BlackRock Reports Third Quarter Diluted EPS of $2.27 ($2.10 as adjusted)
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BLK | Quote | Chart | News | PowerRating -- BlackRock, Inc. (NYSE:BLK) today reported third quarter 2009 net income(1)
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 adjusted(2), 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
adjusted(2), 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 adjusted(2),
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
adjusted(2), as compared to the change in revenue was related
to cost controls. Operating margin, as adjusted(2), of 40.1%
reflected improved revenue and continued cost control initiatives.
Net non-operating income, as adjusted(2), 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 income $357 $454 (21%) $261 37% $889 $1,255 (29%)
Net income(1) $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 income(2) $400 $432 (7%) $302 32% $1,009 $1,292 (22%)
Net income(1,2) $293 $229 28% $239 23% $642 $766 (16%)
Diluted EPS(2) $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 Solutions
and 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 Solutions
and 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)
Threemonths
Three months ended ended Nine months ended
September 30, June 30, September 30,
2009 2008 % Change 2009 % Change 2009 2008 % Change
Revenue
Investment advisory and administration base fees $913 $1,084 (16%) $850 7% $2,562 $3,377 (24%)
Investment advisory performance fees 49 55 (11%) 17 188% 77 154 (50%)
Investment advisory and administration base and performance fees 962 1,139 (16%) 867 11% 2,639 3,531 (25%)
BlackRock Solutions and advisory 127 113 12% 116 9% 383 273 40%
Distribution fees 25 34 (26%) 23 9% 73 103 (29%)
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 benefits 444 468 (5%) 390 14% 1,185 1,489 (20%)
Portfolio administration and servicing 119 149 (20%) 125 (5%) 371 455 (18%)
Amortization of deferred mutual fund sales commissions 23 34 (32%) 26 (12%) 76 97 (22%)
General and administration 161 171 (6%) 191 (16%) 505 593 (15%)
Restructuring charges - - NM - NM 22 - NM
Amortization of intangible assets 36 37 (3%) 36 0% 108 111 (3%)
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) on investments 89 (143) 162% 88 1% 5 (163) 103%
Interest and dividend income 4 20 (80%) 4 0% 16 52 (69%)
Interest expense (15) (18) (17%) (15) 0% (45) (54) (17%)
Total non-operating income (expense) 78 (141) 155% 77 1% (24) (165) 85%
Income before income taxes 435 313 39% 338 29% 865 1,090 (21%)
Income tax expense 101 117 (14%) 94 7% 225 394 (43%)
Net income 334 196 70% 244 37% 640 696 (8%)
Less:
Net income (loss) attributable to non-controlling interests 17 (21) 181% 26 (35%) 21 (36) 158%
Net income attributable to BlackRock, Inc. $317 $217 46% $218 45% $619 $732 (15%)
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 paid per share $0.78 $0.78 0% $0.78 0% $2.34 $2.34 0%
Supplemental information:
Operating income, as adjusted (a) $400 $432 (7%) $302 32% $1,009 $1,292 (22%)
Operating margin, GAAP basis 31.3% 34.6% (10%) 25.4% 23% 28.2% 31.4% (10%)
Operating margin, as adjusted (a) 40.1% 38.4% 4% 34.4% 17% 37.4% 37.9% (1%)
Non-operating income (expense), less net income (loss) attributable $52 ($81) 164% $42 24% ($59) ($114) 48%
to non-controlling interests, as adjusted (b)
Net income attributable to BlackRock, Inc., as adjusted (c), (d) $293 $229 28% $239 23% $642 $766 (16%)
Diluted earnings attributable to BlackRock, Inc. common shareholders $2.10 $1.67 26% $1.75 20% $4.66 $5.61 (17%)
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 NineMonthsEnded
September 30, June30, 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 contribution 3 3 2 8 8
Barclays Global Investors ("BGI") transaction/integration costs 16 - 15 31 -
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 margin measurement $400 $432 $302 $1,012 $1,301
Revenue, GAAP basis $1,140 $1,313 $1,029 $3,156 $4,000
Non-GAAP adjustments:
Portfolio administration and servicing costs (119) (149) (125) (371) (455)
Amortization of deferred mutual fund sales commissions (23) (34) (26) (76) (97)
Reimbursable property management compensation - (6) - - (18)
Revenue used for operating margin measurement $998 $1,124 $878 $2,709 $3,430
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 NineMonthsEnded
September30, June30, September 30,
2009 2008 2009 2009 2008
Non-operating income (expense), GAAP basis $78 ($141) $77 ($24) ($165)
Net income (loss) attributable to non-controlling interests, GAAP 17 (21) 26 21 (36)
basis
Non-operating income (expense), less net income (loss) attributable 61 (120) 51 (45) (129)
to 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) $52 ($81) $42 ($59) ($114)
attributable to 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., GAAP basis $317 $217 $218 $619 $732
Non-GAAP adjustments, net of tax: (d)
Restructuring charges - - - 14 -
PNC LTIP funding obligation 9 10 10 29 29
Merrill Lynch compensation contribution 1 2 1 4 5
BGI transaction/integration costs 11 - 10 21 -
Local income tax law changes (45) - - (45) -
Net income attributable to BlackRock, Inc., as adjusted $293 $229 $239 $642 $766
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 adjusted $293 $229 $239 $642 $766
Diluted weighted average common shares outstanding (e) 135,902,241 132,270,351 133,364,611 134,001,799 131,998,448
Diluted earnings per common share, GAAP basis (e) $2.27 $1.59 $1.59 $4.50 $5.36
Diluted earnings per common share, as adjusted (e) $2.10 $1.67 $1.75 $4.66 $5.61
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)
Threemonths
Threemonths ended ended Ninemonthsended
September 30, June 30, September 30,
2009 2008 % Change 2009 % Change 2009 2008 % 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 balanced 454 540 (16%) 382 19% 1,173 1,743 (33%)
Alternative investment products 86 138 (38%) 95 (9%) 269 414 (35%)
Investment advisory and administration base fees 913 1,084 (16%) 850 7% 2,562 3,377 (24%)
Fixed income 2 - NM 5 (60%) 10 2 400%
Equity and balanced 17 9 89% 2 NM 25 77 (68%)
Alternative investment products 30 46 (35%) 10 200% 42 75 (44%)
Investment advisory performance fees 49 55 (11%) 17 188% 77 154 (50%)
Total investment advisory and administration base and performance 962 1,139 (16%) 867 11% 2,639 3,531 (25%)
fees
BlackRock Solutions and advisory 127 113 12% 116 9% 383 273 40%
Distribution fees 25 34 (26%) 23 9% 73 103 (29%)
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
Threemonthsended ended Nine monthsended
September 30, June 30, September 30,
2009 2008 % Change 2009 % Change 2009 2008 % Change
Total non-operating income (expense) $78 ($141) 155% $77 1% ($24) ($165) 85%
Net income (loss) attributable to non-controlling interests 17 (21) 181% 26 (35%) 21 (36) 158%
Total non-operating income (expense), less net income (loss) $61 ($120) 151% $51 20% ($45) ($129) 65%
attributable to non-controlling interests
Estimated
economic Threemonths
investmentsat Three months ended ended Ninemonthsended
September30, September 30, June 30, September 30,
2009(3) 2009 2008 % Change 2009 % Change 2009 2008 % 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 funds 20 - 30% 47 (48) 198% 44 7% 79 (44) 280%
Hedge funds/funds of hedge funds 10 - 20% 7 (18) 139% 8 (13%) 9 (26) 135%
Other investments (2) 15 - 25% 2 1 100% 2 0% (11) (11) 0%
Sub-total 63 (83) 176% 53 19% (30) (111) 73%
Investments related to deferred compensation plans 9 (39) 123% 9 0% 14 (15) 193%
Total net gain (loss) on investments (1) 72 (122) 159% 62 16% (16) (126) 87%
Net income (loss) attributable to other non-controlling interests(4) - - NM - NM - (1) 100%
Interest and dividend income 4 20 (80%) 4 0% 16 52 (69%)
Interest expense (15) (18) (17%) (15) 0% (45) (54) (17%)
Total non-operating income (expense) (1) 61 (120) 151% 51 20% (45) (129) 65%
Compensation expense related to depreciation (appreciation) on (9) 39 (123%) (9) 0% (14) 15 (193%)
deferred compensation plans
Non-operating income (expense), as adjusted (1) $52 ($81) 164% $42 24% ($59) ($114) 48%
(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 30, June 30, September 30, June 30, September 30,
2009 2009 2008 2009 2008
Fixed income $ 539,590 $ 509,656 $ 502,066 6% 7%
Cash management 290,440 316,702 290,692 (8%) (0%)
Equity and balanced 390,643 329,622 351,428 19% 11%
Alternative investment products 51,210 51,562 71,308 (1%) (28%)
Sub Total 1,271,883 1,207,542 1,215,494 5% 5%
Advisory AUM(4) 162,886 165,618 43,104 (2%) 278%
Total AUM $ 1,434,769 $ 1,373,160 $ 1,258,598 4% 14%
Current Quarter Component Changes Net Market
June 30, subscriptions Foreign appreciation September 30,
2009 (redemptions)(1) Acquisition (2) exchange (3) (depreciation) 2009
Fixed income $ 509,656 $ 3,454 $ - $ 2,218 $ 24,262 $ 539,590
Cash management 316,702 (26,388) - (47) 173 290,440
Equity and balanced 329,622 11,907 - 2,170 46,944 390,643
Alternative investment products 51,562 (845) - 110 383 51,210
Sub Total 1,207,542 (11,872) - 4,451 71,762 1,271,883
Advisory AUM(4) 165,618 (4,600) - 2,044 (176) 162,886
Total AUM $ 1,373,160 $ (16,472) $ - $ 6,495 $ 71,586 $ 1,434,769
Year to Date Component Changes Net Market
December 31, subscriptions Foreign appreciation September 30,
2008 (redemptions)(1) Acquisition (2) exchange (3) (depreciation) 2009
Fixed income $ 483,173 $ 12,536 $ - $ 4,756 $ 39,125 $ 539,590
Cash management 338,439 (49,534) - 1,277 258 290,440
Equity and balanced 280,821 33,271 - 7,457 69,094 390,643
Alternative investment products 59,723 (6,092) 1,344 530 (4,295) 51,210
Sub Total 1,162,156 (9,819) 1,344 14,020 104,182 1,271,883
Advisory AUM(4) 144,995 14,154 - 3,734 3 162,886
Total AUM $ 1,307,151 $ 4,335 $ 1,344 $ 17,754 $ 104,185 $ 1,434,769
Year over Year Component Changes Net Market
September 30, subscriptions Foreign appreciation September 30,
2008 (redemptions)(1) Acquisition (2) exchange (3) (depreciation) 2009
Fixed income $ 502,066 $ (3,646) $ - $ 1,893 $ 39,277 $ 539,590
Cash management 290,692 (930) - 132 546 290,440
Equity and balanced 351,428 30,990 - (3,832) 12,057 390,643
Alternative investment products 71,308 (8,992) 1,344 (147) (12,303) 51,210
Sub Total 1,215,494 17,422 1,344 (1,954) 39,577 1,271,883
Advisory AUM(4) 43,104 115,977 - 3,734 71 162,886
Total AUM $ 1,258,598 $ 133,399 $ 1,344 $ 1,780 $ 39,648 $ 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.
BlackRock, Inc.
Media Relations
Bobbie Collins, 212-810-8155
Bobbie.Collins@blackrock.com
or
Media/Investor Relations
Brian Beades, 212-810-5596
Brian.Beades@blackrock.com
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