BlackRock Reports Third Quarter Diluted EPS of $2.27 ($2.10 as adjusted)
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Assets Under Management of $1.435 Trillion at September 30, 2009
NEW YORK--(BUSINESS WIRE)-- BlackRock, Inc. (NYSE: BLK) today reported third quarter 2009 net income1 of $317 million, a 46% improvement compared to a year ago. Earnings were $2.27 per diluted common share, which included a $0.33 one-time benefit related to local income tax law changes. Operating income for third quarter was $357 million and non-operating income, net of non-controlling interests, was $61 million. The operating margin was 31.3%.
Net income, as adjusted2, was $2.10 per diluted common share or $293 million, including operating income of $1.86 per diluted share and non-operating income of $0.24 per diluted share. Net income, as adjusted2, improved 23% compared to second quarter and 28% compared to third quarter 2008.
Revenue was $1,140 million, up 11% compared to the second quarter and down 13% compared to third quarter 2008. Operating income, as adjusted2, was $400 million, up 32% compared to second quarter and down 7% compared to third quarter 2008. Third quarter 2009 results included a $3 million benefit from balance sheet related foreign exchange remeasurement compared to a $30 million positive effect in third quarter 2008 and an $18 million expense in the second quarter. Excluding this effect, the primary difference between the percentage change in operating income, as adjusted2, as compared to the change in revenue was related to cost controls. Operating margin, as adjusted2, of 40.1% reflected improved revenue and continued cost control initiatives.
Net non-operating income, as adjusted2, of $0.24 per diluted common share, or $52 million, was an improvement of $0.62 as compared to third quarter 2008 and $0.04 as compared to second quarter 2009. Non-operating income reflected primarily the positive effects of markets on distressed credit, mortgage and private equity products.
BlackRock's results reflect continued positive business momentum and improvements in the external market environment. Clients' risk appetite is increasing as evidenced by a reallocation of capital from liquidity to long-dated assets. BlackRock is on track to complete its combination with Barclays Global Investors ("BGI"), which will diversify and further expand its mix of products, clients and geographic presence.
The table below presents a comparison of GAAP and as adjusted results for certain financial measures. See Attachment I for a reconciliation of GAAP to the as adjusted financial measures.
Nine Months Ended
Q3 Q3 % Q2 % September 30, %
2009 2008 Change 2009 Change 2009 2008 Change
GAAP basis:
Revenue $1,140 $1,313 (13%) $1,029 11% $3,156 $4,000 (21%)
Operating $357 $454 (21%) $261 37% $889 $1,255 (29%)
income
Net income1 $317 $217 46% $218 45% $619 $732 (15%)
Diluted EPS $2.27 $1.59 43% $1.59 43% $4.50 $5.36 (16%)
As Adjusted:
Operating $400 $432 (7%) $302 32% $1,009 $1,292 (22%)
income2
Net income1,2 $293 $229 28% $239 23% $642 $766 (16%)
Diluted EPS2 $2.10 $1.67 26% $1.75 20% $4.66 $5.61 (17%)
1 Net income represents net income attributable to BlackRock, Inc.
2 See notes (a), (b), (c), (d), (e) and (f) to the Condensed Consolidated Statements of Income and Supplemental Information in Attachment I.
Assets under management ("AUM") increased $61.6 billion to $1.435 trillion at September 30, 2009. Net new business in long-dated investment products totaled $14.5 billion. In contrast, net outflows in cash management were $26.4 billion and distributions from advisory accounts totaled $4.6 billion. BlackRock Solutions(R) business remained strong, with seven net new assignments added during the quarter. Year-over-year, AUM has increased $176.2 billion or 14%, including net new business of $133.4 billion, and BlackRock Solutions has added 56 net new assignments. Our pipeline of wins funded or to be funded totaled $42.5 billion as of October 15, 2009.
"Improving investor sentiment was the most important factor in third quarter results. Clients are putting money back to work in the markets, driving inflows in equities and bonds, and outflows in money market funds industry-wide. This shift drove the rally in global stocks and tighter credit spreads, as well as a favorable revenue mix in net new business," remarked Laurence D. Fink, Chairman and CEO of BlackRock.
"Our new business results were strong across both regions and channels, as we continued to capitalize on our diverse platform. Most importantly, our investment performance remained competitive in fixed income, which improved from last year, and across much of our equity, balanced and alternative investment platform. Strong performance, deep risk management capabilities, and exceptional client service position us well to serve our clients as they redeploy their capital across the risk spectrum.
"The market rally also gives investors the opportunity to address challenges in their portfolios, and BlackRock Solutions continues to be sought for its unique risk management and advisory services. We also continue to see an increase in institutional demand for a variety of tailored and multi asset class solutions, including fiduciary outsourcing. When we complete the combination with BGI, we will be uniquely positioned to blend index and active management in constructing new products and asset liability management strategies.
"The BGI transaction remains on target for a December 1, 2009 closing. Over the past month, we have announced leadership positions across most areas of the going forward company. Tremendous progress has been made, and I remain excited about the prospects for the new BlackRock. I want to thank all of our colleagues at BGI and BlackRock for their teamwork and commitment to building a combined franchise with a strongly differentiated ability to help clients throughout the world access market opportunities and meet their most difficult investment challenges."
Third Quarter Business Highlights
-- Third quarter new business results reflected increasing demand for
higher return investments, driving net inflows of $14.5 billion in
equities, balanced, fixed income and alternative investments, and net
outflows of $26.4 billion in cash management. Net new business in
long-dated strategies consisted of $6.9 billion from institutional
clients and $7.6 billion from retail investors globally. International
investors represented approximately three-quarters of the net fundings
in these products. In contrast, investors withdrew $26.4 billion (net)
from cash management products during the quarter, including $23.5
billion and $2.9 billion from institutional and retail investors,
respectively. Cash management outflows from U.S. clients totaled $30.1
billion, offsetting $3.7 billion of net inflows from international
clients. Distributions of $4.6 billion were made from long-term
liquidation portfolios reported as advisory AUM.
-- AUM in equity and balanced products increased $61.0 billion or 19%
during the quarter to $390.6 billion. Renewed risk appetite helped drive
net new business of $11.9 billion across a broad range of strategies.
Demand was strong among both institutional and retail investors,
resulting in net inflows of $7.2 billion and $4.7 billion, respectively.
Performance in our equity and balanced mutual funds was mixed, with 46%
of AUM above peer medians year-to-date, as compared to 78% for the
one-year, 82% for the three-year, and 93% for the five-year periods
ended September 30, 2009.
-- Fixed income AUM ended the quarter at $539.6 billion, up 6% or $29.9
billion. Net new business totaled $3.5 billion, despite $1.7 billion of
outflows due to rebalancing into equities and a $3.8 billion outflow
from one client's insourcing of externally managed assets. Inflows were
concentrated in U.S. core bond and local currency strategies.
Performance continued to improve in our bond funds, with 72% of AUM
ranked in the top two peer group quartiles year-to-date. Longer-term
results continue to reflect last year's weaker results, with 47%, 44%
and 49% of AUM above peer medians for the one-, three- and five-year
periods ended September 30, 2009, respectively.
-- Alternative investment AUM declined $0.4 billion, ending the quarter at
$51.2 billion. Single strategy hedge fund and fund of hedge fund assets
grew $0.7 billion to $23.6 billion, with increases driven by strong
performance partially offset by distributions from opportunistic funds
and modest redemptions. Real estate market values continued to correct
during the quarter, driving a $1.2 billion drop in AUM to $19.0 billion.
Private equity fund of funds and other alternative products were largely
unchanged at $8.7 billion.
-- Asset reallocation by both institutional and retail investors drove
outflows in money market funds industry-wide. BlackRock's cash
management AUM ended the quarter at $290.4 billion, down $26.3 billion
or 8%. Average assets declined 6% relative to the second quarter. U.S.
clients accounted for $30.1 billion of net outflows, which were
partially offset by $3.7 billion of net inflows from international
investors. Outflows were proportional to our client base, with $23.5
billion from institutional clients and $2.9 billion from retail
investors globally. With yields at exceptionally low levels, we would
expect continued pressure on money market flows.
-- Continuing demand for risk management tools and services supported
strong growth in BlackRock Solutions. During the quarter, we added seven
net new assignments and completed six short-term advisory engagements.
Advisory AUM declined $2.7 billion, with $4.6 billion of net
distributions from these long-term liquidation portfolios partially
offset by favorable foreign exchange rates. At quarter-end, we had three
Aladdin implementations in progress.
-- Our pipeline of wins funded or to be funded was $42.5 billion as of
October 15, 2009, including $36.8 billion in long-dated strategies, $4.9
billion in cash management and $0.8 billion in advisory assets. Our
search activity remains very robust, with investors demonstrating
interest in a wide array of investment offerings, including traditional
strategies, alternative investments and multi-asset class solutions. In
addition, we have a solid pipeline of new business opportunities at the
proposal or contract stage across the full range of BlackRock Solutions
products.
Third Quarter GAAP Financial Highlights
Certain prior year amounts have been revised or reclassified to conform to 2009 presentation as required by the retrospective adoption of applicable paragraphs within ASC 470-20, Debt with Conversion and Other Options ("ASC 470-20"), (FASB Staff Position ("FSP") APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)), ASC 260-10, Earnings per Share ("ASC 260-10") (FSP Emerging Issues Task Force ("EITF") 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities) and ASC 810-10, Consolidation ("ASC 810-10")(Statement of Financial Accounting Standards ("SFAS") No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51). For more information please refer to the Company's Current Report on Form 8-K, which updated the financial information in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on September 17, 2009.
Comparison to the Third Quarter of 2008
Third quarter 2009 operating income decreased 21% to $357 million from $454 million earned in third quarter 2008.
Third quarter 2009 revenues of $1,140 million decreased $173 million, or 13%, compared to $1,313 million in third quarter 2008 primarily due to the following:
-- Investment advisory and administration base fees of $913 million in
third quarter 2009 decreased $171 million, or 16%, compared to $1,084
million in third quarter 2008 primarily associated with a market driven
reduction in average AUM of equity and balanced and alternative
investment products.
-- Performance fees were $49 million in third quarter 2009, compared to $55
million in third quarter 2008. The decrease relates primarily to a
reduction in performance fees in alternative equity hedge funds,
partially offset by an increase in international equity and balanced
separate accounts.
-- BlackRock Solutionsand advisory revenue was $127 million for third
quarter 2009 compared to $113 million in third quarter 2008. The
increase is primarily due to additional advisory assignments, which have
AUM based fees and additional Aladdin and risk management mandates.
Third quarter 2009 operating expenses were $783 million compared to $859 million in third quarter 2008. The $76 million, or 9%, decrease compared to third quarter 2008 was primarily due to the following:
-- Employee compensation and benefits decreased $24 million due to a $22
million decline in incentive compensation associated with the decrease
in operating income and a $52 million decrease in salaries and benefits
primarily due to lower employment levels as a result of BlackRock's cost
control efforts, partially offset by a $50 million increase in deferred
compensation expense. The increase in deferred compensation expense is
offset primarily by an increase in non-operating income related to
appreciation on assets associated with certain deferred compensation
plans.
-- Portfolio administration and servicing costs paid to Bank of
America/Merrill Lynch, The PNC Financial Services Group and other third
parties decreased $30 million primarily due to lower levels of average
AUM in cash management and open-end funds.
-- Amortization of deferred mutual fund sales commissions decreased $11
million primarily related to lower sales of certain share classes of
open-end funds.
-- General and administration expenses decreased $10 million primarily
related to a $21 million decrease in marketing and promotional expenses,
a $5 million decrease in technology expenses and a $23 million decrease
in other general and administration expenses, which includes the result
of cost control efforts and costs in 2008 associated with the support of
two enhanced cash funds, partially offset by a $27 million decrease in
foreign currency remeasurement benefits and a $12 million increase in
professional services related to BGI transaction/integration costs
incurred in third quarter 2009.
Third quarter 2009 non-operating income, net of non-controlling interests, was $61 million compared to non-operating loss, net of non-controlling interests, of $120 million in third quarter 2008. The $61 million non-operating income, net of non-controlling interests, related to the Company's co-investments and seed investments including net gains in private equity products of $13 million, distressed credit/mortgage funds of $47 million, hedge funds/funds of hedge funds of $7 million, fixed income and equity investments of $2 million, and deferred compensation plans of $9 million, offset by a $6 million decrease in valuations from real estate equity/debt products. In addition, net interest expense was $11 million, a decrease of $13 million primarily due to a decline in interest rates.
Comparison to the Second Quarter of 2009
Third quarter 2009 operating income increased 37% to $357 million from $261 million earned in second quarter 2009.
Third quarter 2009 revenues of $1,140 million increased $111 million, or 11%, compared to $1,029 million in second quarter 2009 due to the following:
-- Investment advisory and administration base fees of $913 million in
third quarter 2009 increased $63 million, or 7%, compared to $850
million in second quarter 2009 primarily associated with growth in AUM
across equity and balanced and fixed income products during the third
quarter as a result of net inflows, market and foreign currency effects
as well as the effect of one more revenue day in the third quarter,
offset by lower fees on cash management products due to a decline in
average AUM.
-- Performance fees were $49 million in third quarter 2009, compared to $17
million in second quarter 2009. The increase relates primarily to higher
performance fees in alternative equity hedge funds and international
equity and balanced separate accounts.
-- BlackRock Solutionsand advisory revenue was $127 million for third
quarter 2009 versus $116 million in second quarter 2009. The increase is
primarily due to additional advisory assignments as well as additional
risk management mandates.
Third quarter 2009 operating expenses of $783 million increased $15 million, or 2%, compared to $768 million in second quarter 2009. The $15 million increase compared to second quarter 2009 was primarily due to the following:
-- Employee compensation and benefits increased $54 million due to a $45
million increase in incentive compensation primarily due to higher
operating income and performance fees and a $9 million increase in
deferred compensation, salaries, benefits and commissions.
-- General and administration expenses decreased $30 million related to a
$21 million decrease in foreign currency remeasurement costs and a $9
million decrease in other general and administration expenses.
Third quarter 2009 non-operating income, net of non-controlling interests, was $61 million, compared to $51 million in second quarter 2009, a $10 million improvement from second quarter 2009 related to changes in valuations of co-investments and seed investments.
Teleconference and Webcast Information
BlackRock will host a teleconference call for investors and analysts on Tuesday, October 20, 2009, at 9:00 a.m. (Eastern Time) to discuss its third quarter results. Members of the public who are interested in participating in the teleconference should dial, from the United States, (800) 374-0176, or from outside the United States, (706) 679-4634, shortly before 9:00 a.m. and reference the BlackRock Conference Call (ID Number 32553283). A live, listen-only webcast will also be available via the investor relations section of www.blackrock.com.
Both the teleconference and webcast will be available for replay by 1:00 p.m. on Tuesday, October 20, 2009 and ending at midnight on Tuesday, October 27, 2009. To access the replay of the teleconference, callers from the United States should dial (800) 642-1687 and callers from outside the United States should dial (706) 645-9291 and enter the Conference ID Number 32553283. To access the webcast, please visit the investor relations section of www.blackrock.com.
Performance Notes
Past performance is not indicative of future results. The performance information reflects U.S. open-end mutual funds and EMEA-domiciled publicly offered funds. Source of performance information is BlackRock, Inc. and is based in part on data from Lipper Inc. for U.S. funds and Morningstar, Inc. for non-U.S. funds. Fund performance reflects the reinvestment of dividends and distributions, but does not reflect sales charges.
About BlackRock
BlackRock is one of the world's largest publicly traded investment management firms. At September 30, 2009, BlackRock's AUM was $1.435 trillion. The firm manages assets on behalf of institutions and individuals worldwide through a variety of equity and balanced, fixed income, cash management, alternative investment and advisory products. In addition, a growing number of institutional investors use BlackRock Solutions investment system, risk management and financial advisory services. Headquartered in New York City, as of September 30, 2009, the firm has approximately 5,000 full-time employees in 21 countries and a major presence in key global markets, including the United States, Europe, Asia, Australia and the Middle East. For additional information, please visit the Company's website at www.blackrock.com.
Forward-Looking Statements
This press release, and other statements that BlackRock may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock's future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "outlook," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" or 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 or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (3) the relative and absolute investment performance of BlackRock's investment products; (4) the impact of increased competition; (5) the impact of capital improvement projects; (6) the impact of future acquisitions or divestitures; (7) the unfavorable resolution of legal proceedings; (8) the extent and timing of any share repurchases; (9) the impact, extent and timing of technological changes and the adequacy of intellectual property protection; (10) the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock, Barclays PLC, Bank of America Corporation, Merrill Lynch & Co., Inc. or The PNC Financial Services Group, Inc.; (11) terrorist activities and international hostilities, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (12) the ability to attract and retain highly talented professionals; (13) fluctuations in the carrying value of BlackRock's investments; (14) fluctuations in foreign currency exchange rates, which may adversely affect the value of investment advisory and administration fees earned by BlackRock or the carrying value of certain assets and liabilities denominated in foreign currencies; (15) the impact of changes to tax legislation and, generally, the tax position of the Company; (16) BlackRock's success in maintaining the distribution of its products; (17) the impact of BlackRock electing to provide support to its products from time to time; (18) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions; and (19) the ability of BlackRock to complete the transaction with Barclays Bank PLC and integrate the operations of Barclays Global Investors.
BlackRock's Annual Reports on Form 10-K and BlackRock's subsequent filings with the SEC, accessible on the SEC's website at http://www.sec.gov and on BlackRock's website at http://www.blackrock.com, discuss these factors in more detail and identify additional factors that can affect forward-looking statements. The information contained on our website is not a part of this press release.
Attachment I
BlackRock, Inc.
Condensed Consolidated Statements of Income and Supplemental Information
(Dollar amounts in millions, except per share data)
(unaudited)
Three
months
Three months ended ended Nine months ended
September 30, June 30, September 30,
2009 2008 % 2009 % 2009 2008 %
Change Change Change
Revenue
Investment
advisory and $913 $1,084 (16%) $850 7% $2,562 $3,377 (24%)
administration
base fees
Investment
advisory 49 55 (11%) 17 188% 77 154 (50%)
performance fees
Investment
advisory and
administration 962 1,139 (16%) 867 11% 2,639 3,531 (25%)
base and
performance fees
BlackRock
Solutions and 127 113 12% 116 9% 383 273 40%
advisory
Distribution 25 34 (26%) 23 9% 73 103 (29%)
fees
Other revenue 26 27 (4%) 23 13% 61 93 (34%)
Total revenue 1,140 1,313 (13%) 1,029 11% 3,156 4,000 (21%)
Expenses
Employee
compensation and 444 468 (5%) 390 14% 1,185 1,489 (20%)
benefits
Portfolio
administration 119 149 (20%) 125 (5%) 371 455 (18%)
and servicing
Amortization of
deferred mutual 23 34 (32%) 26 (12%) 76 97 (22%)
fund sales
commissions
General and 161 171 (6%) 191 (16%) 505 593 (15%)
administration
Restructuring - - NM - NM 22 - NM
charges
Amortization of
intangible 36 37 (3%) 36 0% 108 111 (3%)
assets
Total expenses 783 859 (9%) 768 2% 2,267 2,745 (17%)
Operating income 357 454 (21%) 261 37% 889 1,255 (29%)
Non-operating
income (expense)
Net gain (loss) 89 (143) 162% 88 1% 5 (163) 103%
on investments
Interest and 4 20 (80%) 4 0% 16 52 (69%)
dividend income
Interest expense (15) (18) (17%) (15) 0% (45) (54) (17%)
Total
non-operating 78 (141) 155% 77 1% (24) (165) 85%
income (expense)
Income before 435 313 39% 338 29% 865 1,090 (21%)
income taxes
Income tax 101 117 (14%) 94 7% 225 394 (43%)
expense
Net income 334 196 70% 244 37% 640 696 (8%)
Less:
Net income
(loss)
attributable to 17 (21) 181% 26 (35%) 21 (36) 158%
non-controlling
interests
Net income
attributable to $317 $217 46% $218 45% $619 $732 (15%)
BlackRock, Inc.
Weighted-average
common shares
outstanding (e)
Basic 133,266,379 129,793,939 3% 130,928,916 2% 131,481,677 129,427,715 2%
Diluted 135,902,241 132,270,351 3% 133,364,611 2% 134,001,799 131,998,448 2%
Earnings per
share
attributable to
BlackRock, Inc.
common
shareholders (e)
Basic $2.31 $1.62 43% $1.62 43% $4.58 $5.47 (16%)
Diluted $2.27 $1.59 43% $1.59 43% $4.50 $5.36 (16%)
Cash dividends
declared and $0.78 $0.78 0% $0.78 0% $2.34 $2.34 0%
paid per share
Supplemental
information:
Operating
income, as $400 $432 (7%) $302 32% $1,009 $1,292 (22%)
adjusted (a)
Operating
margin, GAAP 31.3% 34.6% (10%) 25.4% 23% 28.2% 31.4% (10%)
basis
Operating
margin, as 40.1% 38.4% 4% 34.4% 17% 37.4% 37.9% (1%)
adjusted (a)
Non-operating
income
(expense), less
net income
(loss) $52 ($81) 164% $42 24% ($59) ($114) 48%
attributable to
non-controlling
interests, as
adjusted (b)
Net income
attributable to
BlackRock, Inc., $293 $229 28% $239 23% $642 $766 (16%)
as adjusted (c),
(d)
Diluted earnings
attributable to
BlackRock, Inc.
common $2.10 $1.67 26% $1.75 20% $4.66 $5.61 (17%)
shareholders per
share, as
adjusted (c),
(d), (e)
NOTE: Certain prior period information has been reclassified to conform to current period presentation.
NM - Not
meaningful
BlackRock, Inc.
Notes to Condensed Consolidated Statements of Income and Supplemental Information
(Unaudited)
BlackRock reports its financial results on a GAAP basis; however, management believes that evaluating the Company's ongoing operating results may be enhanced if investors have additional non-GAAP basis financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock's financial performance over time. BlackRock's management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
Certain prior period non-GAAP data has been reclassified to conform to the current presentation. Computations for all periods are derived from the Company's condensed consolidated statements of income as follows:
(a) Operating income, as adjusted, and operating margin, as adjusted:
Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items deemed non-recurring by management or transactions that ultimately will not impact BlackRock's book value, as indicated in the table below. Operating income used for operating margin measurement equals operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Operating margin, as adjusted, equals operating income used for operating margin measurement, divided by revenue used for operating margin measurement, as indicated in the table below.
Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2009 2008 2009 2009 2008
Operating income, GAAP basis $357 $454 $261 $889 $1,255
Non-GAAP adjustments:
Restructuring charges - - - 22 -
PNC LTIP funding obligation 15 14 15 45 44
Merrill Lynch compensation 3 3 2 8 8
contribution
Barclays Global Investors ("BGI") 16 - 15 31 -
transaction/integration costs
Compensation expense related to
(depreciation) appreciation on 9 (39) 9 14 (15)
deferred compensation plans
Operating income, as adjusted 400 432 302 1,009 1,292
Closed-end fund launch costs - - - 2 9
Closed-end fund launch commissions - - - 1 -
Operating income used for operating $400 $432 $302 $1,012 $1,301
margin measurement
Revenue, GAAP basis $1,140 $1,313 $1,029 $3,156 $4,000
Non-GAAP adjustments:
Portfolio administration and (119) (149) (125) (371) (455)
servicing costs
Amortization of deferred mutual (23) (34) (26) (76) (97)
fund sales commissions
Reimbursable property management - (6) - - (18)
compensation
Revenue used for operating margin $998 $1,124 $878 $2,709 $3,430
measurement
Operating margin, GAAP basis 31.3% 34.6% 25.4% 28.2% 31.4%
Operating margin, as adjusted 40.1% 38.4% 34.4% 37.4% 37.9%
BlackRock, Inc.
Notes to Condensed Consolidated Statements of Income and Supplemental Information
(Unaudited)
(continued)
(a) (continued)
Management believes that operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock's performance over time. As such, management believes that operating income, as adjusted, and operating margin, as adjusted, provide useful disclosure to investors.
Operating income, as adjusted:
Restructuring charges recorded in 2009 consist of compensation costs, occupancy costs and professional fees and have been deemed non-recurring by management and thus have been excluded from operating income, as adjusted, to help ensure the comparability of this information to prior periods. Barclays Global Investors ("BGI") transaction/integration costs recorded in 2009 consist principally of certain advisory, legal fees and consulting expenses incurred in conjunction with the announced transaction. As such, management believes that operating margins exclusive of these costs are useful measures in evaluating BlackRock's operating performance for the respective periods.
The portion of compensation expense associated with certain long-term incentive plans ("LTIP") that will be funded through the distribution to participants of shares of BlackRock stock held by The PNC Financial Services Group, Inc. ("PNC") and the Merrill Lynch compensation contribution, a portion of which has been received, have been excluded because these charges ultimately do not impact BlackRock's book value.
Compensation expense associated with appreciation (depreciation) on assets related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in non-operating income.
Operating margin, as adjusted:
Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Management believes that excluding such costs and commissions is useful because these costs can fluctuate considerably and revenues associated with the expenditure of these costs will not fully impact the Company's results until future periods.
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 fluctuate based on market movement, such as restructuring charges, transaction/integration costs, closed-end fund launch costs and fluctuations in compensation expense based on mark-to-market movements in investments held to fund certain compensation plans. The Company also uses operating margin, as adjusted, to monitor corporate performance and efficiency and as a benchmark to compare its performance to other companies. Management uses both the GAAP and non-GAAP financial measures. The non-GAAP measure by itself may pose limitations because it does not include all of the Company's revenues and expenses.
Revenue used for operating margin, as adjusted, excludes portfolio administration and servicing costs paid to related parties and to other third parties. Management believes that excluding such costs is useful because the Company receives offsetting revenue for these services. Amortization of deferred mutual fund sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, offset distribution fee revenue earned by the Company. Reimbursable property management compensation represented compensation and benefits paid to personnel of Metric Property Management, Inc. ("Metric"), a subsidiary of BlackRock Realty Advisors, Inc. ("Realty"). These employees were retained on Metric's payroll when certain properties were acquired by Realty's clients. The related compensation and benefits were fully reimbursed by Realty's clients and have been excluded from revenue used for operating margin, as adjusted, because they bear no economic cost to BlackRock. 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 revenues.
BlackRock, Inc.
Notes to Condensed Consolidated Statements of Income and Supplemental Information
(Unaudited)
(continued)
(b) Non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted:
Non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted, equals non-operating income (expense), GAAP basis, less net income (loss) attributable to non-controlling interests, GAAP basis, adjusted for compensation expense associated with depreciation (appreciation) on assets related to certain BlackRock deferred compensation plans. The compensation expense offset is recorded in operating income. This compensation expense has been included in non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted, to offset returns on investments set aside for these plans, which are reported in non-operating income (expense), GAAP basis.
Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2009 2008 2009 2009 2008
Non-operating income (expense), GAAP $78 ($141) $77 ($24) ($165)
basis
Net income (loss) attributable to
non-controlling interests, GAAP 17 (21) 26 21 (36)
basis
Non-operating income (expense), less
net income (loss) attributable to 61 (120) 51 (45) (129)
non-controlling interests
Compensation expense related to
(appreciation) depreciation on (9) 39 (9) (14) 15
deferred compensation plans
Non-operating income (expense), less
net income (loss) attributable to $52 ($81) $42 ($59) ($114)
non-controlling interests, as
adjusted
Management believes that non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted, provides for comparability of this information to prior periods and is an effective measure for reviewing BlackRock's non-operating contribution to its results. As compensation expense associated with depreciation (appreciation) on assets related to certain deferred compensation plans, which is included in operating income, offsets the gain/(loss) on the investments set aside for these plans, management believes that non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted, provides useful measures to investors of BlackRock's non-operating results.
BlackRock, Inc.
Notes to Condensed Consolidated Statements of Income and Supplemental Information
(Unaudited)
(continued)
(c) Net income attributable to BlackRock, Inc., as adjusted:
Management believes that net income attributable to BlackRock, Inc., as adjusted, and diluted common earnings per share, as adjusted, are useful measures of BlackRock's profitability and financial performance. Net income attributable to BlackRock, Inc., as adjusted, equals net income attributable to BlackRock, Inc., GAAP basis, adjusted for significant non-recurring items as well as charges that ultimately will not impact BlackRock's book value.
Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2009 2008 2009 2009 2008
Net income attributable
to BlackRock, Inc., $317 $217 $218 $619 $732
GAAP basis
Non-GAAP adjustments,
net of tax:(d)
Restructuring charges - - - 14 -
PNC LTIP funding 9 10 10 29 29
obligation
Merrill Lynch
compensation 1 2 1 4 5
contribution
BGI
transaction/integration 11 - 10 21 -
costs
Local income tax law (45) - - (45) -
changes
Net income attributable
to BlackRock, Inc., as $293 $229 $239 $642 $766
adjusted
Allocation of net
income attributable to
BlackRock, Inc., as
adjusted:(f)
Common shares(e) $285 $221 $233 $625 $741
Participating RSUs 8 8 6 17 25
Net income attributable
to BlackRock, Inc., as $293 $229 $239 $642 $766
adjusted
Diluted weighted
average common shares 135,902,241 132,270,351 133,364,611 134,001,799 131,998,448
outstanding (e)
Diluted earnings per
common share, GAAP $2.27 $1.59 $1.59 $4.50 $5.36
basis(e)
Diluted earnings per
common share, as $2.10 $1.67 $1.75 $4.66 $5.61
adjusted(e)
The restructuring charges and BGI transaction/integration costs reflected in GAAP net income attributable to BlackRock, Inc. have been deemed non-recurring by management and have been excluded from net income attributable to BlackRock, Inc., as adjusted, to help ensure the comparability of this information to prior reporting periods.
The portion of the compensation expense associated with LTIP awards that will be funded through the distribution to participants of shares of BlackRock stock held by PNC and the Merrill Lynch compensation contribution, a portion of which has been received, have been excluded from net income attributable to BlackRock, Inc., as adjusted, because these charges ultimately do not impact BlackRock's book value.
During third quarter 2009, legislation was enacted primarily with respect to New York City corporate income taxes, effective January 1, 2009 which resulted in a revaluation of deferred income tax assets and liabilities. The resulting decrease in income taxes has been excluded from net income attributable to BlackRock, Inc., as adjusted, as it is non-recurring and to ensure comparability of this information to prior reporting periods.
(d) The tax rates used represent BlackRock's corporate effective tax rates in the respective periods, which exclude certain adjustments that were recorded. For each of the quarters ended September 30, 2009, September 30, 2008 and June 30, 2009, non-GAAP adjustments were tax effected at 35%. For each of the nine months ended September 30, 2009 and 2008, non-GAAP adjustments were tax effected at 35%.
(e) Series A, B and C non-voting participating preferred stock are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations. Certain unvested restricted stock units are not included in this number as they are deemed participating securities in accordance with required provisions of ASC 260-10, Earnings per Share (FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities).
(f) Allocation of net income attributable to BlackRock, Inc., as adjusted, to common shares and participating RSUs is calculated pursuant to the two-class method as defined in ASC 260-10 (SFAS No. 128, Earnings per Share).
Attachment II
BlackRock, Inc.
Summary of Revenues
(Dollar amounts in millions)
(unaudited)
Three
months
Three months ended Nine months
ended ended
September 30, June September 30,
30,
2009 2008 % 2009 % 2009 2008 %
Change Change Change
Investment
advisory and
administration
fees
Fixed income $224 $230 (3%) $207 8% $630 $685 (8%)
Cash management 149 176 (15%) 166 (10%) 490 535 (8%)
Equity and 454 540 (16%) 382 19% 1,173 1,743 (33%)
balanced
Alternative
investment 86 138 (38%) 95 (9%) 269 414 (35%)
products
Investment
advisory and 913 1,084 (16%) 850 7% 2,562 3,377 (24%)
administration
base fees
Fixed income 2 - NM 5 (60%) 10 2 400%
Equity and 17 9 89% 2 NM 25 77 (68%)
balanced
Alternative
investment 30 46 (35%) 10 200% 42 75 (44%)
products
Investment
advisory 49 55 (11%) 17 188% 77 154 (50%)
performance
fees
Total
investment
advisory and
administration 962 1,139 (16%) 867 11% 2,639 3,531 (25%)
base and
performance
fees
BlackRock
Solutions and 127 113 12% 116 9% 383 273 40%
advisory
Distribution 25 34 (26%) 23 9% 73 103 (29%)
fees
Other revenue 26 27 (4%) 23 13% 61 93 (34%)
Total revenue $1,140 $1,313 (13%) $1,029 11% $3,156 $4,000 (21%)
NM - Not meaningful
BlackRock, Inc.
Summary of Non-operating Income (Expense)
(Dollar amounts in millions)
(unaudited)
Three
months
Three months ended Nine months
ended ended
September 30, June September 30,
30,
2009 2008 % 2009 % 2009 2008 %
Change Change Change
Total
non-operating $78 ($141) 155% $77 1% ($24) ($165) 85%
income
(expense)
Net income
(loss)
attributable to 17 (21) 181% 26 (35%) 21 (36) 158%
non-controlling
interests
Total
non-operating
income
(expense), less
net income $61 ($120) 151% $51 20% ($45) ($129) 65%
(loss)
attributable to
non-controlling
interests
Estimated
economic Three
months
investments Three months ended Nine months
at ended ended
September September 30, June September 30,
30, 30,
20093 2009 2008 % 2009 % 2009 2008 %
Change Change Change
Net gain (loss)
on investments
1
Private equity 25 - 35% $13 ($4) 425% $11 18% $4 $6 (33%)
Real estate <10% (6) (14) 57% (12) 50% (111) (36) (208%)
Distressed
credit/mortgage 20 - 30% 47 (48) 198% 44 7% 79 (44) 280%
funds
Hedge
funds/funds of 10 - 20% 7 (18) 139% 8 (13%) 9 (26) 135%
hedge funds
Other 15 - 25% 2 1 100% 2 0% (11) (11) 0%
investments 2
Sub-total 63 (83) 176% 53 19% (30) (111) 73%
Investments
related to
deferred 9 (39) 123% 9 0% 14 (15) 193%
compensation
plans
Total net gain
(loss) on 72 (122) 159% 62 16% (16) (126) 87%
investments 1
Net income
(loss)
attributable to - - NM - NM - (1) 100%
other
non-controlling
interests4
Interest and 4 20 (80%) 4 0% 16 52 (69%)
dividend income
Interest (15) (18) (17%) (15) 0% (45) (54) (17%)
expense
Total
non-operating 61 (120) 151% 51 20% (45) (129) 65%
income
(expense) 1
Compensation
expense related
to depreciation
(appreciation) (9) 39 (123%) (9) 0% (14) 15 (193%)
on deferred
compensation
plans
Non-operating
income $52 ($81) 164% $42 24% ($59) ($114) 48%
(expense), as
adjusted 1
1 Includes net income (loss) attributable to non-controlling interests (redeemable and
non-redeemable) related to investment activities.
2 Net gain (loss) for other investments includes net gains / (losses) related to equity and
fixed income investments and BlackRock's seed capital hedging program.
3 Represents estimated percentages of BlackRock's corporate economic investment portfolio.
4 Includes non-controlling interests related to operating entities (non-investment
activities).
NM - Not meaningful
NOTE: Certain prior period information has been reclassified to conform to current period
presentation.
Attachment III
BlackRock, Inc.
Assets Under Management
(Dollar amounts in millions)
(unaudited)
Summary Variance vs.
September June 30, September June 30, September 30,
30, 30,
2009 2009 2008 2009 2008
Fixed $ 539,590 $ 509,656 $ 502,066 6% 7%
income
Cash 290,440 316,702 290,692 (8%) (0%)
management
Equity and 390,643 329,622 351,428 19% 11%
balanced
Alternative
investment 51,210 51,562 71,308 (1%) (28%)
products
Sub Total 1,271,883 1,207,542 1,215,494 5% 5%
Advisory 162,886 165,618 43,104 (2%) 278%
AUM4
Total AUM $ $ 1,373,160 $ 1,258,598 4% 14%
1,434,769
Current
Quarter Net Market
Component
Changes
June 30, subscriptions Foreign appreciation September
30,
2009 (redemptions)1 Acquisition2 exchange3 (depreciation) 2009
Fixed $ 509,656 $ 3,454 $ - $ 2,218 $ 24,262 $ 539,590
income
Cash 316,702 (26,388) - (47) 173 290,440
management
Equity and 329,622 11,907 - 2,170 46,944 390,643
balanced
Alternative
investment 51,562 (845) - 110 383 51,210
products
Sub Total 1,207,542 (11,872) - 4,451 71,762 1,271,883
Advisory 165,618 (4,600) - 2,044 (176) 162,886
AUM4
Total AUM $ $ (16,472) $ - $ 6,495 $ 71,586 $
1,373,160 1,434,769
Year to
Date Net Market
Component
Changes
December subscriptions Foreign appreciation September
31, 30,
2008 (redemptions)1 Acquisition2 exchange3 (depreciation) 2009
Fixed $ 483,173 $ 12,536 $ - $ 4,756 $ 39,125 $ 539,590
income
Cash 338,439 (49,534) - 1,277 258 290,440
management
Equity and 280,821 33,271 - 7,457 69,094 390,643
balanced
Alternative
investment 59,723 (6,092) 1,344 530 (4,295) 51,210
products
Sub Total 1,162,156 (9,819) 1,344 14,020 104,182 1,271,883
Advisory 144,995 14,154 - 3,734 3 162,886
AUM4
Total AUM $ $ 4,335 $ 1,344 $ 17,754 $ 104,185 $
1,307,151 1,434,769
Year over
Year Net Market
Component
Changes
September subscriptions Foreign appreciation September
30, 30,
2008 (redemptions)1 Acquisition2 exchange3 (depreciation) 2009
Fixed $ 502,066 $ (3,646) $ - $ 1,893 $ 39,277 $ 539,590
income
Cash 290,692 (930) - 132 546 290,440
management
Equity and 351,428 30,990 - (3,832) 12,057 390,643
balanced
Alternative
investment 71,308 (8,992) 1,344 (147) (12,303) 51,210
products
Sub Total 1,215,494 17,422 1,344 (1,954) 39,577 1,271,883
Advisory 43,104 115,977 - 3,734 71 162,886
AUM4
Total AUM $ $ 133,399 $ 1,344 $ 1,780 $ 39,648 $
1,258,598 1,434,769
1 Includes distributions representing return of capital and return on investment to
investors.
2 Net assets acquired from R3 Capital Management, LLC in April 2009.
3 Foreign exchange reflects the impact of converting non-dollar denominated AUM into U.S.
dollars for reporting purposes.
4 Advisory AUM represents long-term portfolio liquidation assignments.
Source: BlackRock, Inc.
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