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, 2014

¨	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, 2014, there were 166,817,871 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		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		69

Item 4.	Controls and Procedures		71

PART II

OTHER INFORMATION



Item 1.	Legal Proceedings	72

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

Item 6.	Exhibits	73

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(unaudited)


(in millions, except share data)	March 31, 2014			December 31, 2013
Assets
Cash and cash equivalents		$ 4,394			$ 4,390
Accounts receivable		2,868			2,247
Investments		2,092			2,151
Assets of consolidated variable interest entities:
Cash and cash equivalents		191			161
Bank loans, other investments and other assets		2,183			2,325
Separate account assets		155,097			155,113
Separate account collateral held under securities lending agreements		17,762			21,788
Property and equipment (net of accumulated depreciation of $641 and $611 at March 31, 2014 and December 31, 2013, respectively)		508			525
Intangible assets (net of accumulated amortization of $1,097 and $1,057 at March 31, 2014 and December 31, 2013, respectively)		17,459			17,501
Goodwill		12,975			12,980
Other assets		768			692

Total assets		$216,297			$219,873

Liabilities
Accrued compensation and benefits		$ 668			$ 1,747
Accounts payable and accrued liabilities		1,615			1,084
Liabilities of consolidated variable interest entities:
Borrowings		2,244			2,369
Other liabilities		106			74
Long-term borrowings		5,936			4,939
Separate account liabilities		155,097			155,113
Separate account collateral liabilities under securities lending agreements		17,762			21,788
Deferred income tax liabilities		5,241			5,085
Other liabilities		927			1,004

Total liabilities		189,596			193,203


Commitments and contingencies (Note 12)
Temporary equity
Redeemable noncontrolling interests		88			54
Permanent Equity
BlackRock, Inc. stockholders’ equity
Common stock, $0.01 par value;		2			2
Shares authorized: 500,000,000 at March 31, 2014 and December 31, 2013;
Shares issued: 171,252,185 at March 31, 2014 and December 31, 2013;
Shares outstanding: 167,003,034 and 166,589,688 at March 31, 2014 and December 31, 2013, respectively
Preferred stock (Note 16)		-			-
Additional paid-in capital		19,087			19,473
Retained earnings		8,598			8,208
Appropriated retained earnings		6			22
Accumulated other comprehensive loss		(35	)		(35	)
Treasury stock, common, at cost (4,249,151 and 4,662,497 shares held at March 31, 2014 and December 31, 2013, respectively)		(1,180	)		(1,210	)

Total BlackRock, Inc. stockholders’ equity		26,478			26,460
Nonredeemable noncontrolling interests		117			135
Nonredeemable noncontrolling interests of consolidated variable interest entities		18			21

Total permanent equity		26,613			26,616

Total liabilities, temporary equity and permanent equity		$216,297			$219,873

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Income

(unaudited)


(in millions, except per share data)	Three Months Ended March 31,
	2014			2013
Revenue
Investment advisory, administration fees and securities lending revenue
Related parties		$1,611			$1,455
Other third parties		680			674

Total investment advisory, administration fees and securities lending revenue		2,291			2,129
Investment advisory performance fees		158			108
BlackRock Solutions and advisory		154			126
Distribution fees		19			17
Other revenue		48			69

Total revenue		2,670			2,449
Expenses
Employee compensation and benefits		982			905
Distribution and servicing costs		89			91
Amortization of deferred sales commissions		15			12
Direct fund expenses		179			161
General and administration		313			331
Amortization of intangible assets		41			40

Total expenses		1,619			1,540

Operating income		1,051			909
Nonoperating income (expense)
Net gain (loss) on investments		76			62
Net gain (loss) on consolidated variable interest entities		(16	)		27
Interest and dividend income		10			6
Interest expense		(53	)		(54	)

Total nonoperating income (expense)		17			41

Income before income taxes		1,068			950
Income tax expense		324			284

Net income		744			666
Less:
Net income (loss) attributable to redeemable noncontrolling interests		1			-
Net income (loss) attributable to nonredeemable noncontrolling interests		(13	)		34

Net income attributable to BlackRock, Inc.		$756			$632

Earnings per share attributable to BlackRock, Inc. common stockholders:
Basic		$4.47			$3.69
Diluted		$4.40			$3.62
Cash dividends declared and paid per share		$1.93			$1.68
Weighted-average common shares outstanding:
Basic		169,081,421			171,301,800
Diluted		171,933,803			174,561,132

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


(in millions)	Three Months Ended March 31,
	2014			2013
Net income	$	744		$	666
Other comprehensive income:
Change in net unrealized gains (losses) from available-for-sale investments, net of tax:
Unrealized holding gains (losses), net of tax⁽¹⁾		-			4
Less: reclassification adjustment included in net income⁽¹⁾		8			3

Net change from available-for-sale investments, net of tax		(8	)		1
Foreign currency translation adjustments		8			(108	)

Other comprehensive income (loss)		-			(107	)

Comprehensive income		744			559
Less: Comprehensive income (loss) attributable to noncontrolling interests		(12	)		34

Comprehensive income attributable to BlackRock, Inc.	$	756		$	525

⁽¹⁾	The tax benefit (expense) was not material for the three months ended March 31, 2014 and 2013.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(unaudited)


(in millions)	Additional Paid-in Capital⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock Common		Total BlackRock Stockholders’ Equity		Nonredeemable Noncontrolling Interests		Nonredeemable Noncontrolling Interests of Consolidated VIEs		Total Permanent Equity		Redeemable Noncontrolling Interests / Temporary Equity
December 31, 2013		$19,475		$8,208		$22		($35)		($1,210)		$26,460		$135		$21		$26,616		$54
Net income		-		756		-		-		-		756		3		(16)		743		1
Allocation of gains (losses) of consolidated collateralized loan obligations		-		-		(16)		-		-		(16)		-		16		-		-
Dividends paid		-		(366)		-		-		-		(366)		-		-		(366)		-
Stock-based compensation		126		-		-		-		1		127		-		-		127		-
Issuance of common shares related to employee stock transactions		(603)		-		-		-		604		1		-		-		1		-
Employee tax withholdings related to employee stock transactions		-		-		-		-		(325)		(325)		-		-		(325)		-
Shares repurchased		-		-		-		-		(250)		(250)		-		-		(250)		-
Net tax benefit (shortfall) from stock-based compensation		91		-		-		-		-		91		-		-		91		-
Subscriptions (redemptions/distributions)-noncontrolling interest holders		-		-		-		-		-		-		(21)		(3)		(24)		49
Net consolidations (deconsolidations) of sponsored investment funds		-		-		-		-		-		-		-		-		-		(16)

March 31, 2014		$19,089		$8,598		$6		($35)		($1,180)		$26,478		$117		$18		$26,613		$88

⁽¹⁾	Amounts include $2 million of common stock at both March 31, 2014 and December 31, 2013.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(unaudited)


(in millions)	Additional Paid-in Capital⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock Common		Total BlackRock Stockholders’ Equity		Nonredeemable Noncontrolling Interests		Nonredeemable Noncontrolling 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 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)-noncontrolling 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 Cash Flows

(unaudited)


(in millions)	Three Months Ended March 31,
	2014			2013
Cash flows from operating activities
Net income		$744			$666
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		73			72
Amortization of deferred sales commissions		15			12
Stock-based compensation		127			127
Deferred income tax expense (benefit)		165			93
Net (gains) losses on nontrading investments		(47	)		(21	)
Purchases of investments within consolidated sponsored investment funds		(7	)		(18	)
Proceeds from sales and maturities of investments within consolidated sponsored investment funds		69			29
Assets and liabilities of consolidated VIEs:
Change in cash and cash equivalents		(46	)		7
Net (gains) losses within consolidated VIEs		16			(27	)
Net (purchases) proceeds within consolidated VIEs		169			(41	)
(Earnings) losses from equity method investees		(39	)		(50	)
Distributions of earnings from equity method investees		7			17
Changes in operating assets and liabilities:
Accounts receivable		(624	)		(376	)
Investments, trading		(95	)		51
Other assets		(82	)		4
Accrued compensation and benefits		(1,079	)		(947	)
Accounts payable and accrued liabilities		521			597
Other liabilities		(93	)		(5	)

Cash flows from operating activities		(206	)		190

Cash flows from investing activities
Purchases of investments		(123	)		(90	)
Proceeds from sales and maturities of investments		266			117
Distributions of capital from equity method investees		8			25
Net consolidations (deconsolidations) of sponsored investment funds		(3	)		(3	)
Purchases of property and equipment		(15	)		(18	)

Cash flows from investing activities		133			31

Cash flows from financing activities
Repayments of short-term borrowings		-			(100	)
Proceeds from long-term borrowings		997			-
Cash dividends paid		(366	)		(309	)
Proceeds from stock options exercised		-			5
Proceeds from issuance of common stock		1			1
Repurchases of common stock		(575	)		(461	)
Net proceeds from (repayments of) borrowings by consolidated VIEs		(120	)		(80	)
Net (redemptions/distributions paid) / subscriptions received from noncontrolling interests holders		25			107
Excess tax benefit from stock-based compensation		102			32

Cash flows from financing activities		64			(805	)

Effect of exchange rate changes on cash and cash equivalents		13			(80	)

Net increase (decrease) in cash and cash equivalents		4			(664	)
Cash and cash equivalents, beginning of period		4,390			4,606

Cash and cash equivalents, end of period		$4,394			$3,942

Supplemental disclosure of cash flow information:
Cash paid for:
Interest		$23			$24
Interest on borrowings of consolidated VIEs		$27			$29
Income taxes		$178			$78
Supplemental schedule of noncash investing and financing transactions:
Issuance of common stock		$603			$364
Increase (decrease) in noncontrolling interests due to net consolidation (deconsolidation) of sponsored investment funds		($16	)		($7	)

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, alternative investment and cash management products. BlackRock offers its investment products in a variety of vehicles, including open-end and closed-end mutual funds, iShares^® exchange-traded funds (“ETFs”), collective investment trusts and separate accounts. In addition, BlackRock provides market risk management, financial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.

At March 31, 2014, The PNC Financial Services Group, Inc. (“PNC”) held 20.8% of the Company’s voting common stock and 21.8% of the Company’s capital stock, which includes outstanding common and nonvoting 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. Noncontrolling 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. Accounts and transactions between consolidated entities have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, is not required for interim reporting purposes and has been condensed or omitted herein. These 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, 2013, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2014 (“2013 Form 10-K”).

The interim financial information at March 31, 2014 and for the three months ended March 31, 2014 and 2013 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, Fair Value Measurement (“ASC 820”), 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 in fair values 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 nonbinding 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 nonbinding single-broker quotes.

•

Level 3 inputs include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, opportunistic 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 uses 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, opportunistic funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices. The various partnerships generally 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 from third-party sources, including independent appraisals. 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 number of inputs used to value equity, debt securities and bank loans is sourced from 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. On a quarterly basis, meetings are held with key vendors to identify any significant changes to the vendors’ processes.

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

Fair Value Option. ASC 825-10, Financial Instruments (“ASC 825-10”), provides a fair value option election that allows companies an irrevocable election to use fair value as the initial and subsequent accounting measurement attribute for certain financial assets and liabilities.

2. Significant Accounting Policies (continued)

Fair Value Measurements. (continued)

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, which must be applied to an entire instrument, and not only specified risks, specific cash flows, or portions of that 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.

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 noncontrolling 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.

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 may use 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 BlackRock Life Limited, 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 account assets primarily include equity securities, 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 ASC 944-80, Financial Services – Separate Accounts.

2. Significant Accounting Policies (continued)

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 by separate account assets maintained by BlackRock Life Limited 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 the right to request additional collateral or, in the event of borrower default, the right to liquidate collateral. Under the Company’s securities lending arrangements, the Company can resell or repledge the collateral and the borrower can resell or repledge 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 repledge the collateral, the Company records on the condensed consolidated statements of financial condition the cash and noncash collateral received under these arrangements as its own asset in addition to an equal and offsetting collateral liability for the obligation to return the collateral. During the three months ended March 31, 2014 and 2013, the Company had not resold or repledged any of the collateral received under these arrangements. At March 31, 2014 and December 31, 2013, the fair value of loaned securities held by separate account assets was approximately $16.1 billion and $19.7 billion, respectively, and the fair value of the collateral held under these securities lending agreements was approximately $17.8 billion and $21.8 billion, respectively.

Appropriated Retained Earnings. Upon the initial consolidation of CLOs, BlackRock records an adjustment to appropriated retained earnings on the condensed consolidated statements 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 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 noncontrolling interests and as a change to appropriated retained earnings.

Accounting Pronouncements Adopted in the Three Months Ended March 31, 2014

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

2. Significant Accounting Policies (continued)

holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The adoption of ASU 2013-05 on January 1, 2014 was not material to the condensed consolidated financial statements.

Investment Company Guidance. In June 2013, the FASB issued ASU 2013-08, Financial Services – Investment Companies: Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”). ASU 2013-08 amends the current criteria for an entity to qualify as an investment company, creates new disclosure requirements and amends the measurement criteria for certain interests in other investment companies. The adoption of ASU 2013-08 on January 1, 2014 was not material to the condensed consolidated financial statements.

Presentation of an Unrecognized Tax Benefit. In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). The adoption of ASU 2013-11 on January 1, 2014 was not material to the condensed consolidated financial statements.

3. Investments

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


(in millions)	March 31, 2014		December 31, 2013
Available-for-sale investments		$150		$183
Held-to-maturity investments		32		83
Trading investments:
Consolidated sponsored investment funds		479		385
Other equity and debt securities		29		43
Deferred compensation plan mutual funds		61		58

Total trading investments		569		486
Other investments:
Consolidated sponsored investment funds		394		441
Equity method investments		697		697
Deferred compensation plan hedge fund equity method investments		38		39
Cost method investments⁽¹⁾		95		119
Carried interest		117		103

Total other investments		1,341		1,399

Total investments		$2,092		$2,151

⁽¹⁾	Amounts primarily include Federal Reserve Bank Stock.

At March 31, 2014, the Company consolidated $873 million of investments held by consolidated sponsored investment funds (excluding non-variable interest entities (“VIEs”)) of which $479 million and $394 million were classified as trading investments and other investments, respectively. At December 31, 2013, the Company consolidated $826 million of investments held by consolidated sponsored investment funds (excluding VIEs) of which $385 million and $441 million were classified as trading investments and other investments, respectively.

3. Investments (continued)

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, 2014*	Cost		Gains		Losses		Carrying Value
Equity securities of sponsored investment funds		$149		$4		($3)		$150

*December 31, 2013*
Equity securities of sponsored investment funds		$180		$4		($4)		$180
Other securities		1		2		-		3

Total available-for-sale investments		$181		$6		($4)		$183

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

Held-to-Maturity Investments

The carrying value of held-to-maturity investments was $32 million and $83 million at March 31, 2014 and December 31, 2013, 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, 2014, $18 million of these investments mature in one year or less and $14 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, 2014				December 31, 2013
	Cost		Carrying Value		Cost		Carrying Value

Trading investments:
Deferred compensation plan mutual funds		$ 48		$ 61		$ 49		$ 58
Equity securities/Multi-asset mutual funds		238		241		174		184
Debt securities/fixed income mutual funds:
Corporate debt		154		156		128		128
Government debt		112		111		121		116

Total trading investments		$552		$569		$472		$486

At March 31, 2014, trading investments included $212 million of equity securities and $267 million of debt securities held by consolidated sponsored investment funds, $61 million of certain deferred compensation plan mutual fund investments and $29 million of other equity and debt securities.

At December 31, 2013, trading investments included $172 million of equity securities and $213 million of debt securities held by consolidated sponsored investment funds, $58 million of certain deferred compensation plan mutual fund investments and $43 million of other equity and debt securities.

3. Investments (continued)

Other Investments

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


(in millions)	March 31, 2014				December 31, 2013
	Cost		Carrying Value		Cost		Carrying Value

Other investments:
Consolidated sponsored investment funds		$381		$394		$420		$441
Equity method		591		697		613		697
Deferred compensation plan equity method investments		35		38		37		39
Cost method investments:
Federal Reserve Bank stock		90		90		90		90
Other		5		5		17		29

Total cost method investments		95		95		107		119
Carried interest		-		117		-		103

Total other investments		$1,102		$1,341		$1,177		$1,399

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

Equity method investments primarily include BlackRock’s direct investment in certain BlackRock sponsored investment funds. See Note 10, Other Assets, for information on the Company’s investment in PennyMac Financial Services, Inc. (“PennyMac”), which is included in other assets on the condensed consolidated statements of financial condition.

Cost method investments include nonmarketable securities, including Federal Reserve Bank stock, which is held for regulatory purposes and is restricted from sale. At March 31, 2014 and December 31, 2013, 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. 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, 2014			December 31, 2013
Cash and cash equivalents		$ 88			$114
Investments:
Trading investments		479			385
Other investments		394			441
Other assets		19			20
Other liabilities		(12	)		(39	)
Noncontrolling interests		(205	)		(189	)

BlackRock’s net interests in consolidated sponsored investment funds		$763			$732

BlackRock’s total exposure to consolidated sponsored investment funds represents the value of its economic ownership interest in these sponsored investment funds. Valuation changes associated with investments held at fair value by these consolidated investment funds are reflected in nonoperating income (expense) and partially offset in net income (loss) attributable to noncontrolling interests for the portion not attributable to BlackRock.

In addition, at March 31, 2014 and December 31, 2013, several consolidated CLOs and one sponsored investment fund, which were deemed to be VIEs, were excluded from the balances in the table above as the balances for these investment products are reported separately on the condensed consolidated statements of financial condition. See Note 6, Variable Interest Entities, 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

Assets and liabilities measured at fair value on a recurring basis and other assets not held at fair value


*March 31, 2014* (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, 2014

Assets:
Investments
Available-for-sale:
Equity securities of sponsored investment funds	$	148	$	2	$	-	$	-	$	150
Held-to-maturity debt securities		-		-		-		32		32
Trading:
Deferred compensation plan mutual funds		61		-		-		-		61
Equity/Multi-asset mutual funds		241		-		-		-		241
Debt securities / fixed income mutual funds		-		267		-		-		267

Total trading		302		267		-		-		569
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		-		108		12		-		120
Private / public equity⁽²⁾		5		13		256		-		274

Total consolidated sponsored investment funds		5		121		268		-		394
Equity method:
Hedge funds / Funds of hedge funds		-		188		91		68		347
Private equity investments		-		-		101		-		101
Real estate funds		-		20		100		7		127
Fixed income mutual funds		114		-		-		-		114
Other		8		-		-		-		8

Total equity method		122		208		292		75		697
Deferred compensation plan equity method investments		-		7		31		-		38
Cost method investments		-		-		-		95		95
Carried interest		-		-		-		117		117

Total investments		577		605		591		319		2,092

Separate account assets		112,145		41,913		-		1,039		155,097
Separate account collateral held under securities lending agreements:
Equity securities		15,416		-		-		-		15,416
Debt securities		-		2,346		-		-		2,346

Total separate account collateral held under securities lending agreements		15,416		2,346		-		-		17,762
Assets of consolidated VIEs:
Bank loans and other assets		-		1,891		147		37		2,075
Bonds		-		54		28		-		82
Private / public equity⁽³⁾		-		13		13		-		26

Total assets of consolidated VIEs		-		1,958		188		37		2,183

Total	$	128,138	$	46,822	$	779	$	1,395	$	177,134

Liabilities:
Borrowings of consolidated VIEs	$	-	$	-	$	2,244	$	-	$	2,244
Separate account collateral liabilities under securities lending agreements		15,416		2,346		-		-		17,762
Other liabilities⁽⁴⁾		-		4		42		-		46

Total	$	15,416	$	2,350	$	2,286	$	-	$	20,052

⁽¹⁾

Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include sponsored investment funds 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⁾

Level 3 amounts include $192 million and $64 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.

⁽³⁾

Level 3 amounts include $13 million of underlying third-party private equity funds held by a private equity fund.

⁽⁴⁾

Amounts include a credit default swap (see Note 7, Derivatives and Hedging, for more information) and contingent liabilities related to the acquisitions of Credit Suisse’s ETF franchise and MGPA (see Note 12, Commitments and Contingencies, for more information).

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Assets and liabilities measured at fair value on a recurring basis and other assets not held at fair value


*December 31, 2013* (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, 2013

Assets:
Investments
Available-for-sale:
Equity securities of sponsored investment funds	$	180	$	-	$	-	$	-	$	180
Other securities		-		3		-		-		3

Total available-for-sale		180		3		-		-		183
Held-to-maturity debt securities		-		-		-		83		83
Trading:
Deferred compensation plan mutual funds		58		-		-		-		58
Equity/Multi-asset mutual funds		184		-		-		-		184
Debt securities / fixed income mutual funds		31		213		-		-		244

Total trading		273		213		-		-		486
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		-		135		24		-		159
Private / public equity⁽²⁾		5		13		223		41		282

Total consolidated sponsored investment funds		5		148		247		41		441
Equity method:
Hedge funds / Funds of hedge funds		-		177		99		63		339
Private equity investments		-		-		101		-		101
Real estate funds		-		20		98		7		125
Fixed income mutual funds		113		-		-		-		113
Equity/Multi-asset, alternative mutual funds		19		-		-		-		19

Total equity method		132		197		298		70		697
Deferred compensation plan equity method investments		-		10		29		-		39
Cost method investments		-		-		-		119		119
Carried interest		-		-		-		103		103

Total investments		590		571		574		416		2,151

Separate account assets		113,382		40,841		-		890		155,113
Separate account collateral held under securities lending agreements:
Equity securities		20,856		-		-		-		20,856
Debt securities		-		932		-		-		932

Total separate account collateral held under securities lending agreements		20,856		932		-		-		21,788
Other assets⁽³⁾		-		39		-		-		39
Assets of consolidated VIEs:
Bank loans and other assets		-		2,047		129		19		2,195
Bonds		-		71		35		-		106
Private / public equity⁽⁴⁾		-		10		14		-		24

Total assets of consolidated VIEs		-		2,128		178		19		2,325

Total	$	134,828	$	44,511	$	752	$	1,325	$	181,416

Liabilities:
Borrowings of consolidated VIEs	$	-	$	-	$	2,369	$	-	$	2,369
Separate account collateral liabilities under securities lending agreements		20,856		932		-		-		21,788
Other liabilities⁽⁵⁾		18		4		42		-		64

Total	$	20,874	$	936	$	2,411	$	-	$	24,221

⁽¹⁾

⁽²⁾

Level 3 amounts include $195 million and $28 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.

⁽³⁾

Amount includes company-owned and split-dollar life insurance policies and unrealized gains on forward foreign currency exchange contracts.

⁽⁴⁾

Level 3 amounts include $14 million of underlying third-party private equity funds held by a sponsored private equity fund of fund.

⁽⁵⁾

Amounts include a credit default swap (see Note 7, Derivatives and Hedging, for more information), securities sold short within consolidated sponsored investment funds and contingent liabilities related to the acquisitions of Credit Suisse’s ETF franchise and MGPA (see Note 12, Commitments and Contingencies, for more information).

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Level 3 Assets. Level 3 investments of $591 million and $574 million at March 31, 2014 and December 31, 2013, 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 and third-party fund managers.

Direct investments in private equity companies held by private equity funds totaled $64 million and $28 million at March 31, 2014 and December 31, 2013, 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 significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.

Level 3 assets of consolidated VIEs include bank loans and bonds valued based on single-broker nonbinding quotes and direct private equity investments and private equity funds valued based upon 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 borrowings of consolidated VIEs include CLO borrowings valued based upon single-broker nonbinding quotes.

Level 3 other liabilities include contingent liabilities related to the acquisitions of Credit Suisse’s ETF franchise and MGPA, which were valued based upon discounted cash flow analyses using unobservable market data inputs.

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2014


(in millions)	December 31, 2013		Realized and unrealized gains (losses) in earnings and OCI		Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3⁽²⁾		Transfers out of Level 3			March 31, 2014		Total net unrealized gains (losses) included in earnings⁽³⁾
Assets:
Investments
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		$24		$1		$-		($12	)		($1	)		$-		$-			$12		$-
Private equity		223		1		5		(14	)		-			41		-			256		1
Equity method:
Hedge funds / Funds of hedge funds		99		2		4		(11	)		(3	)		-		-			91		2
Private equity investments		101		3		3		-			(6	)		-		-			101		4
Real estate funds		98		2		2		-			(2	)		-		-			100		1
Deferred compensation plan equity method investments		29		2		-		-			-			-		-			31		2

Total Level 3 investments		574		11		14		(37	)		(12	)		41		-			591		10

Assets of consolidated VIEs:
Bank loans		129		-		16		(13	)		-			73		(58	)		147
Bonds		35		-		-		(7	)		-			-		-			28
Private equity		14		-		-		(1	)		-			-		-			13

Total Level 3 assets of consolidated VIEs		178		-		16		(21	)		-			73		(58	)		188		n/a	⁽⁴⁾

Total Level 3 assets		$752		$11		$30		($58	)		($12	)		$114		($58	)		$779

Liabilities:
Borrowings of consolidated VIEs		$2,369		$5		$-		$-			($120	)		$-		$-			$2,244		n/a	⁽⁴⁾
Other liabilities		42		-		-		-			-			-		-			42		-

Total Level 3 liabilities		$2,411		$5		$-		$-			($120	)		$-		$-			$2,286

n/a

– not applicable

⁽¹⁾

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

⁽²⁾

Includes investments previously held at cost.

⁽³⁾

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

⁽⁴⁾

The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income.

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (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 noncontrolling interests on the condensed consolidated statements of income.

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (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 nonoperating 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 noncontrolling 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 carrying 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, 2014 and 2013, there were $58 million and $37 million, respectively, of transfers out of Level 3 to Level 2 related to bank loans. In addition, during the three months ended March 31, 2014 and 2013, there were $73 million and $15 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of levels 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. These transfers were due to a direct investment in a public company valued at a discount due to restrictions on sale.

Significant Other Settlements. During the three months ended March 31, 2013, there were $32 million 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, 2014 and December 31, 2013, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below:


	March 31, 2014				December 31, 2013
(in millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Fair Value Hierarchy
Financial Assets:
Cash and cash equivalents	$	4,394	$	4,394	$	4,390	$	4,390		Level 1	⁽¹⁾, ⁽²⁾
Accounts receivable		2,868		2,868		2,247		2,247		Level 1	⁽³⁾
Cash and cash equivalents of consolidated VIEs		191		191		161		161		Level 1	⁽¹⁾
Financial Liabilities:
Accounts payable and accrued liabilities		1,615		1,615		1,084		1,084		Level 1	⁽³⁾
Long-term borrowings		5,936		6,286		4,939		5,284		Level 2	⁽⁴⁾

⁽¹⁾

Cash and cash equivalents are carried at either cost or amortized cost, which approximates fair value due to their short-term maturities.

⁽²⁾

At March 31, 2014 and December 31, 2013, approximately $131 million and $64 million, respectively, of money market funds were recorded within cash and cash equivalents on the condensed consolidated statements of financial condition. Money market funds are valued based on quoted market prices, or $1.00 per share, which

5. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

generally is the NAV of the fund. At March 31, 2014 and December 31, 2013, approximately $88 million and $114 million, respectively, related to cash and cash equivalents held by consolidated sponsored investment funds.

⁽³⁾

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

⁽⁴⁾

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 2014 and December 2013, respectively. See Note 11, Borrowings, for the fair value of each 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. 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, 2014

(in millions)

Ref

Fair Value

Total Unfunded
Commitments

Redemption
Frequency

Redemption
Notice Period

Consolidated sponsored investment funds:

Private equity funds/funds of funds

)

$192

$28

n/r

Other funds of hedge funds

)

117

Quarterly (100%)

30 – 90 days

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds

)

279

Monthly(58%)

Quarterly(11%)

n/r(31%)

15 – 90 days

Private equity funds

)

101

n/r

Real estate funds

)

120

Quarterly(17%)

n/r(83%)

60 days

Deferred compensation plan investments

)

Quarterly(19%)

n/r(81%)

60 – 90 days

Consolidated VIEs:

Private equity fund

)

n/r

Total

$860

$151

5. Fair Value Disclosures (continued)

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

December 31, 2013

(in millions)

Ref

Fair Value

Total
Unfunded
Commitments

Redemption
Frequency

Redemption
Notice Period

Consolidated sponsored investment funds:

Private equity funds of funds

)

$195

$23

n/r

Other funds of hedge funds

)

155

Monthly(13%)

Quarterly(78%)

n/r(9%)

30 – 90 days

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds

)

276

Monthly(55%)

Quarterly(11%)

n/r(34%)

15 – 90 days

Private equity funds

)

101

n/r

Real estate funds

)

118

Quarterly(17%)

n/r(83%)

60 days

Deferred compensation plan investments

)

Monthly(8%)

Quarterly(18%)

n/r(74%)

60 – 90 days

Consolidated VIEs:

Private equity fund

)

n/r

Total

$898

$189

n/r

– not redeemable

⁽¹⁾

Comprised of equity method investments, which include investment companies, which 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.

^(a)

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, 2014 and December 31, 2013. The total remaining unfunded commitments to other third-party funds were $28 million and $23 million at March 31, 2014 and December 31, 2013, respectively. The Company was contractually obligated to fund $37 million and $30 million at March 31, 2014 and December 31, 2013, respectively, to the consolidated funds.

^(b)

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. 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.

^(c)

This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit, opportunistic 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 three years at both March 31, 2014 and December 31, 2013.

^(d)

This category includes several private equity funds that initially invest in nonmarketable securities of private companies, which ultimately may become public in the future. The fair values of these investments have been

5. Fair Value Disclosures (continued)

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

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 four years and five years at March 31, 2014 and December 31, 2013, respectively.

^(e)

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 both March 31, 2014 and December 31, 2013.

^(f)

This category includes investments in several real estate funds and 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 hedge funds will be redeemed upon settlement of certain deferred compensation liabilities. The real estate investments are not subject to redemption; however, distributions as a result of the liquidation of the underlying assets will be used to settle certain deferred compensation liabilities over time.

^(g)

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 both March 31, 2014 and December 31, 2013. Total remaining unfunded commitments to other third-party funds were not material at both March 31, 2014 and December 31, 2013, which commitments are required to be funded by capital contributions from noncontrolling interest holders.

Fair Value Option.

The following table summarizes information at March 31, 2014 and December 31, 2013 related to those assets and liabilities for which the fair value option was elected:


(in millions)	March 31, 2014		December 31, 2013
CLO Bank Loans:
Aggregate principal amounts outstanding		$2,055		$2,181
Fair value		2,038		2,176

Aggregate unpaid principal balance in excess of (less than) fair value		$17		$5

Unpaid principal balance of loans more than 90 days past due		$14		$14
Aggregate fair value of loans more than 90 days past due		-		9

Aggregate unpaid principal balance in excess of fair value for loans more than 90 days past due		$14		$5


CLO Borrowings:
Aggregate principal amounts outstanding		$2,336		$2,455
Fair value		$2,244		$2,369

At March 31, 2014, the principal amounts outstanding of the borrowings issued by the CLOs mature between 2016 and 2025.

5. Fair Value Disclosures (continued)

Fair Value Option. (continued)

During the three months ended March 31, 2014 and 2013, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $27 million and a $72 million gain, respectively, which were offset by a $22 million and a $41 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 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, prepayments, 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.

6. Variable Interest Entities (continued)

Consolidated VIEs. Consolidated VIEs included CLOs in which BlackRock did not have an investment; however, BlackRock, as the collateral manager, was deemed to have both the power to control the activities of the CLOs and the right to receive benefits that could potentially be significant to the CLOs. In addition, BlackRock was the PB of one investment fund because it absorbed the majority of the variability due to its de facto related-party relationships with other partners in the fund. The assets of these VIEs are not available to creditors of the Company. In addition, the investors in these VIEs have no recourse to the credit of the Company. At March 31, 2014 and December 31, 2013, the following balances related to VIEs were consolidated on the condensed consolidated statements of financial condition:


(in millions)	March 31, 2014		December 31, 2013
Assets of consolidated VIEs:
Cash and cash equivalents		$191		$161
Bank loans		2,038		2,176
Bonds		82		106
Other investments and other assets		63		43

Total bank loans, bonds, other investments and other assets		2,183		2,325
Liabilities of consolidated VIEs:
Borrowings		(2,244)		(2,369)
Other liabilities		(106)		(74)
Appropriated retained earnings		(6)		(22)
Noncontrolling interests of consolidated VIEs		(18)		(21)

Total BlackRock net interests in consolidated VIEs		$-		$-

For the three months ended March 31, 2014 and 2013, the Company recorded nonoperating expense of $16 million and nonoperating income of $27 million, respectively, offset by a $16 million net loss attributable to nonredeemable noncontrolling interests and a $27 million net gain attributable to nonredeemable noncontrolling interests, respectively, on the condensed consolidated statements of income.

At March 31, 2014 and December 31, 2013, the weighted-average maturity of the bank loans and bonds were approximately 4.6 and 4.7 years, respectively.

6. Variable Interest Entities (continued)

Non-Consolidated VIEs. At March 31, 2014 and December 31, 2013, 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, 2014	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)		Maximum Risk of Loss⁽¹⁾
CDOs/CLOs		$-		$1		($4)		$18
Other sponsored investment funds:
Collective trusts		-		185		-		185
Other		38		183		(4)		221

Total		$38		$369		($8)		$424


At December 31, 2013
CDOs/CLOs		$-		$1		($4)		$18
Other sponsored investment funds:
Collective trusts		-		184		-		184
Other		37		137		(6)		174

Total		$37		$322		($10)		$376

⁽¹⁾	At both March 31, 2014 and December 31, 2013, 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, 2014		December 31, 2013
Assets at fair value		$1		$1
Liabilities⁽¹⁾		2		2

Net assets		($1)		($1)

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

The net assets of other sponsored investment funds that are nonconsolidated VIEs approximated $1.7 trillion to $1.8 trillion at March 31, 2014 and $1.6 trillion to $1.7 trillion at December 31, 2013. Net assets included $1.5 trillion of collective trusts at March 31, 2014 and $1.4 trillion of collective trusts at December 31, 2013. 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

The Company maintains a program to enter into swaps to hedge against market price and interest rate exposures with respect to certain seed investments in sponsored investment products. At March 31, 2014, the Company had outstanding total return swaps and interest rate swaps with an aggregate notional value of approximately $153 million and $121 million, respectively. At December 31, 2013, the Company had outstanding total return swaps and interest rate swaps with an aggregate notional value of approximately $117 million and $71 million, respectively.

The Company has entered into a credit default swap, providing credit protection to a 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 values of the outstanding total return swaps, interest rate swaps and the credit default swap were not material to the condensed consolidated statements of financial condition at both March 31, 2014 and December 31, 2013.

The Company executes forward foreign currency exchange contracts to mitigate the risk of foreign exchange movements. At March 31, 2014, the Company had outstanding forward foreign currency exchange contracts with an aggregate notional value of approximately $195 million. The fair value of the forward foreign currency exchange contracts at March 31, 2014 was not material to the condensed consolidated statements of financial condition. At December 31, 2013, the Company had outstanding forward foreign currency exchange contracts with an aggregate notional value of approximately $792 million and a fair value of approximately $26 million.

Gains (losses) on the total return swaps, interest rate swaps, credit default swap and the forward foreign currency exchange contracts were not material to the condensed consolidated statements of income for the three months ended March 31, 2014 and 2013.

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, 2014 and December 31, 2013 was not material. The change in fair value of such derivatives, which is recorded in nonoperating income (expense), was not material for the three months ended March 31, 2014 and 2013.

8. Goodwill

Goodwill activity during the three months ended March 31, 2014 was as follows:


(in millions)
December 31, 2013	$12,980
Goodwill adjustment related to Quellos⁽¹⁾	(5	)

March 31, 2014	$12,975

⁽¹⁾

The decrease in goodwill during the three months ended March 31, 2014 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 $285 million and $293 million at March 31, 2014 and December 31, 2013, 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, 2013		$16,991			$510			$17,501
Amortization expense		-			(41	)		(41	)
Other		(1	)		-			(1	)

March 31, 2014		$16,990			$469			$17,459

10. Other Assets

The Company accounts for its interest in PennyMac as an equity method investment and includes the investment in other assets on the condensed consolidated statements of financial condition.

The carrying value and fair value of the Company’s interest (approximately 20% or 16 million shares and units) was approximately $135 million and $259 million, respectively, at March 31, 2014 and approximately $127 million and $273 million, respectively, at December 31, 2013. The fair value of the Company’s interest reflected the PennyMac stock price at March 31, 2014 and December 31, 2013, respectively (a Level 1 input).

See Note 11, Other Assets, in the 2013 Form 10-K for more information.

11. Borrowings

Short-Term Borrowings

2014 Revolving Credit Facility. In March 2014, the Company’s credit facility was amended to extend the maturity date by one year to March 2019. The amount of the aggregate commitment is $3.990 billion (the “2014 credit facility”). The 2014 credit facility permits the Company to request up to an additional $1.0 billion of borrowing capacity, subject to lender credit approval, increasing the overall size of the 2014 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 2014 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, 2014. At March 31, 2014, the Company had no amount outstanding under the 2014 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 2014 credit facility. At March 31, 2014 and December 31, 2013, BlackRock had no CP Notes outstanding.

11. Borrowings (continued)

Long-Term Borrowings

The carrying value and fair value of long-term borrowings determined using market prices at the end of March 2014 included the following:


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

3.50% Notes due 2014		$1,000		$-		$1,000		$1,021
1.375% Notes due 2015		750		-		750		759
6.25% Notes due 2017		700		(2)		698		812
5.00% Notes due 2019		1,000		(2)		998		1,131
4.25% Notes due 2021		750		(3)		747		815
3.375% Notes due 2022		750		(4)		746		760
3.50% Notes due 2024		1,000		(3)		997		988

Total Long-term Borrowings		$5,950		($14)		$5,936		$6,286

Long-term borrowings at December 31, 2013 had a carrying value of $4.939 billion and a fair value of $5,284 billion determined using market prices at the end of December 2013.

2024 Notes. In March 2014, the Company issued $1.0 billion in aggregate principal amount of 3.50% senior unsecured and unsubordinated notes maturing on March 18, 2024 (the “2024 Notes”). The net proceeds of the 2024 Notes are intended to be used for general corporate purposes, including refinancing of outstanding indebtedness. Interest is payable semi-annually in arrears on March 18 and September 18 of each year, or approximately $35 million per year. The 2024 Notes may be redeemed prior to maturity at any time in whole or in part at the option of the Company at a “make-whole” redemption price. The 2024 Notes were issued at a discount of $3 million that is being amortized over the term of the notes. The Company incurred approximately $6 million of debt issuance costs, which are being amortized over the term of the 2024 Notes.

See Note 12, Borrowings, in the 2013 Form 10-K for more information regarding the Company’s borrowings.

12. Commitments and Contingencies

Investment Commitments. At March 31, 2014, the Company had $170 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 noncontrolling interest holders have the legal obligation to fund the respective commitments of such funds of funds. In addition to the capital commitments of $170 million, the Company had approximately $39 million of contingent commitments for certain funds which have investment periods that have expired. 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.

12. Commitments and Contingencies (continued)

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.

Contingent Payments Related to Business Acquisitions. In connection with the Credit Suisse ETF Transaction, BlackRock is required to make contingent payments annually to Credit Suisse, subject to achieving specified thresholds during a seven-year period, subsequent to the acquisition date. In addition, BlackRock is required to make contingent payments related to the MGPA Transaction during a five-year period, subject to achieving specified thresholds, subsequent to the acquisition date. The fair value of the contingent payments at March 31, 2014 is not significant to the condensed consolidated statement of financial condition and is included in other liabilities.

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 BlackRock-sponsored investment funds that the Company manages are subject to lawsuits, any of which potentially could harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages.

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

Indemnifications. In the ordinary course of business 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 the likelihood of any liability 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, 2014, the Company indemnified certain of its clients for their securities lending loan balances of approximately $129.5 billion. The Company held as agent, cash and securities totaling $136.1 billion as collateral for indemnified securities on loan at March 31, 2014. The fair value of these indemnifications was not material at March 31, 2014.

13. Stock-Based Compensation

Restricted stock and restricted stock units (“RSUs”) activity for the three months ended March 31, 2014 is summarized below:


Outstanding at	Restricted Stock and RSUs		Weighted- Average Grant Date Fair Value
December 31, 2013		4,612,813		$207.94
Granted		1,344,821		$318.31
Converted		(2,440,596)		$205.08
Forfeited		(20,504)		$232.80

March 31, 2014⁽¹⁾		3,496,534		$252.42

⁽¹⁾	At March 31, 2014, approximately 3.3 million awards are expected to vest and 0.2 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 2014, the Company granted 1,022,295 RSUs to employees as part of annual incentive compensation that vest ratably over three years from the date of grant and 287,963 RSUs to employees that cliff vest 100% on January 31, 2017.

At March 31, 2014, the intrinsic value of outstanding RSUs was $1.1 billion reflecting a stock price of $314.48 at March 31, 2014.

At March 31, 2014, total unrecognized stock-based compensation expense related to unvested RSUs was $561 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 1.6 years.

Market Performance-based RSUs.

Market performance-based RSU activity for the three months ended March 31, 2014 is summarized below:


Outstanding at	Market Performance- Based RSUs		Weighted- Average Grant Date Fair Value
December 31, 2013		1,132,113		$120.80
Granted		315,961		$195.30

March 31, 2014⁽¹⁾		1,448,074	$	137.05

⁽¹⁾	At March 31, 2014, approximately 1.4 million awards are expected to vest and an immaterial amount of awards have vested and have not been converted.

In January 2014, the Company granted 315,961 market performance-based RSUs.

See Note 14, Stock-Based Compensation, in the 2013 Form 10-K for more information on market performance-based RSUs.

At March 31, 2014, total unrecognized stock-based compensation expense related to unvested market performance-based awards was $138 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of 2.7 years.

13. Stock-Based Compensation (continued)

Market Performance-based RSUs. (continued)

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 nonvoting participating preferred stock to fund the remaining committed shares. As of March 31, 2014, 2.7 million shares had been surrendered by PNC.

At March 31, 2014, the remaining shares committed by PNC of 1.3 million were available to fund certain future long-term incentive awards.

Stock Options. Stock options outstanding at both March 31, 2014 and December 31, 2013 were 931,758 with a weighted average exercise price of $167.76. At March 31, 2014, all options were vested. The remaining average life of stock options outstanding at March 31, 2014 is approximately three years.

14. 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, 2014, the Company was required to maintain approximately $1.2 billion 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 Conduct Authority and Prudential Regulation Authority in the United Kingdom and the Company’s broker-dealers. At such date, the Company was in compliance with all applicable regulatory net capital requirements.

15. Accumulated Other Comprehensive Income (Loss)

The following table presents changes in AOCI by component for the three months ended March 31, 2014 and 2013:


(in millions)	Unrealized gains (losses) on available-for-sale investments			Benefit plans			Foreign currency translation adjustments			Total⁽¹⁾
December 31, 2013		$7			$6			($48	)		($35	)
Other comprehensive income (loss) before reclassifications⁽²⁾		-			-			8			8
Amount reclassified from AOCI⁽³⁾		(8	)		-			-			(8	)

Net other comprehensive income (loss) for the three months ended March 31, 2014		(8	)		-			8			-

March 31, 2014		($1	)		$6			($40	)		($35	)


(in millions)	Unrealized gains (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⁽²⁾		4			-			(108	)		(104	)
Amount reclassified from AOCI⁽³⁾		(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⁾	The tax benefit (expense) was not material for the three months ended March 31, 2014 and 2013.

⁽³⁾	The tax benefit (expense) was not material for the three months ended March 31, 2014 and 2013. The pre-tax amount reclassified from AOCI was included in net gain (loss) on investments on the condensed consolidated statements of income.

16. Capital Stock

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


	March 31, 2014		December 31, 2013
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		1,311,887
Series D
Shares authorized, $0.01 par value		20,000,000		20,000,000
Shares issued and outstanding		-		-

Share Repurchase Approvals. 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 0.8 million common shares in open market-transactions under the share repurchase program for approximately $250 million during the three months ended March 31, 2014. At March 31, 2014, there were 5.7 million shares still authorized to be repurchased.

17. Earnings Per Share

Due to the similarities in terms between BlackRock nonvoting 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 nonvoting participating preferred stock in the calculation of average basic and diluted shares outstanding.

The following table sets forth the computation of basic and diluted EPS for the three months ended March 31, 2014 and 2013 under the treasury stock method:


	Three Months Ended March 31,
(in millions, except per share data)	2014		2013
Net income attributable to BlackRock		$756		$632
Basic weighted-average shares outstanding		169,081,421		171,301,800
Dilutive effect of:
Nonparticipating RSUs and stock options		2,852,382		3,259,332

Total diluted weighted-average shares outstanding		171,933,803		174,561,132

Basic earnings per share		$4.47		$3.69
Diluted earnings per share		$4.40		$3.62

18. 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, 2014 and 2013, respectively.


	Three Months Ended March 31,
(in millions)	2014		2013
Equity	$	1,277	$	1,161
Fixed income		503		486
Multi-asset		289		255
Alternatives		306		249
Cash management		74		86

Total investment advisory, administration fees, securities lending revenue and performance fees		2,449		2,237
BlackRock Solutions and advisory		154		126
Distribution fees		19		17
Other revenue		48		69

Total revenue	$	2,670	$	2,449

The following table illustrates total revenue for the three months ended March 31, 2014 and 2013, 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	2014		2013
Americas		$1,782		$1,663
Europe		757		648
Asia-Pacific		131		138

Total revenue		$2,670		$2,449

The following table illustrates long-lived assets that consist of goodwill and property and equipment at March 31, 2014 and December 31, 2013 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, 2014		December 31, 2013
Long-lived Assets	March 31, 2014		December 31, 2013
Americas		$13,185		$13,204
Europe		211		214
Asia-Pacific		87		87

Total long-lived assets		$13,483		$13,505

18. Segment Information (continued)

Americas primarily is comprised of the United States, Canada, Brazil, Chile and Mexico, while Europe primarily is comprised of the United Kingdom. Asia-Pacific is comprised of Japan, Australia, Singapore, Hong Kong, Taiwan, Korea, India, Malaysia and China.

19. Subsequent Events

The Company conducted a review for subsequent events and determined that no 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 (“AUM”); (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, primarily including the United States, the United Kingdom, Japan, Hong Kong, Singapore, Australia and Germany. At March 31, 2014, the Company managed $4.401 trillion of assets under management (“AUM”) on behalf of institutional and individual investors worldwide. The Company provides a wide range of capabilities, including passively and actively managed strategies across various equity, fixed income, multi-asset, 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 and retail, including high net worth, investors. 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., 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 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, which was automatically renewed for an additional three-year term after the initial term expired on January 1, 2014. The term of the agreement may renew for such annual or other periods as the parties may agree.

At March 31, 2014, PNC held 20.8% of the Company’s voting common stock and 21.8% of the Company’s capital stock, which includes outstanding common and nonvoting preferred stock.

EXECUTIVE SUMMARY


	Three Months Ended March 31,
(in millions, except per share data)	2014		2013
GAAP basis:
Total revenue	$	2,670	$	2,449
Total expenses		1,619		1,540

Operating income	$	1,051	$	909
Operating margin		39.4%		37.1%
Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests⁽¹⁾		29		7
Income tax expense		(324)		(284)

Net income attributable to BlackRock	$	756	$	632

Diluted earnings per common share	$	4.40	$	3.62
Effective tax rate		30.0%		31.0%

As adjusted⁽²⁾:
Total revenue	$	2,670	$	2,449
Total expenses		1,608		1,528

Operating income	$	1,062	$	921
Operating margin		41.4%		40.0%
Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests⁽¹⁾		26		3
Income tax expense		(326)		(287)

Net income attributable to BlackRock	$	762	$	637

Diluted earnings per common share	$	4.43	$	3.65
Effective tax rate		30.0%		31.0%

Other:
Assets under management (end of period)	$	4,400,925	$	3,936,409
Diluted weighted-average common shares outstanding⁽³⁾		171,933,803		174,561,132
Shares outstanding (end of period)		169,138,109		171,102,532
Book value per share⁽⁴⁾	$	156.51	$	147.81
Cash dividends declared and paid per share	$	1.93	$	1.68

⁽¹⁾	Net of net income (loss) attributable to noncontrolling interests (“NCI”) (redeemable and nonredeemable).

⁽²⁾	As adjusted items are described in more detail in Non-GAAP Financial Measures.

⁽³⁾	Nonvoting 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, 2014 and 2013, respectively.

THREE MONTHS ENDED MARCH 31, 2014 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2013

GAAP. Operating income of $1,051 million and operating margin of 39.4% increased $142 million and 230 bps, respectively, from the first quarter of 2013. Operating income reflected continued growth in base fees, strong performance fees and higher BlackRock Solutions and advisory revenue, partially offset by higher revenue-related expenses, including employee compensation and benefits, and direct fund expenses. The increase in these expenses was partially offset by lower general and administration expense. The first quarter of 2013 results also included $18 million of launch costs for the $700 million Multi-Sector Income Trust closed-end fund launched in February 2013. Nonoperating income (expense), less net income (loss) attributable to NCI increased $22 million, including the positive impact of the monetization of a non-strategic, opportunistic private equity investment in the first quarter of 2014. Earnings per diluted common share rose $0.78, or 22%, compared with the first quarter of 2013 due to higher net income and the benefit of share repurchases.

As Adjusted. Operating income of $1,062 million and operating margin of 41.4% increased $141 million and 140 bps, respectively, from the first quarter of 2013. Earnings per diluted common share rose $0.78, or 21%, from the first quarter of 2013.

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

For further discussion of BlackRock’s revenue, expenses, nonoperating 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 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 condensed consolidated statements of income as follows:

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

Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items management deems nonrecurring, recurring infrequently or transactions that ultimately will not impact BlackRock’s book value. Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock’s financial performance over time and, therefore, provide useful disclosure to investors.


	Three Months Ended March 31,
(in millions)	2014		2013
Operating income, GAAP basis		$1,051		$909
Non-GAAP expense adjustments:
PNC LTIP funding obligation		8		8
Compensation expense related to appreciation (depreciation) on deferred compensation plans		3		4

Operating income, as adjusted		1,062		921
Closed-end fund launch costs		-		16
Closed-end fund launch commissions		-		2

Operating income used for operating margin measurement		$1,062		$939

Revenue, GAAP basis		$2,670		$2,449
Non-GAAP adjustments:
Distribution and servicing costs		(89)		(91)
Amortization of deferred sales commissions		(15)		(12)

Revenue used for operating margin measurement		$2,566		$2,346

Operating margin, GAAP basis		39.4%		37.1%

Operating margin, as adjusted		41.4%		40.0%

•

Operating income, as adjusted, includes non-GAAP expense adjustments. The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately does not impact BlackRock’s book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in nonoperating income (expense).

Management believes operating income exclusive of these items is a useful measure in evaluating BlackRock’s operating performance and helps enhance the comparability of this information for the reporting periods presented.

•

Operating margin, as adjusted, allows the Company to compare performance from period to period by adjusting for items that may not recur, recur infrequently or may have an economic offset in nonoperating income (expense). The Company also uses operating margin, as adjusted, to monitor corporate performance and efficiency and as a benchmark to compare its performance with other companies. Management uses both GAAP and non-GAAP financial measures in evaluating BlackRock’s financial performance. The non-GAAP measure by itself may pose limitations because it does not include all of the Company’s revenues and expenses.

(1) (continued)

Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end fund launch costs and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenues associated with the expenditure of these costs will not fully impact the Company’s results until future periods.

Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, substantially offset distribution fee revenue the Company earns. For each of these items, BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenues.

(2) Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted:

Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, equals nonoperating income (expense), GAAP basis, less net income (loss) attributable to NCI, adjusted for compensation expense associated with (appreciation) depreciation on investments related to certain BlackRock deferred compensation plans. The compensation expense offset is recorded in operating income. This compensation expense has been included in nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, to offset returns on investments set aside for these plans, which are reported in nonoperating income (expense), GAAP basis.


	Three Months Ended March 31,
(in millions)	2014			2013
Nonoperating income (expense), GAAP basis		$17			$41
Less: Net income (loss) attributable to NCI		(12	)		34

Nonoperating income (expense), net of NCI		29			7
Compensation expense related to (appreciation) depreciation on deferred compensation plans		(3	)		(4	)

Nonoperating income (expense), net of NCI, as adjusted		$26			$3

Management believes nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, provides comparability of information among reporting periods and is an effective measure for reviewing BlackRock’s nonoperating contribution to results. As compensation expense associated with (appreciation) depreciation on investments related to certain deferred compensation plans, which is included in operating income, substantially offsets the gain (loss) on the investments set aside for these plans, management believes nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, provides a useful measure, for both management and investors, of BlackRock’s nonoperating results that impact book value.

(3) Net income attributable to BlackRock, as adjusted:

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


	Three Months Ended March 31,
(in millions, except per share data)	2014		2013
Net income attributable to BlackRock, GAAP basis		$756		$632
Non-GAAP adjustment, net of tax:⁽⁴⁾
PNC LTIP funding obligation		6		5

Net income attributable to BlackRock, as adjusted		$762		$637

Diluted weighted-average common shares outstanding⁽⁵⁾		171.9		174.6
Diluted earnings per common share, GAAP basis⁽⁵⁾		$4.40		$3.62
Diluted earnings per common share, as adjusted⁽⁵⁾		$4.43		$3.65

See note (1) Operating income, as adjusted, and operating margin, as adjusted, for information on the PNC LTIP funding obligation.

(4) For each period presented, the non-GAAP adjustment related to the PNC LTIP funding obligation was tax effected at the respective blended rates applicable to the adjustment.

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

Assets Under Management

AUM for reporting purposes generally is based upon how investment advisory and administration fees are calculated for each portfolio. Net asset values, total assets, committed assets or other measures may be used to determine portfolio AUM.

AUM and Net Subscriptions (Redemptions) by Client Type


	AUM						Net Subscriptions (Redemptions)
(in millions)	March 31, 2014		December 31, 2013		March 31, 2013		Three Months Ended March 31, 2014			Twelve Months Ended March 31, 2014
Retail	$	508,717	$	487,777	$	421,141	$	14,002		$	44,012
iShares		930,380		914,372		802,776		7,759			46,134
Institutional:
Active		939,654		932,410		878,741		(12,611	)		(3,241	)
Index		1,726,855		1,677,650		1,526,597		17,577