BlackRock Reports Third Quarter Diluted EPS of $1.94.Assets Under Management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. Rise to $1.3 Trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. at September September: see month. 30, 2007 NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- BlackRock BlackRock Inc. (NYSE: BLK) is a major American investment management firm. As of September 30, 2007, BlackRock’s assets under management totaled $1.3 trillion[2] across fixed income, liquidity, equity, alternative investment and real estate strategies. , Inc. (NYSE NYSE See: New York Stock Exchange :BLK BLK Black BLK Blank BLK Block BLK Bulk BLK Blocked Shot (basketball) BLK Blocked Kick (football) BLK Blackpool, England, United Kingdom - Blackpool (Airport Code) ) today reported net income for the third quarter and nine months ended September 30, 2007 of $255.2 million and $672.8 million, respectively. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the third quarter and nine months ended September 30, 2007 were $1.94 and $5.12, compared to $0.28 and $2.29 in comparable periods of 2006. Third quarter 2007 earnings included a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. expense of $128.1 million associated with the insourcing (1) Doing work with inhouse employees. Contrast with outsourcing. (2) Creating jobs in your country by an organization that is foreign owned. Contrast with outsourcing. of certain closed-end fund Closed-end fund An investment company that issues shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Related: Open-end fund. administration and servicing arrangements with Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. and a one-time tax benefit of $51.4 million due to recent tax legislation changes in the United Kingdom and Germany. The net after-tax impact of these two items was a reduction of approximately $0.23 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share. Diluted earnings per share for the third quarter of 2006 included $71.5 million or $0.67 per diluted share of integration charges associated with the closing of the Merrill Lynch Investment Managers ("MLIM MLIM Merrill Lynch Investment Managers (UK) ") merger on September 29, 2006. Third quarter and nine month results for 2007 reflect strong organic growth and market appreciation in assets under management ("AUM Aum (ä·ōōmˑ), n.pr 1. in Ayurveda, the subtle, noiseless cosmic vibration in which consciousness existed in the beginning, before the elements appeared. ") and solid investment performance which produced $149.4 million of performance fees for the three months ended September 30, 2007. AUM increased $175 billion, or 15.6%, for the nine months ended September 30, 2007, including $107 billion, or 61.1%, attributable to new business. Adjusted diluted earnings per share1 of $2.29 and $5.67 for the third quarter and nine months ended September 30, 2007 increased approximately 116% and 63%, respectively, from the $1.06 and $3.48 earned in the comparable periods of 2006. Adjusted diluted earnings per share increased $0.49 from the $1.80 earned in the second quarter of 2007 including approximately $0.29 per share associated with an increase in performance fees of $123.7 million. Operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: , as adjusted1 was 37.7% for the third quarter 2007 compared with 36.1% for the second quarter 2007 and 36.4% for the first half of 2007. The increase in adjusted margin reflects operating leverage Operating Leverage A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. associated with strong revenue growth. MLIM integration charges for third quarter 2007 were $6.1 million compared to $6.0 million for second quarter 2007. Cumulative MLIM integration costs incurred as of September 30, 2007 totaled $161 million ($142 million in calendar year 2006). Remaining integration costs to be incurred are estimated at $10-$20 million. 1 See notes (a), (b) and (c) to the Condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. Consolidated Statements of Income and Supplemental Information in Attachment I. AUM totaled $1.3 trillion at September 30, 2007, up 6% since second quarter-end and 21% year-over-year. The increase in AUM was driven principally by net new business, which totaled $41.0 billion during the quarter and $124.0 billion over the past twelve months. During the quarter we had net inflows in all asset classes, led by $30.2 billion of net subscriptions in cash management products in response to highly unsettled market conditions. Similarly, flows were positive across all regions, including $31.1 billion and $9.9 billion from U.S. and international clients, respectively. BlackRock Solutions added one new Aladdin mandate during the quarter and has entered into contract negotiations with a number of other prospects. As of October 15, 2007, our new business pipeline consisted of $33.0 billion of wins funded or to be funded, including $22.7 billion in our liquidity products. "The third quarter featured widespread reassessment Reassessment The process of re-determining the value of property or land for tax purposes. Notes: Property is usually reassessed on an annual basis. You may request a "reassessment" if you disagree with your assessment. of valuations in the credit markets, which led to a significant reduction in liquidity and greater market uncertainty, which in turn caused investors to flock flock 1. a group of one species of animal or bird which eats or travels or is kept together, e.g. flock of sheep, of wild geese. 2. wool or cotton particles or debris used as stuffing or packing. to safe havens Safe Havens is a comic strip drawn by cartoonist Bill Holbrook and syndicated by King Features Syndicate. Started in 1988, the strip is currently published in more than 50 newspapers. ," commented Laurence D. Fink Laurence D. Fink is the Chairman & Chief Executive Officer of BlackRock, Inc. Popularly known as Larry, he started his career at First Boston upon graduating from the University of California Los Angeles. , Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of BlackRock. "The sharp influx in money market funds was coupled with a slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. in long-dated searches and fundings. We were able to take advantage of our well-diversified product range in offering clients strategies appropriate to the environment. We expect the current shift in investor preferences to be temporary, as investors adjust to the change in market conditions. We do not, however, expect the market dislocations to be easily or quickly resolved, and we remain vigilant in applying the full range of our capabilities on behalf of our asset management and BlackRock Solutions' clients. "On September 29th, we celebrated the first anniversary of our merger with MLIM. The power of our combined platform, of creating globally integrated operations and a unified culture, has exceeded our expectations. The support we have received from clients, consultants and distribution partners has been extraordinary, and we are incredibly grateful. Throughout the year, we have worked closely with our retail distribution partners globally to deliver our expanded product range more effectively, driving $27.0 billion of net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight to individual investors worldwide. Similar efforts with consultants and institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. have helped fuel $97.0 billion of net new business in long-dated and liquidity products since we closed the MLIM transaction. "Our strong results would not have been possible without an unwavering focus on investment performance and client service. I am incredibly proud of our employees, who have embraced our combined platform and, through their tireless effort, made it possible to achieve a 12% organic growth rate over the past year while sustaining excellence in client service and throughout our operations. Just after quarter-end, we closed our acquisition of the Quellos fund of funds Fund of Funds A mutual fund that invests in other mutual funds. Notes: For example, an investor would select a general risk profile and the fund-of-funds manager would pick underlying investments from a range of products managed by external managers. business, adding approximately $21.9 billion in AUM, and we are already realizing the benefits of that integration as well. I have great confidence that together we can continue to differentiate BlackRock and create lasting value for our clients and shareholders." Third Quarter Business Highlights * Our business continued to benefit from the breadth of our global distribution capabilities and the well diversified diversified (di·verˑ·s nature of our product offerings. Assets managed for retail and high net worth investors worldwide reached $402.6 billion, up $18.4 billion during the quarter. Net new business totaled $8.1 billion, including $3.8 billion in fixed income, equity and alternative investments. Assets managed for institutional investors also increased during the quarter, as we were awarded net new moneys from a wide range of taxable and tax-exempt investors. AUM for international institutions increased $17.4 billion, including $7.6 billion of net new business, to close the quarter at $320.4 billion. Finally, assets managed for U.S. institutional investors increased $33.6 billion to $576.6 billion, driven in large measure by $25.1 billion of net inflows in cash management products. * Fixed income AUM closed the quarter at $509.8 billion, up $17.5 billion since second quarter-end. Net new business evidenced continued allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of capital to global fixed income, as well as an ongoing shift toward customized solutions. Accordingly, $2.7 billion of outflows in core bond products were offset by $8.3 billion of net inflows in all other strategies, including $4.7 billion in global fixed income and local currency portfolios. Investment performance remained competitive in the face of extreme market volatility, with 57% or more of bond fund assets Fund assets The total value of a portfolio's securities, cash, and other holdings, minus any outstanding debts. ranked in the top half of their peer groups for the one-, three- and five-year periods ended September 30, 2007. * AUM in equity and balanced products increased $18.3 billion during the quarter to $454.2 billion. Net new business totaled $6.4 billion before giving effect to $3.2 billion of outflows stemming from asset allocation Asset Allocation The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. changes by two large clients. Net subscriptions during the quarter were particularly strong in global allocation and balanced strategies, sector funds, and enhanced index/quantitative products. Investment performance was strong across much of the product range, with 73% or more of equity fund assets ranked in the top half of their peer groups for the one-, three- and five-year periods ended September 30, 2007. * Cash management AUM totaled $290.7 billion at September 30, 2007, up $30.9 billion versus June 30, 2007. The majority of net inflows came late in the quarter as highly unsettled market conditions and the Federal Reserve discount rate cut caused a sharp reallocation Noun 1. reallocation - a share that has been allocated again allocation, allotment - a share set aside for a specific purpose 2. reallocation out of enhanced cash and longer-dated strategies and into money market funds industry-wide. BlackRock's funds, which had been managed conservatively and offered competitive yields, attracted $42.6 billion of net subscriptions, which were partially offset by net outflows of $8.9 billion in securities lending Securities Lending When a brokerage lends securities owned by its clients to short sellers. Notes: This allows brokers to create additional revenue (commissions) on the short sale transaction. portfolios and $3.5 billion in enhanced cash accounts. Inflows have continued in the face of ongoing market volatility, although we fully expect to experience outflows when conditions stabilize stabilize See peg. and investors return to more typical asset allocation strategies. * AUM in alternative investment products increased $2.8 billion to $44.9 billion at quarter-end. Net new business totaled $2.1 billion, including $1.3 billion in real estate products and more modest inflows in our hedge funds hedge fund, in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" , fund of funds and other alternative products. Immediately following quarter-end, we closed our acquisition of the Quellos fund of funds business. On a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma basis, alternative AUM would have been $66.8 billion, including $22.4 billion in hedge fund of funds and $5.1 billion in private equity and real asset fund of funds and co-investment vehicles managed under the BlackRock Alternative Advisors umbrella. * BlackRock Solutions added one new Aladdin mandate during the quarter. We were also retained on four new advisory assignments and completed five engagements. The activity in the advisory arena reflects increased demand for our portfolio valuation and risk management capabilities as institutional investors grapple with a loss of price transparency Price Transparency The accessibility of information on the order flow for a particular stock, allowing knowledge of the quantities of stock being offered and the bids at the various price levels. Also referred to as "market depth. due to credit market conditions. At quarter-end, we were in contract negotiations with respect to a number of additional assignments and we continued to make progress on the integration of our global operating platform. * Our pipeline of net new business funded or to be funded totaled $33.0 billion at October 15, 2007, including $22.7 billion in cash management products and $10.3 billion in fixed income, equity and alternative offerings. As a result of market volatility, inflows in cash management products have remained strong, while long-dated funding have slowed. Search activity, however, remains near record levels, and we continue to work closely with our clients to tailor A tailor is a person whose occupation is to sew menswear style jackets and the skirts or trousers that go with them. Although the term dates to the thirteenth century, tailor investment and risk management solutions suited to their particular needs. We believe these efforts will continue to support future new business momentum. Third Quarter Financial Highlights Third quarter 2007 reflects the impact of the MLIM merger, which closed on September 29, 2006. Given the magnitude of the acquired business, the Company has omitted discussion of most line item variances versus third quarter 2006. Third quarter 2007 revenues were $1,298.1 million compared to $1,097.0 million in second quarter 2007 and $323.1 million in third quarter 2006. Revenues increased $201.1 million, or 18%, from the second quarter, reflecting higher levels of AUM in all asset classes and a substantial increase in performance fees. * Base advisory and administration fees of $1,026.4 million in the third quarter of 2007 increased $75.8 million, or 8%, compared to $950.6 million in the second quarter 2007 primarily due to a $52.5 million or 10% increase in equity and balanced revenue. * Performance fees were $149.4 million in third quarter 2007, compared to $25.7 million in second quarter 2007 and $17.8 million in third quarter 2006. Third quarter 2007 performance fees reflect strong investment performance from alternative products particularly, equity and fixed income hedge funds and real estate products. * Other revenue, which includes BlackRock Solutions and property management fees, was $90.0 million for third quarter 2007 versus $87.8 million in second quarter 2007 and $46.3 million in third quarter 2006. Third quarter 2007 BlackRock Solutions revenue rose to $47.7 million compared to $46.3 million in second quarter 2007 and $33.8 million in third quarter 2006, an increase of 3% and 41%, respectively. Third quarter 2007 operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , excluding the one-time insourcing expense of $128.1 million, were $898.2 million, compared to $815.0 million in second quarter 2007 and $294.1 million in third quarter 2006. The $83.2 million, or 10%, increase compared to second quarter 2007 was primarily due to: * $91.7 million increase in employee compensation and benefits primarily related to incentives associated with higher performance fees. * $7.8 million increase in portfolio administration and servicing costs due to higher levels of AUM. * $17.9 million decrease in closed-end fund launch costs due to smaller offerings completed in third quarter 2007 compared to second quarter 2007. Third quarter 2007 operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , as adjusted totaled $423.7 million, an increase of $88.0 million or 26%, from the $335.6 million earned in the second quarter of 2007. The increase reflects strong revenue growth including a significant increase in performance fees. In connection with the one-time expense of $128.1 million associated with the insourcing of the closed-end fund administration and servicing arrangements referenced above, the Company terminated arrangements with Merrill Lynch on 40 closed-end funds. The termination of these arrangements, which had original terms of 30-40 years, will result in an operating income benefit of approximately $15 million per year. Third quarter 2007 non-operating income was $108.7 million, compared to $213.7 million in second quarter 2007. Third quarter 2007 non-operating income is offset by approximately $62.0 million of non-controlling interest compared to $148.5 million in the second quarter 2007. The decrease in non-operating income, net of non-controlling interest, of $18.6 million primarily reflects a decline in net investment gains from investments in private equity, hedge funds and fund of funds products of $20.2 million and $18.9 million, respectively, offset by a $23.3 million increase in net investment gains from real estate products. Third quarter 2007 income taxes were $63.2 million, compared to $125.0 million in second quarter 2007. Income taxes for the third quarter 2007 reflected an overall effective tax rate of 36% reduced by a one-time tax benefit of $51.4 million associated with tax legislation recently enacted by the United Kingdom and Germany which will reduce corporate income tax rates in those jurisdictions in 2008. Accordingly, BlackRock revalued its deferred tax liabilities attributable to the two jurisdictions. BlackRock will consider these changes, as well as other factors in determining its effective tax rate for 2008; however, currently the Company does not anticipate a significant change to the overall effective tax rate in 2008. Teleconference and Webcast Information BlackRock will host a teleconference call for investors and analysts on Wednesday, October 17, 2007, 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 United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , (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 18265429). A live, listen-only webcast will also be available via the investor relations Investor relations The process by which the corporation communicates with its investors. section of www.blackrock.com. Both the teleconference and webcast will be available for replay by 1:00 p.m. on Wednesday, October 17, 2007 and ending at midnight on Wednesday, October 24, 2007. 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 18265429. To access the webcast, please visit the investor relations section of www.blackrock.com Performance Notes Past performance is no guarantee of future results. Mutual fund performance data is net of fees and expenses and assumes the reinvestment Reinvestment Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash. 1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares. of dividends and capital gains distributions. BlackRock waives certain fees, without which performance would be lower. Investments in mutual funds are neither insured nor guaranteed by the U.S. government. Relative peer group performance is based on quartiles from Lipper Inc. for U.S. funds and Standard & Poor's for non-U.S. funds. Rankings are based on total returns with dividends and distributions reinvested and do not reflect sales charges Sales Charge A commission or fee paid by an investor at the time of purchasing mutual fund shares. The charge is paid to a mutual fund salesperson or financial advisor and is intended to provide compensation for the financial salesperson's efforts in assisting their client select . Funds with returns among the top 50% of a peer group of funds group of funds See family of funds. with comparable objectives are in the top two quartiles. Some funds have less than one year of performance. About BlackRock BlackRock is one of the world's largest publicly traded investment management firms. As of September 30, 2007, AUM was $1.3 trillion. The firm manages assets on behalf of institutions and individuals worldwide through a variety of equity, fixed income, cash management and alternative investment products. In addition, a growing number of institutional investors use BlackRock Solutions investment system, risk management and financial advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal . Headquartered in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , as of September 30, 2007, the firm has approximately 5,100 employees in 19 countries and a major presence in key global markets, including the U.S., Europe, Asia, Australia and the Middle East. For additional information, please visit the Company's website at www.blackrock.com. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and , 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 factors previously disclosed in BlackRock's SEC reports and those identified elsewhere in this communication, 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 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, including its separately managed accounts; (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 All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. ; (8) the extent and timing of any share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. ; (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 relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc BlackRock, Merrill Lynch or PNC PNC Purdue University North Central (Westville, Indiana) PnC Point 'n Click PNC Police National Computer PNC People's National Congress (Guyana) PNC People's National Congress ; (11) terrorist activities and international hostilities, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries and BlackRock; (12) the ability to attract and retain highly talented professionals; (13) fluctuations in foreign currency exchange rates, which may adversely affect the value of advisory and administration fees earned by BlackRock; (14) the impact of changes to tax legislation and, generally, the tax position of the Company; (15) BlackRock's ability to successfully integrate the MLIM and Quellos businesses with its existing business; (16) the ability of BlackRock to effectively manage the former MLIM and Quellos assets along with its historical assets under management; and (17) BlackRock's success in maintaining the distribution of its products. BlackRock's Annual Reports on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 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.
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(a) BlackRock reports its financial results on a GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). basis, however management believes that evaluating the Company's ongoing operating results may not be as useful if investors are limited to reviewing only GAAP 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 Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP. Operating margin, as adjusted, equals operating income, as adjusted, divided by revenue used for operating margin measurement, as indicated in the table below. As a result of recent changes in BlackRock's business, management has altered the way it views its operating margin, as adjusted. As such, the calculation of operating income, as adjusted, and operating margin, as adjusted, were modified in the second quarter 2007 primarily to adjust for costs associated with closed-end fund issuances and amortization of deferred sales costs, as shown below. Revenue used for operating margin, as adjusted, for all periods presented includes affiliated and unaffiliated portfolio administration and servicing costs. Certain prior period non-GAAP data has been reclassified to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" current period presentation. Computations for all periods are derived from the Company's condensed consolidated statements of income as follows:
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(a) (continued) Management believes that operating income, as adjusted, and operating margin, as adjusted, are effective indicators of management's ability to effectively employ BlackRock's resources. As such, management believes that operating income, as adjusted, and operating margin, as adjusted, provide useful disclosure to investors. Non-GAAP Operating Income Adjustments: The expense related to the termination of the closed-end fund administration and servicing arrangements with Merrill Lynch has been excluded from operating income, as adjusted, as the termination of the arrangements is deemed non-recurring by management. The portion of the LTIP LTIP Long Term Incentive Plan LTIP Laughing Till I Puke LTIP Local Transportation Improvement Program LTIP Long Term Instrument Plan LTIP Long Term Infrastructure Program LTIP Long Term Independent Project expense associated with awards funded through the distribution to participants of shares of BlackRock stock held by PNC and the anticipated Merrill Lynch compensation contribution have been excluded because, exclusive of the impact related to LTIP participants' put options, these charges do not impact BlackRock's book value. MLIM and Quellos integration costs consist principally of certain professional fees, rebranding costs and compensation costs related to the integration which were reflected in GAAP net income. Integration costs have been deemed non-recurring by management and have been excluded from operating income, as adjusted, to help ensure the comparability of this information to prior periods. Closed-end fund launch costs and commissions have been excluded from operating income, as adjusted, because such costs can fluctuate considerably and revenues associated with the expenditure of such costs will not fully impact the Company's results until future periods. As such, management believes that operating margins exclusive of these costs are more representative of the operating performance for the given period. Compensation expense associated with appreciation (depreciation) on assets related to certain BlackRock's deferred compensation plans has been excluded because investment returns on these assets are reported in non-operating income. Non- non- word element [L.]not . non- pref. Not: noninvasive. GAAP Revenue Adjustments: Portfolio administration and servicing costs have been excluded from revenue used for operating margin, as adjusted, because the Company receives offsetting revenue and expense for these services. Amortization of deferred sales costs are excluded from revenue used for operating margin measurement, as adjusted, because such costs offset distribution fee revenue earned by the Company. Reimbursable re·im·burse tr.v. re·im·bursed, re·im·burs·ing, re·im·burs·es 1. To repay (money spent); refund. 2. To pay back or compensate (another party) for money spent or losses incurred. property management compensation represents compensation and benefits paid to certain BlackRock Realty realty n. a short form of "real estate." (See: real estate) REALTY. An abstract of real, as distinguished from personalty. Realty relates to lands and tenements, rents or other hereditaments. Vide Real Property. Advisors, Inc. ("Realty") personnel. These employees are retained on Realty's payroll when certain properties are acquired by Realty's clients. The related compensation and benefits are 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.
BlackRock, Inc.
Notes to Condensed Consolidated Statements of Income and Supplemental
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(Unaudited)
(continued)
(b) BlackRock reports its financial results on a GAAP basis, however management believes that evaluating the Company's ongoing operating results may not be as useful if investors are limited to reviewing only 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. [TABLE OMITTED] Management believes that net income, as adjusted, and diluted earnings per share, as adjusted, are effective measurements of BlackRock's profitability and financial performance. The termination of the closed-end fund administration and servicing arrangements with Merrill Lynch has been excluded from net income, as adjusted, as the termination of the arrangements is deemed non-recurring by management. The portion of the LTIP expense associated with awards funded through the distribution to participants of shares of BlackRock stock held by PNC and the anticipated Merrill Lynch compensation contribution have been excluded from net income, as adjusted, and diluted earnings per share, as adjusted, because, exclusive of the impact related to LTIP participants' put options, these charges do not impact BlackRock's book value. MLIM and Quellos integration costs reflected in GAAP net income have been deemed non-recurring by management and have been excluded from net income, as adjusted, and diluted earnings per share, as adjusted, to help ensure the comparability of this information to prior reporting periods. Integration costs consist principally of compensation costs, professional fees and rebranding costs incurred in conjunction with the integrations. The United Kingdom and Germany, during third quarter 2007, enacted legislation reducing corporate income taxes, effective in April and January of 2008, respectively, which resulted in a revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. of certain deferred tax liabilities. Currently, BlackRock does not anticipate a significant change to its overall tax rate in 2008. The resulting decrease in income taxes has been excluded from net income, as adjusted, as it is non-recurring and to ensure comparability to prior reporting periods. (c) Series A non-voting participating preferred stock Participating Preferred Stock A type of preferred stock that, under certain conditions, gives holders the right to receive earnings payouts over and above the specified dividend rate. is considered to be common stock for purposes of earnings per share calculations. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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