(Source: Business Wire)
BlackRock, Inc. (NYSE:BLK) today reported third quarter 2009 net income1
of $317 million, a 46% improvement compared to a year ago. Earnings were
$2.27 per diluted common share, which included a $0.33 one-time benefit
related to local income tax law changes. Operating income for third
quarter was $357 million and non-operating income, net of
non-controlling interests, was $61 million. The operating margin was
31.3%.
Net income, as adjusted2, was $2.10 per diluted common share
or $293 million, including operating income of $1.86 per diluted share
and non-operating income of $0.24 per diluted share. Net income, as
adjusted2, improved 23% compared to second quarter and 28%
compared to third quarter 2008.
Revenue was $1,140 million, up 11% compared to the second quarter and
down 13% compared to third quarter 2008. Operating income, as adjusted2,
was $400 million, up 32% compared to second quarter and down 7% compared
to third quarter 2008. Third quarter 2009 results included a $3 million
benefit from balance sheet related foreign exchange remeasurement
compared to a $30 million positive effect in third quarter 2008 and an
$18 million expense in the second quarter. Excluding this effect, the
primary difference between the percentage change in operating income, as
adjusted2, as compared to the change in revenue was related
to cost controls. Operating margin, as adjusted2, of 40.1%
reflected improved revenue and continued cost control initiatives.
Net non-operating income, as adjusted2, of $0.24 per diluted
common share, or $52 million, was an improvement of $0.62 as compared to
third quarter 2008 and $0.04 as compared to second quarter 2009.
Non-operating income reflected primarily the positive effects of markets
on distressed credit, mortgage and private equity products.
BlackRock's results reflect continued positive business momentum and
improvements in the external market environment. Clients' risk appetite
is increasing as evidenced by a reallocation of capital from liquidity
to long-dated assets. BlackRock is on track to complete its combination
with Barclays Global Investors ("BGI"), which will diversify and further
expand its mix of products, clients and geographic presence.
The table below presents a comparison of GAAP and as adjusted results
for certain financial measures. See Attachment I for a reconciliation of
GAAP to the as adjusted financial measures.
Nine Months Ended
Q3 Q3 % Q2 % September 30, %
2009 2008 Change 2009 Change 2009 2008 Change
GAAP basis:
Revenue $1,140 $1,313 (13%) $1,029 11% $3,156 $4,000 (21%)
Operating income $357 $454 (21%) $261 37% $889 $1,255 (29%)
Net income1 $317 $217 46% $218 45% $619 $732 (15%)
Diluted EPS $2.27 $1.59 43% $1.59 43% $4.50 $5.36 (16%)
As Adjusted:
Operating income2 $400 $432 (7%) $302 32% $1,009 $1,292 (22%)
Net income1,2 $293 $229 28% $239 23% $642 $766 (16%)
Diluted EPS2 $2.10 $1.67 26% $1.75 20% $4.66 $5.61 (17%)
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1 Net income represents net income attributable to BlackRock,
Inc.
2 See notes (a), (b), (c), (d), (e) and (f) to the Condensed
Consolidated Statements of Income and Supplemental Information in
Attachment I.
Assets under management ("AUM") increased $61.6 billion to $1.435
trillion at September 30, 2009. Net new business in long-dated
investment products totaled $14.5 billion. In contrast, net outflows in
cash management were $26.4 billion and distributions from advisory
accounts totaled $4.6 billion. BlackRock Solutions®
business remained strong, with seven net new assignments added during
the quarter. Year-over-year, AUM has increased $176.2 billion or 14%,
including net new business of $133.4 billion, and BlackRock Solutions
has added 56 net new assignments. Our pipeline of wins funded
or to be funded totaled $42.5 billion as of October 15, 2009.
"Improving investor sentiment was the most important factor in third
quarter results. Clients are putting money back to work in the markets,
driving inflows in equities and bonds, and outflows in money market
funds industry-wide. This shift drove the rally in global stocks and
tighter credit spreads, as well as a favorable revenue mix in net new
business," remarked Laurence D. Fink, Chairman and CEO of BlackRock.
"Our new business results were strong across both regions and channels,
as we continued to capitalize on our diverse platform. Most importantly,
our investment performance remained competitive in fixed income, which
improved from last year, and across much of our equity, balanced and
alternative investment platform. Strong performance, deep risk
management capabilities, and exceptional client service position us well
to serve our clients as they redeploy their capital across the risk
spectrum.
"The market rally also gives investors the opportunity to address
challenges in their portfolios, and BlackRock Solutions continues
to be sought for its unique risk management and advisory services. We
also continue to see an increase in institutional demand for a variety
of tailored and multi asset class solutions, including fiduciary
outsourcing. When we complete the combination with BGI, we will be
uniquely positioned to blend index and active management in constructing
new products and asset liability management strategies.
"The BGI transaction remains on target for a December 1, 2009 closing.
Over the past month, we have announced leadership positions across most
areas of the going forward company. Tremendous progress has been made,
and I remain excited about the prospects for the new BlackRock. I want
to thank all of our colleagues at BGI and BlackRock for their teamwork
and commitment to building a combined franchise with a strongly
differentiated ability to help clients throughout the world access
market opportunities and meet their most difficult investment
challenges."
Third Quarter Business Highlights
Third quarter new business results reflected increasing demand for
higher return investments, driving net inflows of $14.5 billion in
equities, balanced, fixed income and alternative investments, and net
outflows of $26.4 billion in cash management. Net new business in
long-dated strategies consisted of $6.9 billion from institutional
clients and $7.6 billion from retail investors globally. International
investors represented approximately three-quarters of the net fundings
in these products. In contrast, investors withdrew $26.4 billion (net)
from cash management products during the quarter, including $23.5
billion and $2.9 billion from institutional and retail investors,
respectively. Cash management outflows from U.S. clients totaled $30.1
billion, offsetting $3.7 billion of net inflows from international
clients. Distributions of $4.6 billion were made from long-term
liquidation portfolios reported as advisory AUM.
AUM in equity and balanced products increased $61.0 billion or 19%
during the quarter to $390.6 billion. Renewed risk appetite helped
drive net new business of $11.9 billion across a broad range of
strategies. Demand was strong among both institutional and retail
investors, resulting in net inflows of $7.2 billion and $4.7 billion,
respectively. Performance in our equity and balanced mutual funds was
mixed, with 46% of AUM above peer medians year-to-date, as compared to
78% for the one-year, 82% for the three-year, and 93% for the
five-year periods ended September 30, 2009.
Fixed income AUM ended the quarter at $539.6 billion, up 6% or $29.9
billion. Net new business totaled $3.5 billion, despite $1.7 billion
of outflows due to rebalancing into equities and a $3.8 billion
outflow from one client's insourcing of externally managed assets.
Inflows were concentrated in U.S. core bond and local currency
strategies. Performance continued to improve in our bond funds, with
72% of AUM ranked in the top two peer group quartiles year-to-date.
Longer-term results continue to reflect last year's weaker results,
with 47%, 44% and 49% of AUM above peer medians for the one-, three-
and five-year periods ended September 30, 2009, respectively.
Alternative investment AUM declined $0.4 billion, ending the quarter
at $51.2 billion. Single strategy hedge fund and fund of hedge fund
assets grew $0.7 billion to $23.6 billion, with increases driven by
strong performance partially offset by distributions from
opportunistic funds and modest redemptions. Real estate market values
continued to correct during the quarter, driving a $1.2 billion drop
in AUM to $19.0 billion. Private equity fund of funds and other
alternative products were largely unchanged at $8.7 billion.
Asset reallocation by both institutional and retail investors drove
outflows in money market funds industry-wide. BlackRock's cash
management AUM ended the quarter at $290.4 billion, down $26.3 billion
or 8%. Average assets declined 6% relative to the second quarter. U.S.
clients accounted for $30.1 billion of net outflows, which were
partially offset by $3.7 billion of net inflows from international
investors. Outflows were proportional to our client base, with $23.5
billion from institutional clients and $2.9 billion from retail
investors globally. With yields at exceptionally low levels, we would
expect continued pressure on money market flows.
Continuing demand for risk management tools and services supported
strong growth in BlackRock Solutions. During the quarter, we
added seven net new assignments and completed six short-term advisory
engagements. Advisory AUM declined $2.7 billion, with $4.6 billion of
net distributions from these long-term liquidation portfolios
partially offset by favorable foreign exchange rates. At quarter-end,
we had three Aladdin implementations in progress.
Our pipeline of wins funded or to be funded was $42.5 billion as of
October 15, 2009, including $36.8 billion in long-dated strategies,
$4.9 billion in cash management and $0.8 billion in advisory assets.
Our search activity remains very robust, with investors demonstrating
interest in a wide array of investment offerings, including
traditional strategies, alternative investments and multi-asset class
solutions. In addition, we have a solid pipeline of new business
opportunities at the proposal or contract stage across the full range
of BlackRock Solutions products.
Third Quarter GAAP Financial Highlights
Certain prior year amounts have been revised or reclassified to conform
to 2009 presentation as required by the retrospective adoption of
applicable paragraphs within ASC 470-20, Debt with Conversion and
Other Options ("ASC 470-20"), (FASB Staff Position ("FSP") APB 14-1, Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)), ASC 260-10, Earnings
per Share ("ASC 260-10") (FSP Emerging Issues Task Force ("EITF")
03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities) and ASC
810-10, Consolidation ("ASC 810-10")(Statement of Financial
Accounting Standards ("SFAS") No. 160, Noncontrolling Interests in
Consolidated Financial Statements -- an amendment of ARB No. 51). For
more information please refer to the Company's Current Report on Form
8-K, which updated the financial information in the Company's Annual
Report on Form 10-K for the year ended December 31, 2008, which was
filed with the Securities and Exchange Commission on September 17, 2009.
Comparison to the Third Quarter of 2008
Third quarter 2009 operating income decreased 21% to $357 million from
$454 million earned in third quarter 2008.
Third quarter 2009 revenues of $1,140 million decreased $173 million, or
13%, compared to $1,313 million in third quarter 2008 primarily due to
the following:
Investment advisory and
administration base fees of $913 million in third quarter
2009 decreased $171 million, or 16%, compared to $1,084 million in
third quarter 2008 primarily associated with a market driven reduction
in average AUM of equity and balanced and alternative investment
products.
Performance fees were $49
million in third quarter 2009, compared to $55 million in third
quarter 2008. The decrease relates primarily to a reduction in
performance fees in alternative equity hedge funds, partially offset
by an increase in international equity and balanced separate accounts.
BlackRock Solutions
and advisory revenue was $127 million for third quarter
2009 compared to $113 million in third quarter 2008. The increase is
primarily due to additional advisory assignments, which have AUM based
fees and additional Aladdin and risk management mandates.
Third quarter 2009 operating expenses were $783 million compared to $859
million in third quarter 2008. The $76 million, or 9%, decrease compared
to third quarter 2008 was primarily due to the following:
Employee compensation and benefits
decreased $24 million due to a $22 million decline in incentive
compensation associated with the decrease in operating income and a
$52 million decrease in salaries and benefits primarily due to lower
employment levels as a result of BlackRock's cost control efforts,
partially offset by a $50 million increase in deferred compensation
expense. The increase in deferred compensation expense is offset
primarily by an increase in non-operating income related to
appreciation on assets associated with certain deferred compensation
plans.
Portfolio administration and
servicing costs paid to Bank of America/Merrill Lynch, The
PNC Financial Services Group and other third parties decreased $30
million primarily due to lower levels of average AUM in cash
management and open-end funds.
Amortization of deferred mutual fund
sales commissions decreased $11 million primarily related
to lower sales of certain share classes of open-end funds.
General and administration expenses
decreased $10 million primarily related to a $21 million decrease in
marketing and promotional expenses, a $5 million decrease in
technology expenses and a $23 million decrease in other general and
administration expenses, which includes the result of cost control
efforts and costs in 2008 associated with the support of two enhanced
cash funds, partially offset by a $27 million decrease in foreign
currency remeasurement benefits and a $12 million increase in
professional services related to BGI transaction/integration costs
incurred in third quarter 2009.
Third quarter 2009 non-operating income, net of non-controlling
interests, was $61 million compared to non-operating loss, net of
non-controlling interests, of $120 million in third quarter 2008. The
$61 million non-operating income, net of non-controlling interests,
related to the Company's co-investments and seed investments including
net gains in private equity products of $13 million, distressed
credit/mortgage funds of $47 million, hedge funds/funds of hedge funds
of $7 million, fixed income and equity investments of $2 million, and
deferred compensation plans of $9 million, offset by a $6 million
decrease in valuations from real estate equity/debt products. In
addition, net interest expense was $11 million, a decrease of $13
million primarily due to a decline in interest rates.
Comparison to the Second Quarter of
2009
Third quarter 2009 operating income increased 37% to $357 million from
$261 million earned in second quarter 2009.
Third quarter 2009 revenues of $1,140 million increased $111 million, or
11%, compared to $1,029 million in second quarter 2009 due to the
following:
Investment advisory and
administration base fees of $913 million in third quarter
2009 increased $63 million, or 7%, compared to $850 million in second
quarter 2009 primarily associated with growth in AUM across equity and
balanced and fixed income products during the third quarter as a
result of net inflows, market and foreign currency effects as well as
the effect of one more revenue day in the third quarter, offset by
lower fees on cash management products due to a decline in average AUM.
Performance fees were $49
million in third quarter 2009, compared to $17 million in second
quarter 2009. The increase relates primarily to higher performance
fees in alternative equity hedge funds and international equity and
balanced separate accounts.
BlackRock Solutions
and advisory revenue was $127 million for third quarter
2009 versus $116 million in second quarter 2009. The increase is
primarily due to additional advisory assignments as well as additional
risk management mandates.
Third quarter 2009 operating expenses of $783 million increased $15
million, or 2%, compared to $768 million in second quarter 2009. The $15
million increase compared to second quarter 2009 was primarily due to
the following:
Employee compensation and benefits
increased $54 million due to a $45 million increase in incentive
compensation primarily due to higher operating income and performance
fees and a $9 million increase in deferred compensation, salaries,
benefits and commissions.
General and administration expenses
decreased $30 million related to a $21 million decrease in foreign
currency remeasurement costs and a $9 million decrease in other
general and administration expenses.
Third quarter 2009 non-operating income, net of non-controlling
interests, was $61 million, compared to $51 million in second quarter
2009, a $10 million improvement from second quarter 2009 related to
changes in valuations of co-investments and seed investments.
Teleconference and Webcast Information
BlackRock will host a teleconference call for investors and analysts on
Tuesday, October 20, 2009, 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,
(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 32553283). A live, listen-only webcast will also be available via
the investor relations section of www.blackrock.com.
Both the teleconference and webcast will be available for replay by 1:00
p.m. on Tuesday, October 20, 2009 and ending at midnight on Tuesday,
October 27, 2009. 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 32553283. To access the webcast, please visit the
investor relations section of www.blackrock.com.
Performance Notes
Past performance is not indicative of future results. The performance
information reflects U.S. open-end mutual funds and EMEA-domiciled
publicly offered funds. Source of performance information is BlackRock,
Inc. and is based in part on data from Lipper Inc. for U.S. funds and
Morningstar, Inc. for non-U.S. funds. Fund performance reflects the
reinvestment of dividends and distributions, but does not reflect sales
charges.
About BlackRock
BlackRock is one of the world's largest publicly traded investment
management firms. At September 30, 2009, BlackRock's AUM was $1.435
trillion. The firm manages assets on behalf of institutions and
individuals worldwide through a variety of equity and balanced, fixed
income, cash management, alternative investment and advisory products.
In addition, a growing number of institutional investors use BlackRock
Solutions investment system, risk management and
financial advisory services.
