Contact:
Kathleen Baum
212-810-5429
Brian Beades
212-810-5596
invrel@blackrock.com
BlackRock Reports Diluted EPS of $0.95, up 19% over Second Quarter 2005.
Assets Under Management Rise to $464.1 Billion at June 30, 2006.
New York, July 18, 2006 - BlackRock, Inc. (NYSE:BLK) today reported net income for the quarter ended June 30, 2006 of $63.4 million, or $0.95 per diluted share. That compares with net income of $53.3 million, or $0.80 per diluted share, and $70.9 million, or $1.06 per diluted share, in the second quarter of 2005 and first quarter of 2006, respectively. Net income and diluted earnings per share for the six months ended June 30, 2006 were $134.3 million and $2.02, respectively, compared to $99.9 million and $1.49 earned in the six month period ended June 30, 2005.
Second quarter 2006 revenues totaled $360.7 million, an increase of 32.9% compared to second quarter 2005 and a decrease of 8.8% from first quarter 2006. Second quarter 2006 revenues included $69.9 million in performance fees compared to first quarter 2006 performance fees of $114.6 million. First quarter performance fees were partially offset by a $34.5 million one-time payment by the Company related to the State Street Research acquisition.
Second quarter 2006 earnings included approximately $12.5 million ($0.12 per diluted share) of expense associated with the pending Merrill Lynch Investment Managers (MLIM) transaction and approximately $12.3 million ($0.12 per diluted share) of BlackRock’s Long-Term Retention and Incentive Plan (LTIP) expense that will be funded through a contribution of BlackRock stock currently held by PNC. Given the magnitude of the MLIM transaction, BlackRock will continue to report adjusted earnings per share for affected periods that exclude MLIM transaction costs, as well as the portion of the LTIP to be funded through PNC’s contribution of BlackRock stock. Adjusted diluted earnings per share for the second quarter 2006 was $1.19 per share1.
Assets under management (AUM) totaled $464.1 billion at June 30, 2006, up $49.7 billion since June 30, 2005 and $1.0 billion since March 31, 2006. Net new business was $41.8 billion over the past twelve months, including $7.3 billion year-to-date. During the quarter, we experienced net outflows of $447 million, principally as a result of investment strategy or policy related changes by four large fixed income clients and a temporary slowdown in search activity following the announcement of the MLIM transaction. In general, flows remained favorable, particularly from international clients who funded an additional $1.3 billion during the quarter, bringing total net new business from non-U.S. investors to $10.0 billion year-to-date and $20.6 billion over the past twelve months. In addition, we added five long-term engagements forBlackRock Solutions® during the quarter, surpassing the milestone of 100 ongoing assignments and sustaining strong new business momentum. BlackRock closed the quarter with a robust pipeline of wins to be funded, searches in process andBlackRock Solutions prospects in development.
1 | See notes (a) and (b) to condensed consolidated statements of income and supplemental information in Attachment I on pages 9 and 10. |
“Our second quarter financial results were solid, driven by asset growth in prior periods, a favorable shift in our asset mix and strong investment performance,” commented Laurence D. Fink, Chairman and CEO of BlackRock. “MLIM also had a strong second quarter. Pro forma combined AUM were $1.046 trillion at June 30, 2006, up $7.2 billion since first quarter and $54.6 billion since year-end 2005.
“We continued to make steady progress preparing for our merger with MLIM later this year. Most of the talent review has been completed and key organizational decisions have been communicated to clients. Critical infrastructure work remains on schedule and mutual fund proxies and client consents are in process. We remain on target with respect to timing, one-time costs and expected synergies, as articulated when we announced the transaction. I am also pleased that we reached agreement with Nomura to acquire their interest in our joint venture, while preserving our strong relationship in support of shared clients and potential future opportunities.
“I am enormously proud of the efforts of BlackRock’s and MLIM’s employees and I am confident that their efforts will result in the creation of an exceptional franchise differentiated by the quality and range of capabilities the new BlackRock will have to serve investors throughout the world.”
Second Quarter Financial Highlights
Second quarter 2006 revenues were $360.7 million, an increase of 32.9% from $271.4 million reported in second quarter 2005 and a decrease of 8.8% from $395.7 million reported in first quarter 2006. Second quarter 2006 investment advisory and administration fees rose to $313.9 million, an increase of 35.6% from $231.5 million reported in second quarter 2005. The increase was a result of higher average AUM, as AUM rose to $464.1 billion at June 30, 2006 from $414.4 billion at June 30, 2005, and higher performance fees. Performance fees were $69.9 million in second quarter 2006, versus $21.4 million reported in second quarter 2005 and $114.6 million in first quarter 2006. Other income, which includesBlackRock Solutions and property management fees, was $46.8 million for second quarter 2006, an increase of 17.3%, from $39.9 million reported in second quarter 2005 and an increase of 1.9% from first quarter 2006. Second quarter 2006BlackRock Solutionsrevenues rose to $29.2 million, an increase of 22.1%, from $23.9 million in second quarter 2005.
Second quarter 2006 operating expenses increased 39.3% to $264.1 million, from $189.5 million in the second quarter 2005. The $74.6 million increase was attributable primarily to increases in employee compensation and benefits and general and administration expense. Compensation and benefits rose 35.2% to $177.1 million from $131.0 million due to higher incentive compensation associated with performance fees, higher accruals for year-end bonuses based on operating income and an increase in the number of employees to 1,915 (excluding 402 Metric Property employees) at June 30, 2006 from 1,575 at June 30, 2005. Second quarter 2006 general and administration expense was $74.4 million, an increase of 60.3% from $46.4 million in second quarter 2005, primarily as a result of an increase of $7.8 million in market data services, occupancy and marketing costs, and $12.5 million in expenses related to the MLIM transaction.
The Company’s adjusted operating margin1was 35.6%, 41.4% and 37.0% for second quarter 2006, first quarter 2006 and second quarter 2005, respectively. The decrease in adjusted operating margin from first quarter 2006 was attributable principally to a large first quarter performance fee. Absent that fee and related payments, first quarter 2006 adjusted operating margin would have been approximately 36.6%1.
Second quarter 2006 non-operating income increased 21.5% to $4.8 million from $4.0 million in second quarter 2005, principally as a result of market appreciation and returns on investments.
1 | See notes (a) and (b) to condensed consolidated statements of income and supplemental information in Attachment I on pages 9 and 10. |
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Second Quarter Business Highlights
• | Fixed income AUM ended the quarter at $307.6 billion, down $1.3 billion versus March 31, 2006. New business efforts were overshadowed by $4.8 billion of outflows from four large clients in connection with changes to their investment strategies or policies. Momentum remained strong otherwise, including $1.2 billion of net inflows in global bonds and $728 million of net new business in sector-specialty mandates. Notwithstanding challenging markets and ongoing integration planning activity related activity, investment performance remained highly competitive, with 92% or more of taxable bond fund assets in the top two Lipper quartiles for the year-to-date, one-, three- and five-year periods ended June 30, 2006. |
• | Cash management assets stood at $88.4 billion at quarter-end, up $1.9 billion since March 31, 2006. Average assets were $87.0 billion for the first half of the year versus $77.2 billion for 2005. Continued Federal Reserve tightening during the quarter led to outflows in institutional liquidity funds, which were offset by net inflows in separate accounts, including securities lending portfolios. Yields remained competitive and client service continued to differentiate the firm, but asset flows are expected to remain volatile in the face of uncertainty regarding monetary policy. |
• | Equity assets were $40.9 billion at second quarter-end, as $733 million of net inflows were offset almost fully by $613 million of market declines. We were able to capitalize on the breadth of BlackRock’s platform in attracting new business across a variety of global, international and domestic mandates. As a result of asset flows during the quarter, the Company closed its small and small/mid cap growth products to new separate account investors. Investment performance remained competitive overall, with 60% or more of institutional equity composites outperforming their benchmarks and more than two-thirds of equity fund AUM ranked in the top two Lipper quartiles for the one- and three-year periods ended June 30, 2006. |
• | Assets managed in alternative investments increased $247 million during the quarter to $27.1 billion at June 30, 2006. Strong net new business in real estate equity was offset by net outflows in hedge funds and the redemption of a collateralized debt obligation. Several new products are in development and are expected to fund prior to year-end. Performance was generally positive for the quarter and year-to-date, with particular strength in energy hedge funds, real estate and fund of hedge funds. |
• | Net new business continued to span BlackRock’s diverse global client base. During the quarter, $1.8 billion of net inflows were attracted from institutional liquidity clients, $843 million from pension and other tax-exempt institutions, and $987 million from mutual fund investors. These fundings, however, were insufficient to overcome $4.1 billion of net outflows from insurance companies and other taxable institutions, driven in large measure by the asset reallocations referenced earlier. |
• | During the second quarter, the Company realized $31.7 million inBlackRock Solutions revenue, up 25% year-over-year. Five net new long-term assignments and one net new short-term engagement were added in the second quarter of 2006. These mandates encompassed investment tools, advisory and outsourcing services. At quarter-end, four system implementations were in progress, not including the work being done in connection with the BlackRock/MLIM integration, and BlackRock had over 100 distinct assignments for more than 85 clients. |
• | The Company’s new business pipeline is very strong, including $12.5 billion of wins funded or to be funded, including $4.6 billion in cash management assets and nearly 500 searches in process. The impending transaction with MLIM temporarily slowed new business momentum, although search activity appears to have picked up following rollout of the planned post-merger investment management platform to clients and their consultants. Interest inBlackRock Solutions products has continued unabated and the Company has a number of significantAladdin® and risk management opportunities in development. |
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2007 Outlook
The Company has decided to provide preliminary guidance on 2007 earnings due to the significant changes in operating results expected from the combination of BlackRock and MLIM. The Company may provide additional updates to this guidance through the end of the year but will not provide guidance on quarterly or full year results for 2006.
On February 15, 2006, BlackRock announced a planned combination with MLIM. In that announcement, BlackRock described certain assumptions concerning costs and synergies associated with the transaction including anticipated one-time charges of $200 million and expected expense synergies of $140 million of which $70 million were expected to be realized in the first year of combined operations.
Currently, the Company anticipates one-time charges will be less than original estimates largely due to certain MLIM employee retention costs being reallocated to long-term programs. This has the effect of transferring costs that were expected to be expensed at closing to future periods. In addition, the Company is finalizing plans for a new Long-Term Incentive and Retention Plan (LTIP) for BlackRock employees. The expense associated with the new BlackRock LTIP and merger related retention programs is expected to approximate $26 million per quarter in 2007. A significant portion of this expense will be funded by PNC through the contribution of BlackRock shares available from the previous LTIP program and by Merrill Lynch in connection with negotiated cost-sharing arrangements. Finally, the Company currently expects to achieve between $70 million and $85 million of pre-tax expense synergies in 2007.
The following chart presents Management’s estimated range of earnings for 2007 with the mid-point of the range reflecting no significant change in current economic or business conditions. This range also incorporates the financial impact of the previously noted transaction-related items.
2007 | ||||||
Diluted earnings per share range, GAAP basis | $ | 6.10 | $ | 6.60 | ||
Per diluted share adjustment: | ||||||
PNC/Merrill LTIP funding obligation | 0.35 | 0.45 | ||||
Diluted earnings per share, as adjusted | $ | 6.45 | $ | 7.05 |
Included in the GAAP diluted earnings per share range is expected pre-tax expense of approximately $110 million for identified intangible amortization (non-cash), performance fees of revenue of $100 - $250 million, or $0.20 - $0.50 per diluted share and fully diluted shares outstanding of approximately 134 million.
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Performance Notes
Past performance is no guarantee of future results. Mutual fund performance data is net of fees and expenses, assumes the reinvestment of dividends and capital gains distributions and reflects the performance of the Institutional Class. BlackRock waives certain fees, without which performance would be lower. Investments in BlackRock Funds are neither insured nor guaranteed by the U.S. government. Relative peer group performance is based on quartiles from Lipper Inc. Lipper rankings are based on total returns with dividends and distributions reinvested and do not reflect sales charges. Funds with returns among the top 25% of a peer group of funds with comparable objectives are in the first quartile and funds with returns in the next 25% of a peer group are in the second quartile. Some funds have less than three years of performance.
Fixed Income Portfolios of BlackRock Funds: The Core Bond Total Return, Core PLUS Total Return, Intermediate PLUS Bond and the Managed Income Portfolios are in the Intermediate Investment Grade Debt Lipper peer group. The Low Duration Bond and Enhanced Income Portfolios are in the Short Investment Grade Debt Lipper peer group. The Intermediate Bond Portfolio is in the Short-Intermediate Investment Grade Debt Lipper peer group. The High Yield Bond and Inflation Protected Bond Portfolios are in the High Current Yield and Treasury Inflation Protected Securities Lipper peer groups, respectively. The Intermediate Government Bond and GNMA Portfolios are in the Intermediate U.S. Government and GNMA Lipper peer groups, respectively.
Equity Portfolios of BlackRock Funds: The Asset Allocation and the Index Equity Portfolios are in the Flexible Portfolio and S&P 500 Index Objective Lipper peer groups, respectively. The Large Cap Value and Mid-Cap Value Equity Portfolios are in the Multi-Cap Value and Mid-Cap Value Lipper peer groups, respectively. The Small Cap Growth Equity and Health Sciences Portfolios are in the Small Cap Growth and Health/Biotechnology Lipper peer groups, respectively. The International Opportunities and Legacy Portfolios are in the International Small/Mid-Cap Growth and Large Cap Growth Lipper peer groups, respectively. The Global Resources and the All-Cap Global Resources Portfolios are in the Natural Resources Lipper peer group. The U.S. Opportunities and Global Science and Technology Opportunities Portfolios are in the Mid-Cap Core and Science & Technology Lipper peer groups, respectively.
Composites Performance: Investment performance does not reflect the deduction of advisory fees and other expenses, which will reduce performance results and the return to investors. All performance results assume reinvestment of dividends, interest and/or capital gains. BlackRock is the source of benchmark data for composites. Some BlackRock composites have less than three years of performance.
About BlackRock
BlackRock is one of the largest publicly traded investment management firms in the United States with approximately $464.1 billion of assets under management at June 30, 2006. BlackRock manages assets on behalf of institutional and individual investors worldwide through a variety of equity, fixed income, cash management and alternative investment products. In addition, BlackRock provides risk management, investment system outsourcing and financial advisory services to a growing number of institutional investors. Headquartered in New York City, the firm serves clients from offices in the U.S., Europe and Asia. BlackRock is majority owned by The PNC Financial Services Group, Inc. (NYSE: PNC) and by BlackRock employees. For additional information, please visit the Company’s website at www.blackrock.com.
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Forward-Looking Statements
This communication, and other statements that BlackRock may make, including statements about the benefits of the transaction with Merrill Lynch and under the heading “2007 Outlook”, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.
BlackRock cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and BlackRock assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
In addition to 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 and the former MLIM business; (4) the impact of increased competition; (5) the impact of capital improvement projects; (6) the impact of future acquisitions or divestitures; (7) the unfavorable resolution of legal proceedings; (8) the extent and timing of any share repurchases; (9) the impact, extent and timing of technological changes and the adequacy of intellectual property protection; (10) the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or PNC; (11) terrorist activities and international hostilities, which may adversely affect the general economy, domestic and global 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 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 business with its existing business; (16) the ability of BlackRock to effectively manage the former MLIM assets along with its historical assets under management; (17) BlackRock’s success in maintaining the distribution of its products; and (18) the ability of BlackRock to complete the transaction with Merrill Lynch.
BlackRock’s Annual Reports on Form 10-K and BlackRock’s subsequent reports filed 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.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transactions, a registration statement of New BlackRock, Inc. (Registration No. 333-134916), which includes a preliminary proxy statement of BlackRock, and other materials have been filed with the SEC and are publicly available. The proxy statement/prospectus will be mailed to the stockholders of BlackRock. STOCKHOLDERS OF BLACKROCK ARE ADVISED TO READ THE DEFINITIVE PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN
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IMPORTANT INFORMATION. Such proxy statement/prospectus (when available) and other relevant documents may also be obtained, free of charge, on the Securities and Exchange Commission’s website (http://www.sec.gov) or by contacting our Secretary, BlackRock, Inc., 40 East 52nd Street, New York, New York 10022.
PARTICIPANTS IN THE SOLICITATION
BlackRock and certain persons may be deemed to be participants in the solicitation of proxies relating to the proposed transaction. The participants in such solicitation may include BlackRock’s executive officers and directors. Further information regarding persons who may be deemed participants will be available in BlackRock’s proxy statement/prospectus to be filed with the Securities and Exchange Commission in connection with the transaction.
# # #
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Attachment I
BlackRock, Inc.
Condensed Consolidated Statements of Income and Supplemental Information
(Dollar amounts in thousands, except share data)
(unaudited)
Three months ended June 30, | % Change | Three 2006 | % Change | Six months ended June 30, | % Change | ||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||||
Investment advisory and administration fees | |||||||||||||||||||||||||||||
Separate accounts | $ | 224,825 | $ | 154,224 | 45.8 | % | $ | 262,208 | (14.3 | %) | $ | 487,033 | $ | 296,109 | 64.5 | % | |||||||||||||
Mutual funds | 89,103 | 77,247 | 15.3 | % | 87,500 | 1.8 | % | 176,603 | 147,618 | 19.6 | % | ||||||||||||||||||
Total investment advisory and administration fees | 313,928 | 231,471 | 35.6 | % | 349,708 | (10.2 | %) | 663,636 | 443,727 | 49.6 | % | ||||||||||||||||||
Other income | 46,805 | 39,918 | 17.3 | % | 45,952 | 1.9 | % | 92,757 | 77,744 | 19.3 | % | ||||||||||||||||||
Total revenue | 360,733 | 271,389 | 32.9 | % | 395,660 | (8.8 | %) | 756,393 | 521,471 | 45.0 | % | ||||||||||||||||||
Expense | |||||||||||||||||||||||||||||
Employee compensation and benefits | 177,098 | 131,015 | 35.2 | % | 191,796 | (7.7 | %) | 368,894 | 257,959 | 43.0 | % | ||||||||||||||||||
Fund administration and servicing costs | 10,556 | 10,426 | 1.2 | % | 10,374 | 1.8 | % | 20,930 | 19,535 | 7.1 | % | ||||||||||||||||||
General and administration | 74,367 | 46,397 | 60.3 | % | 91,434 | (18.7 | %) | 165,801 | 92,564 | 79.1 | % | ||||||||||||||||||
Amortization of intangible assets | 2,029 | 1,656 | 22.5 | % | 2,029 | 0.0 | % | 4,058 | 2,937 | 38.2 | % | ||||||||||||||||||
Total expense | 264,050 | 189,494 | 39.3 | % | 295,633 | (10.7 | %) | 559,683 | 372,995 | 50.1 | % | ||||||||||||||||||
Operating income | 96,683 | 81,895 | 18.1 | % | 100,027 | (3.3 | %) | 196,710 | 148,476 | 32.5 | % | ||||||||||||||||||
Non-operating income | |||||||||||||||||||||||||||||
Investment income | 6,845 | 6,027 | 13.6 | % | 15,064 | (54.6 | %) | 21,909 | 15,814 | 38.5 | % | ||||||||||||||||||
Interest expense | (2,030 | ) | (2,063 | ) | (1.6 | %) | (1,969 | ) | 3.1 | % | (3,999 | ) | (4,077 | ) | (1.9 | %) | |||||||||||||
Total non-operating income | 4,815 | 3,964 | 21.5 | % | 13,095 | (63.2 | %) | 17,910 | 11,737 | 52.6 | % | ||||||||||||||||||
Income before income taxes and minority interest | 101,498 | 85,859 | 18.2 | % | 113,122 | (10.3 | %) | 214,620 | 160,213 | 34.0 | % | ||||||||||||||||||
Income taxes | 37,237 | 31,324 | 18.9 | % | 41,618 | (10.5 | %) | 78,855 | 58,655 | 34.4 | % | ||||||||||||||||||
Income before minority interest | 64,261 | 54,535 | 17.8 | % | 71,504 | (10.1 | %) | 135,765 | 101,558 | 33.7 | % | ||||||||||||||||||
Minority interest | 857 | 1,200 | (28.6 | %) | 642 | 33.5 | % | 1,499 | 1,687 | (11.1 | %) | ||||||||||||||||||
Net income | $ | 63,404 | $ | 53,335 | 18.9 | % | $ | 70,862 | (10.5 | %) | $ | 134,266 | $ | 99,871 | 34.4 | % | |||||||||||||
Weighted-average shares outstanding | |||||||||||||||||||||||||||||
Basic | 64,136,378 | 64,354,069 | (0.3 | %) | 64,074,888 | 0.1 | % | 64,105,803 | 64,322,465 | (0.3 | %) | ||||||||||||||||||
Diluted | 66,653,479 | 66,796,087 | (0.2 | %) | 66,731,560 | (0.1 | %) | 66,520,436 | 66,844,720 | (0.5 | %) | ||||||||||||||||||
Earnings per share | |||||||||||||||||||||||||||||
Basic | $ | 0.99 | $ | 0.83 | 19.3 | % | $ | 1.11 | (10.8 | %) | $ | 2.09 | $ | 1.55 | 34.8 | % | |||||||||||||
Diluted | $ | 0.95 | $ | 0.80 | 18.8 | % | $ | 1.06 | (10.4 | %) | $ | 2.02 | $ | 1.49 | 35.6 | % | |||||||||||||
Dividends paid per share | $ | 0.42 | $ | 0.30 | 40.0 | % | $ | 0.42 | 0.0 | % | $ | 0.84 | $ | 0.60 | 40.0 | % | |||||||||||||
Supplemental information: | |||||||||||||||||||||||||||||
Operating income, as adjusted (a) | $ | 122,621 | $ | 94,333 | 30.0 | % | $ | 157,274 | (22.0 | %) | $ | 279,895 | $ | 183,621 | 52.4 | % | |||||||||||||
Operating margin, GAAP | 26.8 | % | 30.2 | % | (11.3 | %) | 25.3 | % | 5.9 | % | 26.0 | % | 28.5 | % | (8.8 | %) | |||||||||||||
Operating margin, as adjusted (a) | 35.6 | % | 37.0 | % | (3.7 | %) | 41.4 | % | (14.0 | %) | 38.7 | % | 37.3 | % | 3.6 | % | |||||||||||||
Net income, as adjusted (b) | $ | 79,088 | $ | 60,565 | 30.6 | % | $ | 82,363 | (4.0 | %) | $ | 161,451 | $ | 120,085 | 34.4 | % | |||||||||||||
Diluted earnings per share, as adjusted (b) | $ | 1.19 | $ | 0.91 | 30.8 | % | $ | 1.23 | (3.3 | %) | $ | 2.43 | $ | 1.80 | 35.0 | % |
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BlackRock, Inc.
Notes to Condensed Consolidated Statements of Income and Supplemental Information
(a) While BlackRock reports its financial results on a GAAP basis, management believes that evaluating its 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 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. Computations for all periods presented include affiliated and unaffiliated fund administration and servicing expense reported as a separate income statement line item and are derived from the Company's consolidated financial statements as follows:
Three months ended | Six months ended June 30, | |||||||||||||||||||
June 30, | March 31, 2006 | |||||||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||||
Operating income, GAAP basis | $ | 96,683 | $ | 81,895 | $ | 100,027 | $ | 196,710 | $ | 148,476 | ||||||||||
Add back: PNC LTIP funding obligation | 12,347 | 12,247 | 11,676 | 24,023 | 23,983 | |||||||||||||||
Appreciation on assets related to deferred compensation plans | 1,044 | 191 | 4,542 | 5,586 | 2,289 | |||||||||||||||
Fee sharing payment | — | — | 34,450 | 34,450 | — | |||||||||||||||
MLIM transaction costs | 12,547 | — | 6,579 | 19,126 | — | |||||||||||||||
SSR acquisition costs | — | — | — | — | 8,873 | |||||||||||||||
Operating income, as adjusted | 122,621 | 94,333 | 157,274 | 279,895 | 183,621 | |||||||||||||||
Revenue, as reported | 360,733 | 271,389 | 395,660 | 756,393 | 521,471 | |||||||||||||||
Less: fund administration and servicing costs | (10,556 | ) | (10,426 | ) | (10,374 | ) | (20,930 | ) | (19,535 | ) | ||||||||||
Reimbursable property management compensation | (5,879 | ) | (6,239 | ) | (5,598 | ) | (11,477 | ) | (10,298 | ) | ||||||||||
Revenue used for operating margin measurement | 344,298 | 254,724 | 379,688 | 723,986 | 491,638 | |||||||||||||||
Operating margin, GAAP basis | 26.8 | % | 30.2 | % | 25.3 | % | 26.0 | % | 28.5 | % | ||||||||||
Operating margin, as adjusted | 35.6 | % | 37.0 | % | 41.4 | % | �� | 38.7 | % | 37.3 | % | |||||||||
Management believes that operating income, as adjusted, and operating margin, as adjusted, are effective indicators of management's ability to, and useful to management in deciding how 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. The 2006 fee sharing payment has been excluded because it represents a non-recurring payment (based upon a performance fee) pursuant to the SSR acquisition agreement. The portion of the BlackRock Long-Term Retention and Incentive Plan ("LTIP") expense associated with awards to be met by the distribution to participants of shares of BlackRock stock currently held by PNC has been excluded because, exclusive of the potential impact related to LTIP participants' put options, these charges will not impact BlackRock’s book value. Compensation expense associated with appreciation on assets related to BlackRock's deferred compensation plans has been excluded because investment returns on these assets reported in non-operating income, net of the related impact on compensation expense, results in a nominal impact on net income. MLIM transaction costs consist of certain professional fees incurred in 2006 related to the pending MLIM transaction. SSR acquisition costs consist of certain compensation costs and professional fees incurred in 2005.
Fund administration and servicing costs have been excluded from revenue used for operating margin measurement, as adjusted, because the Company receives offsetting revenue and expense for these services. Reimbursable property management compensation represents compensation and benefits paid to certain BlackRock Realty Advisors, Inc. ("Realty") personnel. These employees are retained on Realty's payroll when 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 measurement, as adjusted, because they bear no economic cost to BlackRock.
If first quarter 2006 revenue is reduced by a multi-year performance fee of $106 million, and operating income is adjusted by $57.2 million for related expenses, operating margin, as adjusted, would be 36.6%.
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(b) While BlackRock reports its financial results on a GAAP basis, 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. Nevertheless, 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.
Three months ended | Six months ended June 30, | ||||||||||||||||
June 30, | March 31, 2006 | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||
Net income, GAAP basis | $ | 63,404 | $ | 53,335 | $ | 70,862 | $ | 134,266 | $ | 99,871 | |||||||
Add back: PNC’s LTIP funding requirement | 7,779 | 7,716 | 7,356 | 15,135 | 15,110 | ||||||||||||
SSR acquisition costs | — | — | — | — | 5,590 | ||||||||||||
MLIM transaction costs | 7,905 | — | 4,145 | 12,050 | — | ||||||||||||
Impact of Trepp sale | — | (486 | ) | — | — | (486 | ) | ||||||||||
Net income, as adjusted | 79,088 | 60,565 | 82,363 | 161,451 | 120,085 | ||||||||||||
Diluted weighted average shares outstanding | 66,653,479 | 66,796,087 | 66,731,560 | 66,520,436 | 66,844,720 | ||||||||||||
Diluted earnings per share, GAAP basis | $ | 0.95 | $ | 0.80 | $ | 1.06 | $ | 2.02 | $ | 1.49 | |||||||
Diluted earnings per share, as adjusted | $ | 1.19 | $ | 0.91 | $ | 1.23 | $ | 2.43 | $ | 1.80 | |||||||
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 portion of LTIP expense associated with awards to be met by PNC's funding requirement has been excluded from net income, as adjusted, and diluted earnings per share, as adjusted, because, exclusive of the potential impact related to LTIP participants' put options, these charges will not impact BlackRock’s book value. SSR acquisition costs consist of certain compensation costs and professional fees in 2005. Compensation reflected in this amount represents direct performance incentives paid to SSR employees assumed in conjunction with the acquisition and settled by BlackRock with no future service requirement. Net income, as adjusted, and diluted earnings per share, as adjusted, exclude this amount because it does not relate to the current period’s operations. MLIM transaction costs consist of compensation costs and professional fees incurred in 2006 in conjunction with the pending MLIM transaction. Professional fees related to the SSR acquisition and the MLIM transaction 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.
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Attachment II
BlackRock, Inc.
Summary of Revenues
(Dollar amounts in thousands, except share data)
(unaudited)
Three months ended June 30, | % Change | Three months ended March 31, | % Change | Six months ended June 30, | % Change | |||||||||||||||||||
2006 | 2005 | 2006 | 2006 | 2005 | ||||||||||||||||||||
Separate Account Revenue | ||||||||||||||||||||||||
Separate account base fees: | ||||||||||||||||||||||||
Fixed income | $ | 86,917 | $ | 79,477 | 9.4 | % | $ | 85,354 | 1.8 | % | $ | 172,270 | $ | 153,214 | 12.4 | % | ||||||||
Cash Management | 1,988 | 2,079 | (4.4 | %) | 1,857 | 7.1 | % | 3,845 | 3,702 | 3.9 | % | |||||||||||||
Equity | 21,898 | 18,661 | 17.3 | % | 21,023 | 4.2 | % | 42,921 | 34,150 | 25.7 | % | |||||||||||||
Alternatives | 44,079 | 32,569 | 35.3 | % | 39,367 | 12.0 | % | 83,446 | 56,950 | 46.5 | % | |||||||||||||
Separate account base fees | 154,882 | 132,786 | 16.6 | % | 147,601 | 4.9 | % | 302,482 | 248,015 | 22.0 | % | |||||||||||||
Separate account performance fees | 69,943 | 21,438 | 226.3 | % | 114,607 | (39.0 | %) | 184,551 | 48,094 | 283.7 | % | |||||||||||||
Total separate account revenue | 224,824 | 154,224 | 45.8 | % | 262,208 | (14.3 | %) | 487,033 | 296,109 | 64.5 | % | |||||||||||||
Mutual Fund Revenue | ||||||||||||||||||||||||
Fixed income | 26,947 | 28,674 | (6.0 | %) | 26,652 | 1.1 | % | 53,600 | 55,879 | (4.1 | %) | |||||||||||||
Cash Management | 28,275 | 23,674 | 19.4 | % | 28,004 | 1.0 | % | 56,278 | 47,244 | 19.1 | % | |||||||||||||
Equity | 33,881 | 24,898 | 36.1 | % | 32,844 | 3.2 | % | 66,725 | 44,495 | 50.0 | % | |||||||||||||
Total mutual fund revenue | 89,103 | 77,247 | 15.3 | % | 87,500 | 1.8 | % | 176,603 | 147,618 | 19.6 | % | |||||||||||||
Total investment advisory and administration fees | 313,928 | 231,471 | 35.6 | % | 349,708 | (10.2 | %) | 663,636 | 443,727 | 49.6 | % | |||||||||||||
BlackRock Solutions | 29,217 | 23,927 | 22.1 | % | 29,322 | (0.4 | %) | 58,539 | 50,562 | 15.8 | % | |||||||||||||
Other income | 17,588 | 15,991 | 10.0 | % | 16,630 | 5.8 | % | 34,218 | 27,182 | 25.9 | % | |||||||||||||
Total other income | 46,805 | 39,918 | 17.3 | % | 45,952 | 1.9 | % | 92,757 | 77,744 | 19.3 | % | |||||||||||||
Total revenue | $ | 360,733 | $ | 271,389 | 32.9 | % | $ | 395,660 | (8.8 | %) | $ | 756,393 | $ | 521,471 | 45.0 | % | ||||||||
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Attachment III
BlackRock, Inc.
Condensed Consolidated Statements of Financial Condition
(Dollar amounts in thousands)
(unaudited)
June 30, 2006 | December 31, 2005 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 368,687 | $ | 484,223 | ||
Accounts receivable | 438,276 | 339,578 | ||||
Investments | 347,253 | 298,668 | ||||
Intangible assets, net | 489,676 | 483,982 | ||||
Other assets | 280,029 | 241,549 | ||||
Total assets | $ | 1,923,921 | $ | 1,848,000 | ||
Liabilities, minority interest and stockholders' equity | ||||||
Accrued compensation | $ | 474,635 | $ | 522,637 | ||
Long term borrowings | 253,170 | 253,791 | ||||
Other liabilities | 135,013 | 139,715 | ||||
Total liabilities | 862,818 | 916,143 | ||||
Minority interest | 19,953 | 9,614 | ||||
Stockholders’ equity | 1,041,150 | 922,243 | ||||
Total liabilities, minority interest and stockholders' equity | $ | 1,923,921 | $ | 1,848,000 | ||
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Attachment IV
BlackRock, Inc.
Assets Under Management
(Dollar amounts in millions)
(unaudited)
June 30, 2006 | June 30, 2005 | March 31, 2006 | December 31, 2005 | |||||||||
All Accounts | ||||||||||||
Fixed income | $ | 307,640 | $ | 284,082 | $ | 308,945 | $ | 303,928 | ||||
Cash Management | 88,431 | 75,183 | 86,484 | 86,128 | ||||||||
Equity | 40,872 | 32,378 | 40,751 | 37,303 | ||||||||
Alternative investment products | 27,127 | 22,768 | 26,880 | 25,323 | ||||||||
Total | $ | 464,070 | $ | 414,411 | $ | 463,060 | $ | 452,682 | ||||
Separate Accounts | ||||||||||||
Fixed income | $ | 283,235 | $ | 258,411 | $ | 284,418 | $ | 279,368 | ||||
Cash Management | 9,956 | 8,164 | 9,654 | 7,275 | ||||||||
Cash Management-Securities lending | 11,295 | 7,368 | 8,073 | 5,294 | ||||||||
Equity | 22,702 | 18,525 | 23,082 | 20,832 | ||||||||
Alternative investment products | 27,127 | 22,768 | 26,880 | 25,323 | ||||||||
Subtotal | 354,315 | 315,236 | 352,107 | 338,092 | ||||||||
Mutual Funds | ||||||||||||
Fixed income | 24,405 | 25,671 | 24,527 | 24,560 | ||||||||
Cash Management | 67,180 | 59,651 | 68,757 | 73,559 | ||||||||
Equity | 18,170 | 13,853 | 17,669 | 16,471 | ||||||||
Subtotal | 109,755 | 99,175 | 110,953 | 114,590 | ||||||||
Total | $ | 464,070 | $ | 414,411 | $ | 463,060 | $ | 452,682 | ||||
Component Changes in Assets Under Management
(Dollar amounts in millions)
(unaudited)
Six Months ended | Three Months ended | |||||||||||||||
June 30, 2006 | June 30, 2005 | June 30, 2006 | June 30, 2005 | |||||||||||||
All Accounts | ||||||||||||||||
Beginning assets under management | $ | 452,682 | $ | 341,760 | $ | 463,060 | $ | 391,328 | ||||||||
Net subscriptions (redemptions) * | 7,272 | 15,664 | (447 | ) | 15,559 | |||||||||||
Acquisitions | — | 49,966 | — | 89 | ||||||||||||
Market appreciation | 4,116 | 7,021 | 1,457 | 7,435 | ||||||||||||
Ending assets under management | $ | 464,070 | $ | 414,411 | $ | 464,070 | $ | 414,411 | ||||||||
Separate Accounts | ||||||||||||||||
Beginning assets under management | $ | 338,092 | $ | 247,927 | $ | 352,107 | $ | 292,186 | ||||||||
Net subscriptions * | 12,447 | 20,591 | 161 | 16,069 | ||||||||||||
Acquisitions | — | 40,181 | — | — | ||||||||||||
Market appreciation | 3,776 | 6,537 | 2,047 | 6,981 | ||||||||||||
Ending assets under management | 354,315 | 315,236 | 354,315 | 315,236 | ||||||||||||
Mutual Funds | ||||||||||||||||
Beginning assets under management | 114,590 | 93,833 | 110,953 | 99,142 | ||||||||||||
Net (redemptions) * | (5,175 | ) | (4,927 | ) | (608 | ) | (510 | ) | ||||||||
Acquisitions | — | 9,785 | — | 89 | ||||||||||||
Market appreciation (depreciation) | 340 | 484 | (590 | ) | 454 | |||||||||||
Ending assets under management | 109,755 | 99,175 | 109,755 | 99,175 | ||||||||||||
Total | $ | 464,070 | $ | 414,411 | $ | 464,070 | $ | 414,411 | ||||||||
* | Includes dividend reinvestment |
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Attachment IV
BlackRock, Inc.
Assets Under Management
(Dollar amounts in millions)
(unaudited)
December 31, 2005 | March 31, 2006 | June 30, 2006 | |||||||||||||||||||||||
Beginning Assets | Net subscriptions (redemptions) | Market appreciation (depreciation) | Ending Assets | Net subscriptions (redemptions) | Market appreciation | Ending Assets | |||||||||||||||||||
Separate Accounts | |||||||||||||||||||||||||
Fixed Income | $ | 279,368 | $ | 5,892 | $ | (842 | ) | $ | 284,418 | $ | (3,016 | ) | $ | 1,833 | $ | 283,235 | |||||||||
Alternative Investment Products | 25,323 | 861 | 696 | 26,880 | (132 | ) | 379 | 27,127 | |||||||||||||||||
Equity | 20,832 | 438 | 1,812 | 23,082 | (129 | ) | (251 | ) | 22,702 | ||||||||||||||||
Cash Management | 7,275 | 4,194 | 63 | 11,532 | (1,662 | ) | 86 | 9,956 | |||||||||||||||||
Cash Management-Securities lending | 5,294 | 901 | — | 6,195 | 5,100 | — | 11,295 | ||||||||||||||||||
Total Separate Accounts | 338,092 | 12,286 | 1,729 | 352,107 | 161 | 2,047 | 354,315 | ||||||||||||||||||
Mutual Funds | |||||||||||||||||||||||||
Cash Management | 73,559 | (4,802 | ) | — | 68,757 | (1,577 | ) | — | 67,180 | ||||||||||||||||
Fixed Income | 24,560 | 69 | (103 | ) | 24,526 | 106 | (228 | ) | 24,404 | ||||||||||||||||
Equity | 16,471 | 166 | 1,033 | 17,670 | 863 | (362 | ) | 18,171 | |||||||||||||||||
Total Mutual Funds | 114,590 | (4,567 | ) | 930 | 110,953 | (608 | ) | (590 | ) | 109,755 | |||||||||||||||
Total | $ | 452,682 | $ | 7,719 | $ | 2,659 | $ | 463,060 | $ | (447 | ) | $ | 1,457 | $ | 464,070 | ||||||||||
December 31, 2005 | March 31, 2006 | June 30, 2006 | |||||||||||||||||||||||
Beginning Assets | Net subscriptions (redemptions) | Market appreciation | Ending Assets | Net subscriptions (redemptions) | Market appreciation | Ending Assets | |||||||||||||||||||
Mutual Funds | |||||||||||||||||||||||||
BlackRock Liquidity Funds | $ | 66,386 | $ | (5,133 | ) | $ | 0 | $ | 61,253 | $ | (1,821 | ) | $ | 0 | $ | 59,432 | |||||||||
BlackRock Funds | 25,670 | 378 | 755 | 26,803 | 79 | (364 | ) | 26,518 | |||||||||||||||||
Closed-End Funds | 17,599 | 39 | 162 | 17,800 | 5 | (217 | ) | 17,588 | |||||||||||||||||
Other Commingled Funds | 3,993 | 96 | — | 4,089 | 1,148 | (20 | ) | 5,217 | |||||||||||||||||
BlackRock Global Series | 942 | 53 | 13 | 1,008 | (19 | ) | 11 | 1,000 | |||||||||||||||||
Total Mutual Funds | $ | 114,590 | $ | (4,567 | ) | $ | 930 | $ | 110,953 | $ | (608 | ) | $ | (590 | ) | $ | 109,755 | ||||||||
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