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BlackRock Reports Record Quarterly Diluted EPS Of $3.93, Or $3.96 As Adjusted

Comparison to the Third Quarter 2012

Operating income: Fourth quarter 2012 operating income was $1.0 billion compared with $875 million in third quarter 2012. Fourth quarter 2012 operating income included the previously mentioned one-time $30 million contribution to STIFs. Operating income, as adjusted, was $1.0 billion compared with $876 million in third quarter 2012.

Fourth quarter 2012 revenue increased $219 million from third quarter 2012, primarily due to the following:
  • Investment advisory, administration fees and securities lending revenue of $2.1 billion in fourth quarter 2012 increased $57 million from third quarter 2012, driven by higher long-term average AUM, partially offset by lower securities lending fees. Securities lending fees were $113 million in fourth quarter 2012 compared with $129 million in third quarter 2012.
  • Performance fees increased $136 million to $239 million in fourth quarter 2012 from $103 million in third quarter 2012. The current quarter reflected fees from a disposition-related opportunistic fund and higher performance fees from products with performance measurement periods ending on December 31 st.
  • BlackRock Solutions and advisory revenue of $136 million in fourth quarter 2012 increased from $128 million in third quarter 2012 driven by higher one-time revenue from advisory assignments and higher revenue from Aladdin mandates.
  • Other revenue increased $24 million, largely reflecting higher earnings from certain operating advisory company investments.

Fourth quarter 2012 total operating expenses of $1.5 billion increased $89 million from third quarter 2012. Fourth quarter 2012 operating expenses included the previously mentioned contribution related to STIFs. Operating expenses, as adjusted, of $1.5 billion increased $54 million from third quarter 2012. Results were primarily driven by the following:
  • Employee compensation and benefits increased $20 million, primarily reflecting higher incentive compensation driven by higher operating income.
  • Distribution and servicing costs decreased $12 million, driven by lower distribution costs.
  • Direct fund expenses increased $7 million, primarily related to an increase in average iShares AUM where BlackRock pays certain non-advisory expenses of the funds.
  • General and administration expenses increased $74 million, primarily due to the one-time $30 million contribution to STIFs, higher marketing and promotional expenses in connection with the brand campaign, and higher professional fees. The increase was partially offset by the non-recurrence of closed-end fund launch costs of $22 million recorded in third quarter 2012.

Non-operating income (expense): Fourth quarter 2012 non-operating expense, net of non-controlling interests, was $27 million compared with $17 million non-operating income in third quarter 2012. Fourth quarter 2012 included $21 million of net positive marks offset by $48 million of net interest expense. The fourth quarter 2012 reflected lower positive marks on distressed credit/mortgage funds than third quarter 2012 and negative marks on private equity fund co-investments compared with positive marks in the prior quarter.

Income tax expense: Income tax expense of $288 million for fourth quarter 2012 increased $38 million from third quarter 2012. The GAAP effective income tax rate for the fourth quarter 2012 was 29.4% compared with 28.1% for third quarter 2012. The fourth quarter 2012 GAAP tax rate included $20 million of non-cash benefits primarily associated with revaluation of certain deferred tax liabilities, which have been excluded from the as adjusted results. The third quarter 2012 GAAP tax rate included a $30 million net non-cash benefit, related to revaluation of certain deferred income tax liabilities, including tax legislation enacted in the United Kingdom and the state and local income tax effect resulting from changes in the Company’s organizational structure. The as adjusted effective income tax rate was 31.4% for both fourth quarter 2012 and third quarter 2012.

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

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