit of share repurchases.

As Adjusted. Operating income of $921 million and operating margin of 40.0% increased $96 million and 140 bps, respectively, from the first quarter 2012. The first quarter 2013 as adjusted results included the previously mentioned organizational alignment costs of $33 million and fund launch costs of $18 million. Earnings per diluted common share rose $0.49, or 16%, from first quarter 2012.

See Non-GAAP Financial Measures for further information on as adjusted items.

For further discussion of BlackRock’s revenue, expenses, non-operating results and income tax expense, see Discussion of Financial Results herein.

Non-GAAP Financial Measures

BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP basis financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

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

(a) Operating income, as adjusted, and operating margin, as adjusted:

Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items management deems non-recurring, or transactions that ultimately will not impact BlackRock’s book value, as indicated in the table below. Operating income used for operating margin measurement equals operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Operating margin, as adjusted, equals operating income used for operating margin measurement divided by revenue (net of distribution and servicing costs and amortization of deferred sales commissions) used for operating margin measurement, as indicated in the table below.


	Three Months Ended March 31,
(in millions)	2013		2012
Operating income, GAAP basis		$909		$815
Non-GAAP expense adjustments:
PNC LTIP funding obligation		8		5
Compensation expense related to appreciation (depreciation) on deferred compensation plans