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Press release from Business Wire

BlackRock Reports Quarterly Diluted EPS of $4.19, or $4.15 as Adjusted

<p class='bwalignc'> <i><b>$3.857 Trillion in assets under management at June 30, 2013, up 8% year over year</b></i> </p> <p> • Record base fees of $2.2 billion for the quarter </p> <p> • Operating income growth of 2% from 2012, or 18% as adjusted, drove adjusted operating margin expansion </p> <p> • Continued commitment to sound capital management with $250 million of quarterly share repurchases </p> <p> • Funded new charitable foundation to focus on giving back to communities where BlackRock operates, including, among other things, helping to promote financial education for low-income families and individuals </p> <p> </p> <p> </p> <p> </p>

Thursday, July 18, 2013

BlackRock Reports Quarterly Diluted EPS of $4.19, or $4.15 as Adjusted

06:30 EDT Thursday, July 18, 2013

NEW YORK (Business Wire) -- BlackRock, Inc. (NYSE:BLK) today reported second quarter 2013 diluted EPS of $4.19, up 36% from a year ago. Revenue increased 11% from the second quarter 2012, reflecting growth in markets, long-dated net new business and higher performance fees. Operating income for the second quarter 2013 was $849 million with an operating margin of 34.2%. In connection with the PennyMac IPO during the second quarter 2013, the Company recorded a non-cash, non-operating pre-tax gain of $39 million related to the carrying value of the Company's equity method investment. Subsequent to the PennyMac IPO, the Company contributed 6.1 million units of its PennyMac investment to a new Donor Advised Fund (“DAF”) (the “Charitable Contribution”). The Charitable Contribution resulted in an operating expense of $124 million, offset by an $80 million non-cash, non-operating pre-tax gain on the contributed units and a tax benefit of approximately $57 million.

As adjusted results (1) : Second quarter 2013 diluted EPS of $4.15 improved 34% and operating income of $982 million rose 18% compared with the second quarter 2012. Diluted EPS included operating income of $4.10 per diluted share and net non-operating income of $0.05 per diluted share, including the $39 million non-cash, pre-tax gain related to the PennyMac IPO. The financial impact related to the Charitable Contribution has been excluded from as adjusted results. Operating margin of 41.3% in the second quarter 2013 rose 210 bps from the second quarter 2012. Compared with the first quarter 2013, operating margin rose 130 bps, reflecting growth in base fees, lower payroll taxes and lower organizational costs, partially offset by lower performance fees and higher brand campaign costs.

“Our second quarter results, which reflect adjusted operating income up 18% year-over-year, once again highlight the strength of our globally diversified multi-client platform that was built to deliver in all market environments,” commented Laurence D. Fink, Chairman and CEO of BlackRock. “During the quarter we generated record base fees and $11.9 billion in long-dated net new business across a broad range of products, including 11 funds that each raised more than $1 billion. These funds showcased the diversity of our offering, with representation across all major asset classes, client segments and geographies. Results were driven by global demand from retail and institutional clients for multi-asset class, unconstrained fixed income and retail alternative products. Our strong product capabilities in the retail alternative mutual fund space, coupled with our broad distribution platform, uniquely position us in this high growth segment, where second quarter net flows of $1.1 billion drove sequential quarter AUM growth of 72%.”

The table below presents AUM and a comparison of GAAP and as adjusted results for certain financial measures:

AUM, GAAP and as adjusted results
                        Six Months Ended

June 30,

   
(Dollar amounts in millions, except per share data) Q2

2013

    Q2

2012

    Change     Q1

2013

    Change       2013       2012     Change
AUM $ 3,857,007 $ 3,559,934 8% $ 3,936,409 (2%) $ 3,857,007     $ 3,559,934 8%
 

GAAP basis:

Revenue $ 2,482 $ 2,229 11% $ 2,449 1% $ 4,931 $ 4,478 10%
 
Operating income $ 849 $ 829 2% $ 909 (7%) $ 1,758 $ 1,644 7%
 
Operating margin 34.2% 37.2% (300 bps) 37.1% (290 bps) 35.7% 36.7% (100 bps)
 
Net income (2) $ 729 $ 554 32% $ 632 15% $ 1,361 $ 1,126 21%
 
Diluted EPS $ 4.19 $ 3.08 36% $ 3.62 16% $ 7.81 $ 6.22 26%
 
Weighted average diluted shares 173,873,583 179,590,702 (3%) 174,561,132 -% 174,268,870 180,753,515 (4%)
 

As Adjusted:

Operating income (1) $ 982 $ 832 18% $ 921 7% $ 1,903 $ 1,657 15%
 
Operating margin (1) 41.3% 39.2% 210 bps 40.0% 130 bps 40.6% 38.9% 170 bps
 
Net income (1)(2) $ 722 $ 558 29% $ 637 13% $ 1,359 $ 1,133 20%
 
Diluted EPS (1)     $ 4.15     $ 3.10     34%     $ 3.65     14%     $ 7.80     $ 6.26     25%
(1)   See notes (a) through (f) to the Condensed Consolidated Statements of Income and Supplemental Information on pages 13 through 16 for more information on as adjusted items and the reconciliation to GAAP.
(2) Net income represents net income attributable to BlackRock, Inc.

“While markets were volatile this quarter, not all investor behavior was uniform. Our largest institutional investors remain committed to their long-term investment strategies, while trading-oriented clients once again turned to iShares as a highly effective tool to quickly and efficiently adjust their market exposures. iShares flows were driven by clients stepping back from emerging markets equities and long duration fixed income, though outflows in those products were largely offset by flows into the Core Series and our Minimum Volatility suite, resulting in net outflows from iShares of $1 billion for the quarter. Our products provided liquidity and transparency for our clients worldwide, and the record volume of trading in certain of our products reflects our position as the premier provider of highly liquid ETFs.

“We are also seeing the early stages of a rotation within fixed income as investors increasingly focus on the duration of their fixed income portfolios, with flows moving into actively managed, unconstrained products. We have top quartile performance in these areas, with flagship funds like Multi-Asset Income and Strategic Income Opportunities each gathering more than $1 billion in new assets. We continue to leverage our diverse distribution capabilities to deliver superior products to our retail clients, and deepen and develop institutional relationships, as clients look to us to evaluate risk and provide solutions.

“As we highlighted at our inaugural Investor Day, we see a number of exciting growth opportunities across the firm and are continuing our commitment to finding innovative solutions to serve our clients' needs in changing market conditions. This commitment to innovation is illustrated by the launch of our new iSharesBonds series in April combining the advantages of traditional bonds and ETFs and providing our clients a tool to simplify their fixed income portfolio while managing duration risk. In the second quarter, we also provided funding for a new charitable initiative that will launch in 2014 and deepen our commitment to public responsibility that has always been fundamental to our business.

“We have built a unique platform at BlackRock that is differentiated by the diversity of our clients, geographies and investment strategies, all underpinned with risk management powered by Aladdin.  That platform drove more than $51 billion in long-dated net new business in the first half of the year, and we believe it positions us to continue to deliver both for our clients and our shareholders across market cycles.”

Second Quarter Business Highlights

The following table presents net inflows, AUM, base fees and business mix by client and product type:

Net inflows, AUM, base fees and business mix, by client type

(Dollar amounts in millions)               Q2 2013

Net Inflows

    June 30, 2013

AUM

    Q2 2013

Base Fees

    June 30, 2013

AUM

% of Total

    Q2 2013

Base Fees

% of Total

Retail $ 5,076     $ 414,379     $ 697     12 %     33 %
iShares (963 ) 774,397 723 22 % 35 %
Institutional:
Active 1,317 861,231 450 24 % 21 %
Index   6,477         1,514,448       224     42 %     11 %
Total institutional   7,794         2,375,679       674     66 %     32 %
Total long-term $ 11,907       $ 3,564,455     $ 2,094     100 %     100 %
 

Net inflows, AUM, base fees and business mix, by product type

(Dollar amounts in millions)               Q2 2013

Net Inflows

    June 30, 2013

AUM

    Q2 2013

Base Fees

    June 30, 2013

AUM

% of Total

    Q2 2013

Base Fees

% of Total

Equity ($348 )     $ 1,973,115     $ 1,177     55 %     56 %
Fixed income 5,101 1,205,359 503 34 % 24 %
Multi-asset 11,051 289,305 253 8 % 12 %
Alternatives   (3,897 )       96,676       161     3 %     8 %
Total long-term $ 11,907       $ 3,564,455     $ 2,094     100 %     100 %
 

Net long-term inflows of $10.5 billion and $3.7 billion from clients in EMEA and Asia-Pacific, respectively, were offset by net outflows of $2.3 billion from Americas (defined as the United States, Caribbean, Canada, Latin America and Iberia) clients. At June 30, 2013, BlackRock managed 61% of long-term AUM for investors in the Americas and 39% for international clients.

  • Retail net long-term inflows of $5.1 billion globally included net inflows of $3.5 billion in the United States and $1.4 billion in EMEA. Growth was largely driven by a strong interest in unconstrained fixed income and multi-asset income offerings. Flagship funds in these areas include our Strategic Income Opportunities and Multi-Asset Income funds, each of which raised over $1 billion in assets during the quarter. Alternative mutual funds also had a strong quarter, with $1.1 billion of net inflows, representing 72% AUM growth over the prior quarter.
  • iShares net long-term outflows of $1.0 billion included U.S. iShares net long-term outflows of $3.6 billion due to outflows of $7.2 billion, $2.0 billion and $2.1 billion from our flagship emerging markets equity, fixed income and commodities funds, respectively. These outflows more than offset positive flows of $3.6 billion into the Core Series and $2.0 billion into Minimum Volatility equity funds in the United States and $2.2 billion of equity inflows into European iShares.
  • Institutional active net long-term inflows of $1.3 billion reflected strong flows of $8.8 billion into multi-asset class products, driven by continued demand for our LifePath target date suite, which had net inflows of $4.0 billion. Flows were partially offset by combined equity and fixed income net outflows of $4.2 billion, and active currency redemptions of $2.0 billion.
  • Institutional index net long-term inflows of $6.5 billion were primarily driven by demand for local currency fixed income products in EMEA and for global bond mandates in Asia-Pacific.

Cash management AUM decreased 3%, or $8.8 billion, to $252.6 billion.

Advisory AUM decreased 13% to $40.0 billion due to planned portfolio liquidations.

Investment performance as of June 30, 2013 is presented in the following table:

Investment performance
  One-year period   Three-year period   Five-year period
Fixed Income:
Actively managed products above benchmark or peer median
Taxable 76% 80% 70%
Tax-exempt 57% 66% 74%
Passively managed products within or above tolerance   94%   95%   87%
Equity:
Actively managed products above benchmark or peer median
Fundamental 42% 37% 42%
Scientific 82% 94% 60%
Passively managed products within or above tolerance   95%   97%   95%
 

Second Quarter Financial Highlights

PennyMac IPO. At March 31, 2013, BlackRock held an approximately one-third economic equity interest in Private National Mortgage Acceptance Company, LLC (“PNMAC”), which is accounted for as an equity method investment. On May 8, 2013, PennyMac Financial Services, Inc. (“PennyMac”) became the sole managing member of PNMAC in connection with an initial public offering of PennyMac (the “PennyMac IPO”). As a result of the PennyMac IPO, BlackRock recorded a non-cash, non-operating pre-tax gain of $39 million related to the carrying value of its equity method investment. BlackRock was not a seller in the PennyMac IPO.

Charitable Contribution. Subsequent to the PennyMac IPO, the Company made a Charitable Contribution of approximately six million units of its PennyMac investment to a new DAF in the second quarter. The fair value of the Charitable Contribution was $124 million and is included in general and administration expenses on the condensed consolidated statement of income. In connection with the Charitable Contribution, the Company also recorded a non-cash, non-operating pre-tax gain of $80 million related to the contributed investment and a tax benefit of approximately $57 million.

The Company will continue to account for its remaining approximately 20% interest (approximately 16 million units) in PennyMac as an equity method investment.

The general and administration expenses, non-operating gain and associated tax benefit related to the Charitable Contribution have been excluded from as adjusted results, among other items. For more information on as adjusted items and the reconciliation to GAAP, see notes to the Condensed Consolidated Statements of Income.

The new charitable fund will launch in 2014 and support BlackRock's philanthropic initiatives to give back to the communities in which the Company operates, including, among other things, helping to promote financial education for low-income families and individuals.

Comparison of the Second Quarter 2013 to the Second Quarter 2012

The following discusses the Company's results on a GAAP basis:

Operating income: Operating income was $849 million compared with $829 million in the prior year. The current quarter included the $124 million expense related to the Charitable Contribution.

Revenue of $2.5 billion increased $253 million from $2.2 billion in the prior year, primarily due to the following:

  • Investment advisory, administration fees and securities lending revenue of $2.2 billion increased $187 million from the prior year due to growth in long-term average AUM. Securities lending fees were $136 million in the current quarter and $157 million in the prior year quarter. The decrease in securities lending fees was driven primarily by lower spreads.
  • Performance fees of $89 million increased $48 million, primarily reflecting higher fees from alternative products.
  • BlackRock Solutions ® and advisory revenue totaled $138 million, including $98 million of revenue from the Aladdin ® business, compared with $131 million in the prior year quarter, which included $95 million of Aladdin business revenue. The increase primarily reflected higher revenue from Aladdin mandates and higher one-time revenue from advisory assignments.

Total operating expenses of $1.6 billion increased $233 million and included the previously mentioned $124 million related to the Charitable Contribution. Results were primarily driven by the following:

  • Employee compensation and benefits increased $78 million, reflecting higher incentive compensation driven by higher operating income, including higher performance fees.
  • Direct fund expenses increased $18 million, reflecting an increase in average AUM where BlackRock pays certain non-advisory expenses of the funds.
  • General and administration expenses increased $141 million, largely driven by the $124 million related to the Charitable Contribution.

Non-operating income (expense): Non-operating income, net of non-controlling interests, was $92 million compared with $46 million non-operating expense in the prior year quarter. The current quarter included the $39 million gain related to the PennyMac IPO, the $80 million gain related to the Charitable Contribution and $22 million of net positive marks, offset by $49 million of net interest expense.

Income tax expense: Income tax expense totaled $212 million and $229 million for the second quarter 2013 and 2012, respectively. The GAAP effective income tax rate was 22.5% compared with 29.3% for the prior year quarter. The current quarter included the approximately $57 million tax benefit recognized in connection with the Charitable Contribution. In addition, the current quarter included a tax benefit of approximately $29 million, primarily due to the realization of loss carryforwards.

The current quarter as adjusted effective tax rate of 27.3% excluded the $57 million tax benefit related to the Charitable Contribution and included the above mentioned tax benefit of $29 million. Excluding the $29 million tax benefit, the as adjusted effective tax rate was 30.2%.

Comparison of the Second Quarter 2013 to the First Quarter 2013

The following discusses the Company's results on a GAAP basis:

Operating income: Operating income was $849 million compared with $909 million in the prior quarter. The current quarter included the $124 million expense related to the Charitable Contribution.

Revenue of $2.5 billion increased $33 million from $2.4 billion in the prior quarter, primarily due to the following:

  • Investment advisory, administration fees and securities lending revenue of $2.2 billion increased $48 million, driven by higher long-term average AUM, the effect of one additional revenue day in the quarter and seasonally higher securities lending fees. Securities lending fees were $136 million and $112 million in the second quarter and first quarter, respectively. The increase in securities lending fees was driven by higher seasonal demand.
  • Performance fees were $89 million compared with $108 million in the first quarter, primarily reflecting seasonally lower performance fees from alternative products.
  • BlackRock Solutions and advisory revenue of $138 million, including $98 million of revenue from the Aladdin business, compared with $126 million in the first quarter, which included $99 million of Aladdin business revenue. The increase primarily reflected higher revenue from advisory assignments.

Total operating expenses of $1.6 billion increased $93 million and included the previously mentioned $124 million related to the Charitable Contribution. Results were primarily driven by the following:

  • Employee compensation and benefits decreased $41 million, primarily reflecting lower organizational alignment costs and seasonally lower payroll taxes, partially offset by higher incentive compensation.
  • General and administration expenses increased $134 million, primarily due to the $124 million related to the Charitable Contribution, higher brand campaign costs and foreign currency remeasurement. The increase was partially offset by the non-recurrence of closed-end fund launch costs of $16 million (excluding $2 million included in employee compensation and benefits expense) recorded in the previous quarter.

Non-operating income (expense): Non-operating income, net of non-controlling interests, was $92 million compared with $7 million in the first quarter. The current quarter included the $39 million gain related to the PennyMac IPO and the $80 million gain related to the Charitable Contribution, partially offset by lower positive marks primarily on distressed credit/mortgage funds and private equity fund co-investments.

Income tax expense: Income tax expense totaled $212 million and $284 million for the second quarter 2013 and first quarter 2013, respectively. The GAAP effective income tax rate was 22.5% compared with 31.0% for the first quarter. The current quarter included the approximately $57 million tax benefit recognized in connection with the Charitable Contribution. In addition, the current quarter included a tax benefit of approximately $29 million, primarily due to the realization of loss carryforwards.

Teleconference, Webcast and Presentation Information

Chairman and Chief Executive Officer, Laurence D. Fink, and Chief Financial Officer, Gary Shedlin, will host a teleconference call for investors and analysts on Thursday, July 18, 2013, at 9:00 a.m. (Eastern Time). 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) 679-8281, shortly before 9:00 a.m. and reference the BlackRock Conference Call (ID Number 14878195). 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 12:30 p.m. (Eastern Time) on Thursday, July 18, 2013 and ending at midnight on Thursday, August 1, 2013. To access the replay of the teleconference, callers from the United States should dial (800) 585-8367 and callers from outside the United States should dial (404) 537-3406 and enter the Conference ID Number 14878195. To access the webcast, please visit the investor relations section of www.blackrock.com.

About BlackRock

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At June 30, 2013, BlackRock's AUM was $3.857 trillion. BlackRock helps clients meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares ® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions ®. Headquartered in New York City, as of June 30, 2013, the firm had approximately 10,700 employees in 30 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company's website at www.blackrock.com .

 
Condensed Consolidated Statements of Income and Supplemental Information
(Dollar amounts in millions, except per share data), (unaudited)
 
        Three Months  
Three Months Ended Ended
June 30, March 31,

2013

2012

$ Change

2013

$ Change

Revenue
Investment advisory, administration fees and securities lending revenue $2,177 $1,990 $187 $2,129 $48
Investment advisory performance fees 89 41 48 108 (19 )
BlackRock Solutions and advisory 138 131 7 126 12
Distribution fees 18 20 (2 ) 17 1
Other revenue 60   47   13   69   (9 )
Total revenue 2,482   2,229   253   2,449   33  
 
Expenses
Employee compensation and benefits 864 786 78 905 (41 )
Distribution and servicing costs 90 93 (3 ) 91 (1 )
Amortization of deferred sales commissions 12 14 (2 ) 12 -
Direct fund expenses 162 144 18 161 1
General and administration 465 324 141 331 134
Amortization of intangible assets 40   39   1   40   -  
Total expenses 1,633   1,400   233   1,540   93  
 
Operating income 849 829 20 909 (60 )
 
Non-operating income (expense)
Net gain (loss) on investments 141 (7 ) 148 62 79
Net gain (loss) on consolidated variable interest entities (23 ) 11 (34 ) 27 (50 )
Interest and dividend income 4 8 (4 ) 6 (2 )
Interest expense (53 ) (52 ) (1 ) (54 ) 1  
Total non-operating income (expense) 69   (40 ) 109   41   28  
 
Income before income taxes 918 789 129 950 (32 )
Income tax expense 212   229   (17 ) 284   (72 )
Net income 706 560 146 666 40
Less:
Net income (loss) attributable to non-controlling interests (23 ) 6   (29 ) 34   (57 )
Net income attributable to BlackRock, Inc. $729   $554   $175   $632   $97  
 
Weighted-average common shares outstanding (f)
Basic 170,648,731 177,010,239 (6,361,508 ) 171,301,800 (653,069 )
Diluted 173,873,583 179,590,702 (5,717,119 ) 174,561,132 (687,549 )
Earnings per share attributable to BlackRock, Inc.
common stockholders (e) (f)
Basic $4.27 $3.13 $1.14 $3.69 $0.58
Diluted $4.19 $3.08 $1.11 $3.62 $0.57
Cash dividends declared and paid per share $1.68 $1.50 $0.18 $1.68 $0.00
Supplemental information:
AUM (end of period) $3,857,007 $3,559,934 $297,073 $3,936,409 ($79,402 )
Shares outstanding (end of period) 170,285,093 172,901,037 (2,615,944 ) 171,102,532 (817,439 )

GAAP:

Operating margin

34.2

%

37.2

%

(300) bps

 

37.1

%

(290) bps

Effective tax rate

22.5

%

29.3

%

(680) bps

31.0

%

(850) bps

As adjusted:
Operating income (a) $982 $832 $150 $921 $61

Operating margin (a)

41.3

%

39.2

%

210 bps

40.0

%

130 bps

Non-operating income (expense), less net income (loss) attributable to non-controlling interests (b) $12 ($43 ) $55 $3 $9
Net income attributable to BlackRock, Inc. (c) (d) $722 $558 $164 $637 $85
Diluted earnings attributable to BlackRock, Inc. common stockholders per share (c) (d) (e) (f) $4.15 $3.10 $1.05 $3.65 $0.50

Effective tax rate

27.3

%

29.3

%

(200) bps

31.0

%

(370) bps

 

See notes (a) through (f) for more information on as adjusted items and the reconciliation to GAAP.

 
 
Condensed Consolidated Statements of Income and Supplemental Information

(Dollar amounts in millions, except per share data), (unaudited)

 
  Six Months Ended  
June 30,
2013   2012

$ Change

Revenue
Investment advisory, administration fees and securities lending revenue $4,306 $3,967 $339
Investment advisory performance fees 197 121 76
BlackRock Solutions and advisory 264 254 10
Distribution fees 35 39 (4 )
Other revenue 129   97   32  
Total revenue 4,931   4,478   453  
 
Expenses
Employee compensation and benefits 1,769 1,611 158
Distribution and servicing costs 181 188 (7 )
Amortization of deferred sales commissions 24 30 (6 )
Direct fund expenses 323 296 27
General and administration 796 631 165
Amortization of intangible assets 80   78   2  
Total expenses 3,173  

 

2,834   339  
 
Operating income 1,758 1,644 114
 
Non-operating income (expense)
Net gain (loss) on investments 203 68 135
Net gain (loss) on consolidated variable interest entities 4 (1 ) 5
Interest and dividend income 10 17 (7 )
Interest expense (107 ) (101 ) (6 )
Total non-operating income (expense) 110   (17 ) 127  
 
Income before income taxes 1,868 1,627 241
Income tax expense 496   492   4  
Net income 1,372 1,135 237
Less:
Net income (loss) attributable to non-controlling interests 11   9   2  
Net income attributable to BlackRock, Inc. $1,361   $1,126   $235  
 
Weighted-average common shares outstanding (f)
Basic 170,973,462 178,016,539 (7,043,077 )
Diluted 174,268,870 180,753,515 (6,484,645 )
Earnings per share attributable to BlackRock, Inc.
common stockholders (e) (f)
Basic $7.96 $6.32 $1.64
Diluted $7.81 $6.22 $1.59
Cash dividends declared and paid per share $3.36 $3.00 $0.36
Supplemental information:
AUM (end of period) $3,857,007 $3,559,934 $297,073
Shares outstanding (end of period) 170,285,093 172,901,037 (2,615,944 )
GAAP:
Operating margin 35.7 % 36.7 %

(100) bps

 

Effective tax rate 26.7 % 30.4 %

(370) bps

 

As adjusted:
Operating income (a) $1,903 $1,657 $246
Operating margin (a) 40.6 % 38.9 %

170 bps

Non-operating income (expense), less net income (loss) attributable to non-controlling interests (b) $15 ($28 ) $43
Net income attributable to BlackRock, Inc. (c) (d) $1,359 $1,133 $226
Diluted earnings attributable to BlackRock, Inc. common stockholders per share (c) (d) (e) (f) $7.80 $6.26 $1.54
Effective tax rate 29.1 % 30.4 %

(130) bps

 

 

See notes (a) through (f) for more information on as adjusted items and the reconciliation to GAAP.

 
 
Assets Under Management
(Dollar amounts in millions), (unaudited)
 
Current Quarter Component Changes by Client Type and Product      
    Net   Market  
March 31, subscriptions appreciation Foreign June 30, Q2 2013
2013

(redemptions) (1)

(depreciation)

exchange (2)

2013

Average AUM (3)

 
Retail:
Equity $ 169,402 $ (1,753 ) $ (6,068 ) $ (140 ) $ 161,441 $ 167,174

Fixed income

143,711 2,636 (4,778 ) (28 ) 141,541 144,877

Multi-asset

97,373 2,489 (501 ) (256 ) 99,105 99,237
Alternatives   10,655   1,704   (66 )   (1 )   12,292   11,321
Retail subtotal 421,141 5,076 (11,413 ) (425 ) 414,379 422,609
iShares:
Equity 588,694 2,655 (12,922 ) (1,159 ) 577,268 592,653

Fixed income

189,501 (1,449 ) (6,921 ) (188 ) 180,943 190,060

Multi-asset

1,035 99 (21 ) (6 ) 1,107 1,094
Alternatives   23,546   (2,268 )   (6,188 )   (11 )   15,079   19,187
iShares subtotal 802,776 (963 ) (26,052 ) (1,364 ) 774,397 802,994
Institutional:
Active:
Equity 130,138 (2,938 ) 361 (1,136 ) 126,425 130,545

Fixed income

505,391 (1,269 ) (11,982 ) (1,650 ) 490,490 502,573

Multi-asset

175,524 8,778 (4,064 ) 72 180,310 179,882
Alternatives   67,688   (3,254 )   26     (454 )   64,006   65,835
Active subtotal 878,741 1,317 (15,659 ) (3,168 ) 861,231 878,835
Index:
Equity 1,104,361 1,688 8,013 (6,081 ) 1,107,981 1,121,347

Fixed income

406,930 5,183 (16,497 ) (3,231 ) 392,385 406,456

Multi-asset

9,634 (315 ) (339 ) (197 ) 8,783 9,358
Alternatives   5,672   (79 )   (292 )   (2 )   5,299   5,514
Index subtotal   1,526,597   6,477   (9,115 )   (9,511 )   1,514,448   1,542,675
Long-term   3,629,255   11,907   (62,239 )   (14,468 )   3,564,455   3,647,113

Cash management

261,329 (8,829 ) 30 32 252,562
Advisory (4)   45,825   (4,891 )   (114 )   (830 )   39,990
Total $ 3,936,409 $ (1,813 ) $ (62,323 ) $ (15,266 ) $ 3,857,007
 
 
Current Quarter Component Changes by Product  
Net Market
March 31, subscriptions appreciation Foreign June 30, Q2 2013
2013

(redemptions) (1)

(depreciation)

exchange (2)

2013 Average AUM (3)
 
Equity:
Active $ 291,759 $ (4,333 ) $ (5,863 ) $ (1,231 ) $ 280,332 $ 290,002
iShares 588,694 2,655 (12,922 ) (1,159 ) 577,268 592,653
Fixed income:
Active 648,865 1,367 (16,754 ) (1,670 ) 631,808 647,218
iShares 189,501 (1,449 ) (6,921 ) (188 ) 180,943 190,060

Multi-asset

283,566 11,051 (4,925 ) (387 ) 289,305 289,571
Alternatives:
Core 69,943 406 56 (178 ) 70,227 70,146
Currency and commodities (5)   37,618   (4,303 )   (6,576 )   (290 )   26,449   31,711
Sub-total 2,109,946 5,394 (53,905 ) (5,103 ) 2,056,332 2,111,361
Non-ETF Index:
Equity 1,112,142 1,330 8,169 (6,126 ) 1,115,515 1,129,064
Fixed income   407,167   5,183   (16,503 )   (3,239 )   392,608   406,688
Sub-total Non-ETF Index   1,519,309   6,513   (8,334 )   (9,365 )   1,508,123   1,535,752
Long-term $ 3,629,255 $ 11,907 $ (62,239 ) $ (14,468 ) $ 3,564,455 $ 3,647,113
 

(1) Amountsinclude distributions representing return of capital and return on investment to investors.

(2) Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(3) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four, seven and thirteen months for quarter-to-date, year-to-date and year-over-year periods, respectively.

(4) Advisory AUM represents long-term portfolio liquidation assignments.

(5) Amounts include commodity iShares.

 
NOTE: Certain prior period information has been reclassified to conform to current period presentation.
 
 
Assets Under Management
(Dollar amounts in millions), (unaudited)
 

Year-to-Date Component Changes by Client Type and Product

     
    Net   Market  
December 31, subscriptions appreciation Foreign June 30,

Year-to-Date

2012

(redemptions) (1)

(depreciation)

exchange (2)

2013

Average AUM (3)

 
Retail:
Equity $ 164,748 $ (2,364 ) $ 960 $ (1,903 ) $ 161,441 $ 167,598

Fixed income

138,425 8,073 (4,671 ) (286 ) 141,541 143,014

Multi-asset

90,626 5,379 3,511 (411 ) 99,105 96,577
Alternatives 9,685 2,783   (16 ) (160 ) 12,292 10,718
Retail subtotal 403,484 13,871 (216 ) (2,760 ) 414,379 417,907
iShares:
Equity 534,648 28,934 16,952 (3,266 ) 577,268 579,771

Fixed income

192,852 (2,465 ) (7,883 ) (1,561 ) 180,943 190,317

Multi-asset

869 228 18 (8 ) 1,107 1,032
Alternatives 24,337 (2,066 ) (7,149 ) (43 ) 15,079 21,466
iShares subtotal 752,706 24,631 1,938 (4,878 ) 774,397 792,586
Institutional:
Active:
Equity 129,024 (8,582 ) 10,670 (4,687 ) 126,425 130,167

Fixed income

518,102 (9,043 ) (10,308 ) (8,261 ) 490,490 507,546

Multi-asset

166,708 14,607 2,563 (3,568 ) 180,310 175,733
Alternatives 70,861 (5,965 ) 668   (1,558 ) 64,006 67,684
Active subtotal 884,695 (8,983 ) 3,593 (18,074 ) 861,231 881,130
Index:
Equity 1,017,081 15,335 98,571 (23,006 ) 1,107,981 1,093,366

Fixed income

409,943 5,956 (6,038 ) (17,476 ) 392,385 406,494

Multi-asset

9,545 (133 ) 108 (737 ) 8,783 9,447
Alternatives 4,912 675   (128 ) (160 ) 5,299 5,376
Index subtotal 1,441,481 21,833   92,513   (41,379 ) 1,514,448 1,514,683
Long-term 3,482,366 51,352   97,828   (67,091 ) 3,564,455 3,606,306
Cash Management 263,743 (8,663 ) 131 (2,649 ) 252,562
Advisory (4) 45,479 (4,002 ) (175 ) (1,312 ) 39,990
Total $ 3,791,588 $ 38,687   $ 97,784   $ (71,052 ) $ 3,857,007
 
 

Year-to-Date Component Changes by Product

 
Net Market
December 31, subscriptions appreciation Foreign June 30,

Year-to-Date

2012

(redemptions) (1)

(depreciation)

exchange (2)

2013 Average AUM (3)
 
Equity:
Active $ 287,215 $ (11,208 ) $ 10,870 $ (6,545 ) $ 280,332 $ 290,339
iShares 534,648 28,934 16,952 (3,266 ) 577,268 579,771
Fixed income:
Active 656,331 (1,013 ) (14,971 ) (8,539 ) 631,808 650,337
iShares 192,852 (2,465 ) (7,883 ) (1,561 ) 180,943 190,317

Multi-asset

267,748 20,081 6,200 (4,724 ) 289,305 282,789
Alternatives:
Core 68,367 1,917 853 (910 ) 70,227 69,743
Currency and commodities (5) 41,428 (6,490 ) (7,478 ) (1,011 ) 26,449 35,501
Sub-total 2,048,589 29,756 4,543 (26,556 ) 2,056,332 2,098,797
Non-ETF Index:
Equity 1,023,638 15,597 99,331 (23,051 ) 1,115,515 1,100,792
Fixed income 410,139 5,999   (6,046 ) (17,484 ) 392,608 406,717
Sub-total Non-ETF Index 1,433,777 21,596   93,285   (40,535 ) 1,508,123 1,507,509
Long-term $ 3,482,366 $ 51,352   $ 97,828   $ (67,091 ) $ 3,564,455 $ 3,606,306
 

(1) Amounts include distributions representing return of capital and return on investment to investors.

(2) Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(3) Monthly average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four, seven and thirteen months for quarter-to-date, year-to-date and year-over-year periods, respectively.

(4) Advisory AUM represents long-term portfolio liquidation assignments.

(5) Amounts include commodity iShares.

 
NOTE: Certain prior period information has been reclassified to conform to current period presentation.
 
 
Assets Under Management
(Dollar amounts in millions), (unaudited)
 
Year-over-Year Component Changes by Client Type and Product      
    Net   Market  
June 30, subscriptions appreciation Foreign June 30, Thirteen Month
2012

(redemptions) (1) (7)

(depreciation) (6)

exchange (2)

2013 Average AUM (3)
 
Retail:
Equity $ 154,835 $ (4,034) $ 11,529 $ (889) $ 161,441 $ 164,129

Fixed income

123,397 18,566 (318) (104) 141,541 137,629

Multi-asset

86,372 5,194 7,867 (328) 99,105 92,859
Alternatives 9,404 2,890 54 (56) 12,292 10,084
Retail subtotal 374,008 22,616 19,132 (1,377) 414,379 404,701
iShares:
Equity 443,311 79,522 54,978 (543) 577,268 531,848

Fixed income

180,355 5,205 (4,478) (139) 180,943 188,715

Multi-asset

712 353 47 (5) 1,107 921
Alternatives 20,530 430 (5,883) 2 15,079 22,375
iShares subtotal 644,908 85,510 44,664 (685) 774,397 743,859
Institutional:
Active:
Equity 126,589 (18,057) 21,518 (3,625) 126,425 128,982

Fixed income

507,449 (16,332) 6,672 (7,299) 490,490 512,356

Multi-asset

147,409 20,952 12,591 (642) 180,310 166,299
Alternatives 68,547 (10,935) 8,207 (1,813) 64,006 68,920
Active subtotal 849,994 (24,372) 48,988 (13,379) 861,231 876,557
Index:
Equity 917,948 29,032 180,976 (19,975) 1,107,981 1,032,973

Fixed income

454,875 (57,990) 5,285 (9,785) 392,385 417,844

Multi-asset

8,594 267 837 (915) 8,783 9,240
Alternatives 5,091 411 (112) (91) 5,299 5,247
Index subtotal 1,386,508 (28,280) 186,986 (30,766) 1,514,448 1,465,304
Long-term 3,255,418 55,474 299,770 (46,207) 3,564,455 3,490,421
Cash Management 239,471 12,821 737 (467) 252,562
Advisory (4) 65,045 (24,030) (655) (370) 39,990
Total $ 3,559,934 $ 44,265 $ 299,852 $ (47,044) $ 3,857,007
 
 
Year-over-Year Component Changes by Product  
Net Market
June 30, subscriptions appreciation Foreign June 30, Thirteen Month
2012

(redemptions) (1) (7)

 

(depreciation) (6)

exchange (2)

2013 Average AUM (3)
 
Equity:
Active $ 274,670 $ (21,726) $ 31,878 $ (4,490) $ 280,332 $ 286,206
iShares 443,311 79,522 54,978 (543) 577,268 531,848
Fixed income:
Active 630,639 2,205 6,359 (7,395) 631,808 649,768
iShares 180,355 5,205 (4,478) (139) 180,943 188,715

Multi-asset

243,087 26,766 21,342 (1,890) 289,305 269,319
Alternatives:
Core 63,575 (1,053) 8,356 (651) 70,227 68,110
Currency and commodities (5) 39,997 (6,151) (6,090) (1,307) 26,449 38,516
Sub-total 1,875,634 84,768 112,345 (16,415) 2,056,332 2,032,482
Non-ETF Index:
Equity 924,702 28,667 182,145 (19,999) 1,115,515 1,039,878
Fixed income 455,082 (57,961) 5,280 (9,793) 392,608 418,061
Sub-total Non-ETF Index 1,379,784 (29,294) 187,425 (29,792) 1,508,123 1,457,939
Long-term $ 3,255,418 $ 55,474 $ 299,770 $ (46,207) $ 3,564,455 $ 3,490,421
 

(1) Amountsinclude distributions representing return of capital and return on investment to investors.

(2) Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(3) Monthly average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four, seven and thirteen months for quarter-to-date, year-to-date and year-over-year periods, respectively.

(4) Advisory AUM represents long-term portfolio liquidation assignments.

(5) Amounts include commodity iShares.

(6) Amounts include $6.1 billion of AUM acquired from Swiss Re Private Equity Partners in September 2012.

(7) Amounts include the effect of a single low-fee fixed income passive outflow of $74.2 billion in third quarter 2012.

 
NOTE: Certain prior period information has been reclassified to conform to current period presentation.
 
 
Summary of Revenues
(Dollar amounts in millions), (unaudited)
     
      Three Months    
Three Months Ended Ended Six Months Ended
June 30, March 31, June 30,
2013 2012

$ Change

2013

$ Change

2013 2012

$ Change

 
Investment advisory, administration fees and securities lending revenue
Equity:
Active $432 $429 $3 $433 ($1 ) $865 $882 ($17 )
iShares 584 467 117 571 13 1,155 940 215
Fixed income:
Active 322 285 37 312 10 634 564 70
iShares 120 107 13 116 4 236 205 31
Multi-asset 253 236 17 248 5 501 479 22
Alternatives:
Core 136 130 6 136 - 272 265 7
Currency and commodities 25 32 (7 ) 30 (5 ) 55 66 (11 )
Sub-total 1,872 1,686 186 1,846 26 3,718 3,401 317
Non-ETF Index:
Equity 161 156 5 140 21 301 279 22
Fixed income 61 60 1   57 4   118 110 8  
Sub-total Non-ETF Index 222 216 6   197 25   419 389 30  
Long-term 2,094 1,902 192 2,043 51 4,137 3,790 347
Cash management 83 88 (5 ) 86 (3 ) 169 177 (8 )
Total base fees 2,177 1,990 187 2,129 48 4,306 3,967 339
 
Investment advisory performance fees:
Equity 17 3 14 17 - 34 22 12
Fixed income 9 10 (1 ) 1 8 10 16 (6 )
Multi-asset 3 1 2 7 (4 ) 10 4 6
Alternatives 60 27 33   83 (23 ) 143 79 64  

Total

89 41 48 108 (19 ) 197 121 76
 
BlackRock Solutions and advisory 138 131 7 126 12 264 254 10
Distribution fees 18 20 (2 ) 17 1 35 39 (4 )
Other revenue 60 47 13   69 (9 ) 129 97 32  
Total revenue $2,482 $2,229 $253   $2,449 $33   $4,931 $4,478 $453  
 
NOTE: Certain prior period information has been reclassified to conform to current period presentation.
 
 
Summary of Non-operating Income (Expense)

(Dollar amounts in millions), (unaudited)

                 
 
Three Months
Three Months Ended Ended Six Months Ended
June 30,

 

March 31,

June 30,
2013 2012

$ Change

  2013

$ Change

  2013 2012

$ Change

Non-operating income (expense), GAAP basis $69 ($40 ) $109 $41 $28 $110 ($17 ) $127
Less: Net income (loss) attributable to NCI (23 ) 6   (29 ) 34   (57 ) 11   9   2  
Non-operating income (expense)(1) $92   ($46 ) $138   $7   $85   $99   ($26 ) $125  
 
 
 
Estimated
economic Three Months
investments at Three Months Ended Ended Six Months Ended
June 30, June 30,

 

March 31, June 30,

2013 (2)

2013 2012

$ Change

  2013

$ Change

  2013 2012

$ Change

Net gain (loss) on investments(1)
Private equity

20-25%

$4 ($4 ) $8 $19 ($15 ) $23 $17 $6
Real estate

5-10%

7 3 4 3 4 10 4 6
Distressed credit/mortgage funds 15-20% 4 - 4 19 (15 ) 23 28 (5 )
Hedge funds/funds of hedge funds 10-15% 5 4 1 3 2 8 10 (2 )
Other investments(3)

35-40%

2   (2 ) 4   7   (5 ) 9   (3 ) 12  
Sub-total 22 1 21 51 (29 ) 73 56 17
Gain related to PennyMac IPO 39 - 39 - 39 39 - 39
Gain related to the Charitable Contribution 80 - 80 - 80 80 - 80
Investments related to deferred compensation plans -   (3 ) 3   4   (4 ) 4   2   2  
Total net gain (loss) on investments(1) 141 (2 ) 143 55 86 196 58 138
Interest and dividend income 4 8 (4 ) 6 (2 ) 10 17 (7 )
Interest expense (53 ) (52 ) (1 ) (54 ) 1   (107 ) (101 ) (6 )
Net interest expense (49 ) (44 ) (5 ) (48 ) (1 ) (97 ) (84 ) (13 )
Total non-operating income (expense)(1) 92 (46 ) 138 7 85 99 (26 ) 125
Gain related to the Charitable Contribution (80 ) - (80 ) - (80 ) (80 ) - (80 )
Compensation expense related to (appreciation) depreciation on deferred compensation plans -   3   (3 ) (4 ) 4   (4 ) (2 ) (2 )
Non-operating income (expense), as adjusted(1) $12   ($43 ) $55   $3   $9   $15   ($28 ) $43  

(1) Net of net income (loss) attributable to NCI.

(2) Percentages represent estimated percentages of BlackRock's corporate economic investment portfolio as of June 30, 2013. Economic investment amounts at March 31, 2013 for private equity, real estate, distressed credit/mortgage funds, hedge funds/funds of hedge funds and other investments were $306 million, $120 million, $202 million, $164 million and $410 million, respectively. See the 2013 first quarter Form 10-Q for more information.

(3) Amounts include net gains (losses) related to equity, fixed income and commodity investments, and BlackRock's seed capital hedging program.

 
Economic Tangible Assets
(Dollar amounts in billions), (unaudited)
 
The Company presents economic tangible assets as additional information to enable investors to eliminate gross presentation of certain assets that have equal and offsetting liabilities or non-controlling interests that ultimately do not have an impact on stockholders' equity (excluding appropriated retained earnings related to consolidated collateralized loan obligations) or cash flows. In addition, goodwill and intangible assets are excluded from economic tangible assets.
               
June 30, December 31,
2013 (Est.) 2012
 
Total balance sheet assets

$193

$200
Separate account assets and separate account collateral held under securities lending agreements

(152

) (158 )
Consolidated VIEs/sponsored investment funds (3 ) (2 )
Goodwill and intangible assets, net (30 ) (30 )
Economic tangible assets $8   $10  
 

Economic tangible assets include cash, receivables, seed and co-investments, regulatory investments and other assets.

 

Notes to Condensed Consolidated Statements of Income and Supplemental Information (unaudited)

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

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

Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items management deems non-recurring, or transactions that ultimately will not impact BlackRock's book value, as indicated in the table below. Operating income used for operating margin measurement equals operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Operating margin, as adjusted, equals operating income used for operating margin measurement, divided by revenue (net of distribution and servicing costs and amortization of deferred sales commissions) used for operating margin measurement, as indicated in the table below.
 
Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock's financial performance over time and, therefore, provide useful disclosure to investors.
 
 
Operating income, as adjusted and operating margin, as adjusted
  Three Months Ended   Six Months Ended
June 30,   March 31, June 30,
(Dollar amounts in millions) 2013   2012 2013 2013   2012
Operating income, GAAP basis $849 $829 $909 $1,758 $1,644
Non-GAAP expense adjustments:
Charitable Contribution 124 - - 124 -
PNC LTIP funding obligation 9 6 8 17 11
Compensation expense related to appreciation (depreciation) on deferred compensation plans -   (3 ) 4   4   2  
Operating income, as adjusted 982 832 921 1,903 1,657
Closed-end fund launch costs - - 16 16 -
Closed-end fund launch commissions -   -   2   2   -  
Operating income used for operating margin measurement $982   $832   $939   $1,921   $1,657  
 
Revenue, GAAP basis $2,482 $2,229 $2,449 $4,931 $4,478
Non-GAAP adjustments:
Distribution and servicing costs (90 ) (93 ) (91 ) (181 ) (188 )
Amortization of deferred sales commissions (12 ) (14 ) (12 ) (24 ) (30 )

Revenue used for operating margin measurement

$2,380   $2,122   $2,346   $4,726   $4,260  
 
Operating margin, GAAP basis 34.2 % 37.2 % 37.1 % 35.7 % 36.7 %
Operating margin, as adjusted 41.3 % 39.2 % 40.0 % 40.6 % 38.9 %
                     
 

Notes to Condensed Consolidated Statements of Income and Supplemental Information (unaudited)

(continued)

 

(a)

(continued)

 

Operating income, as adjusted: Operating income, as adjusted reflects the non-GAAP expense adjustments discussed below. The $124 million expense related to the Charitable Contribution has been excluded from operating income, as adjusted due to its non-recurring nature and because the non-cash, non-operating pre-tax gain of $80 million related to the contributed PennyMac investment is reported in non-operating income (expense). The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded or to be funded through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately does not impact BlackRock's book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in non-operating income (expense).

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

Operating margin, as adjusted: 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 the exclusion of 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 BlackRock's results until future periods.

 
Operating margin, as adjusted, allows BlackRock to compare performance from period-to-period by adjusting for items that may not recur, recur infrequently or may have an economic offset in non-operating income (expense). Examples of such adjustments include commissions paid to certain employees as compensation and fluctuations in compensation expense based on mark-to-market movements in investments held to fund certain compensation plans. BlackRock also uses operating margin, as adjusted, to monitor corporate performance and efficiency and as a benchmark to compare its performance with other companies. Management uses both GAAP and non-GAAP financial measures in evaluating the financial performance of BlackRock. The non-GAAP measure by itself may pose limitations because it does not include all of BlackRock's revenues and expenses.
 
Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, substantially offset distribution fee revenue earned by the Company. For each of these items, BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenues.
 

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 (“NCI”), as adjusted, is presented below. 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 NCI, as adjusted, to offset returns on investments set aside for these plans, which are reported in non-operating income (expense), GAAP basis.

 
Management believes non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, provides comparability of this information among reporting periods and is an effective measure for reviewing BlackRock's non-operating contribution to its results. As compensation expense associated with (appreciation) depreciation on investments related to certain deferred compensation plans, which is included in operating income, substantially offsets the gain (loss) on the investments set aside for these plans, management believes non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, provides a useful measure, for both management and investors, of BlackRock's non-operating results that impact book value. The non-cash, non-operating pre-tax gain of $80 million related to the contributed PennyMac investment has been excluded from non-operating income (expense), less net income (loss) attributable to NCI, as adjusted due to its non-recurring nature and because the more than offsetting associated Charitable Contribution expense of $124 million is reported in operating income.
 
Non-operating income (expense), less net income (loss) attributable to NCI, as adjusted
  Three Months Ended   Six Months Ended
June 30,   March 31, June 30,
2013   2012 2013 2013   2012
(Dollar amounts in millions)
Non-operating income (expense), GAAP basis $69 ($40 ) $41 $110 ($17 )
Less: Net income (loss) attributable to NCI (23 ) 6   34   11   9  
Non-operating income (expense), net of NCI 92 (46 ) 7 99 (26 )
Gain related to the Charitable Contribution (80 ) - - (80 ) -
Compensation expense related to (appreciation) depreciation on deferred compensation plans -   3   (4 ) (4 ) (2 )
Non-operating income (expense), less net income (loss) attributable to NCI, as adjusted $12   ($43 ) $3   $15   ($28 )
 
 

Notes to Condensed Consolidated Statements of Income and Supplemental Information (unaudited)

(continued)

 

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

 
See note (a) Operating income, as adjusted, and operating margin, as adjusted, for information on the Charitable Contribution and the PNC LTIP funding obligation.
 
The three and six months ended June 30, 2013 included a tax benefit of approximately $57 million recognized in connection with the Charitable Contribution. The tax benefit has been excluded from net income attributable to BlackRock, Inc., as adjusted due to the non-recurring nature of the Charitable Contribution.
 
 
Net income attributable to BlackRock, Inc., as adjusted
  Three Months Ended   Six Months Ended
(Dollar amounts in millions, except per share data) June 30,   March 31, June 30,
2013   2012 2013 2013   2012
Net income attributable to BlackRock, Inc., GAAP basis $729 $554 $632

$1,361

$1,126
Non-GAAP adjustments, net of tax:(d)
Amount related to the Charitable Contribution (13 ) - - (13 ) -
PNC LTIP funding obligation 6   4 5 11   7
Net income attributable to BlackRock, Inc., as adjusted $722   $558 $637 $1,359   $1,133
 
Allocation of net income, as adjusted, to common shares(e) $722 $557 $637 $1,359 $1,131
Diluted weighted-average common shares outstanding(f) 173,873,583 179,590,702 174,561,132 174,268,870 180,753,515
 
Diluted earnings per common share, GAAP basis (f) $4.19 $3.08 $3.62 $7.81 $6.22

Diluted earnings per common share, as adjusted (f)

  $4.15     $3.10   $3.65   $7.80     $6.26
 

(d) For the quarters ended June 30, 2013 and 2012 and March 31, 2013, the PNC LTIP funding obligation non-GAAP adjustment was tax effected at 30.2%, 30.4% and 31.0%, respectively, reflecting a blended rate applicable to the adjustment. For the six months ended June 30, 2013 and 2012, the PNC LTIP funding obligation non-GAAP adjustments were tax effected at 31.0%. The three and six months ended June 30, 2013 also included a tax benefit of approximately $57 million related to the Charitable Contribution.

 

(e) For the three and six months ended June 30, 2012, amounts exclude net income attributable to participating securities (see below).

 

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

 
Prior to the first quarter 2013, certain unvested restricted stock units were not included in diluted weighted-average common shares outstanding as they were deemed participating securities in accordance with required provisions of Accounting Standards Codification (“ASC”) 260-10, Earnings per Share. Average outstanding participating securities were 0.2 million for the quarter and six months ended June 30, 2012.
 

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” and similar expressions.

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

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

BlackRock's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and BlackRock's subsequent filings with the SEC, accessible on the SEC's website at www.sec.gov and on BlackRock's website at www.blackrock.com , discuss these factors in more detail and identify additional factors that can affect forward-looking statements. The information contained on the Company's website is not a part of this press release.

Performance Notes

Past performance is not indicative of future results. The performance information shown is based on preliminarily available data. The performance information for actively managed accounts shown reflects U.S. open-end and closed-end mutual funds and similar EMEA-based products with respect to peer median comparisons, and actively managed institutional and high net worth separate accounts and funds located globally with respect to benchmark comparisons, as determined using objectively based internal parameters, using the most current verified information available as of June 30, 2013 (May 31, 2013 for high net worth accounts).

Accounts terminated prior to June 30, 2013 are not included. In addition, accounts that have not been verified as of July 12, 2013 have not been included. If such terminated and other accounts had been included, the performance information may have substantially differed from that shown. The performance information does not include funds or accounts that are not measured against a benchmark, any benchmark-based alternatives product, private equity products, CDOs, or accounts managed by BlackRock's Financial Markets Advisory Group. Comparisons are based on gross-of-fee performance for U.S. retail, institutional and high net worth separate accounts and EMEA institutional separate accounts and net-of-fee performance for EMEA based retail products. The performance tracking information for institutional index accounts is based on gross-of-fee performance as of June 30, 2013, and includes all institutional accounts and all iShares funds globally using an index strategy. AUM information is based on AUM for each account or fund in the asset class shown without adjustment for overlapping management of the same account or fund, as of June 30, 2013.

Source of performance information and peer medians 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.

BlackRock, Inc.
Media Relations:
Brian Beades, 212-810-5596
or
Investor Relations:
Tom Wojcik, 212-810-8127

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