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BlackRock Reports Third Quarter Diluted EPS Of $3.65, Or $3.47 As Adjusted

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.

 
Attachment I
BlackRock, Inc.
Condensed Consolidated Statements of Income and Supplemental Information
(Dollar amounts in millions, except per share data)
(unaudited)
              Three Months      
Three Months Ended       Ended
September 30, June 30,
2012       2011 $ Change 2012 $ Change
Revenue

Investment advisory, administration fees and securities lending

revenue

$2,024 $1,949 $75 $1,990 $34
Investment advisory performance fees 103 91 12 41 62
BlackRock Solutions and advisory 128 117 11 131 (3)
Distribution fees 19 23 (4) 20 (1)
Other revenue 46 45 1 47 (1)
Total revenue 2,320 2,225 95 2,229 91
 
Expenses
Employee compensation and benefits 828 771 57 786 42
Distribution and servicing costs 94 90 4 93 1
Amortization of deferred sales commissions 13 20 (7) 14 (1)
Direct fund expenses 144 139 5 144 -
General and administration 327 389 (62) 324 3
Amortization of intangible assets 39 39 - 39

-

Total expenses 1,445 1,448 (3) 1,400 45
 
Operating income 875 777 98 829 46
 
Non-operating income (expense)
Net gain (loss) on investments 75 (59) 134 (7) 82
Net gain (loss) on consolidated variable interest entities 2 (16) 18 11 (9)
Interest and dividend income 10 12 (2) 8 2
Interest expense (57) (49) (8) (52) (5)
Total non-operating income (expense) 30 (112) 142 (40) 70
 
Income before income taxes 905 665 240 789 116
Income tax expense 250 95 155 229 21
Net income 655 570 85 560 95
Less:
Net income (loss) attributable to non-controlling interests 13 (25) 38 6 7

Net income attributable to BlackRock, Inc.

$642 $595 $47 $554 $88
 
Weighted-average common shares outstanding (f)
Basic 172,359,141 179,034,837 (6,675,696) 177,010,239 (4,651,098)
Diluted 175,450,532 181,825,329 (6,374,797) 179,590,702 (4,140,170)
Earnings per share attributable to BlackRock, Inc.
common stockholders (e) (f)
Basic $3.72 $3.28 $0.44 $3.13 $0.59
Diluted $3.65 $3.23 $0.42 $3.08 $0.57
Cash dividends declared and paid per share $1.50 $1.375 $0.125 $1.50

-

Supplemental information:
AUM (end of period) $3,673,274 $3,345,067 $328,207 $3,559,934 $113,340
Shares outstanding excluding escrow shares (end of period) 172,037,373 178,861,410 (6,824,037) 172,901,037 (863,664)
GAAP:
Operating margin 37.7% 34.9% 280 bps 37.2% 50 bps
Effective tax rate 28.1% 13.7% 1440 bps 29.3% (120) bps
As adjusted:
Operating income (a) $876 $849 $27 $832 $44
Operating margin (a) 40.7% 40.1% 60 bps 39.2% 150 bps

Non-operating income (expense), less net income (loss)

attributable to non-controlling interests (b)

$13 ($79) $92 ($43) $56
Net income attributable to BlackRock, Inc. (c) (d) $610 $521 $89 $558 $52

Diluted earnings attributable to BlackRock, Inc.

common stockholders per share (c) (d) (e) (f)

$3.47 $2.83 $0.64 $3.10 $0.37
Effective tax rate 31.4% 32.3% (90) bps 29.3% 210 bps
 
 
 
BlackRock, Inc.
Condensed Consolidated Statements of Income and Supplemental Information
(Dollar amounts in millions, except per share data)
(unaudited)
 
        Nine Months Ended      
September 30,
2012       2011 $ Change
Revenue

Investment advisory, administration fees and securities lending

revenue

$5,991 $6,033 ($42)
Investment advisory performance fees 224 224 -
BlackRock Solutions and advisory 382 361 21
Distribution fees 58 78 (20)
Other revenue 143 158 (15)
Total revenue 6,798 6,854 (56)
 
Expenses
Employee compensation and benefits 2,439 2,425 14
Distribution and servicing costs 282 299 (17)
Amortization of deferred sales commissions 43 63 (20)
Direct fund expenses 440 435 5
General and administration 958 1,074 (116)
Amortization of intangible assets 117 117 -
Total expenses 4,279

 

4,413 (134)
 
Operating income 2,519 2,441 78
 
Non-operating income (expense)
Net gain (loss) on investments 143 18 125
Net gain (loss) on consolidated variable interest entities 1 (36) 37
Interest and dividend income 27 25 2
Interest expense (158) (128) (30)
Total non-operating income (expense) 13 (121) 134
 
Income before income taxes 2,532 2,320 212
Income tax expense 742 564 178
Net income 1,790 1,756 34
Less:
Net income (loss) attributable to non-controlling interests 22 (26) 48
Net income attributable to BlackRock, Inc. $1,768 $1,782 ($14)
 
Weighted-average common shares outstanding (f)
Basic 176,116,975 186,187,318 (10,070,343)
Diluted 178,956,699 188,792,952 (9,836,253)
Earnings per share attributable to BlackRock, Inc.
common stockholders (e) (f)
Basic $10.02 $9.46 $0.56
Diluted $9.87 $9.33 $0.54
Cash dividends declared and paid per share $4.50 $4.125 $0.375

Supplemental information:

AUM (end of period) $3,673,274 $3,345,067 $328,207
Shares outstanding excluding escrow shares (end of period) 172,037,373 178,861,410 (6,824,037)
GAAP:
Operating margin 37.1% 35.6% 150 bps
Effective tax rate 29.6% 24.0% 560 bps
As adjusted:
Operating income (a) $2,533 $2,551 ($18)
Operating margin (a) 39.5% 39.6% (10) bps

Non-operating income (expense), less net income (loss)

attributable to non-controlling interests (b)

($15) ($92) $77
Net income attributable to BlackRock, Inc. (c) (d) $1,743 $1,681 $62

Diluted earnings attributable to BlackRock, Inc. common

stockholders per share (c) (d) (e) (f)

$9.73 $8.80 $0.93
Effective tax rate 30.8% 31.6% (80) bps
 
 

BlackRock, Inc.

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 used for operating margin measurement, as indicated in the table below.
 
        Three Months Ended       Nine Months Ended
September 30,       June 30, September 30,
(Dollar amounts in millions) 2012       2011 2012 2012       2011
Operating income, GAAP basis $875 $777 $829 $2,519 $2,441
Non-GAAP expense adjustments:
U.K. lease exit costs (8) 63 - (8) 63
PNC LTIP funding obligation 5 15 6 16 43
Merrill Lynch compensation contribution - 2 - - 7

Compensation expense related to appreciation

 (depreciation) on deferred compensation plans

4 (8) (3) 6 (3)
Operating income, as adjusted 876 849 832 2,533 2,551
Closed-end fund launch costs 22 - - 22 19
Closed-end fund launch commissions 3 - - 3 2
Operating income used for operating margin measurement $901 $849 $832 $2,558 $2,572
 
Revenue, GAAP basis $2,320 $2,225 $2,229 $6,798 $6,854
Non-GAAP adjustments:
Distribution and servicing costs (94) (90) (93) (282) (299)
Amortization of deferred sales commissions (13) (20) (14) (43) (63)
 

Revenue used for operating margin measurement

$2,213 $2,115 $2,122 $6,473 $6,492
 
Operating margin, GAAP basis 37.7% 34.9% 37.2% 37.1% 35.6%
 
Operating margin, as adjusted 40.7% 40.1% 39.2% 39.5% 39.6%
 

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.

 

BlackRock, Inc.

Notes to Condensed Consolidated Statements of Income and Supplemental Information

(unaudited)

(continued)
 

(a) (continued)

 

Operating income, as adjusted:

U.K. lease exit costs represent costs to exit two locations in London in the third quarter 2011. Amount in third quarter 2012 represents an adjustment related to the costs initially recorded in third quarter 2011.
 

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 and a Merrill Lynch & Co., Inc. ("Merrill Lynch") cash compensation contribution, has been excluded because it ultimately does not impact BlackRock’s book value. The expense related to the Merrill Lynch cash compensation contribution ceased at the end of the third quarter 2011. As of first quarter 2012, all of the Merrill Lynch contribution was received.

 
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 costs 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. Examples of such adjustments include U.K. lease exit costs, closed-end fund launch costs, 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 the 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.
 
 

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 (“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.
 
 
        Three Months Ended       Nine Months Ended
September 30,       June 30, September 30,
(Dollar amounts in millions) 2012       2011 2012 2012       2011
 
Non-operating income (expense), GAAP basis $30 ($112) ($40) $13 ($121)
Less: Net income (loss) attributable to NCI 13 (25) 6 22 (26)
Non-operating income (expense) (1) 17 (87) (46) (9) (95)

Compensation expense related to (appreciation)

 depreciation on deferred compensation plans

(4) 8 3 (6) 3
 

Non-operating income (expense), less net income (loss)

   attributable to NCI, as adjusted

$13 ($79) ($43) ($15) ($92)
 
 

(1) Net of net income (loss) attributable to non-controlling interests.

 

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.

 

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 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.
 
 
          Three Months Ended       Nine Months Ended
(Dollar amounts in millions, except per share data) September 30,       June 30, September 30,
2012       2011 2012 2012       2011

Net income attributable to BlackRock, Inc.,

  GAAP basis

$642 $595 $554 $1,768 $1,782
Non-GAAP adjustments, net of tax: (d)
U.K. lease exit costs (5) 43 - (5) 43
PNC LTIP funding obligation 3 10 4 10 29
Merrill Lynch compensation contribution - 2 - - 5
Income tax changes (30) (129) - (30) (178)

Net income attributable to BlackRock, Inc., as

  adjusted

$610 $521 $558 $1,743 $1,681
 

Allocation of net income, as adjusted, to common

  shares (e)

$609 $515 $557 $1,741 $1,661

Diluted weighted-average common shares

  outstanding (f)

175,450,532 181,825,329 179,590,702 178,956,699 188,792,952
 

Diluted earnings per common share, GAAP

  basis (f)

$3.65 $3.23 $3.08 $9.87 $9.33

Diluted earnings per common share, as

  adjusted (f)

$3.47 $2.83 $3.10 $9.73 $8.80
 

See note (a) Operating income, as adjusted, and operating margin, as adjusted, for information on U.K. lease exit costs, PNC LTIP funding obligation and Merrill Lynch compensation contribution.

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